By Mehreen Khan, Athens 21 June 2015
Athens was forced to issue a form of ‘quasi-drachmas’ to suppliers at the height of its cash crisis five years ago. They may be perilously close to doing the same today
Plight of the struggling healthcare industry is at the heart of Greece’s humanitarian and financial crisis Photo: © 2015 Bloomberg Finance LP
Greece is the drug capital of Europe. A short walk around an Athens street reveals the green cross of a pharmacist jutting out from the sides of myriad premises.
For every 100,000 Greek inhabitants, there are nearly 98 pharmacists at their disposal, the highest ratio in the EU. By comparison, there are only 21 in the UK and 56 in nearest EU rival Bulgaria. On a per capita basis, Greece has double the number of pharmacists than France and Spain.
The ubiquity of high-street pharmacies belies the dangerous truth about the country’s broken health care sector: basic medical supplies are frighteningly close to running dry.
In an economy where the butcher's knife of austerity has been wielded across all areas of the public sector, health care has been gutted more savagely than most.
Drug supplies are running low in Greece
Greece’s hospital budget has been slashed by nearly 50pc since the country was thrown into euro-turmoil. Spending on hospitals has fallen from 6.3pc to 3.9pc between 2008-2015. This has far outpaced the rate of economic contraction, where output has shrunk by a Depression-era 25pc.
The brunt of the austerity has been borne by the provision of medical services and supplies. Greece’s 140 state hospitals saw a 94pc fall in their budget in the first four months of the year.
It’s a cash crisis which could have cataclysmic implications for the country’s fate outside of the euro.
"We should work out an emergency plan because Greece would fall into a state of emergency"
Greece imports almost all of its medicines. After energy, drugs make up the second largest import spend, amounting to 5.5pc of total goods. In the event that Greece is forced out of the monetary union, the cost of these supplies would soar under a dramatically undervalued drachma.
This reliance on foreign drug makers has led Germany’s top EU commissioner to warn Brussels to prepare for the “state of emergency” that could hit the country if it defaults on its debt on June 30.
Why the drachma might be coming
The Leftist Syriza government has been scrambling desperately for funds to pay back its creditors and meet public sector obligations since the start of the year.
Without any emergency bail-out cash since August 2014, the state has long fallen into arrears with its domestic suppliers.
Debts to international drugs companies are also mounting. Public sector hospitals and insurance companies have racked up debts of €1.1bn to foreign pharmaceutical companies since December 2014, according to the European Federation of Pharmaceutical Industries and Associations.
The liquidity crunch has a dangerous precedent. At the height of its debt woes in 2010, the then Greek government resorted to issuing a form of domestic bonds to medical suppliers in the absence of cash.
These “pharma-bonds”, as they were known, acted as IOUs from the government and resembled a form of “quasi-drachmas” according to economists at UBS.
The zero-coupon bonds behaved much like a traded currency and could be deposited at banks as collateral for cash.
Such a move to settle debts with suppliers is not unique. Similar examples abound in crisis-hit Argentina in the early 2000s and cash-strapped California in 2009.
Bond documents in Drachma currency dated October 25, 1985 Photo: REUTERS/Yannis Behrakis
"Paying suppliers in IOUs is fine if it's done over a very short period," says Justin Knight at UBS. "It is also fine if you know you have a whole lot of cash coming, like California did."
But recourse to such measures today, when the government has promised to default on the IMF if it can't strike a deal before the end of the month, could put Greece onto the dangerous path of issuing an alternative currency when its membership of the euro hangs by a thread.
"The trouble with IOUs is that you're issuing a currency, and a Greek IOU won't have the same value as a euro," says Mr Knight. "If they are used to pay wages or suppliers, then you soon get into trouble. When people go out and want to use the IOUs to buy bread, you end up with a de facto devaluation."
This form of financial wizardry, although “complex and tortuous, is not that far away from money printing in Greece,” noted Stephane Deo of UBS back in 2012.
Three years ago, Greece's debt crisis was temporarily alleviated after it underwent the largest private debt restructuring in history and managed to receive fresh bail-out funds from its creditor powers of the IMF, European Central Bank, and European Commission.
Today, with arrears once again stacking up and the prospect of a release of bail-out funds before June 30 rapidly diminishing, a resort to some form of quasi money-printing may not be far off.
In the words of UBS, taking recourse in such extreme measures “especially happens in a case of a government of a monetary union that cannot print money to fund its deficit".
Going on strike
Earlier this month, Greece's pharmacists took to the streets in a nationwide strike against plans to liberalise drug provision in the country. The protest was aimed at reforms which could see over-the-counter, non-prescription medicines sold in supermarkets.
First imposed by the Troika and agreed by the previous Athens government, the measures have been attacked as seeking to lift the price-cap on drugs and boosting the profits of drug companies at the expense of the Greek people, according to the Panhellenic Pharmaceutical Association.
A woman stands outside a closed pharmacy in Thessaloniki during a 24-hour strike Greek pharmacists went out on strike earlier this month
Protection for the pharmacists jars at a time when hospital care has been pushed to breaking point, says Lycourgos Liaropoulos, professor emeritus of health economics at the University of Athens.
"We've been overly drastic in cutting health expenditure of all kinds and have reached the point of a denial of services in medical and preventative services," says Dr Liaropoulos.
He recommends the best way out of Greece's current plight is to consolidate the state's resources by shutting down redundant hospitals, savings costs on maintenance and administration in order to better allocate resources to the purchase of drugs and equipment.
"When people go out and want to use the IOUs to buy bread, you end up with a de facto devaluation."
But the radical Syriza government has instead vowed to re-hire sacked health care workers, evidence of the continuation of a "clientelistic mentality" to protect workers says Dr Liaropoulos.
"It's an overtly political move under the guise of ill conceived public justice. Suppliers are all in arrears - everything is in the state of limbo."
Maria, a 39-year-old Athenian nurse, has witnessed the supplies crisis at first hand.
Working in one of the capitals biggest hospitals for over six-years, Maria's tales of re-used bed sheets, scrimping on surgical gloves, and sharing of surgical instruments are commonplace.
The hiring freeze imposed on the sector also saw her manage her duties with administrative and accounting work for the hospital - a move which eventually saw her leave the profession.
"After more than five years of these conditions, staff are incredibly burnt-out," she says. "We work overtime because we are so stretched, but nobody is ever paid for the additional work."
Now a PhD candidate in the works of Dutch-Portuguese enlightenment philosopher Baruch Spinoza, Maria's attitude, like many of her compatriots, is stoic amid the despair.
"Spinoza said the pursuit of joy increases human energy and power over the world. That's the best lesson he can teach Greeks today."