Research (Proinvestory.cz)
Macroeconomics  |  April 20, 2013 10:14:05

According to the IMF's European corporate debt unsustainable


The Last Days of the markets we track increased volatility associated with a decline in asset prices and it certainly did not contribute even further reduce the credit rating of the United Kingdom by Fitch from AAA to AA + due to reduced expectations of economic power and status in the fiscal area.  The problems of Britain   We have already mentioned several times, so perhaps it could even wait. However, what was more serious was the publication of the report of the International Monetary Fund (IMF):   Global Financial Stability Report , which you can read by clicking on the whole line. Here the IMF examines some serious economic problems and challenges currently deriving from it in the future. Among some interesting points include:

  • European banks are very slow in the process of deleveraging and must remove their books from other euro 1.15 billion, and now not only a reduction in international operations, but mainly in domestic economies, which may significantly affect lending to domestic companies and individuals.
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  • U.S. companies have issued in the current environment of historically low interest rates, a huge amount of corporate bonds. However, the resulting funds are used more and more for less productive purposes, such as repurchase its own shares.
    • The need to adjust the regulatory environment so that the expected long period of interest rates near zero does not cause the excesses of the credit market and create more "market bubbles". Low interest rates also tend to encourage banks to scroll through bad loans and not their solution (seeit odkopávání cans still a bit more instead of lifting out of the way).
    • Market and regulatory environment will put pressure on financial institutions to shift their business model to a smaller, more flexible companies that quickly and interactively Ragu to client requests.

    One of the points that requires a separate section is alarming debt of European corporations (especially those on the periphery, as one would expect). IMF estimates that up to one fifth of bonds of large European corporations is unsustainable (technically in default) and will require a write-down or search for the repayment of debt, which will eventually lead to a reduction in capital expenditure, reduction or elimination of dividends to shareholders (except classical to focus on the decrease operating costs) and other methods of finding resources. This again is directed to the kind of banks, as these are often the main creditors and so we find ourselves in a vicious circle and then a decline in output growth of the economy or the recession. Unlike large companies that are disproportionately into debt in the era of "cheap money" as expectations of above-average returns, and small and medium businesses now suffers from a lack of credit to finance their activities. Therefore, as hl. IMF economist Olivier Blanchard suggests that European banks allowed the so-called "wrap" the debt of small and medium-sized businesses and create these marketable assets (securitizace debt). This should stimulate bank loans to small and medium-sized companies.

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