Dr. Mark Cassidy:

This is a very important issue. The Governor makes an important distinction between firms that are non-viable but kept alive because of the low interest rate environment prior to the pandemic, which the Deputy described as “zombies”, and firms that became reliant on Government supports during the pandemic. With regard to the former, there are other countries in Europe that are more exposed. I do not have a number to give the Deputy but our analysis shows there would not be many non-viable firms coming into this crisis. The Deputy referred to a sharp increase in interest rates. Even when interest rates begin to normalise, nobody will be expecting a sharp, significant effect so much as a gradual return to normal. Therefore, I do not think the effect would be too significant. It can be economically damaging. In Japan we saw the concept of evergreening. Interest rates have been so low for so long that many non-viable firms have been kept alive when they would not otherwise have been able to do so. That prevents new firms from developing. It is quite a negative economic development.

With regard to the pandemic, the view right across Europe is that when government supports are reduced, some firms may not survive. The numbers are expected to be much lower than we might have expected a year ago. The evidence right across Europe, including in affected countries such as Italy and France, shows that while some may be affected, the number will be much lower than expected. The economies are coming out of this in a stronger position than was previously expected. There is uncertainty but the outlook is not as bad as we might have expected a while ago.