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Greece’s €42.3 Billion Problem: The Persistent Shadow Of Zombie Companies

One in ten businesses in Greece is a “zombie” company—unable to service loans, collectively holding a staggering €42.3 billion in bad debt. These businesses, accounting for 8.9% of the corporate sector, have long been a drag on the Greek economy, earning their unenviable label as zombie firms.

In its latest quarterly economic report, the Foundation for Economic and Industrial Research (IOBE) underscores the urgency of resolving these bad business loans. It highlights that these firms, by their nature, cannot restructure their debt independently, posing a perpetual obstacle to entrepreneurial growth.

The Scale Of The Problem

The unresolved bad loans from these zombie firms include €8.9 billion still managed by commercial banks and an additional €33.4 billion transferred to loan servicers by the end of 2022. This combined figure of €42.3 billion remains a significant burden on the banking system, stifling its ability to finance new ventures and economic growth.

The origins of this debt crisis trace back to Greece’s prolonged economic downturn. Non-performing business loans peaked at €58 billion in 2015, representing 47% of all business loans. Although this figure has declined significantly—down by €49.1 billion to €8.9 billion in 2022—the remaining €42.3 billion underscores the persistent challenge. Since 2015, the “real” reduction in business-related bad loans totals €15.7 billion.

Zombie Companies By The Numbers

The phenomenon of zombie businesses—firms unable to meet loan or interest payments—escalated during the 2010-2018 economic crisis. Between 2005 and 2013, their share rose from 10% to 18.6% of all businesses, before receding to 8.9% by 2022.

Interestingly, while smaller businesses have historically shown higher rates of zombification, large firms also exhibited notable vulnerability during the 2005-2016 period. However, since 2013, the share of zombie companies has declined across all business sizes.

A Leading Indicator Of Financial Distress

According to IOBE, the prevalence of zombie businesses closely correlates with the rate of non-performing exposures (NPEs) on bank balance sheets. Notably, the rise in zombie companies typically preceded the increase in NPEs, suggesting that the zombie rate serves as a leading indicator of financial distress in the banking sector.

More recently, the decline in zombie businesses has outpaced the reduction in NPEs. This trend, IOBE explains, stems from the protracted liquidation of companies that have ceased operations but whose debts remain unresolved. These defunct firms are excluded from databases like ICAP, which track active businesses.

Moreover, the size of the average zombie company has shifted. Before the crisis, and again after 2017, zombie firms were generally smaller, reflecting a change in the economic landscape over time.

The Path Forward

The persistence of zombie companies is not merely a banking issue; it is a systemic challenge for the Greek economy. Resolving these bad loans swiftly and effectively is essential to unlocking entrepreneurial potential and enabling Greece’s financial sector to support new business ventures.

As the IOBE report makes clear, addressing this issue isn’t just about cleaning up balance sheets—it’s about paving the way for sustainable economic growth.

Revisiting Cosmic Predictions: The Milky Way and Andromeda’s Potential Future

For generations, astronomers have envisioned a dramatic destiny for our Milky Way Galaxy: a significant collision with Andromeda, our closest substantial galactic neighbor. This cosmic event, anticipated in approximately 5 billion years, is a fixture within astronomy films, textbook discussions, and popular science narratives.

However, a recent study led by Till Sawala from the University of Helsinki, and published in Nature Astronomy, suggests a more uncertain horizon for our galaxy.

By thoughtfully acknowledging uncertainties in present data and considering the gravitational impact of nearby galaxies, the study concluded that there’s merely a 50% probability of the Milky Way merging with Andromeda within the next 10 billion years.

Past Beliefs About a Cosmic Collision

The speculation that the Milky Way and Andromeda are headed for a collision dates back over a century. This was based on Andromeda’s measured radial velocity—its movement along our line of sight—using the Doppler shift.

Proper motion, or the sideways drift of galaxies, is known as transverse velocity. Detecting this sideways movement is notably challenging, especially in galaxies millions of light years away.

Earlier research often presumed Andromeda’s transverse motion was minimal, leading to the notion of an inevitable head-on clash.

The Fresh Take of This Study

This study did not introduce new data but re-evaluated existing observations obtained from the Hubble Space Telescope and the Gaia mission.

Unlike previous investigations, this approach considers measurement uncertainties rather than assuming their most likely values.

The team simulated numerous potential trajectories for both the Milky Way and Andromeda by marginally adjusting initial conditions—parameters like each galaxy’s speed and position.

When initial conditions from prior studies were used, similar outcomes were observed, but this study also explored a broader spectrum of possibilities.

Incorporating the impact of two additional galaxies, namely the Large Magellanic Cloud and M33, also known as the Triangulum Galaxy, added depth to the trajectories explored.

The gravitational influence from M33 nudges Andromeda closer to the Milky Way, increasing the merger likelihood, while the Large Magellanic Cloud diminishes the probability of a collision.

All these elements combined reveal that, in about half the scenarios, the galaxies might not merge within the next 10 billion years.

Potential Outcomes of Merging or Non-Merging

Even if the galaxies merge, catastrophic effects on Earth are improbable as stars are vastly separated, minimizing direct collisions.

Galaxies, under gravity, would eventually merge into a larger, single entity, which is likely an elliptical galaxy rather than the iconic spirals we see today.

Alternatively, if no merger occurs, the galaxies might engage in a long and slow orbit around each other, never quite merging, yet reshaping our comprehension of the Milky Way’s distant trajectory.

Next Steps in Discovering Our Galactic Fate

The greatest uncertainty remains Andromeda’s transverse velocity. Small variations in this sideways motion could differentiate between a merger and a near miss. Upcoming assessments will refine this measurement, ushering us toward clarity.

Presently, we lack certainty regarding our galaxy’s fate, yet the quest for understanding unveils the magnitude of knowledge we’re still uncovering about the cosmos, even right at home.

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