Europe Is Creating More Companies While More Businesses Are Going Under

Europe’s business economy is sending two signals at once. More companies are being registered across the European Union, but more businesses are also entering bankruptcy proceedings. Rather than contradicting each other, the two trends point to an economy undergoing a difficult reallocation of capital, labour and opportunity.

Eurostat’s latest data show that the EU business registration index reached 108.6 in 2025, up 2.9% from 2024 and marking the second consecutive year of growth. At the same time, bankruptcy declarations continued to rise, reaching their highest level since 2019 by the end of the year.

The combination matters more than either figure alone. Europe is not simply experiencing a recovery in entrepreneurship, nor is it facing a generalised corporate collapse. Instead, new businesses are emerging while existing companies are being pushed out, suggesting that the European economy is becoming more selective about which business models can survive.

A stronger pipeline of new businesses

The rise in registrations is one of the more positive signals in the latest data. The EU business registration index increased from 105.5 in 2024 to 108.6 in 2025, with 2021 used as the base year. That follows a 1.8% increase in 2024 and indicates that the creation of new legal entities has continued to expand after the disruptions of the pandemic years.

The quarterly data provide an even clearer picture of the trajectory. After a decline in the first quarter of 2025, registrations rebounded in the second quarter and continued increasing during the second half of the year. By the fourth quarter, the number of new registrations had reached its highest level since the beginning of 2019.

The recovery was not evenly distributed across the economy. Information and communication and industry were among the sectors showing particularly strong registration growth in the final quarter. Transport, information and communication, financial services, and education and social services were also above their pre-pandemic registration levels. Trade remained the major exception, with registrations still below the level recorded before COVID-19.

That distinction is important. Europe’s entrepreneurial activity is increasingly concentrated in areas linked to technology, services, logistics and other parts of the economy where demand is being reshaped by digitalisation, investment and structural changes.

The registration numbers should nevertheless not be interpreted as a direct count of new operating companies. Eurostat measures newly registered legal units, which can represent an intention to conduct business rather than a fully functioning enterprise. A registration can also involve a legal entity that later becomes part of another enterprise or never develops substantial economic activity.

Even with those limitations, the direction of the indicator is significant. Businesses are still being created at a rate that places the European economy well above the registration levels seen during much of the post-pandemic period.

Bankruptcy is rising at the same time

The other half of the picture is considerably less comfortable.

In the fourth quarter of 2025, seasonally adjusted bankruptcy declarations increased by 2.5% compared with the previous quarter in the EU and by 3.4% in the euro area. The EU figure reached its highest level since the first quarter of 2019.

This was not a one-quarter anomaly. Eurostat records a broadly upward movement in bankruptcy declarations from late 2021 through 2024, followed by a brief decline in early 2025 and another increase during the remainder of the year. By the end of 2025, bankruptcies were above their pre-pandemic levels across all major sectors.

The pressure is particularly revealing because it is not confined to one vulnerable part of the economy. In the final quarter of 2025, bankruptcy declarations increased in accommodation and food services, information and communication, transport, education and social services, construction and industry. Only trade and financial services recorded declines.

This suggests that the problem is broader than the failure of a handful of pandemic-exposed businesses. European companies are operating in an environment in which costs, financing conditions, competition and changing demand are forcing businesses to adjust much more aggressively.

The post-COVID safety net is disappearing

One reason the bankruptcy figures look particularly stark is that Europe spent several years insulating companies from the full impact of economic shocks.

During the first stages of the COVID-19 crisis, government support helped prevent large numbers of companies from entering bankruptcy. Eurostat notes that bankruptcy declarations fell sharply during the first two quarters of 2020 as extraordinary support measures protected businesses. The subsequent rise therefore partly reflects the unwinding of that exceptional protection.

The later increase also coincided with the monetary tightening cycle that followed the inflation shock. Higher borrowing costs changed the economics of companies that had previously depended on cheap financing, while weaker demand and higher operating costs put additional pressure on firms with thin margins.

The result is an economy in which some businesses can adapt to the new environment while others cannot.

That process can be painful without necessarily signalling an economic depression. Bankruptcy can release workers, assets and capital that can eventually move into more productive companies. But if the process becomes too concentrated in particular sectors or regions, it can also destroy productive capacity, reduce investment and weaken local economies.

Europe is seeing a rotation, not simply a collapse

The most important conclusion from the data is therefore that the EU economy appears to be undergoing a rotation.

New firms are entering while older firms are leaving. Capital is moving towards sectors where demand and investment prospects remain stronger, while traditional areas of the economy are facing a more difficult operating environment.

The contrast between information and communication and trade illustrates this shift. Information and communication businesses were among the strongest areas for new registrations, while trade remained below its pre-pandemic registration level.

This is consistent with a broader transformation of the European economy. Digital services, automation, logistics, financial technology and other knowledge-intensive activities can expand without requiring the same physical infrastructure or cost structure as traditional retail and some manufacturing activities.

At the same time, companies exposed to energy costs, labour shortages, weak consumer demand or intense international competition can face increasingly narrow margins.

Europe’s challenge is not simply to increase the number of businesses. It is to ensure that enough of the new businesses become productive, scalable enterprises capable of replacing the capacity being lost elsewhere.

The geography of pressure is becoming more uneven

The aggregate EU figures also conceal substantial differences between member states.

In the fourth quarter of 2025, Spain recorded a 7.6% quarterly increase in business registrations, followed by Romania at 5.7% and Italy at 5.4%. Ireland, Luxembourg and Portugal experienced the largest declines.

Bankruptcy developments were even more uneven. Cyprus recorded a 175.2% quarterly increase in declarations, while Romania saw a 123.9% increase and Estonia 20.5%. Latvia, Slovakia and Hungary, by contrast, recorded substantial declines. Eurostat cautions that very small economies can produce extremely volatile quarterly figures because the absolute number of bankruptcies is low.

That divergence matters for European policymakers. A single EU-wide economic narrative increasingly risks obscuring the fact that national business environments are moving at different speeds.

For governments, the question is becoming less about whether the European economy is growing and more about where growth is being created, where companies are disappearing and whether the transition is producing enough new productive capacity.

A healthier economy can still feel more fragile

There is an apparent paradox at the heart of the latest figures. Europe is creating more businesses at the same time as more businesses are failing.

But this may be precisely what a restructuring economy looks like.

The registration data suggest that entrepreneurial activity has not been extinguished by Europe’s recent economic shocks. The bankruptcy data show that the adjustment process is still underway. Together, they indicate an economy in which survival increasingly depends on adaptation rather than simply benefiting from the post-pandemic rebound.

That creates a difficult policy balance. Governments need to avoid preserving permanently uncompetitive companies simply to prevent short-term failures, while also ensuring that viable businesses are not pushed into insolvency by temporary shocks, excessive financing costs or regulatory burdens.

The next phase of Europe’s economic trajectory will therefore depend less on how many companies are registered than on what happens to them afterwards.

If new registrations translate into investment, employment and productivity, while bankruptcies primarily remove inefficient capacity, the current churn could become part of a healthier economic restructuring. If instead viable companies disappear faster than new firms can scale, Europe could face a slower erosion of its industrial and commercial base.

For now, the data point to both forces operating simultaneously. Europe is still generating new businesses. But it is also becoming a harder place for existing companies to survive.