Greek economy woes fuel backlash

By Simon Atkinson
Business reporter, BBC news



Ask the British holidaymaker in Greece about the local economy and they will tell you, almost without fail, "It's not as cheap as it used to be."

When the country abandoned the drachma and entered the eurozone in 2001, retailers pushed up the prices - much to the displeasure of those accustomed to their annual fortnight of cheap ouzo and, if they were feeling adventurous, a bowl of moussaka.

But put the same question to those living there all the year round, and they will tell you prices had been climbing fast long before that.

Year after year of high inflation (it topped 20% in the early 1990s) has eaten away at Greece's competitiveness.

In the holiday scenario, this has meant tourists have looked for cheaper, but equally sunny holiday destinations - seriously bad news in itself in a country that has come to rely on visitors.

But the bigger picture reaches far beyond the price of a meal in a taverna to the impact it is having on the country's economy as a whole.

Rubble trouble

Like in most other nations, Greece's inflation is falling as the price of fuel drops sharply (it is forecast to reach 3% in 2009, from 4.3% this year).


But the rising cost of living has been a persistent problem in Greece, straining household budgets and risking long-term growth.

And as the credit bubble bursts and demand for new homes falls away (construction is another of its key industries), the cracks have become more apparent.

While the economy is still growing faster than the eurozone as a whole, the brakes are being applied quickly. Government forecasts say GDP will slow to 2.9% in 2009, a level some say is optimistic.

"Greece's economy after many years of strong and uninterrupted growth is today at a critical crossroads," Bank of Greece Governor George Provopoulos told shipping industry executives last week.

Not ready for Euro?

The government has said that its banking system is stable. To reinforce confidence, it has given a 100,000-euro (£87,800) guarantee on banking deposits - double the 50,000 euros insisted upon by the EU.

But it is going into global economic crisis with precarious finances.

Greece is already battling a current account deficit of about $53bn - or 15% of GDP - easily the highest in the eurozone. And that is with a population of only 11 million people.

Meanwhile, its public debt is almost equal to its national output - in part as it feels the burden of the 2004 Athens Olympics.



The Games delivered improved infrastructure but carried a hefty bill, which the government puts at about 6bn euros, but which other estimates suggest cost upwards of 10bn euros.

Many argue that Greece was not ready to enter the eurozone when it did.

And indeed, in 2004 it admitted it had joined the euro on the basis of figures that showed its budget deficit to be much lower than it really was.

Social spending

As the government struggles to balance the budget, policies aimed at raising more money for its coffers have played a key part in prompting hundreds of thousands to march in Athens this week.

The two main umbrella unions - the Greek General Confederation of Workers and the Civil Servants Supreme Administrative Council - are demanding increased social spending in light of the global financial crisis, as well as higher wages and pensions.


The unions say that privatisations, tax rises and pension reform have worsened living conditions, with the estimated 20% of Greeks living in poverty worst affected.

For example, as part of an attempt to overhaul the social security system - believed to be about 500bn euros in debt - workers were asked to increase pension contributions, something many see as unfair as they feel the strain of economic downturn.

The sale of stakes in ports and a telecoms company has also sparked consternation, especially from unions, which fear job losses and wage cuts being imposed by new management.

And a string of revenue-raising tax measures passed by government have not gone down well.

Removing a tax exemption for some of the poorest self-employed, more expensive vehicle licences and a capital gains tax on shares have done little to please.

And with youth unemployment at about 19% and overall joblessness at 7.2%, there is plenty of anger on the streets.

Story from BBC NEWS:
http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/7776102.stm

Published: 2008/12/11 00:03:16 GMT