Greece's curse and blessing: location, location, location


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When ancient Greeks were seeking guidance on matters of life and death, they turned to the oracle in Delphi. Modern Greeks do the same. At the end of February 2016, an economic conference bringing together a true "who-is-who" of local and global actors and thinkers on the Greek economy met at the site of the former temple of Apollon north-west of Athens to grapple with the existential threats that Greece is facing today.
Even though the economic crisis seems to have mostly disappeared from newspaper headlines, Greece has far from escaped the crisis: Greek “anchored poverty” rates, i.e. the share of the population with an income below 60% of the median income, rose from 20 percent to an incredible 46 percent between 2008 and 2012 (the last year for which we have reliable data). Given that the recession has continued since then, my best guess is that the anchored poverty rate is now likely hovering around half of the population, by far the highest in the EU.

After the turbulences caused by elections and referenda in Greece in 2015, the Delphi conference was based on an optimistic premise: provided Greece implements the current reform program it has committed herself to, economic growth could return at the end of 2016.

But just when you thought it couldn’t possibly get any worse, think again: the Syrian refugee and migration crisis hit, and it is hitting Greece hard. The country has been receiving 1000-2000 refugees and migrants on a daily basis, and as many as 7000 per day in October of last year, mainly from Turkey via the Aegean Sea. Most panels in Delphi ended up being dominated by this topic.

Greece's institutions and programs are perennially weak and overwhelmed with the implementation of a whole array of reforms. They now also have to deal with a huge number of traumatized families escaping a brutal war plus other desperate people who are joining the trek in order to seek greener pastures in Europe. It is truly an extraordinary emergency situation for Greece and for Europe as a whole.

But as the Austrian ex-Chancellor Wolfgang Schuessel aptly pointed out at Delphi: we can expect this to be the test case for the new normal rather than an exceptional event. Add climate change, high unemployment, inequality and demographics to the long list of conflicts surrounding Europe and you don’t have to be the oracle at Delphi in order to predict increasing migration pressures in the coming decades. And it is also safe to say that Greece will continue to be a popular entry point into Europe.

So what to do?

Despite those troubling medium to long term horizons, Greece has no choice but to do both: help Europe deal with the refugee and migration crisis as part of a broader set of actions which the Union is now working on, and at the same time overcome her own domestic economic crisis.

The latter means opening the economy, protecting the poor and vulnerable more effectively and finding a path to sustainable growth and job creation. The World Bank has been requested by Greece to help - with generous financial support from the European Commission - with technical assistance in the area of investment climate reform, simplification of procedures for private sector investment, introduction of a targeted social safety net and reviewing the overall social welfare system.

But is there a link between the two? Do the refugee crisis and the economic growth potential of Greece have anything in common?

Of course they do: location, location, location!

The reason why refugees and migrants are coming via Greece into the EU is because the country is geographically the Southeastern gateway into the largest and richest market in the world. Paradoxically however, the country currently underutilizes this natural comparative advantage on the economic front: transport routes for the increasing trade between ‘factory Asia” and ‘factory Europe’ touch Greece only briefly at the port of Piraeus, but then continue into the other European ports such as Rotterdam and Hamburg.

Only a meager 1.3 percent of all containers arriving in Piraeus, the deep water seaport in Europe closest to the Suez Canal, are transferred to railway and find their way into the Greek market and beyond. We estimate that, provided the right measures are taken, Greece could increase that share of inward-oriented container traffic tenfold by 2020.

For that to happen – among other things - the Greek logistics industry needs to be modernized and expanded; the already existing Framework Law, a product of a public-private partnership with technical support from a World Bank team, needs to be implemented; a railway corridor strategy into the EU market needs to be developed and implemented; the Thessaloniki-Piraeus rail line needs to be electrified, a long overdue investment project, etcetera.

The lesson therefore is, that Greece must make much better use of its geographic location and turn what currently looks more of a risk into an opportunity and truly become the Southeastern gateway into Europe for trade flows from Asia as well as from its own economy, as it gradually opens its economy and increases its production and exports.

That’s at least a sign of hope in what otherwise appears to be a very challenging situation in Greece.


Dirk Reinermann

Director of the IDA Resource Mobilization and IBRD Corporate Finance, Development Finance

Irene Daskalaki
March 11, 2016

Very interesting perspective on the Greek crisis. I absolutely agree on Greece's geographical advantage, however, I am concerned with what type of incentives are provided to foreign (and local) investors to help transition the country out of this crisis. The problem is certainly more systemic than it seems...
"Location, location, location" is a very attractive characteristic, however, the country still poses high investment risks, complex bureaucracy and tax uncertainty from one year to the next. Furthermore, with av. monthly salaries at 600-700 euro and with youth unemployment exceeding 60%, the country is experiencing a devastating brain drain of highly skilled, qualified labor, resulting in a gap of available skilled workforce, innovators, entrepreneurs, etc.

Dirk Reinermann
March 11, 2016

Dear Irene - thank you very much for your reply. I am glad you liked the blog. Of course you are absolutely right: improving logistics and transports services to help Greece make better use of her geographic location is only one challenge, or better: one important opportunity within reach to restart the Greek growth engine and open the economy. That said, many other elements are needed, and you mention some of them: improving the investment climate (through implementation of the investment licensing framework law, for example), cut unnecessary red tape and reduce opportunities for corruption, fix the broken cadastre system, target social spending on the poor and vulnerable to prevent a "lost generation", to name but a few. 

What always strikes me is that the world is full of bright, highly educated and entrepreneurial Greeks who integrate and perform very well anywhere in the world. And they love their country. The challenge is to create conditions for them (and foreign investors) that will make them want to come to Greece and invest those energies and resources at home. Kind regards, Dirk

panos varangis
March 11, 2016

This is a very good article on the potential for Greece to find ways to grow out of its economic crisis. I believe more of such thinking should be done about Greece rather than only presenting "defensive" mechanisms about the current crisis (cut pensions, salaries, expenses, raise taxes, etc.) that are often been presented. Although such measures will help long term, people need to also to see where growth will come from. What are the engines of growth for the Greek economy? Taking advantage of the geographic location and transport routs and logistics is an excellent and specific example of where growth should come from. Also, promoting other sectors where Greece could grow like agro-businesses, renewable energy, and upgrading tourist infrastructure and businesses should be considered. We need a broad plan to show specific examples of where growth will come and then design the steps to make this happen.

Dirk Reinermann
March 14, 2016

Thank you for your insightful comments. After 6 years of recession, more than one quarter of GDP wiped out (equaling roughly 2 decades of growth) and with the highest level of poverty in Europe it is indeed high time to kick the Greek economy out of its low level equilibrium. Achieving a fiscal surplus of 3.5% is grossly insufficient. Greece needs growth, and urgently. The sectors you identify are natural comparative advantages and need to be exploited more. In addition, there are many "horizontal" reforms that, once implemented, will make any domestic and foreign investment more attractive. International evidence shows that Governments and international organizations are perennially bad at "picking winners". But we do know that when an economy is ranked 60 (Greece's current Doing Business ranking), roughly 40 ranks above the European average, the distortions in the economy are so stifling, that removing those hurdles will give you growth. Hence the focus on investment licensing reform and fixing the cadastre, two other very practical and doable steps which can make a big difference for investment and job creation in the near term. Athens wasn't built in a day, but the Greek economy can be rebuilt one day at a time.