Evolution of liquidity in Europe

28th May 2018

Vitangelo Pagliarulo, Junior Financial Analyst

During the last ten years, European companies have piled up large liquidity reserves. According to the latest figures published by the ECB (European central bank), the percentage of disposable cash in the balance sheets increased from about 9% to over 11% at the end of 2017. Following the financial crisis, companies indeed become very cautious. Instead of using the disposable cash, they often preferred to issue capital or to not use it, as banks have been very restrictive.

However the environment is currently changing. The economy fares much better, earnings of companies are growing and the political uncertainties have reduced. As a result, companies have even more cash to spend and this in an even more favourable environment. In the medium term we can hence expect more mergers and acquisitions as well as share buyback programs.