Though starved of bank loans, German companies are reluctant to tap alternative sources of capital
More than 3,000 German companies are going bust every month. Germany's Mittelstand--the small- and medium-sized, mainly owner-run firms that make up the bulk of the economy--are badly undercapitalised. Equity makes up just 20% of the liabilities of German middle-sized companies, compared with 35% in France and the Netherlands and 45% in America. Traditionally, the Mittelstand has relied on bank loans for finance, and banks are turning off the tap. Lenders are balking at the thinness of borrowers' capital; they are trying to repair the damage done by bad loans to bigger companies; and they are wary of the effects of new rules on bank capital, Basel II, that are being drawn up. Companies in the former East Germany, which have had less time to build up capital, are most vulnerable.
