FX International Payments
By Frances Coppola
After the financial crisis of 2008 exposed Greece's huge debts and fragile banking sector, it suffered a "sudden stop," in which the capital flows that had financed its expansion suddenly reversed. Greece's government was forced to bail out its banks, and as a result was itself bailed out by a consortium of other Eurozone countries and the International Monetary Fund (IMF). The conditions for the government bailout included large public spending cuts and tax increases to close the fiscal deficit and make it possible for Greece to pay its debts. However, the combination of a sudden stop with severe austerity caused Greece's GDP to fall by 27 percent5 and unemployment to rise to nearly 26 percent.6 Investment collapsed as businesses fled to countries with lower taxes and better growth prospects.7
As commonly happens after a sudden stop, import-export trade improved during this time. Imports fell, but exports rose, resulting in a better trade balance and less reliance on external financing. Greece's current account deficit, which hit 15 percent in 2008, was just over 1 percent at the end of 2016.8
However, the trade balance remains in deficit, even widening slightly in 2017 as imports started to rise.9 If import-export trade were to become very unbalanced again, it could put at risk Greece's hard-won recovery. Unsurprisingly, therefore, the focus of government and business leaders is on developing export markets and improving external competitiveness.,
In an interview conducted in early December 2017, Greece's Minister of the Economy and Development, Dimitris Pappadimitriou, outlined the Government's growth strategy.10 He said that Greece has historically been a rather closed economy, so a key part of the strategy is opening it up to take full advantage of its membership in the European Union (EU), and reorienting the economy towards production of goods and services that can be traded internationally.
The Minister is keen to develop capacity in high value-added and knowledge-based goods, using Greece's young, skilled and significantly under-employed workforce. Labor costs are considerably below those in competing countries such as Ireland; that could prove attractive to international businesses looking for expansion opportunities. He suggested that international businesses might consider establishing service centers in Greece, taking advantage of the fact that many of Greece's young people speak English well. He also hopes to encourage business start-ups by young graduates, especially in technology, telecommunications and agriculture.
Developing import-export trade can be challenging in a country where 99.9 percent of businesses are small and medium-size enterprises (SMEs).11 They can experience considerable barriers to trade due to their small size and lack of finance. The Minister wants to create SME "clusters" and supply chains to give them sufficient strength to enter international markets.
But Greece's import-export trade ambition extends beyond Europe. The Minister outlined a plan to become an "energy hub," fostering the development of oil and natural gas fields in the Eastern Mediterranean and becoming a processing and transportation center for petroleum products and Liquefied Natural Gas (LNG). Involvement of American business interests would be key for this project, he said. Greece also plans to host a gas pipeline from Azerbaijan to the heart of the EU, helping the EU to reduce its dependence on Russia for gas supplies while avoiding areas of geopolitical risk.
Logistics, too, would be a key area for import-export businesses. Logistics centers are being developed close to ports, particularly the recently privatized port of Piraeus where the Minister is anticipating a four-fold increase in container traffic.
Greece's airport privatization program is already showing signs of encouraging tourism (an important part of this historic country's economy), as direct flights from London to regional airports encourage British holidaymakers to seek the sun. But as it develops, the Minister also anticipates that the regional airport network might encourage businesses from all over the world to expand into areas of Greece beyond the capital. He says that there has already been interest from businesses in the U.S., the U.K., Australia and the Netherlands.
Both the Economy Minister and the Prime Minister's spokesman, Dimitris Tzanakopoulo, emphasized Greece's strategic significance, particularly for the United States. Greece is a long-term ally of the United States and hosts a key U.S and North Atlantic Treaty Organization (NATO) military base on the island of Crete.12 Despite its financial difficulties, Greece is one of only five countries that maintains its NATO defense spending commitment.13 It is also a relatively stable country, now that it has decided to do whatever is necessary to remain in the Eurozone. There will be elections some time in 2018, but all major parties say they are committed to fostering inward investment, international business and import-export trade.
The importance of U.S. business to Greece can be seen in the fact that it has an American-Hellenic Chamber of Commerce, which exists to encourage growth of import-export trade between the U.S. and Greece by fostering business ties between the two countries.14
However, despite recent reforms, Greece is still not the easiest place to do business. Currently, it is listed 67th in the World Bank's "Ease of Doing Business" ranking.15 Partly, this is a consequence of measures adopted to repair Greece's fiscal finances: corporation taxes have been raised several times in recent years and are now high by international standards, at 29 percent.16 However, the government is hoping that once Greece's bailout program has ended, in July 2018, it will be able to reduce corporation taxes. Credit, too, can difficult to obtain due to the Greek banks' high levels of non-performing loans: the Organization for Economic Co-operation and Development (OECD) identifies reducing these as a high priority for the Greek government.17
But there are also some more intractable problems. The World Bank reports that it remains difficult to register property and enforce contracts, and insolvencies take too long to enact. Resolving these problems would require reform of the judicial system, which might not start until after the 2018 elections. Businesses considering expansion into Greece may wish to familiarize themselves with Greek business law and justice as it works at present.
The Greek government sees import-export trade as key to Greece's continuing recovery and is working to improve the business environment with a view to encouraging trade and inward investment. International businesses may view Greece's growing optimism, and openness to trade and investment, as creating both hope and opportunities for the future.
With 17 years experience in the financial industry, Frances is a highly regarded writer and speaker on banking, finance and economics. She writes regularly for the Financial Times, Forbes and a range of financial industry publications. Her writing has featured in The Economist, the New York Times and the Wall Street Journal. She is a frequent commentator on TV, radio and online news media including the BBC and RT TV.
1. Economic forecast summary for Greece, Organization for Economic Co-operation and Development; http://www.oecd.org/eco/outlook/economic-forecast-summary-greece-oecd-economic-outlook.pdf
2. “Greece Business Confidence,” iEconomics; https://ieconomics.com/greece-business-confidence
3. “Greece Manufacturing PMI,” Trading Economics; https://tradingeconomics.com/greece/manufacturing-pmi
4. “Euro area international trade in goods,” Eurostat; http://trade.ec.europa.eu/doclib/docs/2013/december/tradoc_151969.01.2018.pdf
5. “Greece’s debt crisis, explained in charts and maps,” Vox; https://www.vox.com/2015/7/1/8871509/greece-charts
7. “Gross capital formation, Greece,” World Bank; https://data.worldbank.org/indicator/NE.GDI.TOTL.CD?locations=GR
8. “Greece current account balance as a share of GDP,” knoema.com; https://knoema.com/atlas/Greece/Current-account-balance-as-a-share-of-GDP
9. “Greece sees new increase in trade deficit as imports rise,” eKathimerini; http://www.ekathimerini.com/222228/article/ekathimerini/business/greece-sees-new-increase-in-trade-deficit-as-imports-rise
10. Interview conducted by Francis Coppola, author of this article.
11. “Statistics on small and medium-sized enterprises,” Eurostat; http://ec.europa.eu/eurostat/statistics-explained/index.php/Statistics_on_small_and_medium-sized_enterprises
12. “NSA Souda Bay,” http://www.militarybases.us/navy/nsa-souda-bay/
13. “The Only 5 Countries That Meet NATO’s Defense Spending Commitment,” Time; http://time.com/4680885/nato-defense-spending-budget-trump/
14. “AmCham Greece,” American-Hellenic Chamber of Commerce; https://www.amcham.gr/<
15. “Doing Business 2018, Economy Profile, Greece,” World Bank; http://www.doingbusiness.org/~/media/wbg/doingbusiness/documents/profiles/country/grc.pdf
16. “Greece – Corporate Taxes on corporate income,” PWC; http://taxsummaries.pwc.com/ID/Greece-Corporate-Taxes-on-corporate-income
17. “Developments in selected OECD and non-member economies: Greece,” Organization for Economic Co-operation and Development; http://www.oecd.org/eco/outlook/economic-forecast-summary-greece-oecd-economic-outlook.pdf