"Can All Three Be Wrong?" Some Thoughts on the Greek Economy's Future

AIM Athens, April 17, 2001

In its 7 April 2001 issue, the Greek "Economicos Tachydromos" ("Financial Herald") weekly magazine published a round table debate, with three personalities from very different backgrounds, on the Greek government's fiscal policy, as well as on broader aspects of the Greek economy. Author and former communist politician Mimis Androulakis, the president of the Association of Greek Industries Odysseas Kyriakopoulos and retired university Professor Adamantios Pepelasis, seem to agree that a lot would have to be done for Greece to survive in a highly competitive world market.

Mr. Androulakis considered that the Greek government's fiscal policy did not lose its momentum after Greece's accession to the EMU (European Monetary Union) as it is widely thought but a long time before that. He contended that the Greek government should have focused on the period following Greece's accession and more particularly on its competitiveness and productivity aspects, with a view to creating a flexible fiscal framework. He gave the example of the heavy taxation imposed on Greek businesses that, while resulting in increased revenues on the one hand, led to the strengthening of the "black market" and the stifling of entrepreneurial activity on the other. He insisted that, as the productivity of the Greek economy is rather low, taxation is and will remain a key point. Confronted with the argument that a different taxation policy could have led to Greece's not meeting the EMU criteria, he responded that, while definitely considering the accession to the EMU a success, he would have preferred that Greece had stayed outside the EMU a little longer, pursuing its own economic policy, just like the UK does. This however would have required an effective government, which Mr. Androulakis doubted that Greece had or could have had.

Returning to the issue of taxation, he maintained that Greece should have lowered the taxation rates a long time ago, in order to boost the competitiveness of Greek businesses. Furthermore, he was of the opinion that privatization, in order to be effective, should take place in a healthy and competitive market framework, as well as at the appropriate time. He gave the example of Olympic Airways and the Greek Telecommunications Organization (OTE), noting that the Greek government has opted for the worst possible moment to privatize them, when the respective sectors of the economy are facing a crisis on a worldwide scale.

Furthermore, he asserted, in the future foreign investors would not value so much the availability of cheap labor and materials in a country but rather the skills and expertise of its human resources. This in turn would necessitate the adoption of drastic measures in the field of education and scientific research, something that Mr. Androulakis did not see forthcoming, as he considered that the academics and intellectuals in Greece are among the country's most conservative elements, instead of being at the vanguard of new ideas. Concluding, he maintained that many institutions in the Greek society which are currently characterized by inertia should adopt a different perspective and promote a spirit of healthy individuality, risk-taking, the assumption of initiatives, in order to give new businessmen the opportunity to develop their potential.

Mr. Kyriakopoulos agreed with Mr. Androulakis that accession to the EMU was an one-way street for Greece, considering its overall characteristics. He also agreed that the Greek government grew complacent following its success, when it should have set new financial objectives straightaway.

Echoing Mr. Androulakis's view on the issue of taxation, he maintained that Greece should use to its advantage the relevant experience of other countries. What should change however were not merely certain aspects of the taxation system but also the whole mentality behind it, a mentality that discourages foreign investors from investing in Greece. He gave as an example the phenomenon of "bargaining" between a Greek businessman and the tax authorities concerning the amount of tax the former would have to pay, adding that no foreign businessman would ever seriously contemplate investing in Greece under such circumstances. Bearing in mind the inadequacies and failings of the taxation system in particular and of the Greek economic system in general, he argued that restricting the state's market regulatory role and transferring it to private enterprise was the only viable solution, adding that his association's patience with the government's procrastination in taking the required measures was growing thin and reactions were imminent. Commenting on the issue of training of business personnel, he observed that the Association of Greek Industries has set up an educational establishment that, while not recognized by the Greek state as a University, enjoys wide recognition in the private sector, where 98% of its graduates find employment. He contended that the Greek government's hesitancy in adopting a progressive fiscal policy reflects the Greek society's aversion to the associate need to take risks, and that in case of a new "social contract", care should be taken so that all parties would stand to profit and not that one partner's loss would be to the other's profit.

Professor Pepelasis asserted rather bluntly that Greece's main weakness did not lay so much in the lack of vision or of objectives but in that Greece cannot manage its affairs effectively on its own. Taking the example of Greece's accession to the EMU, he noted that, when Greece had to follow a specific regime dictated by the need to meet the EMU criteria and consequently could exert little influence on its policy, success ensued. When left on its own devices following its accession however, Greece's ability to manage even its day-to-day financial affairs dropped significantly. This weakness was exacerbated by the lack of commitment and moral integrity among the financial establishment and by its failure to command the respect of the public opinion. In the latter direction, the usual practice of comparing Greece's present financial performance to its past, instead of comparing it with the performance of countries that experienced similar transition problems such as Ireland, does not really help. He too agreed that more attention should be paid to the potential benefits of releasing certain sectors from the government's hold and entrusting them to private enterprise. Furthermore, he contended that whereas there was a debate on the phenomenon of the "new economy" and the role of scientific research in it, no one was willing to consider implementing the necessary measures towards that direction. This was all the more unacceptable, since in his view, what was needed was not so much new infrastructure or an abundance of capital, but quite simply the taking advantage of Greece's human resources. To this end, he mentioned the example of Sicily in Italy, where the success of the universities in the field of computer science has turned them into a "financial locomotive" for the whole area, until now one of the poorest in Italy.

Summing up, it should be noted that this was probably one of the few instances where individuals coming from such diverse backgrounds came to practically the same conclusions in relation to what challenges Greece faces and how it should go about dealing with them. This congruity of opinions, if nothing else, should make those formulating the Greek financial policy take stock.

Theodoros Alexandridis