Thursday

25th Aug 2016

Opinion

Small businesses: silent sufferers in the economic crisis

  • Record shop: many entrepreneur families live in fear that an unpaid invoice will make them go bankrupt (Photo: realSMILEY)

“...There is still no date for the hearing, although I have been inquiring monthly in the last 8 months. I do not know anything about my case, I do not get any information. There are many victims in the same situation, all of them feel hopeless. Nobody believes that it is possible to reach a fair verdict. Victims are spending a lot of money on lawyers without results. This process has been going on since September 2007 and so far nothing has happened. I am starving and sometimes I cannot even buy my diabetes medicines and the person who caused this is enjoying his life.”

The above paragraph is taken from a letter, written by a 53-year old woman. She had been working as a pharmacist entrepreneur until she went bankrupt because of an unpaid order.

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

If you already have an account click here to login.

Her present situation is hopeless. Her family has collapsed and she is living in rented lodgings. She attempted suicide several times, and has been treated for a nervous breakdown.

There have been documented many cases where stress caused by such circumstances has resulted in stroke, cardiac infarction or suicide. These entrepreneurs, with 15-20 years of experience, did not go bankrupt because they mismanaged their enterprise or had misjudged the risk of the business.

It is due to unpaid bills. Today many micro- and small entrepreneur families live in fear that because of an unpaid invoice they can go bankrupt anytime. And such bankruptcy can result in the loss of their private assets which have been accumulated with several years of hard work.

The business environment for small businesses has become intolerable because of so-called “chain indebtedness”.

This means that the small businesses hired by large “project companies”, often ones which have won EU-financed state projects simply do not get paid before work is done. So they have to take out credit with the bank to pay for materials and wages.

In order to issue the credit – which is very often a so-called “currency-based” credit - the bank puts a mortgage on their homes or other assets. If the small businesses do not get paid at all, they will lose everything.

In addition, this “currency-based credit” has nothing to do with any currency. The bank lends Hungarian money, but calculates interest rates and all bank costs according to the actual exchange rate of the Hungarian Forint to the given currency.

As the Hungarian currency has plummeted in value over the last two years, businesses have to pay back up to three times more than what they originally borrowed. Many small businesses have gone under because of this.

Many business owners become socially vulnerable, although as entrepreneurs they were able to support their family and employ five to ten people.

The consequences of a bankruptcy – due to no fault of their own - can lead to serious health problems. The chain of generations is broken. The younger generation should now be taking over the business from their parents – but seeing the problems, they are no longer interested in doing so.

There is no sanction for not paying invoices, even if the victim has to bear further losses while the dishonest actors enjoy their gains.

The task of small businesses is not only to produce a significant part of the domestic product, and be employers, they have to ensure proper living conditions for themselves as well.

They also have to be able to develop their business. If the micro- and small enterprises involved in production and employment go bankrupt while the enterprises of dishonest customers flourish, the chances for sound economic growth and job creation deteriorate. Meanwhile business ethics and the societal cohesion are damaged.

This raises important questions. Can it be a general practice in the EU that while businesses do not have the right to receive the compensation for the work performed, they are obliged to pay all the taxes including VAT, even if as a consequence they lose everything?

The Hungarian government has slowly started realizing the scale of this problem. But with a high unemployment rate and an economy recession, action needs to be taken quickly.

The writer is an economist from Hungary.

Opinion

A marriage of convenience

The West has nothing to fear from the convenient meeting of the minds between Erdogan and Putin. Both countries are strictly following their strategic national interests, which sometimes clash heavily - as can be seen in Syria.

Stakeholders' Highlights

  1. HuaweiMaking Cities Smarter and Safer
  2. GoogleHow Google Makes Connections More Secure For Users
  3. EGBAThe EU Court of Justice Confirms the Application of Proportionality in Assessing Gambling Laws
  4. World VisionThe EU and Member States Must Not Use Overseas Aid for Promoting EU Interests
  5. Dialogue PlatformInterview: "There is a witch hunt against the Gulen Movement in Turkey"
  6. ACCAACCA Calls for ‘Future Looking’ Integrated Reporting Culture With IIRC and IAAER
  7. EURidNominate Your Favourite .eu or .ею Website for the .EU Web Awards 2016 Today!
  8. Dialogue PlatformAn Interview on Gulen Movement & Recent Coup Attempt in Turkey
  9. GoogleA Little Bird Told us to Start Tweeting About Google’s Work Across Europe. Learn More @GoogleBrussels
  10. Counter BalanceThe Trans Adriatic Pipeline: An Opportunity or a Scam in the Making for Albania?
  11. Counter BalanceThe Investment Plan for Europe: Business as Usual or True Innovation ?
  12. Belgrade Security ForumMigration, Security and Solidarity within Global Disorder: Academic Event 2016