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The standard of living in Greece might fall by 50% in late 2014

24 January 2013 / 17:01:18  GRReporter
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Victoria Mindova

The standard of living in Greece at the end of the economic recovery programme will fall substantially as unanimously stated by local financial experts who presented their views at "The content of growth" business forum. They are adamant, however, that the country would be in a much better state after the end of the fiscal consolidation and the reforms, which it has undertaken to implement under the Memorandum of financial aid, than if it were to cope with the growing crisis alone.

Eurobank chief economist and former adviser to the office of Lucas Papademos, Gikas Hardouvelis, provides two scenarios for the state of the country at the end of 2014, when Greece is expected to begin to recover its positive rate of growth. In the positive scenario, the standard of living in the Mediterranean county will have fallen by 25% after two years compared to the years before the crisis. The negative scenario provides that the standard of the Greeks will fall by 50% compared to the most favourable years the country has experienced since it joined the eurozone.

It is crucial according to Hardouvelis whether the liquidity that comes with the financial aid from Europe will focus in the short term on the market or if it will be recycled to cover the state needs. In his opinion, the government must comply with the needs of the country and release funds for the real economy, including the payment of its obligations to the private sector such as due VAT and other defaulted payments. The total debt of the state to private owners for 2012 exceeded nine billion euro. At the same time, individuals and companies in the country failed to pay about 13 billion euro in taxes imposed on them during the past year, which is posing serious problems to the implementation of the budget.

"We will know after Easter if the pocket of the Greeks will last. Do not forget that pensions are falling, wages are being cut, unemployment is increasing, taxes are rising. There are people who borrow to pay their taxes. We will know after spring if we are close to the good or the bad scenario," said Hardouvelis.

Undoubtedly, tourism remains one of the strongest sectors of Greece. The chief economist at Alpha Bank Michalis Mazourakis believes that this sector has to become the driving force of the recovery of the local economy. "The time has come to turn the great geographical advantage and natural resources of the country into a real source of economic growth," said Mazourakis. According to the data he presented for the 2000-2010 period, Greek tourism recorded no change, although that was one of the most prolific decades globally and for Europe in particular.

At present, tourism contributes 15% to the GDP, which is insignificant bearing in mind the potential of this sector, the economist insists. To increase the contribution of tourism to the economy in the coming years, a national plan for the development of the sector must be drawn up first and then, the separate districts and local government organisations should harmonize their activities with the objectives of the central government. If there is investment in strategic infrastructure projects, the country will be able to attract high quality tourists who will bring a higher added value to the investment in tourism. This requires organisation and focus, says Mazourakis. "One generation is not enough to move from the period of Greek cafes to the production of cars," insists the specialist. Therefore, he stresses that now is the time to lay the foundations of a new economic model, using the strengths of the domestic economy.

Alexander Kritikos from the German Institute for Economic Research in Berlin suggests that the country should base the economic growth on innovation. To achieve this, Greece needs to improve the education system. Furthermore, large companies should be established that have larger investment opportunities than the small and medium-sized companies, which dominate the structure of the domestic economy today and a less restricted legal framework should be created to allow them to develop.

Kritikos states that the rule for the development of innovation growth is to invest 3% of GDP in research and development of new technologies. In Greece, the funds that have been allocated for this over the years were less than 0.5% of GDP. Although Greece can boast of the "export" of some of the best scientists in Europe and the world, the country does not directly benefit from this. Greek scientists do not develop and work in Greece and they cannot actually contribute to the development of innovations that will boost the local economy. "It is time not only to be proud of your scientists abroad, but to find a way to attract them back to their native country," concluded Kirtikos.

Tags: EconomyMarketsEonomic growthInnovationCrisisGreece
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