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European corporates: (Active) cash is king

Overall, the build-up of cash reserves is positive as it provides buffers for future debt redemptions even if this is not a short-term concern anymore. In line with our expectations most European governments have increased (or are expected to) the maturity of state-guaranteed loans as well as their grace periods. Hence, debt repayments should be less of a future cash-flow issue in 2021, which is good news considering that the debt coverage ratio remains below the Eurozone average in Italy, France, Spain and Belgium.

In the very short-term, with loan repayments delayed by at least one year in most European countries, NFC excess cash is likely to be used to repay tax deferrals and finance additional working capital requirements. Hence, we find the highest upside risks to the investment recovery in France, the UK, Italy and Germany. 

During recovery phases, when companies rebuild inventories and payment discipline is likely to relax, working capital requirements (WCR) tend to increase. This was the case in 2010 (+2 days on average in Western Europe) and in 2017 (+1 day). Taking into account an increase of 2 days in 2021, we find that additional financing of EUR6.6bn would be needed in Germany, EUR4bn in France, GBP3.8bn in the UK, EUR3.2bn in Italy, EUR2bn in Spain, EUR1bn in the Netherlands and EUR0.8bn in Belgium. If we add to this the tax deferrals from 2020, we find the highest remaining cash piles for companies in France (EUR113bn or more than 8% of GDP), the UK (GBP111bn or more than 6% of GDP), Italy (EUR62bn or more than 5% of GDP) and Germany (EUR31bn or 3% of GDP).

Exiting the Covid-19 crisis will be key to bringing confidence back and transforming this excess cash into investment. But until this happens, the cost-effectiveness of state support measures remains a question. 


Ana Boata
Euler Hermes
Maxime Lemerle
Euler Hermes