The Greek Economy

John Ioannou is one of Greece’s best political cartoonists. Every Sunday the large-circulation daily Eleutherotypia (‘Freedom of the Press’) publishes a full-page illustrated political satire of Ioannou’s weekly and witty comment on Greek current affairs. In one of his stories, published on 11 September 1994, Ioannou portrays Andreas Papandreou, then Greece’s near-80-year-old socialist Prime Minister, on his flight to Thessalonica, capital of Macedonia. The city holds its 59th International Exhibition, and, according to tradition, the Prime Minister will deliver a speech on the state of the Greek economy. A journalist asks Papandreou for some preliminary remarks. Papandreou replies:

These things are well-known … What our country produces is national issues … We sell them abroad, and in turn get Delors financial assistance packages. We distribute these among contractors, and they hand out wages for diggings here and there — the so-called ‘great public works’. As soon as the Inland Revenue get a sniff of those incomes, they make a grab for a bit of the loot too … In short, this is our economy.

Although no economy is problem-free, some can boast of strengths that far outweigh their weaknesses. Not so to-day’s Greece. True, by the mid-1970s the Greek people had managed to house themselves amply and satisfactorily (but at the cost of anarchic, thoughtless city-planning); almost all Greeks nowadays eat well (perhaps too well!¹), whilst many certainly spend more time enjoying themselves than working productively.² Above all, a Greek (or an Australian or a Spaniard) born in 1992 would expect to live longer (76.9 years) than a person from any other country but four: Japan (79.5), Iceland (78.2), Sweden (78.2), and Switzerland (78).³

At $US70.2 billion, Greece’s official GDP in 1991, at current prices and current exchange rates, ranked ninth in the European Union (EU), above Portugal’s ($US68.6 billion) and Ireland’s ($US43.4 billion), and below Denmark’s ($US 130.3 billion).¹ In terms of GDP per capita, though, Greece, at $US6840 was last in the EU (Portugal: $US6991; Ireland: $US 12 324).² The comparison with Portugal is all the more remarkable, since as recently as 1986 her GDP per capita, at $US2984, was quite below Greece’s, which was $US3987. The change in respective rank reflects positively upon Portugal’s efforts, but also the fact that after a period of high initial growth, as Greece was rebuilding herself after the wars of the 1940s,³ the country’s economic performance has deteriorated markedly since the mid-1970s. The pattern of Greek real GDP growth rates can make more sense if it is associated with appropriate periods of Greek post-war political history. Seven such periods have been identified, and are presented in Table 2.1. The decline has been greater than what would have been expected merely as a result of the two oil shocks (1973 and 1979–80), and of the drop in growth rates across the OECD (see next section). Indeed, if the problem had simply been finding ways to deal with these two factors, then applying appropriate economic policies might have sufficed.

It is nearly impossible to calculate the actual size of the public sector in Greece, whether in employment³ or, more so, output or expenditure terms.⁴ This should not be surprising. Accurate information presupposes transparency and good management. Both have been conspicuously absent from the Greek public sector. The reason, at least in part, is deliberate: more often than not, obscurity has allowed governments and individual politicians to employ people in the broad public sector, or divert funds to political friends or ‘social’ purposes, without due process of law, or accountability. The Greek public sector is a huge, sprawling and amorphous affair, intertwined with the rest of society through umpteen intricate interconnections, fed by expedience and convenience on the part of politicians, administrators, and ‘subjects’ alike. Many would add that the Greek public sector is ineffectual and incompetent. This criticism, however, might be misplaced: the Greek public sector has been relatively successful at discharging its raison d’ etre, namely, to distribute jobs, grants, subsidies, and favours here and there, calculated to buy votes and/or secure apathy.⁵ On top of that, public procurement practices⁶ and the allocation of public works (see Chapter 8) often secure for politicians and public-sector officials lucrative pecuniary benefits in addition to political kudos, whilst lower-level functionaries have to make do with smaller bribes.

Not for the first time in her modern history (see Chapter 1), Greece is having grave difficulties with her public finances. A series of Government Ordinary Budget¹ deficits run in the 1980s in order to curry favour with the electorate, plus pervasive tax evasion, have placed Greek governments in the 1990s in a vicious circle of running deficits (that is, borrowing) in order to service what is, apparently, EU’s third largest public debt. In the same vein, all Greek governments’ singular failure to privatise almost anything adds to the budgetary difficulties, themselves a result, in part, of Greece’s populist version of democracy.

Greek inflation is something of a mystery. The bane, as well as the prime concern, of all governments since 1973, it has fluctuated between 31 and 8 per cent, or around a 1973–95 average of 17.5 per cent, with a standard deviation of 5.8 per cent. The mystery, or perhaps miracle, is that during that period it has not become galloping inflation, but then it has also resisted dropping to one-digit levels. Only recently has the Greek inflation rate actually fallen below 10 per cent (8.1 in December 1995 and 7.5 per cent in December 1996, with a rebound to 9.2 per cent in April 1996); whether the rate will continue moving downwards remains to be seen, but it will be far from easy. Within the extreme values of the 1973–95 period, Greek inflation has shown sharp fluctuations: easy to shoot up, easy to come down.

With an ageing population and a weak economy, Greece is set to face a most difficult situation in the near future as the time bomb of her social security plight keeps ticking.² But Greece’s alarming demographics are only partly to blame for what is happening: atrocious state policies pursued over many years made it impossible for social insurance organisations to manage their finances effectively or even prudently. In addition, not keeping welfare policies clearly apart from the running of business enterprises or of the civil service resulted in gross inefficiencies and waste in both the welfare and the production fields. Solutions are now hard to find, and much harder to apply.

A broad definition of the ‘real’ economy involves the production, transportation, and selling of goods and services — as opposed to the exchange of paper assets, which is the concern of the ‘paper’ economy of the world of finance. A narrower definition would focus on material goods only; sectors like industry, commerce, agriculture, shipping, supermarkets, construction. Either way, the ‘real’ economy, directly or indirectly, is, and always will be, the foundation of the economy as a whole. In Greece the survival, and, here and there, good performance of the ‘real’ economy, despite the weak infrastructure of the country and atrocious state policies, is almost a mystery — until, that is, one realises that, when all is said and done, people need the ‘real’ economy in order to make a living.

Early in the evening of 22 July 1995 thick smoke blackened the skyline to the north of Greater Athens. Parts of Mount Penteli and the countryside nearby were burning. The fire would rage for three days and two nights, turning 50 000 stremmas¹ (= 50 sq km) of woodland and dozens of homes (mostly villas and cottages) into ashes. Once again, it would also prove the inefficiency of the state apparatus — not so much in fire control terms² as in its inability to remove the incentive to commit this type of arson.³

Tourism is one of Greece’s five major industries (the other four being agriculture, food and drink processing, construction and shipping). A sixth — entertainment in all its forms — should also be given pride of place, only to a large extent it overlaps with tourism. So does transport, for that matter, and construction, on account of the hotels and rooms-to-let continuously built in Greece in order to accommodate the crowds of tourists. On the face of it, tourism is a success story: in 1995 10.7 m. tourists arrived at Greece, about the same number as the local population. It is also the only industry that is truly universal, open to anybody anywhere, involving entrepreneurs of any financial means, umpteen kinds of businesses, premises of any size, urban as well as rural Greece. But development of the industry has happened haphazardly, often stupidly, with no clear overall direction, and to the detriment of picturesqueness and the environment. One could say that in her opportunistic and frantic attitude to tourism Greece has been killing the goose laying the golden eggs.

One can start with the trivially obvious: that different countries differ from one another. One of the main points of this book, however, is that Greece for a variety of reasons has been backsliding for some time now. Does this make her somehow unique?

In some ways this is perhaps the most important chapter of this book. Even though Greece’s on-going economic and social crisis (analysed in the previous chapters) is serious enough, it is her problems with Turkey which may precipitate the overall crisis which will force Greece, finally, to confront her ‘backsliding’ in a creative and resolute manner. Those problems are exacerbated by current Western foreign policy thinking that Turkey is very important strategically to the West.¹ They also determine the context in which Greece must attempt her economic recovery as well as the dire urgency of the task. In a broader but no less compelling sense the post-Cold War international environment is an interesting set of opportunities and threats: on the one hand the Balkans and the ex-USSR are opening up to world trade and private investment; on the other Greece’s foreign policy options currently appear to be circumscribed by Russia’s weakness and the West’s supremacy, while the twin processes of Emu in Europe and of global economic deregulation put her already weak economy under severe pressure to perform better or else.