BUSINESS

State keeps subsidized moribund corporations for political reasons

ANESTIS DOKAS

TAGS: Finance, Business

Companies such as the Hellenic Sugar Industry (EBZ) and the Larco General Mining & Metallurgical Company are on the verge of bankruptcy and closure. Their common denominator is that for years they were managed by the state and by political party appointees, not being operated as enterprises but rather as instruments to serve political clientele.

For three years, the current government has been seeking ways to extend the lives of those companies by retaining the same operation model that brought them to the current impasse.

In any normal country, when the cost of a company’s product is consistently higher than the sale price (as is the case with EBZ and Larco), the company is either profoundly restructured or put into resolution. In Greece, a third way is sought, one where taxpayers’ money is used to keep such overindebted and unsustainable enterprises alive in the name of the so-called national interest, i.e. for party political purposes. That would actually have gone on for even longer had the country not been under strict surveillance by the European Commission and its creditors, which prevent state subsidies going toward covering holes created by mismanagement and low competitiveness.

Again, in any normal country, a shipyard kept alive only through orders from the state – and in some cases not just ships but train carriages for another overindebted state corporation – would have been shut down. In Greece, it would have survived for decades were it not for the European Union’s Court of Justice.

A normal government in a normal country would pressure a state company to pay its bills to the Public Power Corporation instead of running up debts of some 5 million euros per month, leading to serious problems for the power utility. In Greece, governments instead pressure PPC to supply Larco with electricity, even though its unpaid power bills amount to 250 million euros.

The paradox is that Larco remains one of the global market’s main nickel suppliers, and EBZ has a strong brand name, with consumers displaying a preference for its products. However, this does not suffice for these companies to cover their deep structural problems that have gone unresolved for decades.

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