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Greek Recovery: Real or Not?

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The euro crisis, often called an existential threat to the European Union, is undergoing its own existential crisis of sorts, as the debate over austerity versus spending reaches a fevered pitch.

With the 17-member bloc that uses the euro mired in recession for a sixth quarter now (a longer stretch than what occurred during the 2008-09 financial crisis), the eurozone just can't seem to dig out of its fiscal hole. Italy's recent election was nothing short of a political circus, Spain is still in financial shambles, Cyprus had a complete banking meltdown, and France is rebelling against Berlin's prescribed austerity measures. Even Northern European countries are registering anemic growth. Meanwhile, Germans, tired of bailing out profligate governments and being labeled the bad guys, head into a critical election this fall as skeptical of the European project as many of their downtrodden neighbors to the south are.

But remember Greece — the first country that almost sunk the euro? It's still there — and still drowning.

Ambassador Christos Panagopoulos, however, refuses to throw in the towel and insists the economic tide is shifting, even though the numbers coming out of Athens are downright miserable at the moment.

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Photo: Lawrence Ruggeri
Ambassador Christos Panagopoulos

With the Greek economy in its sixth year of recession and GDP projected to shrink by 4.2 to 4.5 percent in 2013, it's hard to imagine how things could get any worse. In fact, the economy has contracted roughly 20 percent over the last five years, buckling under the weight of deep austerity measures and tax hikes. Unemployment now stands at 27 percent — nearly three times what it was when the Greek debt crisis emerged in 2009 — while the jobless rate among those ages 15 to 24 jumped to a staggering 64.2 percent in February from 54.1 percent a year earlier. More young people are jobless in Greece than anywhere else in the eurozone, including Spain, where youth unemployment has reached 55 percent.

Panagopoulos, who became Greece's ambassador to the United States last September, agrees that the austerity program has been "very painful" for his country's 11 million citizens. But he insisted that the outlook for his troubled nation — which takes over the six-month rotating presidency of the EU on Jan. 1, 2014 — is slowly improving.

"We are making much better progress. I'm quite optimistic in the sense that our debt is sustainable. By next year, we're going to start seeing growth, and our economy will take off," he confidently told The Washington Diplomat. "We cannot say we are out of danger, but we are already in the recovery process and things are getting better. We lost lots of competitiveness between 2005 and 2009, but we have since regained 75 percent of our productivity."

Indeed, the European Commission predicts a gradual recovery in 2014, particularly in the tourist sector, a key economic driver. In April, investment ratings agency Fitch even upgraded Greece's sovereign credit rating by a notch, helping to push bond yields to a three-year low. Citing Greece's progress in trimming the budget deficit, EU officials continue to disperse bailout funds, which total €240 billion over the last three years. They may also ease some of the demands on Greece to slash its debt — which stood at 160 percent of its GDP as of last year — if Athens remains on course.

Prime Minister Antonis Samaras has even managed to hold his fragile political coalition together in the face of widespread anger over austerity policies that have made the situation dire for millions of Greeks (everything from prostitution to suicides to child hunger has skyrocketed).

During our interview, Panagopoulos made a valiant attempt to portray Greece's problems as exaggerated. He said the world media has unfairly painted an overly bleak picture of the Greek economy.

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Photo: Gerard McGovern / http://flickr.com/photos/89969871@N00
The Hellenic Parliament in Athens looks out over Syntagma Square, the site of regular protests since Greece's economy crashed in 2009, triggering the euro crisis.

"It takes a lot of hard work to reverse that image. What you read all the time doesn't necessarily correspond to reality," he said. "Greece is still one of the richest countries in the area. If you compare us to other countries in the neighborhood, in terms of per-capita GDP, doctors per 100,000 inhabitants and other measures, we're still number one."

The ambassador also said the Greek public sector is actually smaller than the average for the 27-member European Union — an observation that, in fact, appears to be based on solid data. According to European Central Bank statistics from 2011, Greece employed 29 percent of its labor force in the public sector, compared to 31 percent for France and 38 percent for Belgium.

Yet there's no doubt Greece's public sector, where positions are often permanent and handed out as political favors, is notoriously bloated. So in late April, the Greek government began firing public-sector workers en masse for the first time in more than 100 years — part of an effort to lay off 15,000 civil servants by the end of 2014 and 180,000 by 2015 under an austerity agreement imposed on it by the "troika" of the International Monetary Fund, the European Commission and the European Central Bank.

"This is not a human sacrifice," declared Prime Minister Samaras, who announced the layoffs in an April 26 televised address. "It's an upgrading of the public sector and it's one demand of Greek society."

There have been many other demands as well. In return for bailout money, Greece has had to raise its retirement age, slash the minimum wage, cut pensions, and increase the value-added tax — already one of the highest in Europe — and go after the country's chronic tax evaders.

"We do face economic difficulties. It doesn't mean we're going to come to a standstill," said Panagopoulos. "The problem is that we've been in the eye of this turbulent economic crisis, and we are asked to take measures in a period of a few years, while other countries took decades to reform their economies. It's very painful for us."

In fact, it's painful for a whole lot of people all across Europe, where unrelenting unemployment and soaring public debt in Spain, Italy and elsewhere have sparked a backlash against the austerity-driven dogma embraced by Brussels until just recently.

Supporters of "fiscal consolidation" (i.e. austerity) maintain that spending cuts and tax hikes to curb ballooning deficits — coupled with structural reforms to create a flexible labor market, boost competitiveness and attract investment — are the best anecdote for an ailing economy.

Critics of immediate austerity say it perpetuates "a vicious cycle where cuts in spending lead to job losses which lead to less private spending which leads to a shrinking economy which leads to lower tax revenues, which leads to the apparent need for still more austerity," as a 2012 report by the Brookings Institution put it.

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The Keynesian anti-austerity approach encourages public spending and relaxed monetary policies to stimulate private growth — thereby generating more tax revenues — with an eye on reducing debt only after a recovery is firmly in place.

The fixation on austerity in Europe seems to be easing, if only slightly. José Manuel Barroso, president of the European Commission, recently said that while the EU's belt-tightening was "fundamentally right, I think it has reached its limits in many respects," echoing a growing consensus that more focus needs to be put on job growth.

Spain and France, for instance, received more time to get their budget deficits under control. Ireland and Portugal were given more leeway to pay back bailout loans. And even fiscally sound governments in Northern European have increasingly come under fire for excessive savings rate that critics say have triggered imbalances in the eurozone.

The blowback has been particularly acute against Germany, Europe's strongest economy. French Socialists have dubbed German leader Angela Merkel the "chancellor of austerity," signaling a rift in the critical Franco-German alliance. Nazi effigies are common sights in anti-austerity protests.

 

Berlin counters that the debate has been oversimplified. It's not only asking governments to pare back spending, but also to liberalize their labor markets and clean up their public finances — the type of reforms Germany underwent a decade ago to make it the export-driven powerhouse it is today.

Despite the rhetorical shift, German-mandated austerity policies are likely to continue, with only minor relief in sight.

Panagopoulos says he doesn't have anything against Germany or the government of Chancellor Merkel, "but we have to face reality. They're making a big margin of profit" from the bailout package recently approved with support from Berlin — with the aim of cutting Greece's sovereign debt to 124 percent of GDP by 2020, about 20 percentage points lower than the government's current debt path.

"The Germans gain a few billion euro every year out of our tragedy," said the ambassador. "They didn't spend a penny. They lent us money and have every reason to support us and get out of the crisis. If we go bankrupt, they're going to lose everything."

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Photo: CIA World Factbook
A view of the capital of Athens is seen from the Acropolis.

He continued, with more than a touch of resentment: "We are not lazy at all. I'm not saying that before this crisis Greece was a paradise, but unfortunately we were put in the middle of this global economic crisis. Let's face it, this is not a Greek crisis, and we need some help to get out of it."

Panagopoulos has been upfront in pleading Greece's case to the media and other groups in Washington. We happened to interview him on April 16, the day after the Boston Marathon bombing — an event that hit home for the ambassador. Early on in his Foreign Service career, Panagopoulos spent five years as Greece's consul-general in Boston, ending that assignment as dean of the New England consular corps.

One of the highlights of his job was to present olive wreaths from Marathon — the ancient Greek town outside Athens that gave the race its name — to the male and female winners of the Boston Marathon.

Panagopoulos, 59, is originally from Kalamata, a town of about 70,000 in the Peloponnese region of Greece. Besides Greek and English, the ambassador also speaks French, Spanish and Latin (his wife is from Panama). He joined the Greek Foreign Service in 1978 and began his career at the Greek Embassy in Ankara. Since then, he's served as ambassador to Cyprus (2000-05) and Serbia (2005-08), as well as director of the diplomatic cabinet for the Greek minister of foreign affairs.

He took over his current post in Washington from Vassilis Kaskarelis, whom we profiled exactly three years ago at the height of the Greek economic meltdown (see "Greece Confronts Modern-Day Epic of Economic Survival" in the June 2010 issue of The Washington Diplomat).

At that time, bloody street protests were raging on the streets of Athens following the passage of extremely unpopular austerity measures by then-Prime Minister George Papandreou. Papandreou resigned in November 2011 to make way for a national unity government that has attempted to guide Greece out of its ongoing debt crisis.

Last June, Prime Minister Samaras's New Democracy party narrowly won elections, but for a time, it looked as if Greece might actually pull out of the euro zone, a dire possibility Cyprus also flirted with during that Greek-speaking island's recent banking crisis (instigated in large part by the country's exposure to Greek bonds that had lost most of their value). However, Panagopoulos says his country has turned the corner and that he sees virtually no possibility of ever returning to the drachma.

"The big question is whether we are in or out of the euro zone. The European Council has decided that Greece is definitely connected to the euro. That gives you peace of mind as an investor, that you belong to the most prestigious club in the world," he said.

"The mainstream sentiment is that if we opt out of the euro, the situation would be much harder for us. It might benefit us in the short term, like with tourism, but we are mainly an importing country so we need hard currency. Going back to the drachma would be a terrible shock, much worse than what we face today."

Instead of abandoning the euro, Panagopoulos and his government are focused on drumming up business. From 2012 to 2013, Greece moved up 11 spots on the World Bank's "ease of doing business" rankings, though it still comes in at a dismal 78th place out of 185 economies. That's why Panagopoulos wants to enlist the 2.5 million Americans of Greek origin, whom he calls "our allies to spread the message" that Greece is once again open for business — particularly when it comes to large infrastructure projects.

"We've also launched a newsletter and sponsored an investment conference in New York," he said. "Big international funds are now eyeing Greece for its huge potential, and we're in advanced discussions with some of them to invest in Greece."

The ambassador praised Athens's Eleftherios Venizelos International Airport — which handles 13 million passengers a year — as one of the most efficient in Europe.

"We have a network of airports that's second to none," he said. "Even in the United States you cannot find a small town of 5,000 or 10,000 that has regular daily air service. But all our islands have this service."

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Photo: Anna Gawel
Tourists buy souvenirs at a bazaar in Athens. "We expect 20 percent more tourists to visit this year," said Greek Ambassador Christos Panagopoulos. "Prices are down and we're now getting more and more visitors from emerging markets like Russia."

Panagopoulos also singled out another infrastructure project for its success in transforming Piraeus into a world-class port. Chinese shipping giant Cosco is leasing half of that port in a 2010 privatization deal worth €500 million ($647 million) to the Greek government, and is considering leasing the other half. The result: a sharp jump in productivity and relatively high wages for Cosco employees, although some have complained of being underpaid.

On that note, while such investments may be great for Greece's macroeconomic prospects (and for China's), the painful tradeoffs — mainly a sharp reduction in labor costs and job protection rules — won't go down well with ordinary Greeks, says the New York Times.

"Unionized labor will push back to keep the protection it has enjoyed," warned Vassilis Antoniades, the chief executive of Boston Consulting Group in Greece. But the huge Cosco investment, he told the newspaper, "shows that under private management, Greek companies can be globally competitive."

That's the idea behind Greece's current privatization push. On May 1, the government accepted a €652 million ($858.6 million) bid for state gambling company OPAP, marking its first major successful selloff of a state-owned asset.

Another crown jewel in the Greek privatization program is gas company DEPA and its gas network operator, DESFA. So far, the Wall Street Journal reported, the two utilities have drawn interest from five separate investors in Russia, Greece and Azerbaijan. Some Greeks have expressed concern though that the government may selling off assets too quickly, and cheaply.

"In an open society, you would expect negative reactions, but the government has decided to privatize certain things, for instance real estate," said Panagopoulos. "The government owns an incredible amount of real estate, so it's only normal — especially during a period of economic restraint — to try to exploit those assets. Some people don't agree, but that doesn't mean it's not going to take place."

The ambassador said he expects his country's 27 percent unemployment rate to drop this summer due to strong tourism growth.

"Tourism plays a major role in GDP growth, and opportunities for employment — at least during the peak months — look good. We expect 20 percent more tourists to visit this year. Prices are down and we're now getting more and more visitors from emerging markets like Russia."

Revenue from tourists coming from the United States is also crucial, and Panagopoulos has taken pains to reassure Americans that — despite the chronic protests they may have seen on TV — his country remains one of the most affordable and least chaotic destinations in Europe for foreign travelers.

"All these catastrophic reports you read in the press are not realistic," he said. "I'll give you a small example: riots in Athens. This is ridiculous. In Greece, it's a part of everyday life, but it doesn't mean these rioters threaten anyone. This used to happen a couple of years ago, in the center of Athens. But the rest of the country had no problems. Some American friends ask me if it's safe to go to Greece. Statistically, it's one of the safest places for tourists in Europe."

Close to 1 million Serbs will also visit Greece this summer. In addition, some 500,000 Israelis are vacationing in Greece every year — a consequence of the closer relations Athens and Jerusalem forged in the wake of a breakdown in ties between Israel and Turkey, Greece's longtime nemesis. Yet tourism is on the rise from Turkey itself, thanks to a new highway connecting European Turkey with northern Greece.

But old grudges die hard, and in addition to Greece's perpetually frosty relations with Turkey, it still has a big beef with neighboring Macedonia, which it refers to as FYROM (Former Yugoslav Republic of Macedonia) due to a bitter dispute over the landlocked country's name that has been brewing ever since the breakup of Yugoslavia in 1991.

"It's very easy to play the role of victim, telling the world 'we are a small country threatened by Greece,'" the ambassador complained. "But to usurp or falsify the name of a neighbor in order to build a new national identity is not right. It's not only Greece but also Bulgaria [that's upset]. These guys come up with the fiction that they are the only Macedonia, and no serious government can take these things lightly."

Macedonia gained its independence in 1991 but for much of history, the region known as Macedonia was geographically considered a part of Greece. And that's not ancient history for most Greeks — they see the naming dispute as an affront to their Hellenic heritage, which gave the world one of its greatest civilizations.

Today, however, modern-day Greece is a shadow of the formidable ancient empire it once was. But its government remains determined not to go down in history as the country that sunk the euro.


About the Author

Larry Luxner is news editor of The Washington Diplomat.

Last Edited on July 9, 2013

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