National insolvency regimes must try harder

Author: Lizzie Meager | Published: 1 Mar 2016

A report by the Association for Financial Markets in Europe (Afme) has highlighted the economic advantages of harmonising insolvency laws across the continent.

Advising the European Commission on its consultation, the authors explain that today's framework discourages cross-border investment and the timely restructuring of viable companies, gives creditors little certainty on recovery rates, and puts small and medium-sized enterprises (SMEs) at a disadvantage.

"We found the quality of the insolvency regime to have a clear and statistically robust effect on the cost of corporate credit across the EU," said Paul McGhee, director of strategy at Afme.

Improving insolvency recovery rates across the bloc would reduce corporate bond spreads by 18 basis points, according to the report. These lower risk premiums would translate to up to a 0.55% in GDP across the EU.

It also makes the point that a better, more homogenous regime would assist in tackling the high...