August 14, 2022

Struggling to Stoke Economic Growth in Greece

So when George Peristeris, the chief executive of Gek Terna, a large energy company, wanted to plow funds into an offshore wind project, he thought he would be welcomed with open arms. But it turned out that the government decided it could run things better.

“Private investors with money in hand were shut out,” Mr. Peristeris said. “At first I thought it was a joke. But now we’ve lost an entire year that would have been crucial for the economy.”

With Greece essentially bankrupt, the country desperately needs to generate sustainable growth and lift competitiveness if it ever is to pay down its debt and disengage itself from a chain of international bailouts that is now threatening the stability of the European monetary union.

But while Mr. Papandreou’s government has made some strides, it is still falling far short of what is needed, economists say. That raises the risk that the country will be unable to avoid defaulting on its debts, putting Europe and its still-fragile banking system at great risk.

While that may be what it takes to clear the way — if anything will — for a Greek economic rival, putting the country on a growth track will be almost impossible unless politicians in this increasingly chaotic society manage to follow through with fundamental changes.

“We’re not talking about two or three years to get to recovery,” said Yanos Gramatidis, the president of the American Chamber of Commerce in Greece. “It’s easily going to take up to 10 years to create a surplus and stabilize the economy, especially if persistent political turbulence hinders the ability to enforce reforms.”

Almost no one in Athens believes International Monetary Fund forecasts that the Greek economy will grow 1.1 percent next year, after two years of the deepest recession of any country in Europe.

Under pressure from its European partners to meet the terms required to receive its next €12 billion, or $17.2 billion, installment of financial aid, Greece has little choice but to accept the requirement that it impose more austerity measures. That is why structural changes to lift productivity and attract investors like Mr. Peristeris are so important. These include opening protected sectors and labor markets to competition, reducing bloated government payrolls and addressing pernicious tax evasion, which robs the treasury of an estimated €50 billion in income each year.

But after sweeping social unrest led Mr. Papandreou to shake up his cabinet last week, many economists — and most ordinary Greeks — believe that it will me many years before the country can generate sustainable growth, even if the government approves new austerity measures.

“If they just continue with the European Union’s austerity program, they’re going to be in slow growth or recession as far as the eye can see, and at the end of the day they’re still going to default,” said Kenneth S. Rogoff, a former chief economist at the I.M.F. who is now a Harvard professor. “They have to raise productivity spectacularly.”

To be sure, some of Greece’s efforts are paying off. Although the economy contracted 4.5 percent last year and is forecast to shrink an additional 3 percent this year, Greece has managed to cut its deficit by a substantial five percentage points of gross domestic product, although it is still high at 9.6 percent of G.D.P, according to the I.M.F.

In addition to domestic investors like Mr. Peristeris, foreign investors from China, Germany and elsewhere are looking for bargains in the Greek economy, including in the tourism industry, which accounts for a third of G.D.P., and in the lucrative shipping business.

Article source: http://feeds.nytimes.com/click.phdo?i=9eb406bb8a1fa331ef09d7ccdd59e6cf

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