ECONOMY: Greek Crisis Impacts the Balkans

• by Apostolis Fotiadis (athens)
• Saturday, March 20, 2010
• Inter Press Service

Greece has been at the centre of a financial tempest for the past five months, after its newly-elected government accepted that its public deficit was 12.7 percent rather than 3.3 percent and that its debt figures had been engineered creatively by previous administrations.

This led credit trust institutions like Fich, Standard and Poors and Moodys to devaluate Greece’s lending status in the international market, thus opening the ground for profiteering over Greek debt bonds by hedge funds.

When the crisis posed a direct threat to the stability of the European monetary union, Brussels intervened, asking the country to adopt a programme of economic shock therapy.

Under pressure from international markets and its European partners to reduce its deficit, the Panhellenic Socialist Party (Pasok) government announced tax increases and a 30 percent cut to the two-month 'bonus' pay Greek civil servants receive each year.

However, the cuts to public workers’ salaries, along with the two percent increase in the value added tax, is expected to result in lower consumption and perpetuate a more painful recession for all Greeks.

This could also mean a spillover of the recession from Greece to the neighbouring economies. Greece is not only a major investor in the Balkans but also a donor and host to several hundred thousand economic migrants from the region.

'The political elites of the Southern Balkans are worried about the impact that the Greek economic crisis may have on the countries in the region,' Dardan Velija, former integration advisor to Kosovo’s prime minister, told IPS. 'Albania has a large diaspora in Greece, which sends money back home and the Greek banking sector is spread into the neighbouring countries of Greece'.

Remittances from Greece towards the Balkans have indeed amounted to many million dollars annually, providing livelihoods for many families.

The main beneficiaries have been Albania and Bulgaria. International Monetary Fund estimates up to the middle of the last decade were respectively receiving 778 and 400 million US dollars annually. The population of ethnic Albanians residing in Greece is estimated at over half a million.

Greek investment began entering the region after the demise of the eastern bloc. In the post-1989 era, big food processing, small food retailers and clothing and textile companies have moved to Bulgaria, FYR-Macedonia and Albania. Major investments in the construction, telecommunication and energy sectors of Romania, Bulgaria, Serbia, FYR-Macedonia, Kosovo and Albania have followed.

Greek banking capital has been the forerunner in this process. During the last 15 years, Greek banks have penetrated deeply into the banking system of the Balkan countries.

By 2007 seven major Greek banks had established a network of around 20 subsidiaries in the region with around 1,900 branches, employing approximately 23,500 people.

Charalambos Tsardanidis, director of the Institute of International Economic Relations in Athens, says: 'By around 2005 business investment in the Balkans, including telecommunications and petroleum, mounted to 3.5 billion dollars, creating jobs for tens of thousands of native workers'.

A reverse trend is likely to follow in the next few years while Greek capital will struggle with recession effects at home. The Greek Central Bank has since last year advised Greek banks to adopt a restricted lending policy in the Balkans, since the region is expected to be hit hard by the recession.

Greek investors are also reconsidering their plans. In the first nine months of 2009 over 70 million euros (953 million dollars) of Greek capital left FYR-Macedonia with the Greek owners of the mobile operator Cosmofon and the marble quarry Prilep selling out and leaving the country.

Greece’s role as a donor and promoter of Western Balkans’ integration into the European Union (EU) will also be limited. In 2002 Greece launched a massive development initiative known as the ‘Hellenic Plan for the Economic Reconstruction of the Balkans’ (HiPERB) which so far has allocated 163.4 million euros (22.4 million dollars) worth of aid from the Greek GDP for improving public infrastructure and organising community projects in seven Balkan states.

HiPERB, slated to run until next year, is expected to contribute a total of 550 million euros (750 million dollars), a task unlikely to be realised under current conditions.

The plan was part of Greece’s strategy for boosting the Western Balkans’ European aspirations, a task pursued intensively during the last few years, and especially after country’s EU presidency in 2003.

But Velija says the current situation might compromise this strategy. 'The crisis in Greece can damage its capacity to play that role. Moreover, it can help strengthen the negative image for the Balkans in the West, which anyhow is very bad. That has the potential to damage the prospects for faster EU integration for the region'.

According to Florian Bieber, a Balkans expert who lectures at the University of Kent, the ongoing crisis will inevitably slow down regional integration.

'We have seen a serious erosion of solidarity among current EU members and the economic crisis in Greece is likely to disadvantage the countries of the region,’’ Bieber told IPS. ‘’Whether they are members (such as Bulgaria) and are now less likely to be admitted to the euro-zone, or whether they are in the Western Balkans, they are now likely to be scrutinised more extensively than before.’’

Belgium, which is to take over European presidency from Spain, appears less enlargement friendly than many of its predecessors. The state secretary for European affairs, Olivier Chastel, while describing the country’s stance on the issue said things are going to be 'strict and fair, without making promises'.

© Inter Press Service (2010) — All Rights ReservedOriginal source: Inter Press Service

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