ECONOMY

Greeks proving the masters of shooting themselves in the foot

Those who say the Greeks do it better have turned out to be right. The events of the last few days, following the shooting of a 15-year old boy by police officers, showed that very few people in the world know how to shoot themselves in the foot better than the Greeks. In so doing, they are simply undermining their own economy and their standard of living. The scenes of riots and looting in Athens and other major Greek cities, with bands of militant youths throwing gasoline bombs and smashing shop windows have done more to tarnish the country’s image and hurt its economy than any other event in the last few years. Although the cost of the material damage may amount to hundreds of millions of euros, the indirect cost of negative publicity amounts to much more and has gone far toward undoing some of the positive boosts the country received from the 2004 Olympics Games. In such an environment, the media tends to remember and bring to the fore all the negatives – and this time it is no different. Suddenly, everybody remembers Greece has the second-highest public debt as a percentage of gross domestic products (GDP) in the eurozone, one of the largest budget deficits and the highest current account deficit as a percentage of GDP. They also remember that insufficient progress has been made in implementing structural economic reforms and the overhaul of an inefficient public sector. Some of these may been the same people who praised Greece for having one of the highest economic growth rates in the eurozone in the last 14 years and the large projects that have helped modernize the country’s infrastructure and the convergence of the income of the average Greek citizen with his/her counterpart in the European Union. The world economic crisis may have changed the economic situation for the worse, but Greece is not alone and perhaps it was in a better position to weather the storm than many of its trading partners before the recent events. Undoubtedly, the decision by the conservative government to tolerate the riots of the youths and militants on the left has given the impression of a lack of leadership at a time of crisis, especially to outsiders who cannot understand how young people can smash up cars and other property with the police standing idly by. These people cannot understand that Greek society is much more tolerant toward violence than other societies in Western Europe and the USA. Still, their conclusion of a leadership vacuum is correct. However, it is other events and policies that demonstrate it most vividly and not so much the orders given to the police to handle the riots softly. The point is that all of the above observations are correct, but it is wrong to isolate the negatives from the positives due to the current situation on the streets in the same way it was wrong to stress only the positive points during the boom years. One should always remember that political parties are just a miniature of Greek society, displaying all of its good and bad characteristics. This means there are some common threads in all parties that pose an obstacle to promoting bold structural reforms. Within this context, where segments of the right agreed with the left on the enhanced role of the state in economic affairs long before the current economic crisis, it is easy to understand why the conservatives did not proceed with some of the economic and public sector reforms they promised before returning to power in 2004. It also helps to understand why the socialists and other parties are unlikely to pursue a reformist agenda. There is no doubt that the events of the last few days and the ensuing negative publicity abroad will worsen the country’s economic outlook and make it more difficult to meet its fiscal deficit target in 2009. Still, the biggest threat to the local economy, as we argued before, comes from the potential unwillingness by foreign investors to buy Greek government bonds. With this, the country will face an economic crisis that may give politicians under EU pressure the excuse to implement unpopular measures, such as reforming the social security system, which they would have been unable or unwilling to do before. So, whatever the short-term repercussions, the cost of the crisis may have far-fetching positive effects on the economy in the medium term. Still, this is not the likeliest scenario.