Ten tips about Greece

On the eve of the elections (19th September), I spoke at the Monthly Barometer Gathering at Chamonix, in a very condensed format, called Speed Ideas: Ten Tips in Ten Minutes. The audience was investors and policy entrepreneurs from around the world. Here is what I said.


  1. We should see this as a balance-of-payments rather than sovereign-debt crisis
  • Greece had a trade deficit every year since 1962,
  • It had a current account deficit since 1982.
  • The deficit was financed for the most part by borrowing from abroad:
  • The government, borrowed by issuing bonds;
  • And the Greek banks borrowed from foreign banks and they also bought Greek government bonds.
  • The government then spent money on salaries, and pensions, boosting domestic demand.
  • This is what created the trade deficits.
  • The business sector adapted to this long-term imbalance. It focused on the local market, in the so called non-tradable sectors.
  • Such as retail, or construction.
  • The so called internationally tradable sectors shrunk.
  • Exports, as a % of national income, were the lowest in Europe.
  • In 2010, inflows of capital from abroad stopped suddenly, domestic demand dropped, and this started the spiral of the crisis.
  • Ireland, Portugal and Spain were in a similar “sudden stop” situation. They managed deal with this rather quickly, by increasing exports. Greece did not.
  • That is why the crisis has been so deep and long.


  1. Small businesses prevail; big business is weak
    • We have by far the highest number of self-employed, the highest share of micro-businesses, and the lowest share of large businesses, in the EU.
    • Land holding is fragmented, home ownership is the highest in the West
    • Industrial scale capitalism never took hold.
    • Low productivity is the result of fragmentation, not of concentration
    • All of this makes adjustment towards exports slower
    • Oligarchs do not control the economy, and they are not the main economic barrier to growth.
    • They do exist, and they are a problem for democracy, which is a different issue.
  1. We have a democracy of special interests: a democracy because rents are widely distributed
    • For those of you who have read Acemoglu and Robinson’s “Why Nations Fail”, Greece is a peculiar case, where inclusive political institutions support extractive economic institutions
  • For example, until 2010 we had 170 different pension funds, which were subsidized by the state; and the middle class occupations had the highest subsidies, while most of the poor had no pension at all.
  • Incomes in a wide range of occupations are protected, either by regulation, or by evading taxes.
  • The labor market has a strong duality, with insiders having high job security and good benefits, while very many people work informally with no protection at all.
    • So there is a wide coalition of special interests in all strata of society, from the petit bourgeois to the rich, for maintaining rents.
  1. Human capital is abundant, Social capital is scarce
  • Greek families invest a lot in education. Language skills, bachelors’ and master’s degrees are all abundant. Many Greeks also study abroad, in very good universities.
  • In the technology startups where I invest, we have no trouble finding excellent, but junior, engineers, designers, and copy writers.
  • But this individual talent is not matched by effective organizations and networks.
  • For example, Agricultural cooperatives usually fail
  • And very few businesses are run by professional managers


  1. The ‘compressed spring’: A big backlog of new business plans
  • After five years of crisis, many entrepreneurs have figured out how to adjust
  • How to make use of lower labor costs
  • How to attract international clients
  • They can do this, even without more reform,
  • And perhaps even with high taxes
  • I hear of many projects that are ready to take off.
  • Some of this even became visible in statistics last year.
  • And then it stopped again this year, of multiple elections, and of brinkmanship
  1. Preconditions for growth: stable environment, liquid banks
  • What these business people want, mostly, is some political stability.
  • They want to know that we will not exit the Eurozone any time soon
  • They also need banks that can provide some capital for their new plans
  • But banks cannot do that, until deposits return, which again is a function of stability
  1. Long term enablers: debt restructuring, more reforms, less corruption
  • Sovereign debt, and reforms, and corruption are important issues for the long term
  • But we can grow in the next 3 to 5 years, even if there is not much progress on this front.
  • Debt servicing is quite manageable for a few years
  • And there are substantial funds from the EU waiting to flow into the country, that can offset any recessionary effect of servicing the debt.


  1. Competitive advantages: human capital, small scale, and natural endowment
    • Competitive advantage in Greece will be a combination of three factors:
    • Well educated people with an international outlook
    • Focus on niche markets and on small teams
    • Better use of land and climate
    • I invest in technology startups based in Greece, and I can tell you that the ecosystem is very dynamic
    • We have had some early successes, and every year we see better teams and better concepts
    • There will also be successes in agribusiness and food processing
    • These will come to some extent from consolidation
    • But also, from educated and creative people going back to their grandparents’ farms.
    • And there some scientific professions, such as doctors and engineers, whp will find ways to offer services to a global market.
  1. Foreign direct investment: in transport, energy, and banks
    • If we have basic stability, I think we will also see investment in these sectors by large global players
    • Ports and airports are being privatized already
    • Electricity generation, which is still, effectively, a public sector monopoly, will be opened up
    • And banks need fresh capital. In the long term, this can only come from big European banks or from global funds


  1. What is at stake: a sense of normality
  • We have been living in a climate of looming catastrophe, on and off, for five years.
  • This has affected business more than any specific policy.
  • Tomorrow we have parliamentary elections, again.
  • This is the fifth time since 2009, and it has been only eight months since the last time
  • If conservative New Democracy come first, I think that a sense of normality will be restored
  • Since all big parties have now signed the Agreement with the EU institutions, and have pledged to implement them.
  • If the left wing SYRIZA is re-elected, which is more likely, then the outlook is more complicated.
  • They may decide to play by the rules, restore growth, and then try to implement a more ideological agenda.
  • This would give everybody breathing space.
  • But on the other hand, they may not want to govern within the constraints of the Agreement, or even, I would say, within the constraints of reality.
  • If so, then we will have more turbulence.
  • We will find out soon.

There is one more item I want to mention, which is not on my slide:

  • The Syrian refugee crisis. Recently we have had 5000 people every day arriving to Greek islands
  • This may affect Greece hugely, if a million people flow in and stay
  • But it too early to tell. Maybe next year.

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