Greece on the Verge of Bankruptcy

Though the global slowdown hasn't hit Greece with full force, years of living beyond its means have left the government with towering debt

By Manfred Ertel

For 33 years now, Dionisis Sargentis, 58, has been selling medical and orthopedic supplies to hospitals, products like screws and clips for damaged vertebrae or broken joints, implants, and surgical instruments. He started out as a one-man business. Today he has 13 employees and annual sales of nearly €7 million ($9.3 million).

One would think that his line of business would be recession-proof, given that there is always a need for medical supplies and his regular customers include major public hospitals in Athens.

And yet Sargentis is currently on the verge of going out of business. "I love my work," he says, "but the business is no longer worth it." For four-and-a-half years now, the public hospitals haven't paid him for the supplies he has delivered. At the moment they owe him somewhere around €4.5 million—more than half his company's annual sales.

Now he's fed up with waiting. Together with a number of other hospital suppliers he drove up in front of the General Hospital of Attica (KAT), which has the largest orthopedic department in Athens. But instead of delivering new supplies, he removed existing stocks from the clinic's storerooms. "We're only repossessing what belongs to us," he said. "They were just on loan." Sargentis and his fellow hospital suppliers are hoping that the Greek government will get the message and finally pay up.

As of Dec. 31 last year, the Greek government owed the 75 member companies of the Greek association of medical equipment suppliers, which Sargentis is president of, almost exactly €800 million. An entire sector of the economy is on the brink of ruin. "Everyone has their backs against the wall," he said.

There is a systemic reason for this. In Greece, hospital suppliers sell their goods to clinics on what is virtually a commission basis. The clinics pay only for what they use and in most cases only after a considerable time lag. Two to two-and-a-half years are considered normal waiting times. The suppliers take that into account in their planning. The orders made by the hospitals serve the companies as security for bank loans they take out to pay salaries and to place new orders with manufacturers. This is the way the business works—or rather, this is the way it used to work.

But now the banks have stopped cooperating. They are refusing to provide new loans and this has caused the entire system to collapse. "It has cut off our oxygen supply," Sargentis says. "We are being suffocated by debt." But it is not the hospital suppliers' debts the banks are worried about—it is the highly indebted Greek government they no longer see as being creditworthy. Companies like Sargentis's are the unwitting victims of the change in attitude.

No wonder, then, that there is so much public displeasure being expressed against the Greek government. Over the past few weeks, workers and public employees have been calling strikes across the country. Last Thursday, tens of thousands of people took to the streets in Greece's major cities, paralyzing public life. Trains, buses, and ferries stopped running. Hospitals offered only emergency services. Public schools were closed.

"The workers shouldn't be made to pay for the crisis," angry demonstrators shouted. They hold the government of Greek Prime Minister Costas Caramanlis responsible—both for the bad old habits and the new financial crisis.

Crisis? The situation in Greece is not all that bad, insists Panos Livadas, the government's secretary general of information. The shops and cafés are full of customers, he points out. The Greek economy is "really indestructible. I don't understand these international situation assessments."

Livadas's job is to make people see things through rose-colored glasses. He explains that in 2008 his country's economy expanded by 3.2 percent, "one of the highest growth rates in the euro zone." Over the past four years, he says, economic growth in Greece has been twice as high as the overall average in the currency union countries.