Greece: A Crisis Wrapped in a Calamity inside a Tragedy

This was originally published in The Mint, April 2017, following my personal odyssey to Athens in autumn 2016, but I think it's still relevant...

The road south from Thermopylae – site of the battle in 480BCE where, for a few dread days,  a handful of Spartans held the innumerable forces of Xerxes at bay – rises rapidly into mountains which, those centuries ago, were impenetrable.  Elsewhere in the Greece of 2016 you may have found the roads to be pitted and broken or, where the money had come abruptly to a halt, simply incomplete.  Here the road is smooth and well maintained, in some places even freshly tarmacked.

Curiously, the road is flecked orange.  As you ascend, each switchback bend offers not only an astonishing view of valleys and ancient artefacts but a steadily increasing density of orange dust.  From time to time, as you negotiate the bend, a disturbingly large truck is coming the other way.  The trucks, too, are orange.  They increase in number as you rise ever higher until, as you crest a particularly daunting ridge, where the road is entirely orange, you behold the source: Europe’s largest bauxite mine.

Bauxite – it turns out – is the principal ore of aluminium.  No surprise, then, to find that a bauxite mine is a busy place; and no surprise, too, to find that in the Greek economy of 2016 the mining of bauxite is one of the few reliable ways of earning hard money.  Mining bauxite, however, is hardly the kind of high-tech, twenty-first century, investment-led and sustainable economic activity that one might choose to have available if you wanted to rescue the most wildly broken economy in the developed world.

What would you want? Would you choose tourism? Probably not.  It is the largest non-governmental sector in the Greek economy, accounting for something like a quarter of all employment.  Chances are that you already know that Greece is an amazing place, the birthplace of democracy, home of the Acropolis, a place of legends where the sun shines and the islands beckon in the glittering Aegean.  On that basis, you probably already know, too, that Greece is a nice place to go on holiday; in fact, everyone probably already knows.  It may not be at touristic saturation point – perhaps there’s room for an additional conference centre or two, for a few more coach tour operators, for one or two more islands to be converted into playgrounds for the oblivious offspring of the world’s prosperous elites – but the prospects for rapid and substantial growth in earnings from tourism are surely limited.  Global tourism will probably rise steadily in the next decade or two (despite the ever-more obvious effects of climate change) and Greece will undoubtedly get a share of that, but there are plenty of other fabulous places vying for those euros, dollars and – more pertinently – those renminbi.

So what about the second largest sector in the Greek economy, shipping? Again, hardly the sort of sector into which you’d want to put all your eggs right now.  Greece may have the largest merchant shipping fleet in the world (and the Greek shipping families may well be supporting almost the entirety of the Athenian ‘luxury brands’ and ‘fine art’ sectors these days) but world trade has been flatlining for a while now and, as the recent collapse of South Korea’s Hanjin showed, even being the world’s seventh largest shipping container firm will not protect you.  

Both tourism and shipping depend, critically, on the general state of economic affairs: by and large, if the world economy does well, so too will these sectors; and vice versa.  The scope for using either of these sectors as some sort of quasi-autonomous engine of recovery seems limited, at best.  (Something similar applies in the case of bauxite, too.)

This is perhaps less true of the remaining major (non-governmental) sector in the Greek economy: agriculture.  The demand for food (certainly from within the developed world) tends not to be as variable as might be the case with shipping and tourism; and, given the evolution of tastes, there could well be scope for meeting high-value niches that might in turn provide some sort of impetus to growth.  This is the sort of strategy adopted by Ireland as part of its post-crisis recovery plan, and hints of it have appeared from the UK’s Defra as it prepares for the brave new world outside the EU.

As these examples illustrate, however, it is not so much ‘agriculture’ as ‘food’ that represents the opportunity – and here, too, Greece finds itself in trouble.  Its agricultural sector comprises a slightly larger share of its economy than is typical of a developed country, but still contributes less than 4% of output; while its ‘value-added’ food sector tends to be focused on a relatively narrow group of idiosyncratic items such as olive oil and cheese.  Competition in these markets is already intense.  Here, too, it would be a brave soul who would rely on this particular recovery vehicle.

What, then?  Greece, remember, is a country which has seen its economy shrink by a quarter since the beginning of the crisis.  (Just imagine – or, better, try to imagine – what sort of effect such a contraction might have had in the UK.)  It is a place where unemployment among the under 30s is officially around 50% and where there are, to all intents and purposes, no job opportunities for young people.  They endured (and got angry) for the first few years of the crisis but, as it became clear that anything remotely approaching a normal recovery would not be arriving, they began leaving: estimates suggest that the country’s population may have declined by more than 5% in the past eighteen months, as the young and entrepreneurial take themselves and their potential elsewhere in Europe.

Greece is a country with a chronic and widespread disregard for many ‘normal’ economic activities, such as (in the private sector) paying tax or (in the public sector) living within the State’s means.  It is a country with debts so breathtakingly enormous that they are incomprehensible.  It is a country whose capital city – one of the greatest cities on Earth, with an unmatched status in world history – had, in October 2016, but one single development site with construction underway.  There were two cranes.

*******

Greece joined (what would become) the European Union in 1981.  It seems, on that basis, to have begun a joyful, ebullient and profligate romp towards what it perceived to be west European modernity without any real regard for what that entailed.  After a decade and a half or so of (largely debt-funded) catch-up, it won the right to host to the 2004 Olympics and – on that basis – began a second and even more extravagant wave of largely debt-funded development.  For a year or two after the Olympics, the country appears to have felt confident, future-oriented, included, prosperous – and then the sky caved in.  (Either that or - as it was for the coyote that ran over the edge and, through sheer animated momentum, remained suspended in the sky for a few wonderful moments - the floor rushed up.)

The Greece of 2016 does not have a sophisticated intermediate goods sector.  It does not have a modern consumer goods sector.  It does not have a flourishing games design sector, or indeed a contemporary value-added services sector of any kind.  It is a beautiful place full of wonderful people and marvellous things, but it is essentially the same economy it was in 1981: lots of tourism, lots of shipping, quite a few olives, some mining, and a distended and unwieldy public sector.

Intuition (or, for the brave, theory) might suggest that, with an economy in this kind of condition, the opportunities for investment must surely now be rich.  The costs of the various factors of production must surely now be unbelievably low?  And this is indeed the case. Cast your eye over downtown Athens and there are simply dozens, perhaps hundreds of empty buildings, going for a song.  In some cases entire streets are abandoned.  The wily investor must, surely, be about to move in, to begin the process of re-development?

But why would you?  The regulatory environment in Athens remains, at best, challenging.  Labour laws are hardly enticing to the modern footloose investor.  Outside of a condensed retail and touristic core, the city gives every impression of being on a journey from the first world to the (old) third.  Unless a building has heavy-duty security, it will be covered in graffiti; there are protest marches two or three times a week; despite the current lull, the prospect of violence seems never too far away. Worst of all, it would be very difficult to claim that the bottom has been reached.  Why invest here rather than in one of a dozen or more other zones stretched along the Mediterranean, where the sun shines, the land is cheap and you’re nuzzled just inside the largest single market in the world?

At a personal level, I am profoundly miserable at having to write this down.  I travelled to and through Athens and Greece in the hope of gaining some insight, however tentative or fleeting, into a positive future for this extraordinary country and its amazing citizens.  And I did glimpse one or two slithers of hope: a couple of agricultural schemes where families had returned to the land, determined to incorporate deep ecological principles into their farming practices; a co-operative where young people who had gained commercial skills and experience in London and Paris and Bonn and Amsterdam were collaborating with friends and colleagues in Greece to try to support the emergence of a new entrepreneurial class; a handful of cafes and restaurants where music, food, culture and lap-top-based commerce were fusing in an encouraging way.

But when I stepped back to look at the bigger picture, such seeds of optimism look tiny indeed.  Irrespective of which methodological or theoretical position you may choose to adopt – orthodox neo-classical, institutional, evolutionary, ecological – the brute reality facing Greece is that, even if half of its debt were to be written off (and some sort of write off is both essential and inevitable) it would still owe a simply eye-watering amount of money – and it still wouldn’t have the kind of economy capable of generating, on a sustained basis, the kind of money its creditors are going to require.

Perhaps there will be an even bigger write off.  Perhaps Greece will leave the Euro.  Perhaps something genuinely and profoundly new and different and unexpected will occur. I do not know.  In my more pessimistic moments, I fear that the sons and daughters of Greece will still be suffering the consequences of the Crisis not just in ten or twenty years but in fifty, seventy, even a hundred years.

In my more optimistic moments, I wonder if the Greeks of the twenty first century have been replicating the sacrifice they made at Thermopylae two and a half millennia ago.  Then, they briefly held back the overwhelming forces of Xerxes, and their sacrifice provided us with an enduring model of heroism; now, they have faced the rapacious forces of modern capitalism and been similarly overwhelmed. My optimistic hope is that their sacrifice has not been in vain.