The Greek economy’s secret globalization

Although belatedly, the Greek economy is increasingly opening up to the world – and the eurozone in particular – as the introduction of the euro has put paid to many of the factors that maintained long, inward-looking attitudes. But so far, the change has meant net capital outflows. The common currency, market deregulation and greater capital mobility have led to more exports than imports of capital and investment. For investors seeking the best possible options to maximize returns, this is the obvious thing to do. For the Greek economy as a whole, however, this situation is one more sign of danger that must spur the necessary structural changes before the current trend becomes a flood. The stability of the Greek economy as regards its foreign transactions is based on a simple relationship: The country has a huge trade deficit that is not canceled out by revenues from the exportation of services, such as tourism and shipping. The shortfall has traditionally more than been made up for by foreign capital inflows, that is, by foreigners buying Greek bonds and, to a lesser degree, shares. In effect, the country borrows in order to cover its deficit. But for the second time after 2000, Greece in 2002 was a net exporter of direct investment, that is, the money spent by Greek companies on the acquisition of foreign concerns was larger than foreign investment in Greece. Also, Greek portfolio investment abroad (shares and bonds), although markedly lower than foreign investment in Greek bonds, was four times bigger than in 2001. The trend has continued up to the end of February. Greek direct investment abroad in the first two months of 2002 totaled 237 million euros, while the counterflow was 47.8 million euros. Also, Greeks’ portfolio investment in other countries totaled 1.9 million euros, compared to just 184 million euros in the same period of 2002. Foreign portfolio investment in Greece also rose, but at a much slower pace. The repercussions of this trend have not yet become visible in the economy, but no matter how much the overall picture may be temporarily obscured by the inflow of huge European Union investment subsidies, the government will sooner or later be forced to introduce substantial measures. Such measures are rarely the result of sober consideration: They are usually imposed when the situation is pressing.