Monday, November 17, 2008

Black economy saves Greece in short term

Economic Crisis? What economic crisis?
Seriously, i dont see it. This weekend i was busy getting trampled on by thousands of shoppers in the Mall, and the week before that, trampled on at IKEA. Meanwhile the TV, especially CNN is forecasting doom and gloom as Europe enters recession and pundits predict a drastic downturn in consumer spending. So as i was being whacked by other peoples shopping bags, all i could think of was, 'Hey, where's the recession everyone is talking about?'

Then i remembered that i was in Greece, and everything i learnt in economics doesnt hold.

Greece's huge black economy, estimated at 40% of the total economy, means that for the time being, people are sheltered from the big hit being felt in other European countries. While this is good news for the consumer, it is bad news for the long term and the Government.
Since coming to power the government has made it easier for traditional tax-dodgers to evade tax, while passing on the burden to the one-fifth of the work force that is stuck with the bill. This has left the government weak and unable to respond to this crisis. Sure they have promised to support banks, but with an empty piggy bank, analysts really dont see how the government can fulfill this promise if they are forced to bail out the banks like other European countries have.

Enter saving grace number two. A majority of Greek banks are stone age compared to their European counterparts. It may take you two months to open up a bank account in Ethniki bank. Paper is king and computers, ahh that new age fangled thing with the high-tech Green monitor, well they do exists but not completely harnessed by a work force which sees it more as a threat than a tool. That means that these banks have insulated themselves to a large extent to overlending and trading in these safe (but high risk loans) being shopped around by american banks. This means that hopefully the government will not be called in to uphold its promise to save the banks.

And lastly, saving grace number three. Greece's red tape and aversion to encouraging businesses in Greece, especially encouraging foreign companies into the country. This has meant that Greece did not have much foreign investment in the first place. So when the crisis hit, there were not many companies to withdraw their investments from Greece. Something that we saw hit Hungary and other emerging markets.

So three cheers for backwardness and economic stagnancy!!!


Unknown said...

change the word Greece for Turkey, and you will get the same story.
but Greek tourism industry will not he hit so hard...

Anonymous said...

An interesting take on it... and quite amusing. But even in London - the capital city more affected by the financial crisis than most others - life does seem to be going on much as before. A high-spec new shopping centre that opened a month ago has been mobbed ever since. Restaurants and bars still seem packed. Come 2009, however, and I think we'll see the real impact. In Athens, London and everywhere else..