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European Corporate Support Schemes: A Long Unwinding Road

Insolvencies and defaults among European corporates will spring higher in 2021 as governments wind down substantial support packages and economic activity starts normalizing. Even with an effective vaccine now in sight, corporates' debt problem will not disappear. Corporates accessing government support schemes in major European countries have increased their debt substantially, by 2.5% in Germany to 11.9% in Spain. The scale of this problem will only become more visible once the public start to be vaccinated and governments start to scale back the support. We therefore expect the European 12-month speculative grade default rate to increase to about 8.0% by end-September 2021 from just below 5.0% currently.

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