The Ekathimerini journalist Dimitris Kontogiannis has done it again! He has once before written about the current account as the key economic variable for Greece and he has now written about itagain. If only political and other opinion leaders would wise up to that simple fact!
Since independence almost 200 years ago, Greece has had current account deficits; i. e. Greece has depended on funding from abroad. The US has had a current account deficit for decades. So where is the problem for Greece?
The US (still) has the creditworthiness to attract foreign debt and it is one of the best places in the world for foreign investment. Thus, the US can live with a current account deficit for a long, long time. Greece has no creditworthiness at this point and it is the worst place in the EU for foreign investment (according to the World Bank).
Thus, two things are crystal clear: Greece must reduce its need for foreign funding (current account deficit) and of the funding it still needs, as much as possible of it must come by way of foreign investment instead of foreign debt. Why? Because every country reaches at some point its maximum debt capacity (and Greece has already reached its; at least for the time being).
Thus, and thank-you Dimitris Kontogiannis, the current account must be at the center of all short- and long-term economic planning for Greece.
I am not sure that Greeks understand that their living standard is “imported”; i. e. Greece needs foreign funding to pay for all the imports it buys. If Greece didn’t get foreign funding anymore, the foreign revenues from exports and services would just about suffice to pay for essential imports like energy, medicine, etc. Not much left for cars, motorbikes, smartphones, etc.
To avoid that the living standard collapses for lack of foreign funding, Greece must first of all reduce the import of those products which could just as well be produced in Greece. And guess what? As you substitute imports with domestic production, new jobs are created; jobs which pay income taxes in businesses which pay corporate taxes and which belong to owners who pay taxes on dividends!
The nice thing about import substitution is that it can be implemented almost overnight. All it requires is that a business framework is offered to investors where they can produce domestically at competitive terms with imports. Particularly when it comes to agricultural products, no one could understand why that shouldn’t be possible right away.
The next step is to expand exports. Greek policy makers must fire up Greek farmers to produce for exports. That, too, creates jobs. It will take a little more time than import substitution but not all that much more.
Then Greece must increase revenues from tourism. If Greece were not a cult for many foreigners, Greek tourism would be in shambles because it is really not competitive with, say, Turkey. To improve that situation will require more time because, to an extent, it involves cultural changes. To put it bluntly: Greeks will have to run after tourists and thank them for their business instead of giving them the impression that they are doing them a favor when they allow them to visit Greece.
All of the above will not be sufficient, at least not in the foreseeable future, to make the current account balance. Thus, Greece will still need foreign funding. And this brings me to the most important point.
There are only 3 long-term solutions for Greece’s economic problems: foreign investment, foreign investment and, again, foreign investment. Foreign investment comes automatically when a country is a wonderful place to do business. As pointed out above, Greece is by far the worst place in the EU to do business (#100 in the world; between Yemen and Papua New Guinea). Can this be improved overnight? No way, because it not only requires reform but, above all, a change in attitudes towards foreign investment! One cannot expect an entire country to change attitudes in a short period of time.
My proposal is to establish Special EconomicZones where a business framework is offered to investors which would rank #1 in the world. While it may take a generation to change attitudes of an entire population, to establish in selective areas the right business framework with people sharing the right attitudes can be done virtually overnight. McDonald’s has been doing it for decades in the whole world. All it requires is the political will to do it.
I cannot close before making my usual side blow against Greek political and opinion leaders: they worry about all sorts of things but they do not spend resources on those possible solutions which are called for (and, actually, quite simple). Except for Dimitris Kontogiannis, of course!