Payment Periods in Europe - Euler Hermes

Economic Outlook N° 1182 | Special Dossier | Payment periods
Euler Hermes
Editorial
The harmonisation of payment periods in Europe: a
necessary evil?
Although the notion of economic convergence seems crucial to the future of the
European Monetary Union, it is threatened by the upheavals being undergone.
The growing gaps in growth, public deficits and current account balances – both in
scale and intensity – demonstrate that the differences between the heart of the
Eurozone and the periphery are here to stay. Creating a common economic policy
that benefits from this heterogeneity and that ultimately transcends it is an essential
task, especially to allay fears over the Eurozone’s very future. The toolbox – of which
the European Financial Stability Facility (EFSF), the European Stability Mechanism
(ESM) and the European Investment Bank (EIB) are parts – strengthens institutional
convergence, but it does not solve the problem of the efficient specialisation of
economies that one would expect. The economic debate, for its part, remains marked
by this indispensable convergence, crystallized by the furious speed required to
return to balanced budgets for 2012 and 2013. Making this adjustment is particularly
hard for the countries of Southern Europe, hit by severe recessions. This study focuses
on a less visible but equally important convergence: that of payment periods between
businesses. By March 2013, under a European Directive, contractual payment periods
in Europe must be set at a maximum of 60 days. Some countries are ready for this,
such as France, while others, such as Germany, already show payment periods well
below 60 days. By contrast, Italy, Spain and Portugal, as well as certain key economic
sectors in some countries, such as construction and IT services, are far from the
European target. On top of this is the deterioration in economic activity in Europe. This
should further amplify these gaps by 2013. Will European SMEs, which create the
growth of the Eurozone, suffer from an overly rapid convergence, one that is
countercyclical and potentially damaging to their cash flows? When you focus in on
the sector level, the differences between client and supplier payment periods are
considerable and at times alarming. In economic policy terms, efforts to support and
increase the competitiveness of the private sector remain little discussed, despite a
marked rise in business insolvencies nearly everywhere in Europe. Discussions over
sovereign debt occupy a great deal of attention, but they do not address the
difficulties facing businesses. However, it is today that we will determine the health of
Europe’s industrial fabric for the future. _Ludovic Subran
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