The scale of the country’s financial problems is mind boggling — a full quarter of the economy evaporated in the past six years and business activity is now plummeting further. Government cuts needed to qualify for a new bailout will hurt incomes for years to come.
The advice to Greece from economists is simple: focus on the basics.
Have a steady government, simplify the rules of doing business, and rather than try to reinvent the economy, zoom in on sectors that can benefit from small investments: tourism and agriculture, for example.
In many cases, that’s easier said than done.
Political instability, a hallmark of Greece’s crisis, is highly toxic for investors, who need to know that the rules for business won’t change unexpectedly.
Greece’s current government offers a stark example of the risks. The country had just emerged from recession when the new government, led by the radical left leader Alexis Tsipras, came to power in January with plans to undo a series of reforms and challenge creditors.
Tsipras’ intentions were good: to ease the economic burden on the Greek people. But the uncertainty proved immensely painful.
Fears that the political clash with creditors could push the country out of the euro caused investors and Greeks to pull tens of billions of euros out of the country. The economy plunged back into recession. To avoid a bank run, the government was forced to close banks and the stock market for about a month and impose limits on cash withdrawals. The limits are costing Greece an estimated 1.75 billion euros to 2.8 billion euros ($1.9 billion to $3.1 billion) weekly.
Rather than grow this year, the Greek economy is now expected to contract by between 2 and 4 percent this year.
The outlook for government stability is not particularly good, either, as high unemployment of 25 percent and popular resentment against economic reforms are expected to last. Political parties, including Tsipras’ Syriza, are in turmoil and there is speculation Greece will head into another general election in November.
That comes on top of years of political infighting in the country, both during the past six years of crisis and before, when officials hid the scale of the government’s debts.
“Irresponsibility destroyed this country,” said Nicolaos Eriotis, a professor who heads the department of business and finance at the National & Kapodestrian University of Athens.
With so much uncertainty hanging over it, Greece is struggling to attract major foreign investment. Investment last year equaled just 12 percent of economic output — only three of 124 countries ranked by the World Bank invested a lower share.
So, experts say, Greece’s best option in the short-term is to target what little money it can get into industries it already has a presence in.
Agriculture last year contributed almost 6 billion euros to the country’s 179 billion euro economy but could yield more with some basic modernization and better marketing.
Take olive oil. Although Greece is the third largest olive oil producer in the world, it exported 60 percent of its output to Italy in bulk, giving its neighbor the opportunity to earn 50 percent more on the price of the final packaged product, according to a 2012 report by consulting firm McKinsey & Company.
The fishing industry is another sector that Greece could develop quickly and enjoys a strong competitive advantage in, given its huge shorelines.
“You have the groundwork already laid out and there’s no need for large investment,” said Panayotis Alexakis, professor of economics at the National & Kapodestrian University of Athens.
Tourism remains king of the Greek economy and could be improved further. When counting wholesale and retail trade, tourism revenue accounts for 23 percent of the nation’s annual economic output.
Despite all the turmoil, this year’s tourism numbers are forecast to hover around last year’s. But experts warn the industry mustn’t remain static if it wants to compete against up-and-coming rivals like neighboring Turkey.
Greece could, for example, extend the tourism period into winter by developing more golf courses — a reasonable move in a country blessed with so much sunshine.
Turning Greece’s main ports of Piraeus and Thessaloniki into regional cruise ship hubs should be another key target for the tourism sector, said Christos Agiakloglou, professor of economics at Piraeus University.
The ports also hold promise in becoming Europe’s gateway to global imports by expanding and upgrading their container terminals. Through Greece, goods can enter the European Union as many as 20 days faster than if they were offloaded in the continent’s main container terminal in Rotterdam, in the Netherlands. China’s Cosco shipping company manages two container terminals at Piraeus port and is reportedly looking to clinch a majority stake.
Greece’s huge cultural endowment can be spun into a money-maker beyond tourism. Alexakis notes that the universities offer a high level of teaching in philosophy and archaeology, yet lag in attracting foreign students because there aren’t many courses taught in English.
The McKinsey report identified Greece’s pharmaceutical industry as a “rising star” that could boost economic growth. The industry accounts for 18 percent of GDP, second only to tourism. Another sector with potential is the health care industry, which analysts say could cater to a large regional market with hospitals receiving patients from neighboring countries such as Bulgaria.
In the longer-term, Greece’s economy needs fundamental reform of the kind that its creditors are demanding.
Above all, that means cutting red tape for companies, streamlining business laws and making the legal system more efficient so that it doesn’t take months, even years, to settle a business dispute. It also includes opening up closed professions, such as pharmacies, to greater competition.
The Greek government, meanwhile, needs to bolster the finances of the banking sector so that it can gradually lift the limits on cash withdrawals without risking a bank run.
And it needs to heal its own finances, a process that includes convincing its creditors to ease the terms of its massive debt burden. At around 320 billion euros, or 180 percent of GDP, public debt is considered unsustainable. Even the International Monetary Fund, a key creditor, says so and suggests lowering the interest rates and repayment rates on Greece’s bailout loans.
Eriotis said Greece needs to eliminate a culture of tax avoidance and corruption, in which public sector jobs are handed out by politicians in exchange for votes.
He says this has prevented the country from modernizing its businesses, making its political system transparent and creating an environment where honest work pays off.
“Other countries over time have built strong institutions. Greece hasn’t done so.”