The zombification of Europe

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Via FTAlphaville:

As with Japan in the 1990s, years of low — and even negative — interest rates in the eurozone have led to suspicions that the region’s business landscape is harbouring a load of zombie firms. That is, companies that are being kept artificially alive by the repeated extension of credit.

Many have tried to place the blame on the European Central Bank’s aggressive easing for the phenomenon, which critics say stymies longer-term growth prospects because it keeps capital and labour locked into inefficient parts of the economy and chokes innovation. The central bank, meanwhile, has said other factors are at work, such as structural shifts in the economy, which are leading to lower profitability regardless of where interest rates are. The way to fix the problem, they say, is not to raise rates, but to pass structural reforms.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.