Zero Hedge
Economy
Greek Economy In “Doomsday” Tailspin: 59 Businesses, 613 Jobs Lost Each Day, Suppliers Demand Cash Up Front
from Zero Hedge:
While the Greek government has wasted the past 4 months experiment with game (and hope) theory-based negotiations with the Troika, debating what reforms it should implement, what the budget surplus should be, and how much of a pension and wage haircut the local workforce should undergo just to keep the trickle of European money flowing and “allow” the IMF to repay Greek IMF obligations and the ESM to repay the ECB, the Greek economy has slammed into a brick wall because according to Greece’s retailers association, about 59 businesses close down and some 613 jobs are being lost each day.
Unfortunately, that number does not give justice to the total economic collapse that has happened in Greece over the past 5 years, just so the myth of the doomed “common currency” could be maintained one day at a time.
It is not just the country’s domestic businesses that are shuttering down at a dramatic pace: even projects once funded by the European Union, such as motorway construction and which served as a source of jobs for many local contractors, have been mothballed.
When construction of four 6.5 billion euro toll roads across Greece resumed last year, Greek and foreign businesses rejoiced. The motorways, largely funded by the European Union and built by companies including Germany’s Hochtief, France’s Vinci and Greek firms Ellaktor and GEK Terna, had been halted in 2010. Last year, work resumed after the Greek government paid part of a fine to contractors for the four-year delay.
Now, work has slowed once more. With aid from its bailout programme frozen, the government has used its last cash to pay public sector wages and pensions, and service debt. That has left it without 230 million euros it needs to contribute its part of the financing for the road.
The hole has put the entire project at risk again, one of many business ventures suffering amid the uncertainty of four months of negotiations between Athens and its international creditors.
“As a country, we need to move as quickly as possible to strike a deal that will resolve issues being faced by big and small (infrastructure) projects,” says George Sirianos, head of the association for big Greek construction firms.
Reuters tells the story of Paul Arnaoutis, whose firm sells imported medical supplies to Greek hospitals, has been waiting four months to be paid 1.3 million euros the state owes, nearly as much as his company’s entire 2014 sales of 1.7 million.
The Greek insolvency, which had been masked with European liquidity, is finally being appreciated by the vendor chain, and as a result, Arnaoutis’ Chinese suppliers are now demanding cash up front because of the risk of doing business with Greece. Previously they gave 30-60 day receivable terms. “He fears a doomsday scenario in which the government quits the euro and pays its bills with IOUs, which foreign suppliers will not accept.”
“If there is no deal and the government decided to take Greece out of the euro, all Greek importers would be ruined.”
Meanwhile, his company is expected to pay tax on 335,000 euros in reported profit from last year, even though it still hasn’t received most of the money for the sales: “The profit is virtual”.
Ironically, in the US the bulk of non-GAAP profit is also “virtual”, however for the time being the generosity of capital markets allows money-losing US companies (if only on a GAAP basis) to fund themselves entirely courtesy of gullible investors who hope that any minute now, the cash flows will rain.
Unfortunately for Greece, it is now too late:
[E]ven if a deal is clinched and Greece survives as a euro zone member, many companies are so battered by the cancellation of contracts, delays in state payments and the steady outflow of bank deposits that they will struggle to make up for losses.
According to Greece’s retailers association, about 59 businesses close down and some 613 jobs are being lost each day.
It says about 95 percent of businesses’ applications for loans are being rejected by commercial banks. Many small and medium-sized firms have stopped even asking banks for credit.
All of this excludes an even more troubling development in the local banking system which, too, is on the verge of total collapse: as reported last Friday “Bank Run Surges “Massively” As Depositors Yank €700 Million Today Alone.”
And with people’s confidence in the banking system, the bedrock of every modern society, shaken, everything else follows:
Gaia Wines, which produces 350,000 bottles of wine a year and exports 65 percent to the United States, Britain and 22 other countries, was to begin selling in New Zealand in April, but the first client there cancelled its 4,000 euro order.
“Our wines are of good quality. But people get scared because of the turmoil. This is reasonable,” says co-owner Leon Karatsalos.
The company has been waiting nearly a year for the government to respond to a request for access 150,000 euros in EU funds to renew equipment at one of its plants.The response was supposed to come by January but never came, says Karatsalos.
Unfortunately the government response, if it ever comes, will be too late to save Gaia if not the entire domestic economy which now, in morbid irony, lies in ruins in the country where soon the only remaining business will be showing off other, far more famous ruins to visiting tourists.
