The Covid horror picture show why we have little to fear from ‘zombie firms’

Recently, economists have voiced fears that the costly Covid-19 business support programmes rolled out by European governments could create ‘zombie firms’ – failing companies kept artificially alive by the continued extension of credit. Examining emergency credit provision in Germany, Dustin Voss, Toon Van Overbeke and Bob Hancké argue that such concerns are largely unwarranted. Financial scrutiny is provided through deeply institutionalised relationships between banks and firms in the Mittelstand that help overcome information asymmetries regarding solvency. To protect political and social peace in the midst of a pandemic, the zombification of some firms is thus a risk well worth taking.