[MGSA-L] A Way Out of the Greek Financial Crisis

[June Samaras]

http://www.usnews.com/opinion/blogs/world-report/2012/12/31/a-way-out-of-the-greek-financial-crisis

A Way Out of the Greek Financial Crisis

By ANDREW NATSIOS <http://www.usnews.com/topics/author/andrew_natsios>
December 31, 2012 RSS Feed <http://www.usnews.com/blogrss/world-report.xml>
Print<http://www.usnews.com/opinion/blogs/world-report/2012/12/31/a-way-out-of-the-greek-financial-crisis_print.html>
[image: Municipal workers chant slogans during a protest outside the
ministry of Administrative Reform in Athens, on Friday, Nov. 23, 2012.]

*Andrew S. Natsios is an executive professor at the George H.W. Bush School
of Government and Public Service at Texas A&M University, a senior fellow
at the Hudson Institute, and the author of *Sudan, South Sudan and
Darfur: What Everyone Needs to
Know<http://www.amazon.com/Sudan-South-Darfur-Everyone-Needs/dp/0199764190/ref=sr_1_1?ie=UTF8&qid=1353950670&sr=8-1&keywords=Sudan%2C+South+Sudan+and+Darfur%3A+What+Everyone+Needs+to+Know>
*. Natsios served as administrator of the U.S. Agency for International
Development and as President George W. Bush's special envoy to Sudan.*

On December 13 the European negotiators finally approved a long-awaited $57
billion bailout to the Greek government to deal with its sovereign debt
crisis which has shaken the foundations of the European Union and the euro.
Without economic growth however, these bailout plans simply prolong the
suffering of the Greek people, many of whom see no way out of the economic
crisis facing the country. The loans will provide sufficient funds for the
government to operate for two and a half years, but require further
controversial cuts in public sector spending. Since the world economic
crisis of 2008, the Greek economy has contracted by 20 percent, driving up
unemployment to 23 percent, a rate comparable to U.S. unemployment at the
peak of the Great Depression in 1932.

The Greek depression has created an exodus of talented, ambitious, and well
educated young Greeks to find jobs in economies that are growing—the very
young people needed for an economic revival in their homeland. If the
economy begins to grow again and new jobs are created, many will return,
but historical evidence suggests the longer they are employed elsewhere,
the less likely they will return home. Conspiracy theories and blame
apportionment to explain the crisis have long been cottage industries in
Greece, but none of this offers a way out of the mess, and in fact may
impede clear thinking.

[See a collection of political cartoons on the European debt
crisis<http://www.usnews.com/cartoons/european-debt-crisis-cartoons>
.]

While the focus of western media attention and the EU negotiations has been
on the country's fiscal balance sheets and on the Greek government's
profligate spending, too little has been written on how to kick start the
economy to drive unemployment rates down and increase tax revenues to give
the long suffering Greek people some light at their end of the bleak
economic tunnel. Three strategies hold promise for turning around the
economy.

First, focus on the inherent and proven economic strengths of the country,
one of which has been tourism. Over the past two decades the Greek private
sector has built more luxury hotels, upscale restaurants, tourist shops,
and high speed passenger ships to travel to the Aegean islands and pristine
beaches. This new upscale tourism is embodied in the Costa Navarino Resort
which features a Robert Trent Jones golf course at Pylos Island on the
southern coast of the Peloponnesos. The Greek government constructed a new
airport in Athens which is among the most modern in Europe, a new highway
system, and a remarkable new museum to house the architectural jewels and
art work of the Acropolis in Athens—a symbol of the Golden Age of classical
Greece. The enormous stadium built for the 2004 Olympics could be converted
into a regional sports center that could bring sports tourism to the
country. However, aggregated tourist revenues have declined by 50 percent
since 2008, so much of this new infrastructure sits unused. Some analysts
have made the argument that the tourist industry was in decline well before
the economic crisis of 2008 (revenues have been declining since 2000),
because it relies on low-end tourism, which attracts tourists with limited
money to spend. Tourist costs have come down significantly: According to a
June 11, 2012 article in *Ekathimerini, *prices last summer for hotel rooms
were down by as much as 25 percent compared to a couple of years ago. With
better tourist infrastructure built over the past two decades, and
discounted rates, upper-end tourists may be drawn to Greek hospitality. But
this would require an aggressive international marketing campaign.

[See a collection of political cartoons on the
economy<http://www.usnews.com/cartoons/economy-cartoons>
.]

Some of the decline in tourism is a function of exaggerated media reporting
of the political turmoil in Athens. My wife and I traveled all over Greece
in 2010, when I visited the country to give a lecture at American College
in Athens. We saw no political turmoil other than around Constitution
Square in front of the Parliament, so we simply avoided that area. The rest
of Athens was peaceful and stable and the smaller cities and Greek Islands
saw no political turmoil and were a delight, as always, to visit. Restoring
(and even expanding) the tourist economy would help jump start the economy
over the short term more than any other measure. One way to reduce the
fears of potential tourists of political turmoil would be a two-year
moratorium on public demonstrations agreed to by all political parties,
labor unions, and student groups. This could be done with a complete
revamping of the protest permitting process to ensure the protests are held
in areas away from downtown Athens and the provision of law enforcement to
implement the new system.

Second, accelerate the competitive bidding process for contracts to explore
the rich natural gas deposits estimated at 3.5 trillion metric meters off
the coast of Crete alone, with additional reserves off the western coast of
Greece in the Ionian Sea which appear to be considerable. Greek national
gas reserves are slightly smaller than those of Venezuela, Algeria, and
Nigeria.

According to an
article<http://www.euromoney.com/Article/3124174/Greeces-600bn-gas-reserves-to-fuel-recovery.html?copyrightInfo=true>
 in *Euromoney* published Nov. 29, 2012, Mark Wall of Deutsche Bank in
London issued a report which estimates the reserves at $555 billion,
"Assuming a reasonable industry rule of thumb that a quarter of this
economic value is absorbed by the cost of production, another quarter is
the profit margin for the production company and half is the beneficial
government's tax take, this reserve, if proven and fully exploited, could
yield the Greek government €214 (US $283 billion) or 107 percent of GDP,"
according to Wall. Greek government debt, according to the *Economist*,
stands at about $405 billion, and so the exploited reserves could go a long
way towards reducing the national debt.

[Read the* U.S. News *Debate: Should Greece Leave the
Eurozone?<http://www.usnews.com/debate-club/should-greece-leave-the-eurozone>
]

The drilling will take three to five years to confirm the size of the
reserves and put the infrastructure in place to reach the deposits, after
which the revenue will start flowing to the Greek government. But first the
Exclusive Economic Zone delineation negotiations with Libyan government
must be completed in order for the gas extraction to begin. The completion
of these negotiations is essential for the investment climate to be right.

Third, the key to economic growth in any country is attracting investment
to create private sector jobs. The Greek government massively increased its
sovereign debt from 22 percent of GDP in 1980 to 98 percent of GDP in 1993
with unproductive public sector jobs and government subsidies to various
groups. While the number of these public sector jobs has declined by 15
percent during the crisis, private sector job growth has been limited. The
World Bank's *Doing Business Report* of 2013, which tracks regulations and
laws that promote investment and economic productivity, showed that
Greece's ranking improved from 89th to 78th (out of 185 countries that are
ranked) mainly because of reforms enacted by the Greek government over the
past few years. The two dozen highest-ranked countries are the wealthiest
and most vibrant economies in the world, and if Greece aspires to enter
these ranks, much more extensive reforms are needed. Not all political
parties and public opinion itself in Greece appear committed to improving
the business climate; some regard business and the private sector as
fundamentally corrupt and predatory. In Anglo-Saxon countries, which are at
the top of the *Doing Business Report* rankings, the word "entrepreneur" is
one the most respected professions among the general public, while in
Greece the word suggests someone who has achieved their wealth through
corrupt and unethical behavior. If entrepreneurs are looked down upon, what
hope is there for attracting the most innovative and ambitious young people
to careers in business?

[See 2012: The Year in
Cartoons<http://www.usnews.com/cartoons/2012-the-year-in-cartoons>
.]

When Greeks emigrate from their homeland to Canada, the United States, and
Australia, their per capita income rises above most other ethnic groups.
According to Northwestern University sociologist Charles Moskos's book *Greek
Americans: Struggle and Success*, the U.S. census of 1960 and 1970 shows
that second-generation Greek-Americans were only exceeded by
Jewish-Americans in income and continued to rank*first* among all ethnic
groups in educational attainment. So it can't be the work ethic, education
level, or cultural values of the Greek people that are the problem. It is
the clientalist political system, antibusiness culture, and statist
bureaucratic norms of the Greece government which suppress the natural
instinct of the Greek people for commerce and business and discourage
private investment; it will take more than regulatory reform to change
these attitudes. It is during national crisis that the most
transformational reforms are often implemented, when vested interests are
pushed aside, and real progress is made. The Greek economic crisis could be
used by able political leaders to force through political and economic
reforms and begin the process of cultural change as well. Then the light at
the end of the tunnel may be bright indeed.
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