Greece (Brussels Morning Newspaper) After nearly 15 years of decline, Greece’s economy seems to be back on track. So are the ties between Greece and Germany. Greek Prime minister Mitsotakis has sealed his country’s regained friendship with Germany on a state visit just last week. Time to – once again – take a closer look at the relationship between the two countries and their economic development.
A Booming Economy
Greece’s recent developments read as a true underdog success story in the crisis-struck economic climate of the EU. After losing a quarter of its GDP in the aftermath of the Global financial crisis, the economy was hit particularly hard by the pandemic due to its dependence on tourism. Moreover, Greece has not been spared from skyrocketing energy and food prices, and in light of wildfires and floods, the damages of climate change are in the billions this year already.
Against all odds, the Greek economy is now 4% larger than in pre-pandemic times, and unemployment rates have fallen from 28% in 2014 to 10% today. Greece is also back on the map of international capital markets. S&P has recently given Greece back its investment grade status, while foreign direct investment grew by 20% in 2022 already, even without the credit agency’s blessing. Seeing the government manage to keep up a primary fiscal surplus during all this, this development really seems miraculous.
Several explanations for this are considered. Among them is a strong exporting sector as labor has become cheap again. Especially, tourism has grown back by over 50% in 2022. Another reason discussed is the EU’s structural funds, which are expected to support the Greek economy with half its GDP in the next 3–5 years. Greek banks are naturally emphasizing their resilient and cautious investment policies as a driving factor.
While diverse reasons are discussed, one thing seems to be clear: The man of the hour is Greek Prime Minister Kyriakos Mitsotakis. His party, the Nea Demokratia has held an absolute majority in parliament since 2019. After a one-month interruption, Mitsotakis was just as successfully reconfirmed in office this spring.
High Tide – No Trickle Down
The miraculous comeback of the Greeks seems almost unbelievable. It seems unbelievable because it is. The booming Greek economy does not reach the Greeks. In fact, the economic situation has gotten worse for most people in the country.
The cost-of-living crisis is hitting Greece brutally. Olive oil and other food prices are out of control, and so is housing. Bloomberg recently found Athens to be one of the hottest housing markets in Europe. Student rental prices in the capital have increased by up to 90% in the past five years, and wages are not at all keeping up with those rising costs. While the growth of real GDP is breaking records, real wages today are even worse than they were during the peak of Greece’s economic crisis, undercut only by Mexico and Columbia in the OECD. The common Greek reality is as bad as ever.
Politics of Social Indifference
Nonetheless, Kyriakos Mitsotakis, heir to the Mitsotakis-Dynasty, is being celebrated in international media outlets. And the claims are true: The prime minister and his government certainly know how to do business.
First and foremost, the government has reduced corporate and social security taxes, trying to create a “trouble-free business environment”. Mitsotakis then privatized government-owned assets and infrastructure, regardless of their previous profitability for the state. Additional taxpayer money is invested in favorable media coverage and in undermining press freedom. Efforts to raise pensions and minimum wage have remained less than symbolic in the context of inflation and price shocks.
For this legislature, the government is promising further business-oriented reforms, the first being the fight against tax evasion. While tax evasion is a serious problem in Greece, it is also a very ambivalent issue. For many small retailers, tax evasion has long been the pillar of survival amidst extreme austerity policies. Given that and the fact large corporations can usually afford to avoid their taxes legally, one can only speculate who will be hit the hardest by these reforms. The decline of small retailers would certainly foster LIDL’s recently announced 120 mln Euro investment strategy in Greece.
From Welfare to Workfare
Cutting down on social spending and driving wages down to foster economic growth is not a Greek invention. Germany, widely viewed as the “sick man of Europe” in the early 2000s, became Europe’s exporting champion by means of similar policies. Then chancellor Gerhard Schröder established a strong comparative advantage for Germany on the European market by fostering its low-wage sector through a package of reforms called the “Agenda 2010”.
Low-wage industries in Germany today are effectively subsidized by the state, and the social security system is set up to force workers into precarious labor conditions. The German workfare model of social security sets regular benefits at 502 Euros per month and threatens to cut those down, if recipients don’t take up the jobs offered by the federal employment agency.
Germany’s low-wage policy not only hit its own workers hard – The resulting strength in German exports also added to the deindustrialization of Greece, as well as other importing countries. The global banking crisis hit especially hard in those deindustrialized economies of the European south, that hadn’t been willing to organize their labor markets around precarity.
EU and German Involvement in Greece
Germany is also not entirely uninvolved in the dismantling of the Greek welfare state following the crisis. After deindustrializing Greece, and after the German economy had benefited from its safe haven position in the Euro-crisis, Angela Merkel’s government along with other EU member states was under pressure to bail out too-big-to-fail banks, that had followed extremely irresponsible investment policies in Greece. Lending Greece the money to pay back its creditors seemed like a feasible way to minimize the shared European responsibility for the EU’s disintegrated banking regulation. By making the bailout conditional on extreme austerity measures, Merkel and her finance minister Wolfgang Schäuble managed to outsource the dire consequences of the crisis to Greece. Far from any type of economic reasoning, the Greek economy was drained from what was left of it.
Bleeding out Greece was organized by means of the bailout conditions, initiating the abolition of the Greek welfare state and the privatization of central Greek infrastructure. Important social security instruments, such as the Social Housing Agency (OEK), were shut down and the government was forced to establish a workfare policy similar to that in Germany.
Today, fourteen Greek airports, among them the airports in Athens and Thessaloniki, are operated by Fraport, with profits shared between Fraport’s private investors and the German state. The port of Piraeus – not only central to Greece’s trading industry but also to the EU’s geostrategy – is run by China’s Cosco. And the Hellenic train company is operated by Trenitalia – an especially dire development, seeing as the tragic train crash in February could have been avoided if the company had operated under criteria other than the maximization of profit.
An Athens-Stockholm Syndrome
Resistance to austerity policy was loud during the bailout negotiations. In a unifying referendum, the Greeks voted against accepting the troika’s austerity conditions. A democratic rebellion, that ultimately failed in the reality of European Union dependency and a corrupt political system in Greece. The Syriza party, a beacon of hope in the fight against nepotism and austerity, eventually turned into the face of that very austerity under the pressure of creditors. The referendum went unheeded, leaving the Greek economy with conditions that were ultimately worse than the ones in question during the referendum.
Today, Syriza is ridding itself of its last progressive elements, while the voter turnout of just under 53% in the last parliamentary elections testifies to an enormous political frustration – A frustration that can be felt everywhere in Greece and has ultimately paved the way for Mitsotakis to further undermine democracy and the welfare state. From tax cuts, to weakening social security, eroding press freedom, and wiretapping political opponents, to a decline in informational self-determination, and diminishing possibilities of parliamentary checks to the government – the authoritarian turn of Greek politics couldn’t be any more frightening.
While Syriza still had to be forced into austerity by the EU, Mitsotakis and his “New Democracy” have for a long time internalized the gesture of neoliberal authoritarianism. And so, relations between Germany and Greece are slowly harmonizing as the Greek democracy is caught up in a moment of defeat.
It seems Greece is finally developing an affection for its creditors. An affection lived out on the backs of its citizens, as democratic foundations in Athens are threatened to – once again – turn into relics of an ancient past.
