Wednesday, 24 November 2010

Cheating "a la Greek": Illegal government slaughterhouse

Phileleutheros reported yesterday (23/11/2010)that the government had given a loan of 500,000 euro to the government slaughterhouse through the union of municipalities, effectively breaking EU rules about government funding to companies. The issue is serious since the government is committed in paper not to aid the government slaughterhouse without the EU commission's approval, and now a request for the government to become the guarantor of a loan given to the slaughterhouse by the Bank of Cyprus is in jeopardy. A fine or a suspension of EU payments could be in order since there was a clear attempt to undermine the basic principles of the EU - that it is illegal to sponsor national companies.

Although the amount is relatively small, this once again highlights several issues that are limiting our economy's potential. The slaughterhouse is a monopoly so by definition it is capable of rising prices to the point that it makes a profit. Yet the fact that it has been a government monopoly for so long leads to extremely high wage costs. Overtime payments and over staffing resulted to the slaughterhouse not being profitable at ANY price; its arrears of 30.6 million euros just for the first 9 months of 2010 is set to rival the urgent 35 million loan to the now defunct Eurocypria.

The approach of all governments towards government sponsored companies was not to solve their problems but give them enough money to limp on. The 500,000 euro loan was not going to save the slaughterhouse, but it just pushed the issue 6 months down the line; do that enough times until hopefully another government has to deal with the issue and you are clear of any negative repercussions. This is not new - this has been the state's approach towards other government sponsored companies for decades, including Eurocypria and Cyprus Airways.

What we have failed to understand is that now the economic crisis, combined with the EU rules, have led to the futility of this practise. The hidden 500,000 euro loan can result to fines against Cyprus running to the millions, while the huge debts of these government companies are a damaging drain at a time when the Cyprus government is been warned by all that it should reduce its budget deficit. The issue facing all these government sponsored companies and the government sector as a whole is the relatively high wages and inefficient practises when compared to the private sector, and unless something is done fast about this issue, more government sponsored companies will be in trouble. The time of passing the buck is over; only rapid action will save us from perhaps having to slaughter our own animals for easter souvla.

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