Banks and enterprises
Bankers have recently noted that a growing number of large entrepreneurial groups are burdened with excess debt, a fact also confirmed by the 2001 official balance sheets. Furthermore, new estimates from the business market indicate that this trend has intensified in the first quarter of 2002, a phenomenon which will be more thoroughly documented in the balance sheets due to be published in early April. In addition to this, according to bank sources, a large number of businesses that are under financial strain are pushing for a restructuring of their debts and a change from short-term borrowing into long-term, so as to relieve debt pressure in the present crisis. There are no objections to this. It could be said that banks must support businesses in periods of slow economic activity and provide easier credit terms, so as to help them remain unscathed in periods of recession. But easier credit terms cannot constitute standard policy. Past experience and, in particular, the Greek experience of the 1980s demonstrate that excessive borrowing results in even greater economic distortions with dire consequences for everyone. The crisis of the banking system in the 1970s and 1980s and the large number of unstable enterprises which grew from the broad application of easier credit terms which were executed in an unprincipled manner and without taking a firm’s viability into consideration. There is great danger that the banking system may enter a new vicious cycle of continuous loans to businesses with poor economic prospects. Should this happen, it would cause more painful consequences than those experienced in the 1980s because the economic environment has changed and the economy no longer has the protectionist characteristics of the previous decades. Opting for policies of artificial support which defy economic reason and prolong the life of businesses that have no hope of recovery will lead to the collapse of the banking system and the public purse. These days, banks should be selective in their offer of easier credit terms and ask that firms that wish to refinance their debt, first restructure themselves. And, needless to say, by no means should they lapse into the wicked habit of political subsidy.
