This article first appeared in the weekly newspaper Die Zeit on April 18, 1986.
German holidaymakers would probably lose their appetites if they learned the origins of their dinners at restaurants near the Acropolis in Athens: While the pork souvlaki skewers most likely came from German pig farms, the legendary “Greek” goat cheese probably was imported from special factories in Denmark. Not to mention, of course, that dairy cows from Germany’s southern Allgäu region produced the milk for their Greek coffees.
That a member of the European Community would be forced to import so much dairy and meat highlights the horrible state of the Greek economy.
The Organization for Economic Cooperation and Development (OECD) rated Greece as lagging in almost all aspects of its latest country report. All sectors of the Greek economy suffer from structural problems, holding back growth. Much of the blame can be placed at the feet of Andreas Papandreou’s socialist-led PASOK government.
The OECD’s assessment is dire: While all other western industrial nations showed sinking inflation in 1985, Greece saw it rise to 19 percent. For 1986, prices are even expected to surge 21 percent. The average growth rate for western nations is likely to be around three percent, but Greece’s gross national product could shrink by one percent. Last year, there was still real growth of three percent, but the unemployment rate of 8.5 percent was only kept from going higher by an excessive social policy.
Greece has been a member of the European Community for five years now, but the hopes associated with its joining have only been partially fulfilled. Transfers from the E.C. coffers have undoubtedly eased the country’s chronic financial woes, but access to the E.C. market with its 200 million consumers has failed to boost exports. On the contrary, in the year of its ascension in 1981, Greece was flooded with E.C. products. Far more products were imported into the country than exported back to the rest of the Community. Doubts and warnings from economists were downplayed and dismissed.
But the Greek economy is in desperate need of structural reform, should the country ever hope to take advantage of its E.C. membership – aside from transfers from European coffers.
Greece’s integration into the European Community was largely a politically motivated decision. The fact that the new member’s economy was on the cusp from a developing to an industrial nation was essentially ignored.
Much of the economy still depends heavily on agriculture, accounting for a third of all employment. In West Germany, for example, only every 20th job is in agriculture. Poor equipment and small farms mean Greece has the lowest productivity of the Community. Joblessness still dominates the countryside, with full employment only at harvest time.
Poor prospects in agriculture have spurred migration to the two large urban areas Athens/Piraeus and Thessaloniki, where now half of the almost ten million Greeks live. More than half of Greece’s industrial base is concentrated in these two regions, with Athens/Piraeus accounting for 40 percent alone.
Whereas the construction sector has lost importance, much of Greece’s industry is focused on consumer goods, such as textiles, clothing and leather. The prospects for its shipyards and shipping lines is grim: The time when shipping magnates like Aristotle Onassis and Stavros Niarchos controlled their fleets from private Aegean islands is long gone.
A trip on the Bay of Salamis is sobering: several hundred cargo ships, freighters and tankers are moored here. The world’s largest ship graveyard is all that remains of Greece’s once proud fleet. Sinking cargo prices, the Iran-Iraq War and increasing oil deliveries via pipelines have decimated what was once the most important sector of the Greek economy. Income from shipping has been cut by 50 percent since 1981.
The fundamental weakness of Greek industry is based on its labor-intensive and low-tech production, as well as widespread poor quality. High inflation has caused wages to rise, in turn raising production costs. The result is that productivity from 1974 to 1984 grew by just 23 percent, as real wages surged 83 percent. So it’s little wonder that many Greek products are expensive compared internationally. This has resulted in sinking export revenues and increasing import restrictions to protect domestic producers. Some of the import levies are higher than before Greece’s entry to the European Community.
“The industry has clay feet. The thought was never to leave them unprotected, without customs. We need some time to adjust,” said Mr. Papandreou in justification.
But the Greek economy is in desperate need of structural reform, should the country ever hope to take advantage of its E.C. membership – aside from transfers from European coffers.
Greece’s state finances are also cause for concern. Expenditures under Mr. Papandreou grew faster than even under his predecessor. Many ailing firms were kept alive just to keep unemployment from rising, and the government has nationalized some 40 companies. Many people, who otherwise would have lost their jobs, were suddenly made government employees. Almost half of all civil service jobs are filled twice, without increase to the state’s productivity. Such measures are undoubtedly the most expensive way in the world to fight unemployment. So it’s no wonder that the state now accounts for around 50 percent of all domestic wage payments.
The result of these economic policies is growing public debt, which last year topped around 13 percent of the country’s entire economic product. This growing debt is financed by loans from Greek commercial banks and foreign financial institutes. The foreign debt obligations alone are $15 billion and debt servicing ate up in 1985 almost a quarter of export revenues.
Increasing the money supply is a popular way to finance all this. Last year alone, the central bank printed 30 percent more drachma notes than the year before, causing a surge in inflation.
The country’s financial crisis is exacerbated by its banking system, which is under state control. Savings are shifted to where the government wishes and not necessarily where they would offer the best return. Hardly anyone could make sense of the over 90 interest rates used in 1984. Occasionally, rates for some loans were lower than even those for savings – a monetary policy likely giving most bankers nightmares.
But Mr. Papandreou has apparently realized things cannot continue as they have. The socialist, who railed against the stability program from the International Monetary Fund last October as an instrument of U.S. imperialism, has now returned to what he used to teach as an economics professor at Harvard University during the Greek dictatorship. “We cannot keep on spending more than we produce with our economy,” he said, announcing a reform program quite similar to what the IMF suggested.
The bitter medicine will be hard for Greeks to swallow, with disposable income set to sink by six percent this year. But Mr. Papandreou knows the drastic spending cuts are the only way for Greece to close the gap with its E.C. partners and modernize the backward Greek economy.
He has realized that the goal of building a common market in Europe can only function if members have roughly a similar level of economic development. “If we had to make the choice again,” said the Greek leader, “it would have been wiser to keep the associate member status. The integration came too early and too fast and meant too much competition for our industry.”
