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Dark Clouds and a Glimmer of Hope over Greece


Image by Theophilos (found on Flickr.com)

Dark Clouds and a Glimmer of Hope over Greece

In this post, guest blogger Dimitris Tsiodras discusses the current situation in his home-country Greece. Mr Tsiodras is a political analyst and journalist for the Greek daily newspaper Eleftherotypia. He is the Head of the Political Desk of its Sunday edition.

“Greek tragedy”, “Greek problem”, “Greek statistics” are only a few of the recent headlines about Greece and its economic turmoil. The economic crisis brought to the surface the problems that laid under the carpet for many years. Before analyzing the recent events, it makes sense to have a look at the roots of these problems.

The main problem of the Greek economy is the lack of competitiveness. In a country where the major part of its economic activity is controlled by the state, businessmen found improving their relationship with politicians and acquiring state contracts more profitable than improving the quality of their products. They did make profits but their products were not competitive in global markets. Their main interest was to maintain the status quo since an open market would endanger their enterprises. The public sector suffered from bureaucracy, lack of meritocracy and extensive corruption. There are only two sectors where the Greek economy is (somehow) competitive: tourism (because of history and natural beauty, not because of the prices and the quality of services) and maritime transports.

The high rates of growth of 4-5% during the recent years—a proof of vigorousness of the Greek economy according to our governments in the past—were due to three reasons:

– Inflows from the EU.
– Public spending through the increase of national debt and budget deficit.
– Private spending because of the reduction of interest rates after the introduction of the Euro.

The participation in the Euro-zone made the situation even worse taking into account that Greece didn’t take measures to encourage innovation and foreign investment, to reduce bureaucracy, to fight corruption and tax evasion and to reform the pension system. In times of economic growth nobody wanted to solve these problems because of the political cost and the reaction by vested interests. Now the situation is different. Maybe the country needed to come to a deadlock before starting to change. The government, under the surveillance of the EU and IMF, is obliged to carry out reforms stagnated for decades. Although Greeks are dissatisfied with the austerity measures, they understand that this is the only way to avoid bankruptcy. They are eager to accept austerity because the alternative is much worse. So the demonstrations are not so big as many expected and extremist groups are isolated. For how long is it going to last? What is going to happen if unemployment rises sharply and the recession deepens? Of course the reactions will be stronger.

At the same time, Greece’s political system, especially George Papandreou’s government, tries to clean up some scandals from the past (Siemens briberies being the biggest one) in order to restore its credibility. The way ahead is not easy because the implementation of the Stability Pact is strongly related to the rates of growth. If the austerity measures are not accompanied by investment (especially foreign investment) in many sectors the fulfilment of the Pact is under question. To attract investment means a different mentality by the public sector and local communities. Not an easy job…

Greece’s problems are partly European problems. My country is “the weak point of the Euro-zone”. The crisis serves as a crash-test for the Euro and the same discussion concerns other countries that also face similar problems, such as Spain or Portugal. Many economists agree that the introduction of the Euro, without the implementation of common policies in many areas, left the weakest countries exposed to “asymmetrical shocks”. The EU had a retarded reaction to the situation, due to miscalculation and internal political reasons in Germany. Now the Europeans are also divided about the way to strengthen the common currency. France believes in closer cooperation and thinks that the best way to get out of the crisis is to increase demand, in order to avoid deeper recession. Germany is in favour of biggest fiscal discipline. What is going to happen in Europe is going to affect Greece. The Greek government is determined to implement the appropriate measures. The speculative rumors about bankruptcy, although the implementation of the program is “on track”, are negatively affecting the whole effort. The months ahead are very crucial. It is said that time of crisis is usually time of opportunity as well. For Greece it might be the opportunity to make reforms that were cancelled for many years. Now follows the painful way for these reforms. We hope that the positive results in the future are going to alleviate the current pain.


Image: © Theophilos (found on Flickr.com)


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