Left-wing anti-austerity party Syriza swept to victory in Greece last night, winning 149 of the 300 seats up for grabs in the country's election. The ruling New Democracy (Nea Dimokratia) took just 76 seats.
Syriza leader Alexis Tsipras has since restated his intention to renegotiate Greece’s €240bn ($270bn) bailout, raising concerns the country will leave the Eurozone if it cannot agree a deal with key creditors,Eurozone governments, the ECB and the IMF.
News of the result was accompanied by a sharp fall in the value of the Euro against the dollar – this morning one euro was worth just $1.10 – with observers saying the decline reflects fears about Greece’s inability to repay its debts.
Pharmaceutical debts
The drug industry has been impacted by Greece’s lack of cash.
In November, Merck & Co ($MRK) reported that the country’s public healthcare system owed it $71m for drugs supplied on credit. Days later Pfizer ($PFE) reported that Greek debts were part of a total of $907m it is owed by struggling Eurozone countries.
While most drug companies can absorb such debts for a short time, the situation is not sustainable long term and may prompt manufacturers to rethink their activities in Greece according to Joshua Owide, GlobalData’s Director of Healthcare Industry Dynamics.
“With cost containment already affecting profitability of multinationals in the EU region, the debt crisis is a deterrent, and may have long-term implications on their willingness to operate in the region.”
He added that: “If Greece were to scrap its austerity measures then its deficit could increase sharply, further affecting its ability to settle outstanding payments, and further driving out companies operating in the region.”
Post Grexit?
But while a higher Greek deficit could saddle the drug industry with more unpaid bills short term, in the longer term the reintroduction of the drachma may be good for business according to Owide.
“The long-term benefits from regaining control over its economic situation, and attempts to stimulate the economy, such as by exiting the Eurozone, might provide a more long-term platform for economic recovery, and therefore increase its ability to settle its trade deficits in the future.
“In the event that Greece does exit from the Euro, multinational drug companies will have to rethink their drug pricing structures and existing trade receivables owed on the basis of the strength of the Drachma.”