Greece crisis: It needs another economic miracle – and it could happen

It's not for me to say how Greeks should vote, but would more austerity really be in their best interests?

Hamish McRae
Saturday 27 June 2015 18:32

Ask the people – that is a novel idea, isn’t it? And so the Greek people will decide whether to accept the harsh terms imposed on them by Europe, or whether to accept the advice of their government and reject them. If they reject, what then?

It is not the place for foreign commentators to tell the Greek people what to do. What I think is worth saying is that there is no reason why Greece should not be a successful economy, as it has been in the past. Indeed, between 1950 and the oil crisis of 1973 it was Europe’s fasting growing economy, with growth rates of 7 per cent a year. This period was dubbed the Greek economic miracle. True, that was a period when Greece was catching up with the rest of Europe, but, given how much ground it has lost, that is what it has to do again – and the question is how best it should do so.

Objectively, Greece is in such an enviable position, with the combination of location, beauty, and commercial acumen. Any of the one million Britons who go there every year would acknowledge all this. It is not just us, by any means. Last year was a record, with the country host to more than 21 million visitors, accounting for more than 15 per cent of GDP. But the Greek economy has not been working for the majority of its own people and that is frustrating – and worse, humiliating – as the events of the past few days have shown.

The harsh truth is that you don’t fix an economy with a week or two’s talks, whatever their outcome. You don’t fix it with a referendum either, whatever the outcome. What will matter for Greek people is whether, over the next 10 years, the economy can do as well as it ought to be doing, given its potential. That means focusing on what it is good at, and the starting place for that, inevitably, is tourism.

This needs investment, both of money and skills. One good example of that requirement applies to golf, a great holiday attraction because golfers both spend money and will play throughout the year. The whole of Greece, with a population of 11 million, has only seven 18-hole courses of which only four are on the mainland, the others being on Rhodes, Crete and Corfu. Cyprus with 1.1 million people has six, five in the Greek south and one in the Turkish north. Other sectors that need to lift their game include the hotels and restaurants. Greece must be doing something right in that it is getting the numbers of visitors, but it could extract more money from them.

There are two other areas where Greece should have a competitive advantage: food and drink, and travel and shipping services. On the first, EU membership seems to have been a disaster, because lower suppliers have had access to its domestic market, while it has failed to create sufficient upmarket export outlets for its own stuff. I don’t understand the full reasons for this, but suspect it has to do with lack of government support for produce marketing. Greece ought to be on a par with Italy as an upmarket producer and it isn’t.

Greece’s shipping excellence is widely appreciated, and the issue there is how to bring more of that business to Greece itself rather than have wealthy ship-owners live abroad. Much less attention has been paid to the geographical position of Piraeus as an entry point for East Asian and Middle Eastern trade with Europe. Why ship stuff going to Eastern Europe right round to Rotterdam if you can land it in Athens? It is the natural point of entry for the Balkans. Privatisation of the port of Piraeus is one of the bits of the present rescue talks that is agreed, but this is seen mostly in terms of what money is raises for the Greek government (some €500m) rather than the long-term economic benefits that might accrue.

The problem, as with golf, is that it needs investment: in the case of Piraeus, the problem is freight rail links as well as modernisation of the port itself. Rail investment, as we have just been reminded here in Britain, is a tricky business as well as an expensive one, and takes a long time to put in place.

Here, surely, is the nub of the matter. To prosper over the next decade, Greece needs private foreign investment: investment that brings in skills and access to markets as well as hard cash. So the test now will be whether “continued austerity” or “break free and see what happens” is more likely to attract that investment. For the rest of Europe, this is a debate about the future of the euro.

What matters for the future of Greece is how to have another economic miracle. The conventional view seems to be that this is more likely under continued austerity. I find that hard to envisage – but it is for the Greek people to decide.

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