Greece joined the EU in 1981. But the story of its accession holds many lessons for the new countries joining last week. Though Ireland is often hailed as a role model, Greece is in many ways a more instructive case study. It illustrates not only how membership can reshape a country, but what can happen if the benefits are taken for granted. Since joining, Greece has gone from being a poor, peripheral Mediterranean nation to a regional powerhouse with the fastest economic growth rate in the eurozone. But that growth has come only recently, after nearly two decades of stagnation. Greece spent much of its first 18 years in the EU playing continental bad boy, obstructing European foreign policy and milking billions of euros in subsidies out of Brussels–money that many claim has been put to dubious use.
Even today Greeks admit that their strong economic growth is fueled not by new international competitiveness but by construction for the upcoming Olympic Games–not to mention further EU handouts. Just last month the government sharply revised budget-deficit numbers upward to 2.95 percent of GDP, generating a warning from the European Commission about exceeding the Union’s 3 percent ceiling. And last week there were more worrying announcements: major overruns on Olympic spending, a 2 billion euro deficit in public health, an investigation into alleged embezzlement at the Ministry of Defense amounting to millions of euros. Finance Minister Giorgos Alogoskoufis now says “urgent measures” are needed to keep the economy from hemorrhaging. “The previous government has left behind a very unpleasant situation.”
The conservative New Democracy Party, which took the reins from the socialists in March after being out of power for all but three years since 1981, has reason to find the state of affairs daunting. Many of Greece’s current problems have been brewing for decades, and integration into Europe has been fraught from the get-go. In 1979, when Parliament voted to ratify accession, several leftist parties got together to boycott it. During the 1980s and ’90s, the socialist government of Andreas Papandreou cultivated an anti-Western foreign policy, strengthening ties with Libya, courting former Soviet bloc countries and using the threat of its EU veto to bloc Turkey’s overtures toward Europe. “His party was trapped in a political ideology of North versus South,” says Michael Tsinisizelis, a professor at the University of Athens. “Greece felt it couldn’t be a member of a club of industrial countries when it wasn’t one itself.”
But Greece was quite happy to take the industrialists’ money. In the past decade alone Athens has received 55 billion euro in EU funds on such projects as the Corinth bridge, an Athens subway, an international airport and new highways. All the concrete has undoubtedly improved infrastructure and helped modernize the country, as well as providing plenty of new jobs. But Greece’s use of EU funds has long been suspect. There have been moderate to severe planning blunders, like the Corinth Bridge flub or the subway line built without leaving room for commuters to park. But there have also been major budget overruns, project delays and widespread suspicions of corruption involving Greek politicians siphoning off money. While it’s been difficult to point the finger at individuals, “there’s a strong feeling that quite a lot of EU money has been misused,” says Kevin Featherstone, a professor of Greek studies at the London School of Economics.
What’s more, many economists argue that subsidies have ultimately slowed economic progress by propping up an overblown state bureaucracy and uncompetitive industries. Just as massive amounts of aid to East Germany after reunification kept it dependent on the West, the 55 billion euro of EU subsidies coming in over the past decade arguably made the economy worse than before Greece joined the Union. In 1985, public debt was 50 percent of GDP; a decade later, it was 110 percent.
As the money flowed, politicians were free to attend to their own domestic squabbles, rather than pushing harder for economic reform. Some of that changed in 1996, as Papandreou’s successor, Costas Simitis, used the run-up to eurozone entry to get a better grip on public spending and to deregulate certain key markets, like banking. Still, it wasn’t always smooth sailing. During one meeting to merge two large banks, a fistfight broke out between employees and management. In other cases, privatization was half-hearted. Hellenic Telecom, the country’s main phone company, was floated on the stock market, but the state retained an indirect holding of 51 percent. Even now Greece’s public debt remains just under 100 percent of GDP, and the state employs more than half of the work force. Red tape is omnipresent: getting a license plate requires stamps from several agencies; setting up a business takes months or years, rather than weeks. Experts say none of it would be tenable without EU money. “All of the aid has helped Greece sustain the unsustainable,” says Willem Buiter, chief economist for the European Bank for Reconstruction and Development.
The new batch of accession countries won’t have that luxury. While Greece received around 3 percent of its GDP in annual fund transfers, Eastern European and Baltic countries will be lucky to get 1 percent. Many say the EU’s relative lack of generosity will turn out to be a good thing. After only 15 years of capitalism, a number of the new entrants already have a higher per capita GDP than Greece. Several–Estonia, Slovakia, Slovenia and the Czech Republic–are ahead of Greece on Lisbon Agenda issues like privatization, market liberalization and the use of information technology. Slovakia and Estonia have also carved successful niches for themselves in the global economy, slashing tax rates and investing in skills for workers rather than simply trying to be the cheapest source of labor–a battle increasingly being won by Asia. “The new accession countries really can’t afford to not be competitive,” says Heather Grabbe, deputy director of the Centre for European Reform in London. “In a way, they’ve been relieved of the burden of large subsidies.”
But Greece and the new entrants do share a number of problems, among them high deficits and an unwillingness to restructure politically sensitive areas of the economy. Poland, the largest new member, is struggling with a 7 percent deficit. And like Greece (not to mention France) it’s all in favor of keeping Europe’s massive system of agricultural subsidies in place. Poland’s hugely inefficient farming sector represents about 16 percent of the work force. In Greece, the numbers are slightly lower but both countries know how to work the system. Polish cab drivers with vegetable plots that qualify as farms for purposes of EU subsidies are not unknown. But they have a long way to go before they rival the Greek government, which Brussels officials accuse of outright theft. “At one point, we saw the unedifying spectacle of senior government officials colluding with farmers to make falsified claims for olive subsidies,” says a senior Brussels official who worked on Greek issues in the early 1990s. “It was as though the Union was a cash cow to be milked. Not terribly communitaire.”
What will happen when the subsidies dry up? Beginning in 2006, Greece must start sharing its slice of the EU pie. Ideally, the Olympics would have been a catalyst for sustainable growth, as it was in Barcelona. But while Spain used the 1992 Olympics as a platform to market Barcelona to the world, turning it into a tourism hot spot and high-tech hub, the Greeks have shown no such initiative. Amazingly, three months before the Games, hotel operators say tour bookings are down as much as 30 percent from last year. Little EU aid has been used to invigorate the tourism sector, representing 8 percent of GDP. Instead, new business and investment has gone to Turkey, where rooms are cheaper and marketing is savvier. Meanwhile Greece remains the least attractive destination for FDI in Europe.
Here again, there are lessons for the new entrants. Investment flooded into countries like Ireland and Spain because they made it easy for companies to do business. Not so in Greece. The country’s legal system is a morass. Greece remains the only nation in the EU without a land registry, which leads to large property disputes, despite the EU’s providing several hundred million euros to create one. Brussels insisted that 100 million euro be returned, and this year Athens is in danger of forfeiting another billion euros in EU aid because it couldn’t come up with a detailed plan for using the funds. The solution isn’t just to get more organized. It’s to figure out how to create jobs and generate growth without EU handouts.
The lessons that newcomers should take from Greece are not all cautionary. EU membership has helped Greece mend ties with Turkey, something that analysts say Poland could replicate with Ukraine, and the Baltic states with Russia. The EU has also given Greece regional economic clout. Greek companies are moving into Macedonia, Romania and Bulgaria, and the Greek government is doling out its own aid to Bosnia-Herzegovina and Serbia. As one graffiti artist recently summed up on a wall in Athens, GREECE IS THE AMERICA OF THE BALKANS.
That might be stretching it. But the March elections have brought some hope. The new government has invited EU officials to help it reduce its public debt. There’s talk of limiting public spending and finding ways to reinvigorate state-owned companies. Meanwhile crews are working round the clock to prepare for the Olympics. Whether or not Greece is ready for its moment in the global spotlight will soon be known. The deeper question is whether the country is on the road to real European integration, or still traveling a bridge to nowhere.
