It won’t be easy!
Indeed, the national debt, put at €350 billion is bigger than the country’s economy, with some estimates predicting it will reach 120% of gross domestic product in 2010. The country’s deficit is 12.7%.
Greece’s credit rating – the assessment of its ability to repay its debts – has been downgraded to the lowest in the euro zone, meaning it will likely be viewed as a financial black hole by foreign investors. This leaves the country struggling to pay its bills while interest rates on existing debts rise. The Greek government, which inherited much of the financial burden when it took office late last year, has already scrapped most of its pre-election promises and must implement harsh and unpopular spending cuts.
As already mentioned, the government has started slashing away at spending and has implemented austerity measures aimed at reducing the deficit by more than €10 billion. It has hiked taxes on fuel, tobacco and alcohol, raised the retirement age by two years, imposed public sector pay cuts and applied tough new tax evasion regulations. Due to these measures, there have been warnings of resistance from various sectors of society.
Workers nationwide have staged strikes closing airports, government offices, courts and schools and this industrial action is expected to continue.
If you go back some years ago and look at the history, Greece, as an economy, has always been subjective to and directly correlated to foreign investment. From the 60`s when the majority of the foreign investors came in Greece (especially the Americans) the country has started to get out from the agricultural economy and developed the services more (mainly tourism) and trading sectors.
During the 80`s, despite its membership in the EU, Greece suffered from poor macroeconomic performance due to expansionary fiscal policies that led to a tripling of the debt-to-GDP ratio, which went from the modest figure of 34.5% in 1981 to the triple digits by the 90’s.
The second oil shock after the Iranian revolution hurt Greece, and the 80`s were racked by high inflation as politicians pursued populist policies. The average rate of inflation in Greece during the 80`s was 19%, which was three times the EU average. The Greek budget deficit also rose very substantially during the 80`s, peaking at 9% in 1985. In the late 80`s Greece implemented stabilization programs, cutting inflation from 25% in 1985 to 16% in 1987.
The debt accumulated in the 80`s was a large problem for the Greek government, and by 1991 interest payments on the public debt reached almost 12% of GDP. When the Maastricht Treaty was signed in 1991, Greece was far from meeting the convergence criteria. For example, the inflation rate of Greece was 19.8%, while the EU average was 4.07% and the government’s deficit was 11.5% of GDP, while the EU average was 3.64%.
Nonetheless, Greece was able to dramatically improve its finances during the 1990s, with both inflation and budget deficit falling below 3% by 1999. Thus, it met the criteria for entry into euro zone (including the budget deficit criterion even after its recent revision, calculated with the method in force at the time). The Greek economy also exhibited strong growth throughout the 90`s, which has continued into the new millennium.
The significant evolution for the Greek economy, according to some analysts, started in the beginning of 2000, when the country experienced the implementation of major structural projects due to the forthcoming Olympic Games that happened in Athens in 2004.
In parallel to the investments that happened due to the Olympics, Greece as a new member state of the euro zone back then was receiving considerably high amounts of European funds that supported entrepreneurship and the establishment of new companies.
Greece until now has developed a brand new modern infrastructure network and services, well-developed human resources (highly productive, well-trained and educated workforce, and one of the lowest labor costs in the EU) and is an important centre of business, research and cultural activity.
Also, Greece offers accessibility to the sizeable emerging markets of the Balkans, Black Sea, Eastern European and Eastern Mediterranean regions through an extensive network of over 3,000 export and investor Greek companies and is still among the top investment partners in Romania, Bulgaria, Serbia, Albania and FYROM. In the maritime industry, Greece is undoubtedly the global leading power, holding the first place in terms of ship ownership.
“The Greek public sector is quite big in terms of numbers/employees but not efficient enough in terms of productivity and also not transparent enough in terms of cases that included corruption and fraud”
As a notable example of the private sector’s development efforts, we can still identify Greece as one of the significant players in SEE Region, mainly within the financial services (Greek banks have been among the top performers in the European banking sector and their operations were expanding at doubledigit rates of growth every year before the downturn), as well as the telecom industries.
However, when we speak about the Greek economy, it is essential to differentiate between the Greek private sector and the huge Greek public sector. The main developments and growth that occurred in the country during the last years was the outcome of the efforts that were orchestrated mainly by the Greek private sector. The Greek public sector is quite big in terms of numbers/employees but not efficient enough in terms of productivity and also not transparent enough in terms of cases that included corruption and fraud.
The specific part of the Greek economy is the one that suffers mainly right now and is the one that has created the main troubles for the country due to the lack of control mechanisms both by Greek governments throughout the years, as well as by the country’s European partners.
We have to note also that based on the Greek constitution, no public sector employee can be fired unless there are specific fraud cases that can be proved in the court. This last fact is quite significant if we would like to introduce performance management and continuous improvement, concepts and ideas that are practically nonexistent in the Greek public sector.
In other words, we have been “ill” for many years, but nobody, including politicians, took the generous decision to “visit the doctor”, “receive the diagnosis” and reform significantly. The result of this lack of decision making and actions created the situation that we face right now. To my view, the problem that Greece is facing right now is a crisis that derives from the system itself, as well as from the politicians (of course with some notable exemptions).
Right now, we have to reconsider our options, act according to integrity & transparency principles and work harder to get out of this situation. It will take time and, of course, there would also be casualties (as in every war). However Greek people have proved in the past that if they are united and committed they can make it happen.
The structural economic reforms implemented by the government, including the Development Law, the Tax Law, the Public Private Partnership Law, and the Investment Incentives Law, all aim at supporting Greece’s competitiveness and upgraded regional role.
Athena Tavoulari, Regional Manager of Stanton Chase, Managing Director Bucharest office
Also a Greek living in Romania for more than a year, she is focused on the SE European region, being accountable for new business development opportunities, as well as for the identification and exploitation of regional cross office synergies between the Athens, Belgrade, Bucharest and Sofia offices.