Greece and the EEC

The analysis of the effects of economic integration schemes has been primarily directed to their (static) resource allocation implications. There has always been considerable awareness of the dynamic developmental consequences of discriminatory trade liberalisation and limited policy harmonisation measures involved in economic integration schemes. The long-run developmental implications of economic integration have been extensively discussed with reference to schemes involving the formation of customs unions and free-trade areas among developing countries but inadequately analysed in cases of economic integration involving countries at unequal levels and at different stages of development. Adherents to the (Latin-American) dependency school of development economics and other neo-Marxist economists have stressed a number of regressive effects of processes involving market integration between developed countries and less-developed ones whose lack of a host of external economies makes them particularly vulnerable to competition from their stronger partners.

This chapter attempts an ex-ante estimation of the economic effects from Greece’s accession to the European Economic Community (EEC). Using available pre-accession statistical data and the information relative to the modalities of the Treaty of Accession signed in May 1979 we forecast how income, expenditure and employment would develop under the impact of the integration process and compare the results with a plausible reference run of the Greek economy under the no-accession hypothesis. For this forecasting exercise we used a demand-type econometric model called GRACINT. The principal findings of this econometric exercise are summarised in Table 2.1 towards the end of the chapter.

The objective of this chapter is to explain the contrasts in the performance of the Greek economy between the 1970s and the 1980s and to enquire what role policy changes played in these developments. Between 1950 and 1979 the performance of the Greek economy has been remarkable by any standards, combining very high rates of growth with price stability. Even after the first oil crisis of 1973, the Greek economy showed considerable resilience, continuing to grow at relatively (for the period) high rates while the rest of the industrialized world was passing through an unusually prolonged recession. After the second oil crisis of 1979, the Greek economy suffered a serious setback entering into a period of stagnation, accelerated inflation and early de-industrialisation. It is the purpose of this paper to enquire into the causes of this reversal of Greece’s economic fortunes and to underline the chain of events that brought the country into a vicious circle from which it has not yet extracted itself.

The aim of this chapter is threefold. First, to identify the major developments in the Greek balance of payments over the past five years, since the second oil crisis. Since 1979 the external sector has entered a separate and in many ways dangerous phase, since most if not all balance-of-payments variables sharply differentiate for the worse. Second, to examine the reaction of the external sector to entry into the EEC, with respect to foreign exchange availability and capital movements in general. Finally, to offer a general estimate of the likely beneficial, or adverse, effects that EEC entry has had on the economy, again from the point of view of growth rates and external financing.

Any evaluation of the effects of the first three years of accession on the Greek economy and on its manufacturing sector in particular presents several analytical as well as practical difficulties.

On 1 January 1981 Greece became the tenth full member of the European Community. The single most important aspect of EEC membership for agriculture in Greece is that it now becomes subject to the Community’s Common Agricultural Policy (CAP). As with the UK, Ireland Denmark after the first enlargement of the Community, there is a transitionary phase during which agricultural prices in Greece are to be harmonised with those of the existing Community. During this phase accessionary compensatory amounts are being used to bridge the gap between Greek and Community prices and so, in principle at least, the Community’s common market now encompasses ten countries. As a basis for discussion this chapter provides a brief overview of agriculture in Greece, and presents some estimates of the costs and benefits to Greece of the CAP.

When examining the Greek maritime sector in the context of the EEC it is tempting to emphasise the fact that we are indeed examining a process of economic integration between unequal partners, only that, as opposed to other sectors, the relative importance of the partners being brought together in this case is in reverse order. This is seen clearly from the figures on Table 7.1. The impact of the accession should therefore be examined in both directions.

After a drastic reform of its foreign exchange and international trade system on 9 April 1953, Greece maintained a policy that was pegged to the dollar for about twenty years (until 19 October 1973). Following the breakdown of the Bretton-Woods system of fixed parities, the country operates a heavily managed floating regime where the exchange rate of the Greek drachma is adjusted on a daily basis.

Despite the preponderance of political and strategic considerations in the decision to enlarge the European Community to include three new members from Southern Europe, the core of the academic writing, research and newspaper discussion has concentrated principally on the economic dimensions of this second enlargement. The concern regarding the economic consequences of enlargement — particularly among the nine other members of the European Community —focused on four main issues. First, the three Southern European countries appear to possess comparative advantages in activities which are declining and problem-ridden in the rest of the Community, notably textiles, clothing, steel and shipbuilding. One would then expect that as the customs union and other common policies are extended to the new members, a relative southward locational shift in these industries is likely to take place. Such developments are likely to pose a number of problems to the rest of the Community. Second, in the field of agriculture, fears have been expressed that surpluses of southern Mediterranean products were to be added to the already existing structural surpluses of northern products. Third, all Southern European countries have been regarded as potentially more demanding on the Community’s funds thus aggravating even more the fiscal crisis of the EEC.