BY MARK SCOT

Jason Alden/Bloomberg News
Petroplus, the largest independent oil refiner in Europe, said it was filing for insolvency (bankruptcy) after lenders demanded repayment on $1.75 billion of outstanding debt. 


LONDON — European governments are not the only ones struggling with debt. So are some of the region’s companies.

As profits and sales slip, some European businesses are scrambling to pay their bills. Because banks are reluctant to lend, the fear is that companies will not be able to borrow the cash they need and will be forced to take drastic action, further weighing on the economy.

“There’s a lack of business confidence across Europe” said Jonathan Loynes, chief European economist in London at the research organization Capital Economics. “Lending to the private sector is deteriorating, and there’s enormous stress on the European economy.”

The pressure is mounting. Insolvency — when a company’s debts exceed its assets and cash flow — is expected to rise 12 percent this year in the euro zone. Countries including Greece, Spain and Italy are expected to record the highest annual increases. 

It is a bad omen. Roughly two-thirds of European companies that become insolvent will eventually file for bankruptcy, said Ludovic Subran, chief economist of Euler Hermes, a credit insurance company in Paris.

“The business environment has become worse,” Mr. Subran said. “Many companies are losing their competitiveness and being hit by a reduction in consumer spending.”

This year is shaping up badly for the Continent. The International Monetary Fund said on Jan. 24 that the euro zone’s gross domestic product would fall an estimated 0.5 percent in 2012. The downturn is expected to be most severe in Southern Europe, where Italy’s economy is forecast to contract by 2.2 percent and Spain’s by 1.7 percent.

The economic headwinds are wreaking havoc on corporate profits. As Europe grapples with recession, unemployment is rising, consumer confidence is plunging and manufacturing orders are falling.