NEWS

Greece’s role in the growing Balkans

“The future is now» could aptly summarize current Greek relations with the Balkans in the fast-receding wake of the bloody civil wars sparked by the Yugoslav breakup. Economic diplomacy, trade and investment, and European aspirations are steadily, no longer stealthily, replacing civil strife and ethnic tension as identifying characteristics for the region. At a policy conference in Athens last week, titled «The European Union’s Balkan enlargement: What does it mean for the Greek economy?» a mix of policymakers, researchers and managers took up this emerging and fascinating sub-regional nexus. Greece, and now Cyprus, remain the EU’s sole flag-bearers in Southeastern Europe (SEE), although with Bulgaria and Romania on the cusp of membership and other states holding either candidate status (Turkey, Croatia) or stabilization and association agreements with the bloc, a multi-speed movement toward Brussels is clearly under way, lured by hopes of political stability and wider markets. The implications for Greece are many, while for its Balkan neighbors it is a bridge to Europe, a funnel for investment and a model of sorts for regional development. Furthermore, the post-1989 experience serves up a platter of lessons learned, not all salutary, for nearby states in the throes of wrenching transition. The event was sponsored by Greece’s newly active alumni association of the London School of Economics and organized by the School’s Hellenic Observatory. It was hosted by the Bank of Greece (BoG). Moving forward BoG Governor Nicholas Garganas noted that the big-bang expansion of 2004 led to «major reforms» in the SEE area that have affected states far down the line, like Albania and the Former Yugoslav Republic of Macedonia (FYROM), which have been «implicitly offered» the prospect of membership. A «drastic reduction» in inflation and an «acceleration of economic reform» has occurred, for which the EU was a «key anchor and catalyst.» Area bank credit is also growing strongly, but bringing rising debt and property prices. The EU itself has gained in trade and investment opportunities. While admitting that Romanian purchasing power parity was just a third of the EU average, Bank of Romania head Mugur Isarescu said that the EU prize promised «sustainable, long-lasting, and rapid growth» for his country. He seized the chance to crow over Romania’s economic performance (with perhaps Europe’s lowest public debt at 15 percent of GDP and a deficit of just 0.4 percent of GDP), but inflation remained at 7-8 percent. Three big issues face Romania: «huge needs» in infrastructure, a wage policy which «needs to be prudent» (given public anxiety that these quickly rise to European levels) and the dampening down of excess demand, including prices. By September the Romanian lei will be «fully convertible» and he hopes for eurozone membership not long after 2012. To get there, however, «we must be very wise.» Deputy Foreign Minister Evripidis Stylianidis offered a broad overview of Greek foreign policy priorities, characterized by three-way bridge-building: in public affairs via diplomacy, in economic affairs via economic diplomacy, and in civil society (through development aid, now at 0.24 percent of GDP). Greece’s economic efforts are, he said, extroverted and open, and aim to ensure that «borders are never to be crossed by armies» but by businesses like banks and infrastructure projects designed to ease movement (pipelines, the Egnatia Highway). Upgraded facilities like ports can be outlets for selling the region’s products. With Greek businesses having invested some 14 billion euros in the region, creating some 200,000 jobs along with plenty of intangibles (and 2 billion euros annually in repatriated profits), he left little doubt that encouraging more was a cornerstone of national strategy, after, that is, a very hesitant start 15 years ago. But not too fast A trio of more sobering assessments came from LSE Prof. Willem Buiter, a former head of the European Bank for Reconstruction and Development, Giorgos Petrakos of the University of Thessaly, and BoG adviser Emmanuel Zervoudakis. Buiter noted «leaps of productivity» and an improving business climate. Even so, foreign direct investment (FDI) is «good, not great,» the cost of finance remains high, and structural reform is mainly progressing in the worst laggards, Serbia and Montenegro («close to ground zero»); even Slovenia, now an EU member, needs faster progress. Bulgaria is finally looking up even though, as Petrakos noted, its GDP is smaller than Thessaloniki’s. Ingrained corruption and bureaucracy impose a «time tax» and «bribe tax» to doing Balkan business, especially for the newest, most dynamic companies. But a public «war against corruption» would mean a war already lost; increasing transparency and reducing obstacles are far more effective. Buiter also lamented that the region’s states overlook the merits of cooperation within the EU antechamber. This he called «a shame, a missed opportunity,» for a sub-regional, free trade/customs area collective would transcend the current collection of nations that «wishes its neighbors would go away.» At any rate, true convergence with Europe will need «a couple of generations.» Petrakos emphasized that integration is «not always a win-win situation.» The experience of Greece, which joined the EU 25 years ago, was initially negative as the country fell further behind the pack, even Spain, which joined five years later. For all the late 1990s talk of fast-track convergence, Greece is «not getting better,» with high agricultural and labor-intensive employment and stagnating exports. With the «least successful transitional experience in Europe» since 1989, 23 percent employment, big trade deficits and «almost no exports to each other,» Balkan states are hardly positioned to do better. Echoing Buiter, Petrakos said more south-south integration could create «regional multipliers.» The trick, he concluded, was to expand relations without falling into a low-quality trap. Zervoudakis blamed 1980s domestic policy stagnation in the 1980s for Greece’s early failures to bridge the gap with Europe. High inflation, low growth and a poor investment climate allowed recovery only from the mid-90s. Greek FDI in the Balkans is now over a quarter of the country’s total, mainly in banks and telecoms. Yet Balkan reforms remain «dismal» given long time lags, the effects of war, distance from the EU core, and hangover from the previous, command economy.