The Basque country is about to get its worse economic news of the year. Fagor Electrodomésticos is in an irreversible situation, which is pushing the company toward bankruptcy and a massive asset selloff. The latest attempt to get a loan that would enable the company to survive failed yesterday after a Mondragón adviser said no to pumping 170 million euros into Fagor.
On the heels of this decision, Mondragón will try to keep the contagion from spreading to its other companies, some of which are also in trouble. For example, the supermarket chain Eroski carries 2.5 billion euros in debt and lost 435 million euros this year. It is going to be difficult to keep the Fagor liquidation from affecting the rest of the cooperatives, providers, contractors and businesses that collaborate with the firm. This is the CEO's main worry.
Closing part of the company will cut 5,642 jobs in Spain, France, Poland, Morocco and China. 2000 of these jobs are cooperative positions in the Basque country. Waning confidence caused by the selloff could cause many withdrawals from the Caja Laboral and put Lagun Aro in a difficult spot. This is the benefit society that pays unemployment benefits to members of the cooperative. It has 35 million euros ready to deploy but needs to pay 200 million in unemployment benefits.
What is happening at Fagor illustrates the inherent weakness of the Mondragón model, which collects many cooperatives without a unifying strategy or leadership structure. There is cause for concern that a domino effect could create some negative consequences for the Basque economy.
