What are Greece's future options for growth after latest bailout?
- By Rahul Venkit
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E-mail Xinhua, February 22, 2012
Another day, another summit to save Greece and preserve the integrity of the eurozone. Euro summits are becoming so routine, the response by stock markets the following day seem muted at best, Tuesday's market movements being no exception.
While the latest international bailout funds of 130 billion euros (170 billion U.S. dollars) mean Greece will narrowly avoid a disorderly default on its debt, many are already wondering how much longer it will be before the Hellenic republic requires more external help.
Through the latest round of marathon talks between eurozone finance ministers in Brussels, little had been done to address two core issues - competitiveness and growth.
To begin work on any of the above factors, trust is key. Sadly for Greek politicians, this has been sorely lacking on multiple fronts with both international creditors and their own people disillusioned by the current state of affairs.
Driving home this point, Greek political leaders were made to hand in written assurances to convince Brussels that Athens would continue to implement -- under EU supervision -- promised economic and structural reforms after scheduled general elections in April.
However, for Greek to successfully reduce its public debt from the current 160 percent of GDP to 120.5 percent by 2020, experts say business as usual is simply not an option.
"The whole Greek state sector needs to be slimmed down because it is a useless drag on the economy," Dr Michael Taylor, senior Eastern Europe analyst at Oxford Analytica, told Xinhua.
Loss-making state enterprises need to be closed down or their operations improved through enhanced productivity or privatization. The Greek tax system, too, is highly unfair and inefficient because it goes after those in regular employment and is easily evaded by the self-employed, many of whom are wealthy professionals, added Taylor.
"The Greek government knows this but seems powerless to stop it," he remarked.
Apart from liberalizing so-called "closed professions" by cutting the red rape involved in doing certain jobs, more focus needs to be placed on Greece's major foreign earner -- tourism. In this industry, Greece can give its neighbors such as Turkey and Croatia a run for its money in the high-end, upmarket sector.
Other possible growth areas are energy production and out-of-season agriculture, taking advantage of long hours of sunlight for solar power and growing high-value fruit and vegetables for customers in northern Europe, Taylor said.
In the longer term, Greek tertiary education should be reformed to eradicate corruption and the concept of the "eternal student". To gain competitiveness, universities must be reoriented to improve the country's human capital.
While Greece -- currently in its fifth year of recession -- may be emblematic of the eurozone's troubles, several countries remain at risk of contagion.
Portugal and Ireland, which have also received international rescue packages, will be closely monitoring the situation as they hope to return to markets in 2013 to raise capital.
Spain and Italy are out of the danger zone in bond markets for now, but "we must remember that this is largely due to the European Central Bank's (ECB) intervention in December 2011, when it injected 489 billion euros into the euro-area banking system," said Dr Stephanie Hare, senior analyst at Oxford Analytica.
While there is currently calm on the markets with the ECB slated to inject a second large sum at the end of February, it is not a solution to the fundamental problems plaguing the eurozone's banking system, trade imbalances and structural problems of its weaker member states.
"Tuesday's bailout agreement may have bought EU leaders some time, but that's all it bought," Hare added.
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