Greece, the cradle of Western civilisation and land of ancient gods and goddesses, has been experiencing an economic nightmare since the middle of 2009 and an uncertain future lies ahead. This article is an attempt to describe some of the reasons for the present crisis.
Much of what is reported in the press is about Greece these days is true. However, there is also good news about the country that has not filtered out, such as the amazing 800% increase in exports in 2011.
As far back as the glorious summer of 2004 when everybody in Greece was proud to host the Olympic Games there were signs that things weren’t as good as they sounded. The introduction of the euro 18 months before the games brought a rising cost of living. With food costs steadily increasing the price of bread doubled from 2001 and so did many everyday staples, as well as rent and utilities.
In many ways, today’s Greece is as modern as every other EU country. TV has penetrated even the humblest dwelling, traffic congestion caused by heavy car usage is a fact of life and very high rates of mobile phone penetration mean that most young people have a mobile phone. Yet next to this 21st century reality subsistence agriculture continue to exists, particularly in remote rural areas.
A brief glance at the postwar period
The post WWII period was a difficult one for Greece and the country’s recovery was delayed by a prolonged civil war, fuelled by Cold War politics. The result of the civil war was the establishment of an anti-communist military government from 1967 to 1974, causing political polarisation that lasted well until the mid ‘80s.
Such ruinous post-war politics, together with the deteriorating relationship with Greece’s neighbour Turkey, didn’t bode well for a full economic recovery. In contrast to many other European countries the Greek economy remained largely stagnant, reliant on agriculture (15% of its GDP), fishing and on the growing tourism sector. Even its agricultural sector, however, was based on small landholdings. This was mainly the result of complex inheritance laws, but small holdings were inappropriate for mechanisation and with the added problems of low rainfall and centuries of soil erosion, yields were low. Nevertheless, Greece was able to develop one of the world’s largest merchant shipping fleets, operated by well known tycoons such as Aristotle Onassis and Stavros Spyros Niarchos (the so-called Golden Greek).
Greece is therefore a new democracy, only 38 years old, and it’s only during the last few decades that the country has managed to enjoy political stability.
The rot sets in during the mad ‘80s
In 1981 Greece joined the then European Community. By then the drachma was by far Europe’s oldest currency, having been used for more than 2,500 years. Yet Greece replaced its currency – like Italy – without any special preparation. To make matters worse, in the first seven years of the third Hellenic Republic, established in 1974 just after the era of the military Junta, the then government signed a number of foreign contracts of dubious nature comprising the release of interests such as the Aegean oil fields (worth of 600 billion Euros), the Ionian sea gas fields (Shell) and the gold in Epirus (European Goldfields Ltd). No one really knows the exact details of such contracts, but at a stroke very large and lucrative assets were removed from the economy. Similarly, the precise conditions of the old Germany/Greece war debt continued to be in place, as well as being unclear.
Meanwhile, the Greek political environment was changing. Trade unions were becoming increasingly strong, spurred by the election of Andreas Papandreu in 1981 and by his agenda based on nationalised services, closure of US bases and general protectionism.
The creation of a very large and artificially inflated government structure fostered political patronage and deeply affected the population’s perspective on employment prospects. It was every Greek’s ambition to gain a safe government post, where they could work as untouchable civil servants, with very good prospects in terms of conditions and pension.
By neglecting the private sector Greek economic performance suffered, with a trebling of its debt-to-GDP ratio, from a figure of 34.5% in 1981 to triple digits by the 90s. Thus were laid the foundations of the current crisis.
In addition to internal circumstances, outside influences were also taking their toll. For example, the global economic recession caused the shipping sector to decline and foreign remittances from emigrant workers abroad also reduced. Fewer tourists travelled due to the threat of terrorism and the Iranian oil revolution brought very high inflation and internal instability. Striking workers and economic uncertainty pushed a number of leading global brands out of Greece, fleeing to neighbouring countries like Turkey.
By the end of the 80s inflation in Greece had reached 19%, three times the EU average, and by 1991 interest payments on public loans had soared to nearly 12%. These parameters were quite outside those dictated by the Maastricht treaty for convergence.
Welcome to the Eurozone
But Europe wanted Greece as part of the Eurozone, so a large EC loan, delivered in two stages, and an austerity program stabilised the economy, reducing inflation to 3% by 1999. This allowed Greece to meet the criteria for entry into Eurozone. At first this move stimulated economic growth, which was up to almost 4% in the late 90s, and indicators were so good that Greece was considered by many to have reached a stage of economic maturity.
However, while the books had been balanced, the expectations of Greek citizens had not evolved – people still wanted a secure job in the civil service. Furthermore, agriculture continued to languish and more youngsters from rural areas just wanted to leave for the capital, where the civil service jobs were.
The opportunity to redraw the economic map of Greece, thanks to the EC loan, had been squandered, with two vital sectors such as tourism and agriculture having benefited little from it.
- Huge and unknown total debt burden, bearing in mind there are still old war debts with Germany in the settlement
- Economic imbalances – a centralised and civil service-ruled economy needing to move into private enterprise (there are signs that this is beginning to be addressed)
- Weak political system based on patronage
- No service culture, which could easily assist the economy to grow and cut the deficit
- Great structural problems in the heavily subsidised and inefficient agricultural sectors, with producers having to re-learn how to sell in a global market
- The brain drain, as innovators leave the country
- Very low trust from other EU members due to the above issues
- No realistic business plan on how to avoid bankruptcy, with the risk that such a course of action might, in fact, greatly benefit a few key players
- Media controlled by few influencers
- Bureaucratic system considered one of the worst in the EU, thus making almost impossible for foreign investors to operate efficiently
- Natural resources that remain undeveloped
- An export sector rising too slowly
Future opportunities and Brand Greece
The recent crisis has caused Greeks to rethink about the economy and their expectations. Some are even returning to the countryside, improving agricultural practices or opening up ancillary businesses based on specialised tourism activities.
Private enterprise is growing, but its growth is still hampered by the substantial brain drain, which has caused hundreds of thousands of Greeks to flee to other EU countries, and the country’s notorious bureaucracy. The Greek government is beginning divest itself of large national interests, moving the resources to the private sector. This could represent good investment opportunities, particularly for foreign investors.
The renewable energy sector represents an area of opportunity where Greece could lead the way, particularly in solar and wind power generation.
As for Brand Greece, this has, without a doubt, taken a dent. The country remains much loved by countless tourists across Europe, particularly Germans (it’s said that at least 10% of all German MPs own land in Greece) but higher prices have removed some of its shine. The Greek heritage continues to play a good part in brand awareness, as well as other factors such as climate, culture and food.
Lastly, the enterprising spirit of the Greek people and, in particular, its trading inheritance, can present another opportunity for this country to create bridges with other Balkan and neighbouring countries, assisting businesses from the European mainland in order to develop effective economic linkages.
Communicating with the Greek market remains the remit of local experts like PRandMore, consultants that can help your business to adapt to the local circumstances, addressing local issues and turning them into opportunities.
- Eurozone crisis live: Greek government wins confidence vote ahead of Eurogroup meeting (guardian.co.uk)
- Greek businessmen certain that Greece will stay in Eurozone (english.ruvr.ru)