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German Bankruptcy Officials Worry About Build-Up Of 'Zombie Businesses'

STEVE INSKEEP, HOST:

Remember when it seemed that Germany was the country that was really managing the pandemic well? Well, now the pandemic has plunged Germany into its worst recession since World War II. There is still a national lockdown in Germany, where vaccinations have not spread as rapidly as in the United States. That's led to a new concern that some businesses in Germany will become so-called zombie companies. Here's NPR's Rob Schmitz.

ROB SCHMITZ, BYLINE: Since 1913, the beer from the tap of the Metzer Eck pub has flowed through two world wars, a flu pandemic and the construction of the Berlin Wall that placed it in Soviet-occupied East Berlin. Through 108 years of turmoil, four generations of the same family have kept this pub in Berlin's Kollwitz neighborhood open, serving its trademark sauerkraut and schnitzel alongside countless pints of pilsner. But it all stopped last year when government-ordered lockdowns forced Sylvia Falkner to shut the pub's doors for the first time to help curb coronavirus infections.

SYLVIA FALKNER: (Through interpreter) Before the second lockdown, I took out credit as a buffer. I've managed because of that. But the aid I'm getting is going straight into paying off that debt. I've put a little money aside. But I'm worried about the lockdown being extended continuously. I have no income.

SCHMITZ: Falkner gives a tour of the bar, with its 19th-century tap, wood-burning stove and old photos of regulars decades ago. Since the pandemic began, she's erected outdoor tents and launched a food delivery service to get around the restrictions. But stacks of Styrofoam containers lie unused in a booth. Schnitzel gets too soggy in a container, she says. She's taken advantage of the government's worker furlough program and low-interest loans. But Germany's extended lockdown is taking its toll.

FALKNER: (Through interpreter) If I can reopen in the summer, I should be OK. Although, we won't be back to full business because the tourists won't be here. We're a century-old bar and a piece of the city. But I have to say honestly that if someone offered to buy the business outright, I'd sell. I'm so tired.

SCHMITZ: She's far from alone. Economists say tens of thousands of German companies in the service, retail and travel industries have teetered on the edge of bankruptcy since the pandemic began. In March of last year, the government announced a freeze on the country's strict insolvency rules to prevent a wave of bankruptcies at the start of the pandemic. And Berlin has extended this freeze to the end of this week. Economists worry about a surge of bankruptcies once the German government again requires hopelessly indebted businesses to file for insolvency.

ARNDT GEIWITZ: (Through interpreter) Because these companies have been forced to shut for the good of everyone, everyone should bear the costs.

SCHMITZ: Arndt Geiwitz is managing director of Schneider Geiwitz, one of Germany's largest bankruptcy administrators. He says Germany's government needs to do more to prevent companies from going under.

GEIWITZ: (Through interpreter) The government should be doing what other countries are doing, giving companies grants rather than loans because the latter increases the risk of becoming zombies.

SCHMITZ: Geiwitz worries about a buildup of so-called zombie businesses, businesses that, on paper, appear to be afloat but are, for all intents and purposes, bankrupt and are being propped up by government intervention and by what Geiwitz sees as a traditional German fear of admitting defeat and the stigma attached to filing for bankruptcy.

GEIWITZ: (Through interpreter) You're ostracized by society, both in your professional and personal life.

SCHMITZ: This is one of the reasons, says Geiwitz, that the startup culture is so much more successful in the U.S. than in Germany. And it helps explain why few German companies propped up by government help and a loosening of insolvency rules have yet to file for bankruptcy. One business that has survived is Barcomi's. It's a popular cafe in the Kreuzberg district of Berlin. But owner Cynthia Barcomi, an American expat, says it hasn't been easy. She was forced to close down the cafe's companion deli in downtown Berlin.

CYNTHIA BARCOMI: It was just too risky for me. I was afraid that the one shop would bring this shop down. It was kind of like - you know that film that James Franco was in where he gets his right arm caught between, like, a rock and a whatever? For me, the deli was kind of like the right arm. And I felt like it's better to cut it off, let it be, and save this space.

SCHMITZ: Barcomi says she went through a period of grieving. But the stark reality of the situation made her snap out of it.

BARCOMI: When you're running a small business and you're confronted with sort of like an obstacle course, different hurdles, you know, you need to use those things to be creative. And the problem is if you can't be creative, you will go down.

SCHMITZ: Barcomi's team quickly set up a delivery service. And they've been able to reopen the cafe to socially distancing customers. They refused to become zombies. She says the most important thing they've done since the pandemic started is to survive.

Rob Schmitz, NPR News, Berlin. Transcript provided by NPR, Copyright NPR.

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