Greece: Attempts To Kickstart Stagnant Economy Meets Some Obstacles

By Andy Dabilis

Despite a second bailout from the EU Troika of 130 billion euros and a just-concluded Private Sector Involvement deal allowing Greece to write off 100 billion euros of debt, worries remain that without critical structural reforms there is no path for growth to save the country’s teetering economy — which is facing an estimated deficit of 117% of GDP in 2020.

The economy has shrunk by 15% since 2008 under the weight of repeated pay cuts, tax hikes, slashed pensions, and upcoming job cuts for 150,000 public workers over the next three years. New conditions cut the minimum wage from 22 to 32%, with more than 1.03 million people out of work.

“Everybody now is talking about growth, but first we have to have structural reforms,” Haralambos Tsardanis, director of the Institute for International Relations in Athens, told SETimes.

Tsardanis added that Greece must liberalise its closed professions, speed the sale or lease of state-owned assets and properties, and stop violating EU laws that prevent private colleges from competing with state universities and laws that refuse to acknowledge degrees from private schools.

“There is political unwillingness … the system is state-oriented and the political cost is too high to take on vested interests,” he said.

A key, he said, is getting rid of state properties and entities, and developing the valuable seacoast site of the former Hellenikon National Airport, a 2.3-billion-euro project.

“If some big privatisations succeed, it will send a message, especially abroad. But it will be a difficult task,” he said.

Indeed, the Troika estimated Greece could raise 50 billion euros in privatisation, but has received less than 2 billion euros so far. Investors are either wary or waiting for the bargain to get better, knowing Greece is desperate for revenues.

There are some signs for the better; the Helios solar project — which aims to harness the more than 300 days of sun per year in the country and export 10 gigawatts of solar power by 2020 –could bring in 15 billion euros; exports reached a record of more than 22 billion euros in 2011, and the trade deficit has been halved to less than 10% of GDP.

But much more is needed, according to economic analysts, and that will take time.

“We are trying to find out where we want Greece to be in ten years,” Aggelos Tsakanikas, head of research for the Athens-based Foundation for Economic and Industrial Research, told SETimes.

He, too, pointed to Hellenikon and said it must be developed. At one point, the former airport was earmarked to be the biggest public park in Europe, but those “green dreams” vanished in the crisis.

“It’s the most valuable piece of real estate in Europe,” Tsakanikas said, adding that the crisis will alter the Greek mindset and drive its young toward entrepreneurship and the private sector.

“The dream was to find a position in the public sector … now that dream is different.”

German Economy Minister Philipp Roesler recently told German daily Saarbruecker Zeitung that Greece needs to create conditions for growth, by modernising the administration, opening up its markets, and implementing its privatisation programme.

“Only when these steps have been seriously implemented will the willingness to invest increase,” he said.

The current hybrid government of PASOK Socialists and New Democracy Conservatives, overseen by interim Prime Minister Lucas Papademos, will give way to elected political leaders in the upcoming spring vote, and some critics fear that the bailouts mean a return to the status quo and no drive for reforms or helping stoke growth.

Tsardanidis said a critical overlooked factor is getting small- and-medium sized businesses going again, as some 111,000 have shuttered during the crisis. Greek banks are also going to get a 48 billion euro recapitalisation from the European Financial Stability Facility.

“They could again play a vital role. There will be an incentive for the banks to invest again and the money will return to them,” he said.

George Tzogopoulos, a research fellow at the Athens Hellenic Foundation for European and Foreign Policy, said Greece must re-invigorate its tourism industry, coming off a record year in 2011. But the country experienced an expected downturn this year with a 30% drop in advance bookings from Germany, and a drop-off looming from British tourists — two key countries for the industry.

“The first thing to do is restore confidence … then we can invest in tourism because we’re a tourism-oriented country. We should reduce prices to attract tourists,” he told SETimes.

He added that the labyrinthine bureaucracy has to be streamlined. “What business is going to come to Greece when it takes two to three months to get paperwork done?”

George Stathakis, a professor of economics at the University of Crete, was more sceptical. “There’s no chance of turning the economy around. It’s an extreme deflationary policy.”

He said liberalising professions such as the taxi industry to increase competition will not work in a recession, and added, “There is no real chance of privatisations because the Greek economy underwent mass privatisations in the 1990’s, so we practically have a private banking sector, communications, private roads, airports, bridges. There’s not much left to be owned by the state,” he told SETimes.