Insolvencies Increase in Germany as Energy Crisis Bites

The number of business insolvencies in Germany rose by 6.6 percent in August month-on-month, according to preliminary figures published by the Federal Statistical Office (Destatis) on Monday.

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In July, insolvencies had still fallen by 4.2 percent month-on-month. In the first half of the year, business insolvencies in Europe's largest economy declined 4.0 percent, while private insolvencies even dropped 20.2 percent.

"After a long period of low insolvency figures, a trend reversal has now set in," Steffen Mueller of the Leibniz Institute for Economic Research in Halle (IWH) said, adding that high energy prices are putting a considerable burden on German businesses.

Compared to last year, insolvencies were up 26 percent in August. Ongoing supply chain problems, rising labor costs and the interest rate hike by the European Central Bank added to the strain on the economy.

Earlier this month, two large German companies filed for insolvency: toilet paper maker Hakle and fashion chain Goertz, which has 160 stores in Austria and Germany. Inflation with soaring energy prices "led to enormous buying restraint in stores and in online business," Goertz said.

Both companies want to maintain operations and secure jobs with the help of insolvency compensation from the Federal Employment Agency (BA). "The insolvency administration provides us with the necessary flexibility and speed to sustainably restructure our business," Hakle Chief Executive Officer (CEO) Volker Jung said.

"We talk a lot about corporate insolvencies, but my biggest concern is private insolvencies," Marcel Fratzscher, president of the German Institute for Economic Research (DIW), told RedaktionsNetzwerk Deutschland (RND) last week. Consumers could increasingly resort to filing for bankruptcy due to the rocketing costs of gas and electricity.

After falling for two months, inflation in Germany hit a record 7.9 percent in August, according to preliminary figures released by Destatis. Food prices rose more than twice as fast as overall inflation, while energy prices even soared by 35.6 percent year-on-year.

Last week, the German government announced the next round of relief measures for businesses and consumers worth US$65.8 billion, bringing the total value of inflation measures to US$95 billion.

Although the relief packages have good elements, they are not sufficient in terms of volume, Fratzscher said, adding that "many citizens will not be able to pay their bills because of skyrocketing electricity and gas prices." Germany's social institutions are now threatened by high inflation.

"Without swift government support, insolvencies across the board in the social infrastructure and a destruction of this very infrastructure cannot be ruled out," Ulrich Schneider, head of the country's federation of social unions, said.