Recessions typically discourage entrepreneurs from starting new businesses. During the Great Recession, a ‘generation’ of start-ups went missing which contributed to a slow recovery in employment. Two years after the pandemic started, evidence for the UK suggests a very different story: the pandemic inspired many entrepreneurs to start new businesses and this supported the recovery in employment.
‘Zombie lending’ occurs when a lender supports an otherwise insolvent borrower through forbearance measures such as repayment holidays and temporary interest-only loans. The phrase was first coined for Japan in the late 1990s, but more recently several authors have documented that zombie lending to European firms has been widespread following the sovereign debt crisis (see Acharya et al (2019), Adalet McGowan et al (2018), Banerjee and Hofmann (2020), Blattner et al (2018) and Schivardi et al (2017)). In a recent paper, I examine whether these lending practices contributed to the subsequent low output experienced by the euro area. My findings suggest that zombie lending had negative consequences for output, investment and productivity in the euro area over the period 2011 to 2014.