Despite impressive growth figures, there is a widespread sense of malaise and uncertainty
By Dimitris Kontogiannis - Kathimerini English Edition

The economy, and the stock market in particular, are expected to be at the center of sharp political exchanges between the ruling Socialist party (PASOK) and the main conservative opposition party (New Democracy) as general elections draw closer.

With the Greek economy growing faster than any other in the eurozone, one would expect it to be the government’s strong card. But this is not the case. In addition to corruption scandals and fatigue, as the Socialists have governed the country almost continuously for 20 years except for a three-year period in the early 1990s, it looks as if the government is paying for the ongoing transformation of the Greek economy and the Athens Stock Exchange’s three-year slump. Nevertheless, the economic transformation, which many Greeks feel but do not fully comprehend, will see the current government out and is likely to pose a political threat, perhaps a more severe one, to any future government.

The Greek economy registered an impressive growth rate of 4.3 percent in the first quarter, which was marked by a noticeable deterioration in the economic outlook of some of its most important EU trading partners, namely Germany and Italy, as the Iraq war loomed and oil prices jumped to more than 38 dollars per barrel, thus sapping business and consumer confidence in many countries. A strong 7.9 percent rise in investment spending and a healthy 3.6 percent increase in consumption underpinned the buoyant GDP growth rate. This performance has almost ensured the attainment of the official goal of 3.8 percent growth this year and even made it look conservative.

Despite this robust growth figure, the average person in the street is not convinced of the good times and readily points to high inflation, approaching 4 percent year-on-year, tighter liquidity conditions in commerce, high-profile companies going bankrupt or in danger of closing down and little progress in cutting the red tape. He or she complains of difficult times even if they have a well-paying job, hinting at job insecurity and giving the impression of an economy in dire straits. Some have even questioned the accuracy of the GDP growth figures to make a point. Of course, the average person in the street is not alone. Some of their concerns and complaints are shared by businessmen who have to deal with everyday corruption and bureaucracy in state-controlled enterprises as well as unreasonable demands made in regulations.

In addition to the real economy, hundreds of thousands of retail investors and voters have been hurt by severe losses on the Athens bourse and feel bitter about it. The Athens bourse’s impressive two-and-a-half-month rally has undoubtedly helped improve investor psychology and transmitted some kind of optimism to market participants, the business community and the government. It has done little, however, to heal the wounds and it is not clear whether there is any leg left in the recent rally.

Most analysts agree a technical rebound was overdue following the stock market’s protracted and rather sharp fall prior to the Iraq war. Some even linked it to the prospect of general elections in the fall, claiming state-controlled institutional portfolios, pension funds and other “friendly” investment forces have been buying into index heavyweight shares to maintain its upward trend. The good performance of foreign markets appears to have facilitated this move as well and foreign funds of all sorts have been active buyers of some Greek shares for some time now.

Still, few doubt that unless the general stock index rallies toward the 2,800-3,000-point mark or higher than the current 1,905 before election time, the bourse will most likely turn out to be more of a liability than an asset to the ruling Socialist party. It is not only the steep losses incurred by hundreds of thousands of retail investors, who sometimes bought shares listening to the rosy forecasts of government-appointed bankers and ministers, but also the widespread claims that senior Socialist party members made millions out of stock trading scams without being punished.

Transformation pains

Although the Athens bourse is undoubtedly a hot potato, it is the ongoing transformation of the Greek economy and its costs which constitute a real challenge to both current and future Greek administrations. There is no doubt that some sectors of the Greek economy are booming, such as construction, metallurgy and related industries. At the same time, others have been hurt by a combination of factors. It is known that labor-intensive industries, such as textiles, have been shedding tens of thousands of jobs in the last 15 years or so. Decades of protectionism had made most companies in the sector inefficient, which became apparent when all kinds of tariffs, quotas, state subsidies and other forms of protectionism were lifted as liberalization set in. In the process, thousands of small firms transferred their production to neighboring countries with low labor costs, leaving thousands of local workers unemployed. Of course, it is possible to argue that although this leads to a more efficient allocation of resources, considered good for the long-term potential of the Greek economy, it definitely has a high political cost. The same story is unfolding in other industries, such as bicycle manufacturing, where some manufacturers appear ready to test the waters in neighboring countries for similar reasons.

Moreover, some sectors, such as the airline industry and related businesses, have been hurt by the decline in traveling due to economic and other geopolitical reasons. In addition to Olympic Airways, which faces chronic problems and whose fate is more or less predetermined, hundreds of travel agencies have closed down resulting in yet more job losses. Some of them may revive later along with the industry; in the meantime, however, they add to unemployment and dent psychology. Layoffs have also been mounting in the brokerage industry, which has a lot of excess capacity left over from the heyday of the stock market. The situation may be less severe, but there are fewer hirings to layoffs in certain banks and insurance companies as the latter try to reduce operating expenses and become more competitive. In some other industries, consolidation is the norm of the day as small and medium-sized firms either close down or are sold to larger companies. However, the latter follow a more conservative hiring policy in order to reduce costs and boost earnings, which may leave some employees out of work. The supermarket, apparel and footwear and electrical appliance chains belong to this category where sales may grow at industry level but shrink at the small-firm level.

Concerns about employment, excess capacity and business failures exist even in the booming construction sector. Many realize only a few large players will be able to participate in BOT (build, operate, transfer) and other self-financed projects in the future when infrastructure works linked to the 2004 Olympic Games will be completed. The problems there may be more acute, because thousands of unskilled immigrant workers are employed. Skeptics say it is likely that a rise in unemployment in this particular segment of the population may lead to a rise in social polarization if it is accompanied by a surge in crime and other offenses.

The government should be held accountable for its own share of mistakes and misguided economic policies. It is also likely to pay the price for not acting fast enough to purge high-levels officials allegedly involved in stock market scams. But there should be no doubt that its biggest problem will be containing and even reversing popular discontent linked to the ongoing transformation of the local economy. The impact of this transformation will continue to affect the economy in the next few years and require more decisive action by any future government.