Shipping Industry Can Aid Greek Recovery

Shipping Industry Can Aid Greek Recovery

Opening up Greece’s shipping sector to new comers as well as simplifying vessel registration could aid the country’s recovery.

The past three years have been one of the most difficult periods in Greece’s modern history. G. A. Papandreou’s government signed the first Memorandum with the Troika (European Commission, the European Central Bank and the International Monetary Fund) in May 2010, but living standards have since only worsened, with significant job losses, wage and pension cuts and tax increases. Have austerity-led changes (and subsequent sacrifices of low and middle-income households) helped the Greek economy?

Greece’s current financial mess resulted from a variety of factors. These range from a detrimental working philosophy cultivated during the 1980s, which included excessive wages, over-subsidization and exorbitant demands by unions – some of which remain in place – to an extreme level of tax evasion and over-budget public projects, such as the 2004 Olympic Games. There is no question of the problems deep-seated political corruption pose for Greece’s recovery. While some politicians including former Defence Minister Akis Tsochatzopoulos have been arrested, many more remain free. The political costs of justice may be too high.

Policies implemented by the government at the Troika’s request have raised questions as to their effectiveness and underlying purpose. Most noted are the increased property tax and value added tax reduced wages and pensions. There have been substantial efforts to reform the public sector, reduce bureaucracy and increase efficiency, but there is still a lot of work to be done. These include privatising of public enterprises (such as water, electricity, telecommunications, ports and airports), reducing public sector redundancies, and removing barriers to entry in closed professions (such as truck and taxi businesses) that discourage competitiveness.

Most of the fiscal measures fall short of achieving necessary government restructuring and economic growth. Saving the banks was crucial indeed, but at what cost? Austerity has forced many Greeks to move abroad, depleting the country’s human capital. Greek public administration networks need radical reformation to move the country towards recovery, but during the last three years the historically largest industries of shipping, tourism and agriculture  have been all but overlooked as sources of recovery and growth.

Shipping has long been an economic stronghold in Greece, worth €15.5 billion in 2010 alone. From 2000-2010, proceeds from foreign exchange in the external balance were €140 billion, roughly equivalent to a third of the country’s current public debt. But bureaucracy and high entry costs have hurt every part of the vital industry.

Registering a ship under the Greek flag involves a high level of administrative work and takes about six months to complete, as many different authorities (Hellenic Coast Guard, Ministry of Maritime Affairs etc) are involved and around 50 signatures are needed. It is no surprise that most Greek ship-owners choose not to register in Greece, as the costs of sailing under the Greek flag are significantly higher than in the Marshall Islands and Liberia, two common alternatives. Out of more than 750 Greek-owned or -operated shipping companies with around 4000 vessels, fewer than 900 fly the Greek flag.

The major shipbuilding zone of Attica, which has fallen into disrepair, represents yet another overlooked potential source of job creation and economic growth. Blame for the zone’s decline continually shifts between the government and unions, however no one has taken steps to revive the shipyards. Greece is ideally situated at the crossroads of Europe and Asia, and while it cannot compete with China’s shipbuilding labour force, its inability to provide simple dry dock services hurts this critical industry.

Greece’s domestic economic environment has created a vicious cycle: Public protests have caused violence, hurting tourism and discouraging foreign investors who only see that Greece as an economically unstable country that has not undergone necessary reforms. Reforms are then imposed sparking further public protests.

But forecasts for this year are different. The current coalition government has made important steps in the right direction. Optimism and trust are gradually returning, and in the words of Prime Minister Antonis Samaras, previous talk of a ‘Grexit’ is changing into a ‘Greecovery’. Greece has the potential; it is for Greeks to change their philosophy and turn the crisis into an opportunity.

Categories: Economics, Europe

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