Chronic drug shortages in Greece have left thousands of patients without medicines and paralysed the drug supply chain.

The impact of the ongoing financial crisis in Europe is having a deep impact on patients – and that’s before the possible return of the Drachma which could at least double the relative cost of imported medicines.

The Panhellenic Association of Pharmacists (PAP) says almost half of the country’s 12,000 pharmacies have reported shortages of the most-used medicines.

Drug companies and wholesalers are either out of stock or will not supply medicines for which they will not be reimbursed. Some suppliers have been left without payment for up to two years and have now run out of patience.

As a result, the PAP says their members spend hours on the phone pleading with suppliers and colleagues to provide medicines like aspirin, albuterol and beta-blockers. In some cases, where patients are in dire need, pharmacists’ have resorted to paying for drugs themselves.

Price controls

In an effort to radically cut costs, the Greek government has introduced price controls meaning wholesalers must charge lower prices than last year. As a result, some suppliers are selling their products outside the country where higher prices are still on offer. In addition, pharmacists complain that the government’s fiscal problems have led to lengthy delays in payments to pharmacists and drug manufacturers which have bred cash-flow problems for retailers.

Public health insurers owe pharmacists around €330 million for drugs bought since April, according to Dimitris Karageorgiou, vice-chairman of the PAP, who acknowledged that some pharmacists are demanding upfront patients from patients who must then chase their insurance companies for reimbursement.

The entire supply chain is close to collapse now that some wholesalers are no longer willing to provide pharmacists with extended credit terms for fear of not being paid.

Last year, large drug companies were forced to accept Greek bonds in lieu of cash owed by public hospitals because the government had run out of money. Some firms cut their losses and left the country while others now insist upon payment on delivery rather than issuing invoices.

At the end of the line are patients, particular those with chronic illnesses, who are often unable to pay for medicines on an ongoing basis, yet know that the prospect of an economic upturn is unlikely in the foreseeable future.

Tapping a developing country for cash is a lot to ask so we need not be surprised that China wants something in return

So it looks like Europe is asking China to contribute more than €100, 000,000,000 to boost its bailout fund and help save Europe’s single currency. The French President has been delegated the task (nice move, Merkel) of sweet-talking Beijing, Regling, who heads up Europe’s bailout fund,  is in China today working on the detail.

Let there be no surprise that China will extract significant concessions in return for any help it might give. What would Europe do? What about the US? We all act in our own interest so spare us the faux outrage when Beijing leans on Brussels in a couple of key areas:

- China will want Europe to recognise it as a market economy

- It will expect less hand-wringing in Brussels over the value of China’s currency

- It may seek progress on the arms embargo which prevents European companies selling weapons to China

Fair enough. On the first one, China will have market economy status by 2016 anyway under WTO rules. Is it a market economy? Pfff…perhaps not. The government intervenes way too much in its economy, local companies get preferential treatment which makes it hard for foreign firms to compete, the biggest companies in China are quasi-semi-state corporations with strong ties to, and the backing of, government.

Nonetheless, this bargaining chip will expire in 2016 so Europe may as well throw it in the pot now. Every cent of diplomatic currency is needed today – there’s no point saving for a rainy day when it’s bucketing down outside.

Breaking with the US

The second is tricky as it requires breaking ranks with the US by taking a softer approach to the value of the renminbi. This is a serious shift in global power, but China is effectively doing what the US (and European powers) has done for decades – using the fact that it bankrolls or protects large swathes of the globe to buy compliance or silence on a controversial issue. It’s delicate but Europe is not in a position of strength and will have to make these kinds of concessions.

The arms embargo is also awkward. Personally, I despise the arms industry and everything they do. I hate the idea of more weapons being in circulation. But the reality is that China doesn’t even need weapons from foreigners – it can make its own. They just feel offended that a ‘friend’ doesn’t trust them enough to flog them a few fighter jets.

Obviously this all has more to do with US-led support for Taiwan against ‘Communist China’. But that’s from the Red Scare era of global diplomacy and is out of date. Lifting the embaro is something Europe should swallow. China has missiles pointed at Taipei today, it won’t matter a whit if they are allowed buy more from France.

Other potential areas where China will seek ongoing leverage over Europe are its place in international organisations like the IMF, WTO, G20 and UN, and Europe’s tendency to highlight human rights failings in China. The first is a natural progression for a rapidly rising power. Their place in international organisations must change to reflect their status – and it will come at the expense of the status quo. China’s gains will be Europe’s and America’s loss. That’s just the way it goes.

On human rights, it would be shameful for China to use their influence to silence criticism of human rights failings – even if such postering is just an empty gesture by EU leaders for the cameras of European broadcasters. Cede power, take the money, but let’s not abandon European values.

Begging from the poor

In the end we have to realise what we are asking. We want a country with hundreds of millions of very poor people to part with their cash so the pain of Europe’s decline can be minimised and we can maintain something close to our current standards of living.

We lecture China on the morality of their regime’s behaviour in its western provinces but where is the ethical justification for living off the backs of the world’s poor?

How can we have two cars per family, annual holidays, short working weeks, generous welfare safety nets, access to healthcare and medicines, free primary and secondary education and all the rest, when the people lending us the money are trying to hold together a massive two- or three-tier country where the top tier lives like us and the rest are either subsistence farmers or 80-hour-week factory slaves?

Of course, they want something in return. We would.

Read some less preachy, more amusing insights on China here: Beijing for Beginners

While closer fiscal union can help solve today’s crisis, the public backlash will cause some Member States to pull away over the next decade. Still, it’s better to separate the currency crisis from the political crisis as simultaneous catastrophes would be unbearable.

The future remains uncertain but key elements of a plan to end the crisis are taking shape.

We already know that Europe’s economic governance will be strengthened. The European Semester and the recently-passed Six Pack mean EU surveillance of national budgets is about to get a whole lot more forensic.

New pan-European financial supervision bodies will play a much more active role in how banks are regulated.

Other ideas in the air include an EU Finance Minister or some kind of Budget Tsar who will have meaningful powers over national parliaments when it comes to matters monetary. The Eurogroup will certainly be beefed up and the ECB’s mandate may be tweaked to make it more like the US Federal Reserve.

Tax harmonisation and other aspects of fiscal integration have also been mooted as Europe attempts to iron out the imbalances at the root of the crisis.

Shot term gain, long term pain

Failure to make these kinds of radical leaps will mean disaster in the near term. But how will citizens feel about it two or three years from now?

Presuming the crisis can be averted, the public will scarcely thank leaders for steering the ship away from the rocks. We will never know how close we came to Armageddon but we will see powers shift from our national parliaments to Brussels where the influence of most Member States appears to have declined of late as the spotlight turned to Paris and Berlin.

When the dust settles, being in the euro will look a lot like living under an IMF programme. Reckless spending will be vetoed and decisions on revenue-raising measures will need the green light from Europe.

So what will happen when, under the much-vaunted economic governance rules, Brussels sends a Member State’s proposed budget back to the national parliament with a note saying “Please try again – this is not good enough”?

They won’t do it unless absolutely necesssary, and they may well be acting in the interests of that country’s citizens, but what thanks will they get? None.

Political opposition to ‘foreign’ influence will rise and the electorate will continue to elect euro-sceptic parties – as they have in Finland and elsewhere. The Europhiles who delivered closer union will lose power.

Ever closer union?

Within an election cycle or two, the political landscape could look a lot different and populist opportunists will win votes by promising to reclaim powers ceded to Brussels during the crisis. England for the English, Finland for the Finnish and all of that.

However, while the road to closer union may ultimately prove unpalatable to voters, there is no choice. Failure to come together now would mean the collapse of the common currency and the European Union, along with the break-up of the single market.

It is difficult to imagine that post-integration backlash won’t lead some Member States to back away from Brussels over the next decade. Yes, this will cause a political crisis – but it’s better to separate that political problem from the currency crisis. Two serious crises spread over a decade will be less disruptive than two serious crises occuring simultaneously.

The coming fiscal union means integration at a pace quicker than most citizens are comfortable with – each for their own reasons. The best chance of limiting the fallout is to help citizens understand the reasoning behind it and to see themselves as part of Europe.

The anti-foreigner backlash can be tamed if citizens come to view Europe as something other than ‘foreign’.

Let’s predict the headlines for the next EU summit:

- Day before the summit: EU leaders divided ahead of crunch summit

This one comes with stories of how impossible it will be to come to any agreement and how Obama has been on the phone screaming at Sarkozy to recapitalise French banks

- Night of the summit: EU hails rescue package: ‘Crisis is over’

The usual overblown statements about how total unanimity has been reached and a comprehensive package has been  agreed which would finally put an end to market turbulence.

- Morning after: Analyst unconvinced by EU deal

For this one we get a quote from a fund manager who has shorted the euro and insists the deal doesn’t go far enough and that dark days lie ahead. The euro is doomed, he reckons, and everyone should sell it and buy ‘safe’ currencies from low-debt well-governed nations like the dollar.

The truth will be somewhere in amongst all of this: there will be disagreements on how to proceed, a compromise will be reached which gives everyone a little of what they wanted but makes everyone uneasy, the deal won’t be the end of the crisis but it will help a bit, deleveraging and recapitalising the banking system will continue to be an expensive and painful process – just like fixing the Greek debt problem – but the euro won’t evaporate, nor will the EU sink into the sea.

Your turn: what headlines are your expecting?

#summit4cast

When the EU expanded from 15 to 27 countries between 2004 and 2007, it was presumed that the newest members would go the whole hog and join the euro in due course. In fact, it was written into the terms of the accession Treaty they signed at the door on the way in.

That was then. Now, several non-Eurozone members are getting cold feet. It’s not, say diplomats, that countries like Poland and Bulgaria have lost faith in the currency, but they are uncomfortable about the erosion of fiscal independence. The fiscal and politican union that may emerge from the ongoing currency crisis is not what they signed up for.

At the same time, there is great anxiety among EU countries outside the eurozone that the nature of the Union is being altered without their input. Poland, which still says it will join the euro when the time is right, wants a seat at the table when the Eurogroup meets.

Meanwhile, smaller countries like Lithuania, Latvia and even Denmark are beginning to wonder whether they will effectively be forced to join the single currency or risk isolation on the edge of a more integrated Eurozone.

UK needs the Eurozone

Even UK officials are vexed at the relegation of non-Eurozone members to the second division. Major decisions which affect London, on a financial transcactions tax, for example, are debated between Sarkozy and Merkel.

David Cameron has the painfully delicate task of demanding to be at the table in Brussels while an anti-Euro rump of his own party gleefully watches the euro circling the drain – as though the currency’s demise wouldn’t affect the wise Europeans who use Sterling.

UK diplomats know London’s sense of splendid isolation is grossly misplaced. Ireland imports more from the UK than Brazil, Russia, India and China combined, and Europe’s single market is the destination for most of Britain’s wares. But try telling that to Tory MPs who want a referendum on EU membership.

Gary Finnegan writes the EU View column in Business & Finance magazine, a Dublin-based publication

With Greece on the brink, Brussels is dangerously distracted by efforts to invent new European rules and institutions which will help prevent future sovereign debt crises.

After protracted negotiations, MEPs and the European Council – which represents EU Member States – came to an agreement on the so-called “Six Pack” economic governance package.

The deal promises closer surveillance of national budgets, with fines for those in breach of good practice. It’s a souped-up version of the Stability and Growth Pact which, as outgoing ECB chief Jean-Claude Trichet noted recently, was undermined by the refusal of larger countries to accept sanction when their budgets were out of kilter.

The revamped supervision system is in addition to the European Semester introduced earlier this year which sees national finance ministries submit the broad outline of their budgets to the European Commission in the first half of each year.

As if that were not enough, European Council President Herman Van Rompuy is due to present the October EU Summit with still more plans for fiscal integration. This could flesh-out ideas on having something akin to an EU Treasury or even a more powerful European Finance Tsar.

Van Rompuy’s own role and that of Eurogroup chair Jean-Claude Juncker will also be better refined as part of efforts to fill in the gaps left by the architects of the common currency.

One thing is for certain: Irish politicians alluding to the need to get through the EU/IMF programme, in order to emerge from the other end with sovereignty restored, are in for a shock. They (and their electorate) may scarcely recognise Europe’s economic landscape by 2013 – save for the fact that it will resemble life under the Troika.

Whatever about countries like Ireland, Portugal and Greece whose various mistakes left them dependent on the kindness of strangers, the other 24 Member States are growing increasingly unease about enhanced supervision of their budgets.

A degree of IMF-style supervision could soon be a condition of Eurozone membership.

Gary Finnegan writes the EU View column in Business & Finance magazine, a Dublin-based publication

The draft EU budget is a win for Geoghegan-Quinn but it won’t make her popular at home.

The EU’s budget has been the subject of much wrangling of late, with the usual tug-of-war between interest groups from industry, agriculture and the rest.

Ireland’s European Commissioner Máire Geoghegan-Quinn, who is responsible for research, innovation and science, has won plaudits from industry and academia for convincing the Commission to pencil in a massive 45% increase in R&D funding as part of its next six-year budget which comes into effect in 2014.

So who lost? According to the current proposal, agricultural subsidies will effectively fall and some of the money that once went directly to farmers will be steered towards innovation in the food and agri-business sector.

The budget will now get knocked around by MEPs, many of whom can expect to come under fierce pressure from national agriculture lobbies. Geoghegan-Quinn scarcely endeared herself to that particular constituency by urging scientists to lobby like farmers. “The farmers will be out there lobbying, and scientists and researchers need to do the same,” she told Nature, a leading science journal.

Irish officials have been pushing for a bigger chunk of the research budget on the one hand, while at the same time fighting to preserve subsidies for Irish farmers.

Geoghegan-Quinn, in keeping with her oath to serve all Europeans and not just the Member State she knows best, seems immune to the Irish agriculture lobby – a sign, perhaps, that she knows this gig is her last.

CAP in hand

October is a key month for crunch talks on the Common Agricultural Policy (CAP). Ireland can take some comfort that a leaked draft paper by the European Commission is not as bad as some had feared, but the UK and Poland are pushing hard for major CAP reforms which would see farm subsidies slashed.

Around 40% of the EU budget is devoted to the CAP at present but this proportion is set to fall. While the absolute amount earmarked for subsidies may be frozen, this will effectively mean a reduction in real terms.

But it doesn’t end there. A “rebalancing” of how these subsidies are spread across Europe will see Eastern European countries take a bigger share of the pie. At the same time, the days of no-strings-attached payments may soon be over as the debate turns to how CAP funds can be used to spur innovation in the agri-sector.

No matter how well Ireland can do in tapping other EU funding streams, nothing could match the impact of CAP payments. If there’s a bright side, it’s that Ireland will hold the rotating EU Presidency in 2013 when the final phase of horse-trading must be completed. Agriculture Minister Simon Coveney, a former MEP, will be spending a lot of time in Brussels.

Gary Finnegan writes the EU View column in Business & Finance magazine, a Dublin-based publication

Over the past 18 months, observers have noted the alarming frequency with which things that were once ruled out of hand by EU leaders have become the norm.

It began with the mantra-esque refrain of “We won’t bail out Greece”, which ultimately morphed into a commitment to back Athens to whatever extent becomes necessary. This was a particularly tricky red line to cross given the “no-bailout” clause in the EU Treaties, but crossed it eventually was.

Then it was agreed that no default of any hue would be countenanced until the middle of 2013. This fell by the wayside in July when a second bailout was devised for Greece.

The possibility of private sector pain was once out of the question, until it became the mainstream position at an emergency EU summit. This, it was stressed, was an exception made for Greece alone – it would never apply to Ireland, Portugal or anyone else. We shall see.

Expanding the European Financial Stability Facility (EFSF), issuing eurobonds, harmonising taxes, and creating an EU finance ministry: all these kites have been flown and shot down, but refuse to go away.

The role of Herman Van Rompuy, President of the European Council, was deliberately designed to be limited but even that may be reopened. It was never intended that he would have any control over the common currency. But that was then.

Now, France is pushing for Van Rompuy to be given new powers which would appropriate  those currently resting with Luxembourg Prime Minister Jean-Claude Juncker who heads the Eurogroup. Paris has pitched the idea to Germany and seems to have won Merkel’s approval, which says much about who calls the shots in Europe these days.

That the EU would grow into a union of 27 nations effectively answering to an increasingly powerful Germany was also once on the list of impossible eventualities.

Gary Finnegan writes the EU View column in Business & Finance magazine, a Dublin-based publication

Fears that Greece could default on its debt tops the EU agenda because it puts the balance sheets of a dozen German and French banks in peril. But Greece has already defaulted on its debts to companies.

What is default? EU leaders have been trying to find a way around the fact that Greece cannot meet its debt commitments.

Various ideas have been thrown around – restructuring, reprofiling, ‘soft reprofiling’ – which involve either not paying all the money owed or paying over a longer period. Credit ratings agencies are unambiguous: if you change the terms of a credit agreement, you are in default.

By that definition, Greece – and other EU member states – have been defaulting on debts for years. The difference is that rather than defaulting on government bonds held by large banks, they have delayed payment to companies which supply products to government-funded service providers.

They have unilaterally changed the terms of credit agreements.

This is most stark in the health sector where the government is the biggest payor and has left creditors waiting more than two years for their cash. It has even paid some companies in government bonds which are trading at 50% of their face value (due to fears of default on sovereign debt).

This problem has existed for a couple of years, with some estimating that the outstanding bill owed by Greek public hospitals is 6.5 billion.

The EU has revised its late payments directive (although MEPs decided to go easy on hospitals) to insist on payment within 30 to 60 days – which must have drawn sardonic smiles from companies waiting 600 days for their money.

Impact on the public

Now, some companies have simply stopped supplying medicines to hospitals which show no sign of paying their bills. Companies say the problem has been getting progressively worse and there is little cause to hope it will improve any time soon.

One of the arguments against leaving the euro – and it’s a very good one – is that a new currency would devalue rapidly making imports relatively more expensive. The classic example is that food and medicines would no longer be imported. But Greece is in danger of walking into this situation anyway.

So, patients will no longer have access to medicines, medical devices, or diagnostic equipment. The meltdown has already begun.

For companies, the threat is also real. Big Pharma needs payment for its products so it can pay staff (in Greece and elsewhere) and invest in researching new medicines.

As for ‘small pharma’ and the scores of SMEs making niche medical devices, they are even less able to carry on without cashflow. Small and medium-sized companies have gone to the wall praying for payment from Greek hospitals. More will follow.

Jobs will be lost; the tax take will fall further. The deficit will grow; the debt will mount.

Their options are few. Healthcare is a special case. The biggest buyer is the state. If the government is bust, most of your clients are bust. The auto industry or IT sector has a more diverse client base. They might cut their losses on cars and computers sold (or ‘given’!) to public bodies and focus on their privte sector clients. If you make stents or statins, your options are limited.

North-south divide

Greece is the worst offender when it comes to late payments. But it’s not alone. Spain, Portugal, Italy, Cyprus and others are also chronically slow payers, routinely breaking the terms of contracts entered into by healthcare companies.

By contrast, the diligent northern nations tend to pay more or less on time. If I may don my ‘green jersey’ for a moment, I would point out that Ireland is not amongst the worst offenders. The Irish health service tends to pay within a month or so (depending on whose figures you use).

Culturally, Ireland is more like the UK than Greece or Portugal. It’s pro-enterprise and tends to pay its bills. If Dublin’s previous government had not recklessly guartanteed its banking debt, the Irish would not find themselves at the mercy of the IMF/ECB.

Ireland’s own late payments rules are tougher than those written into the revamped EU late payments directive. And the terms of its ‘Memorandum of Understanding’ with the EU/IMF will require that hospitals pay their bills within 15 days. A tall order, and a likely source of cashflow strain for a battered health service, but at least the target will be taken seriously.

Enough nationalism. The point is that hundreds of small companies have suffered the effects of Greek default already. Yet it is only when Deutsche Bank or Société Générale is at risk that EU leaders pay attention.

Medical companies that sold products to public hospitals are left to hang, while banking giants that bought risky bonds must be saved.

At every turn the euro crisis gets harder to solve.

With every emergency meeting; with every short-term fix, a credible solution to the eurozone’s debt mountain becomes less likely.

Europeans are sick of living in a state of permacrisis. We have grown numb to the real urgency that surrounds the problem because the news headlines speak of looming catastrophe every weekend, followed by a mid-week sticking plaster that defers the tough talking until the next ‘moment of truth for the eurozone‘.

We are suffering from a chronic case of crisis fatigue. The Greek tragedy has dominated the headlines for months but even if it is somehow put to bed, (premature) talk of a second Portuguese bailout and Ireland’s banking black hole are never far away.

And, as if for the sake of variety, the crise du jour this morning has an Italian flavour. Next time, it might be Belgium. Or perhaps Spain will come back in to focus.

Political cowardice

I realise that if there were easy solutions they would by now have been agreed. But putting off the hard decisions until we are circling the drain will only make it harder (See ECB’s view for more in-depth explanation).

With every election, war-weary voters return populist inward-looking politicians who promise an end to the crisis – but in fact make the conundrum even more difficult to solve.  In creditor nations like Germany and Finland, anti-bailout sentiment runs high. Election seems guaranteed for those who pledge to let feckless neighbours hang. European solidarity has turned to dust.

In austerity-soden debtor nations, electorates’ appetite for protecting the balance sheets of foreign banks long ago evaporated. Politicians making unrealistic pledges to turn their backs on the EU and IMF gain ground.

Whether we are talking of such unpalatable solutions as closer economic surveillance, fiscal transfers or eurobonds, be assured that it is easier to face up to this now than to muddle through in a haze of denial and false optimism.

Politicians fearful of losing power for taking unpopular action should know that they will lose power anyway and spend their retirement watching history condemn their cowardice.