The cumulated profit margin  declined by -7pp in France, -5.2pp in Spain and -1.3pp in the Netherlands, compared to +1.1pp in Germany, +2pp in Belgium and +5pp in Italy.  In France, two thirds of the drop can be attributed to the production tax  schedule: falling due in Q2, the production tax payments in France doubled (to EUR22bn) while remained stable in Germany (at EUR3bn). As a consequence, and excluding the higher amount of state-guaranteed loans in France (more than EUR120bn against EUR50bn in Germany), French corporates were much shorter on cash in Q2 compared to their European peers. 

Now, with the second wave of lockdowns, we expect a heavy cost for Covid-19 sensitive sectors  across the Eurozone, which could see average operating losses of -15% to -20% in 2020 compared to pre-crisis levels. In the absence of prolonged fiscal policy support or an aversion to taking on more debt, this could dry up cash buffers, putting around 24% of Eurozone companies (or more than 4.1 million) at risk of a cash-flow crisis next year. One out of four companies in Germany and France are directly exposed to the Covid-19 sanitary restrictions vs. one out of five companies in Belgium and the Netherlands. In total, the combined turnover of exposed companies exceeds EUR4,3tn and they account for more than one out of four workers, notably in Spain and Italy, or close to 19 million persons. 

As we estimate the drop in revenues to reach up to -20% on average in the Eurozone  - but the corresponding fall in operating expenses only -10%  due to a certain stickness of these latter, and no recovery before late 2022, the impact on companies' cash balances will be unprecedented. And the current surge in excess corporate cash, equivalent to untapped cash resources available for future investment purposes or debt repayments, sparked by state-guaranteed loans  won’t be enough to compensate for loan repayments and the delayed tax repayments by mid-2021.