Success Stories Made in Greece
European Parliament, 4 December 2012
Commissioner Maria Damanaki delivered a keynote speech at the event "Success Stories Made in Greece", organised at the European Parliament
Greece is in need of success stories. Its fiscal adjustment programme has plunged the economy into a deep recession. Greece needs a gateway towards economic growth and job creation. Improving its business environment is a pre-condition.
Correcting the mistakes of the past
Today, Greece is not only paying for its own mistakes. It is also paying for the rapid and inconsiderate construction and functioning of the euro area.
The design of the euro had structural problems. The common currency was not well equipped to deal with a severe crisis. This became obvious when the crisis hit the most indebted countries. The macroeconomic imbalances inside the euro area were accentuated. Since the introduction of the euro, the competitiveness gap between the richer and the less competitive countries has doubled and it is still getting bigger. A number of countries had been transformed into importers and consumers of goods and services. Encouraged by the favourable financing rates of the euro, they chose to borrow money and to spend without consideration.
Today, we are trying to correct this situation. The economic governance of the euro area is going through a major transformation process. The financial sector is placed under stricter supervision and a banking union is emerging. More needs to be done in order to close the macroeconomic imbalances inside the euro area. The next Multi-annual Financial Framework can play a critical role in this respect. Recently, a Blueprint for a reinforced Economic and Monetary Union was adopted by the Commission. It aims at a full monetary union, equipped with fiscal capacity to protect its weaker members and the real supporting structures of any other currency in the world: the power to raise taxes, to have a full budget, to issue debt, to make decisions. A complete union of responsibility and solidarity will be the target.
What have been Greece's mistakes? What should it do from now on?
A combination of political, economic and social factors contributed to the current fiscal impasse. Greece has grown on an unsustainable and inefficient economic model, based on political clientelism and state interventionism, and driven almost entirely by consumption of mainly imported goods. The whole system was financed by means of external borrowing. Between 2000-2008, private and public consumption in Greece rose by approximately four percentage points of GDP and accounted for 97% of GDP generation. The comparison with countries like Austria, Germany, Belgium and the Netherlands is striking: the respective figure was much lower, around 71%; and it was complemented by higher levels of investment.
At present, Greece is implementing one of the toughest fiscal adjustment programmes in history. However, it is lagging behind at the level of structural reforms.
It is in Greece's interest to rethink its growth model and let its economy blossom. It has great potential which is held back by a multitude of structural obstacles that and affect productivity and competitiveness and create unfavourable conditions for business and investment.
Greece needs political, social, economic and fiscal stability in order to improve its investment climate. The public sector must assist, not undermine the private sector. The tradable sectors of the economy must grow, specialise and become more competitive globally. The Greek economy must become more extrovert. It must produce export goods and import investment capital.
Things are improving
At this stage, can we talk about a success story? Certainly not yet. The recession is omnipresent and the citizens' pain has reached its limits. Wage earners and pensioners have suffered unbearable cuts in revenue. Yet, tax evasion and the grey economy remain intact. And the public administration fails to address the urgent needs of the society.
However, some figures start looking better, under the pressure of the fiscal adjustment programme.
• The public deficit dropped by 6 percentage points since May 2010. It is the biggest fiscal adjustment any OECD country has ever managed to achieve in the last 30 years.
• Inflation fell from 4.7% in 2010 to 0.3% in September 2012 while the average in the euro area was 2,6%.
• The business environment is getting friendlier. The latest World Bank report "Doing Business" ranked Greece as one of the top ten countries that made the most improvement in the 2012 in terms of business environment. Greece climbed 22 positions from last year.
• Competitiveness is improving and the external trade is balanced. Exports of goods increased by 9,8% in the first half of 2012 while imports fell by 13%, relative to the same period in the previous year. Receipts from exports in the period January-September 2012 have grown by 6.9% relative to the previous year. The Greek current account deficit is expected to improve from 11.7% of GDP in 2011 to 5.2% in 2014. According to the Bank of Greece, the loss of competitiveness suffered by Greece during the period 2001-2009 will have been restored by the end of this 2012.
• Bank savings are returning to the Greek banking system. Confidence is being restored.
The way forward
Greece needs positive signals in order to trigger its course of recovery. Most of all, it needs a new model of economic growth based on competitiveness, productivity, extroversion, investments and creation of employment.
Most of the ingredients are already present. Greece must fully exploit its comparative advantages, stemming among others from its unique geographic location, its climate and its soil and its seas. Greece is one of the top tourist destinations, its soil can produce high quality foodstuff, whereas its location at the crossroads of trade routes makes it a first-class logistical hub.
There are sectors with established growth and employment potential, such as tourism, energy (in particular renewable energy), food processing, aquaculture and special agri-food, and the retail sector and, of course, mercantile shipping in which Greece has world leadership.
There is a multitude of other promising sectors whose potential is still unexplored: generic pharmaceuticals, cosmetics, medical tourism, elderly care, regional cargo and logistics, waste management, specialised Greek delis, and even graduate education in fields that are somehow associated with Greece, such as classical studies, ancient drama, shipping or tourism.
The fight to overcome the crisis will make the Greeks stronger, more ingenious and better equipped to meet the requirements of the rising global economic model. This will be the Greek success story.