February 29, 2024

Slow Payers Hinder Trade in Europe

ZARAGOZA, SPAIN — In 2001, an agricultural co-op here was supplying truckloads of wheat to an Italian pasta maker. At first, no one at the Spanish co-op, Arento, was much alarmed when the pasta factory in Milan fell behind in its payments.

The co-op did not cut off the credit until the pasta company owed €1 million, or more than $1.4 million today, never realizing how hard it might be to collect a debt in another country in the European Union. But now, a decade later, having spent years in the courts and tens of thousands of euros on legal bills, Arento has recovered only half of what was owed.

“We came face to face with the Italian legal system,” said Luis Navarro Olivares, Arento’s director general. “The trips to Milan were Kafkaesque. Really, Italy is too far away on a cultural level, a legal level and an administrative level.”

In theory, the European Union is one gigantic economic zone of about 500 million consumers all integrated into the world’s biggest trading bloc. But the ideal is still far ahead of the reality, particularly for businesses that end up trying to collect debts across the Union’s many borders. There are still 27 different national legal systems at work in the bloc, each with its own procedures for handling claims, property attachment and bankruptcies.

European officials say at least €55 billion a year in debt is simply being written off, much of it because businesses find it too daunting to press expensive, confusing lawsuits in foreign countries.

Officials and business leaders say they believe that debt collection problems are a profound deterrent to commerce within the European Union and one of the reasons that job creation and wealth generation falls consistently behind the United States, where pursuing debts across state lines is a comparatively easy task.

With much of Europe still caught in an economic slump and several countries weighing down the bloc’s growth prospects because of huge sovereign debt problems of their own, E.U. officials are starting to circulate proposals for fixing this comparatively simple problem, in hopes of yielding a quick, cost-free stimulus to Europe’s financial health.

Debt collection is just one example of the shortcomings of a market which, for legal, linguistic and cultural issues, rarely functions as a single space. Professional qualifications in one country often are not recognized in another, for example, and local business regulations frequently make it hard for Europeans to set up shop in another E.U. country.

A more effective single market, the Union officials say, could generate €60 billion to €140 billion in additional trade — the equivalent of an additional 0.6 percent to 1.5 percent of the bloc’s gross domestic product.

But individual E.U. countries still jealously guard the right to control many regulations covering business, and to operate independent civil and commercial legal systems.

Valle García de Novales, a lawyer here in Zaragoza who specializes in international commerce, tells her clients that any debt of less than €100,000 is not even worth pursuing in court.

“You let it go because it is just too costly,” she said.

What is worse, many companies have been so discouraged that they have given up on doing business across borders. Meanwhile, fewer than 10 percent of European consumers buy anything from a Web site outside their home country.

In an effort to improve the situation, the European Commission, the bloc’s executive arm in Brussels, is working on a series of proposals to improve the single market. They include 12 priority changes to help reinvigorate the single market, from an agreement to recognize one another’s educational qualifications to an E.U.-wide system for registering patents.

This year, it is expected to propose a standardized Europe-wide system to freeze the amount of money owed to a company in the debtor’s bank account. That would prevent it from being moved to another country — often as easy as a mouse click — while providing an incentive to settle the claim quickly.

Article source: http://feeds.nytimes.com/click.phdo?i=6c2be1ee2d49c890455c0573529c3bc8

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