ECONOMY

Enlargement likely to make convergence harder for Greece

The European Commission’s recent report, which focuses on the Greek economy’s lack of competitiveness, and the disagreement that developed between Economy Minister Nikos Christodoulakis and Bank of Greece Governor Nikos Garganas as to the possible time required for Greece to converge with its more advanced partners, have highlighted the country’s still relatively weak position. On the basis of present realities, the enlargement of the Union with 10 new members in 2004 will push Greece further down on the EU’s economic chart in terms of per capita income, as the adjacent Eurostat table shows. From 15th position today, it will move below Cyprus and Slovenia to 17th. According to 2001 data, Greece’s income per capita is below two-thirds of the 15 EU countries’ average, at 64 percent. In Eurostat’s comments, Greece is included in the second poorest group of countries, along with Cyprus, Portugal, Slovenia, the Czech Republic and Hungary. Christodoulakis holds the view that the country will cover the distance from the EU average by 2015. For Garganas, this is an overoptimistic forecast; he projects convergence in 2030. However, achieving convergence – irrespective of the time it takes – is evidently based on the assumption that Greece will continue outperforming partners in growth rates. Its low productivity and the fact that it remains the EU’s most insulated economy in terms of trade, make this an extremely doubtful prospect. The country’s high growth rates in recent years are mostly based on the large injections of EU investment subsidies. This comparative advantage is projected to shrink drastically when the 10 new members join, as such funds will be diverted to them. Several of them already have growth rates higher than Greece’s 3.8 percent.