Σάββατο, 11 Σεπτεμβρίου 2010

False Hopes from the New Development Minister

Following the cabinet reshuffle, Michalis Chrysochoidis, hitherto Minister for Citizens' Protection (i.e. Public Order) became the Minister for Regional Development and Competitiveness. He gave a speech [the link is to the speech in Greek] to the representatives of the various local chambers of commerce in Greece, were he claimed that we might yet surprise the international markets and achieve growth faster than anticipated - and I was anxious to see how the administration proposed to achieve that. I was hoping for the Minister to announce measures that would minimize bureaucracy; that would do away with the so-called closed professions, state-imposed oligopolies, that drive prices up; measures that would lead to flexibility in the job market; that would simplify the tax code and lower tax rates. There is a lot of capital in the world searching for investment opportunities - and many Greeks still have a lot of money in the banks. This money could be pumped into the economy and lead to growth and job creation, if only so many barriers were not in place. Another factor that dissuades people from investing is that many businesses are run on borrowed money, they are just a whisker away from bankruptcy; so entrepreneurs cannot trust one another, cannot extend credit, cannot count on being paid on time and having the money at hand to pay their own creditors. Moreover, it is unadvisable to hire, since it is very difficult to lay off employees (and very risky financially, since many of them are reinstated by court orders more than two or three years after their dismissal; and the employer has to pay back salaries) and practically impossible to adjust their working hours to match the company's needs.

What's more, investing in Greece is unrewarding: even if one, under all these circumstances, manages to make a profit (and I am not referring to supposed entrepreneurs who make their money out of government contracts or other shady deals), the state will take close to half (and in some instances more than half) of it away. Moreover, the red tape a potential investor has to go through means that, typically, a major new investment in Greece may take more than three years only to obtain the administrative permits required, at a great cost to the potential investor in planning, counseling, and, often enough, kickbacks.

I was hoping that the new Minister would find away to face these problems. Instead, he began by chiding (unnamed) multi-nationals for breaking the law (he also failed to mention which law) and proceeded to announce how the potential for growth would be realized: in essence, more European Union money, more government-guaranteed loans to small enterprises. Both the previous and the current Minister for Development act as if the only problem our economy faced was cash-flow shortage. Not a word about all these structural problems or on how real investments could be attracted to Greece.

The only way the present government is trying to get foreign capital invested in Greece is by agreements with foreign governments (China, Russia, Qatar, Libya, etc.) for their state-run companies to acquire special privileges when investing in Greece. It is not that Greece could not use large-scale infrastructure works - in fact, there are many possibilities for Greece, which is strategically located as the entrance to Eastern and Central Europe from the Middle East, to become truly a center of commerce and navigation, and there are many infrastructure works to be done (improved airports, ports, roads, large logistics centers, etc.) to that effect. Even better, such works can be self-financed, since they are typically used at a price, which means that their developer can charge for their use (concession contracts). This model has worked very well for the Eleftherios Venizelos Airport, the Attiki Odos motorway, the Rion - Antirrion Bridge. These works attract private investors from all over the world and have, so far, resulted in the works completed ahead of schedule; but, then, this means that the contractors have to do a good job, in order to get their reward, and cannot count on bureaucrats turning the other eye, as happens in the typical public contracts, where it is the state that directly pays the developer. This means that such works cannot be used by any administration as leverage against major contractors, in order to extract either bribes (as has been done on occasion) or other favors, like hiring people close to the ruling party. And, if such works are undertaken under the self-financing system, they will create a lot of healthy new jobs and infuse the market with much-needed capital.

So, I do believe that there exists the opportunity for Greece to make a recovery much faster than anticipated, if only the administration suddenly wakes up and sees the light. But following the Minister's speech, I am left rather pessimistic.


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