Protesters demanded a resumption of welfare payments during a demonstration outside the Interior Ministry in Athens last month.
Henry Dunant Hospital, a gleaming, state-of-the-art facility in central Athens, is one of the best medical centers in Greece. But quality hasn’t protected it from one of the most troubling trends of the country’s economic crisis: a plague of late payments that threatens to drive Greeks deeper into an economic abyss.
The hospital’s 1,150 employees, doctors included, have yet to be paid any of their 2012 salaries. Employees just received the final payment of their 2011 salaries at the end of May. The hospital, which is owned by the Greek Red Cross, owes tens of millions of euros to its suppliers and banks. It, in turn, is owed at least €20 million ($24.8 million) by the Greek government.
Henry Dunant is one of a sharply growing number of Greek institutions and companies that aren’t paying because they haven’t been paid. Many employees aren’t receiving their salaries—certainly not on time and sometimes not at all. Businesses aren’t paying each other. And the government isn’t paying its suppliers or refunds owed to taxpayers.
“The only reason this hospital is open now is because the unpaid employees are keeping it open,” said Anthony Rapp, a former manager of U.S. Air Force hospitals who is part of a new executive team brought in to save it. “What is happening in this hospital is a microcosm of what is happening in Greece.”
Late payments have soared in Greece since the crisis began in 2010 and have become endemic over the past six months.
Between 400,000 and 500,000 of the country’s two million private-sector employees working under contract haven’t been paid in three months or more, according to the Greek government’s labor-market inspector. While the agency recently started collecting these statistics—a response to evidence that nonpayment was a widespread problem—officials said late payment of salaries is up sharply over the past year.
A third of small and midsize businesses, a major slice of the Greek economy, are late paying suppliers, according to a January survey by the Hellenic Confederation of Professionals, Craftsmen and Merchants.
Since then, the situation has deteriorated drastically, said Dimitris Asimakopoulos, chairman of the confederation and the owner of a 100-year-old pastry shop in central Athens. Growing speculation that Greece may leave the euro zone has made Greeks even more wary of letting go of their euros to pay their bills, he said.
“Especially in the last one, two months, nobody wants to pay anybody—taxes, wages, suppliers,” he said. “Greeks think the euro is a very hard currency, and they keep it safe in banks, in their pockets, in their homes. They don’t want to spend it; they don’t want to pay anybody.”
The Greek government itself is a culprit. It owed €5.7 billion to suppliers at the end of 2011. And decisions by the euro zone and the International Monetary Fund to delay scheduled bailout payments appear to have deepened the government’s problem: For example, the delay of a bailout payment from September until December scuttled government efforts to develop a plan for cutting late payments, according to the European Commission’s latest report on Greece.
The government’s payment delays have even hit exporters, the companies that are supposed to help Greece weather a crash in domestic consumption. Hellenic Fabrics SA, one of Europe’s largest denim manufacturers, is owed €7 million in value-added-tax refunds from the Greek government.
“The state is delaying the payment of VAT refund back to the private sector by applying a very lengthy and tricky procedure,” said John Accas, chairman of Hellenic Fabrics’ board of directors.
The company has reduced its workforce to 400, from more than 500 in 2008. It is facing cash-flow problems because of the VAT refund delay and sharply tightened credit from Greek banks. Employee wages are being delayed by one month, on average, he said. While the company still has credit lines with its banks, “nobody can be certain in Greece what will happen in the near future,” he said.
For Greek importers, lLast week brought more bad news: Two of the world’s largest providers of trade credit, Allianz SE ALV.XE -0.16% unit Euler Hermes and Coface, said they wouldn’t insure exports to Greece because of the rising risk of default.
At Henry Dunant, the stress of working for months with little or no pay has been intense. Ssome employees have defaulted on mortgage loans, while others, unable to pay their rent, have moved back in with their parents.
“The last year was hell for us here,” said Anastasia Koutsouri, an internist.
Buying crucial drugs and medical supplies from abroad has become increasingly dicey. Suppliers now demand to be paid in advance, in cash, a situation many Greek companies now face. The hospital is facing difficulty buying some of the most expensive drugs and medical supplies.
“We have tremendous issues with our vendors, who have been very, very supportive of us. But that can only last for so long,” Mr. Rapp said.
Mr. Rapp came to Greece decades ago with the Air Force, married a Greek woman and became a citizen. After living through several national crises, he says now is the first time he fears for the country’s future.
“It’s very stressful,” Mr. Rapp said. “I’m an easygoing guy. I find myself not sleeping at night.”