Share this story
Close X
Switch to Desktop Site

Greek Cassandras bewail economy, say IMF bailout needed shortly

After four years of steady economic decline, Greece has entered what Theodore Papalexopoulos, president of the Association of Greek Industries (SEB), has called the ''year of discontinuity: Either we change and improve or remain the same and face grave difficulties.''

Indeed, a broad consensus has begun to form among business leaders, economists, and politicians - including, in private, many supporters of the country's Socialist government - that Athens will have to turn to the International Monetary Fund (IMF) to bail it out within the next 12 to 16 months unless the government adopts stringent measures soon.

About these ads

''The Cassandras say Greece is in for a big bust and will have to seek cover with the IMF,'' said a top executive of an international corporation in Athens, adding ''most of us are Cassandras and, like the character in the myth, we are not listened to by the government.''

Since 1979, the country has suffered inflation in the 20 to 25 percent range (a secret report by a major American bank claimed the rate has been as much as 5 percent higher), zero or negative growth, declining investment, large current account deficits, and dwindling foreign exchange.

Socialist Prime Minister Andreas Papandreou and the parties in opposition - principally the conservative New Democracy, which Papandreou ousted in 1981, and the Moscow-oriented Communist Party - spend much of their time exchanging insults and blaming one another for the state of the Greek economy. In reality, there is plenty of blame to go around, and much of what ails the Greek economy has more to do with the international economic situation and traditional structural problems.

In the last couple of years before the October 1981 national election that brought Papandreou to power, the New Democracy government of former Prime Minister George Rallis went on a binge of pork-barrel spending. When he lost, his Socialist successor fulfilled campaign promises by expanding social spending and raising salaries by an average of 35 percent. As a result of both policies, the public deficit ballooned; the competitiveness of Greek labor - and hence of Greek products - deteriorated; financing for Greek industry began to dry up as the government moved in to finance the shortfall; and the inflation rate, already high by West European standards, shot up.

Papandreou reacted to the deteriorating situation last year by devaluing the drachma by 15 percent, adopting an incomes policy that will result in a 3 percent decline in the real wages of the average Greek worker, and postponing many promised social programs.

''Too little, too late,'' laments Basil Coronakis, a private businessman and publisher of the prestigious English-language business magazine, Greece's Weekly Business and Finance. ''This government has done positive things, but they have been buried by its basic mistakes.''

One of those errors was the government's decision to peg the drachma to the dollar after last year's devaluation, anticipating that the value of the US currency would fall. Instead, the dollar has become stronger, and the drachma has risen against the currencies of its European Community (EC) partners - which account for more than half of Greek trade - thus virtually eliminating the effects of the devaluation and leading Greece to deliver a strong attack on US monetary policies.

About these ads

On Aug. 2, Economy Minister Gerasimos Arsenis called on EC countries to stop pegging their currencies to the dollar and announced that Greece would do so in any case, thus devaluing the drachma informally. The attack reflected the views of many West Europeans who, like Greece, blame US interest rates for many of their economic problems.

Today the economic picture is grim. Inflation is running at a 23 percent annual rate, unemployment has risen to near 10 percent, exports are down 7.8 percent, earnings from invisibles are down 24.2 percent. Also down are tourism, 35 percent; shipping, 20 percent; and remittances from Greeks living abroad, 10 percent. Investment has declined for the fourth year in a row (-10 percent), the current account deficit is projected to be $2.5 billion for 1983, and foreign exchange reserves have fallen to $837 million, only the value of one month of imports.

To make matters worse, Greece has long maintained a rigid system of price controls that have driven some companies out of business, severely damaged the performance of some of the country's traditionally healthiest industries - cement, dairy, textiles - and prompted some members of the pharmaceutical industry to consider disinvestment.

The country is also burdened with one of Western Europe's most stubbornly ineffecient bureaucracies. ''The bureaucracy is just as inefficient, but less experienced and more zealous than before,'' complained one foreign businessman.

Businessmen and conservative and moderate politicians have begun to call on Greeks, in the words of one banking consultant, to ''tighten their belts, lower their standard of living, and work harder,'' while the Communists and the far left of Papandreou's own party advocate greater state intervention in the economy.

Both sides seem to agree that the government's odd mixture of often contradictory economic policies are part of the problem. Some sources close to the prime minister claim he recognizes the problems the country's economy faces and assert that he will adopt further austerity measures in the fall. Recent public statements, including Papandreou's speech to his party's 10th central committee meeting last week in which he promised to take unspecified initiatives in a long list of areas - health care, youth, agriculture, unemployment, to name a few - seem to point in the opposite direction.

Last spring, newspapers and commentators were predicting a ''hot political summer'' for the country's Socialist government. But Papandreou's increasingly cooperative attitude within the EC - one month into its six-month presidency of the community, Greece has already received cautious praise - and his decision to initial an agreement allowing American military bases to remain in Greece, eliminated two burning issues, improved the economic climate by reassuring domestic and foreign businessmen that Greece would remain in the West, and ensured that Greece would receive more than $2 billion in assistance from various Western sources, enough to offset its large current account deficit for this year.

As unemployment climbs and inflation continues unabated, however, people have begun to hurt where it counts most: the pocketbook. ''They have 12 difficult but manageable months ahead of them. If they act correctly, the country and Papandreou will profit,'' according to a former government official. ''If they fail: IMF, political turmoil, and economic hardship.''

Follow Stories Like This
Get the Monitor stories you care about delivered to your inbox.