European Union's Commission initiates a fresh endeavor aimed at eradicating joblessness.
In a concerning development, Germany has witnessed a surge in company insolvencies, with the highest number recorded in over 20 years. July 2025 saw a 19.2% increase compared to the same month in 2024, amounting to more than 1,500 insolvencies.
This trend is driven by a combination of factors. Prolonged economic stagnation since late 2021, high energy costs, overregulation, heavy tax burdens, and sectoral weaknesses in construction, transport, logistics, and hospitality have all contributed to the financial strain.
The recession has led to deteriorating liquidity and payment behavior among companies, while high energy costs have significantly raised operational expenses, particularly for energy-intensive sectors. Overregulation and heavy tax burdens have made it challenging for companies to maintain profitability, and underutilization of production capacity due to declines in manufacturing output and building permits has added to the financial stress.
Regions like Berlin and Brandenburg, with their reliance on services, construction, and logistics, are particularly affected. In Brandenburg, for instance, 28 GmbH and AG insolvencies were filed in July 2025, compared to an average of 29 monthly insolvencies last year.
The spike in insolvencies undermines hopes for a rapid economic recovery and prolongs the recessionary situation. Increased bankruptcies reduce employment, although some data suggests a decline in jobs affected by bankruptcies in July 2025. High insolvency rates can lead to tighter credit conditions, potentially exacerbating difficulties for surviving businesses.
Sectoral declines, especially in construction and manufacturing, may result in sustained underinvestment and loss of production capacity, hampering GDP growth and competitiveness. The government’s large stimulus package may not sufficiently address these structural issues, limiting its effectiveness in reversing insolvency trends.
While the situation in Saxony-Anhalt, Mecklenburg-Western Pomerania, and Thuringia has seen slight fluctuations, the trend of increasing insolvencies in Berlin should be closely monitored, especially due to the high numbers in July 2025. The capital's oldest butcher shop, for example, has criticised the current political situation in Berlin.
Furthermore, over 230,000 small and medium-sized enterprises (SMEs) are considering closing their businesses by the end of 2025. Esprit, a European fashion chain, has filed for insolvency.
Unless these underlying causes are addressed, the insolvency trend may continue to depress economic growth and employment in the near future. It is crucial to address the root causes, such as recession, cost pressures, and structural weaknesses, to prevent further economic hardship.
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