Columbia University Hellenic Association

Dr. Yannos Papantoniou, the Minister of National Economy at Columbia

Columbia Business School and the Hellenic Association at Columbia University organized a speech entitled: "Greece: Opportunity and Challenge" by:

Dr. Yannos Papantoniou Minister of National Economy and Finance of Greece

In the last few years, the Greek economy has shown a remarkable improvement, illustrated by the reduction of inflation, the drop in interest rates, the decrease of public debt and the increase of both private and public investment.

One of the key architects of the contemporary, economic Greek revival has been Yannos Papantoniou, the Minister of National Economy since 1994. He studied economics at the University of Athens and at the University of Wisconsin in the United States. He also studied history at the University of Paris and obtained a doctorate in Economics at Cambridge University.


Globalization has become the dominant trend in the world economy with individual countries becoming more interdependent as they link themselves to the global economy through trade, investment, capital flows, technology exchanges and communications. The challenges and opportunities arising from the new competitive environment underpin all major policy and strategic initiatives in both sides of the Atlantic.

In Southeastern Europe, a region of relative instability, but nevertheless of high growth potential, Greece is probably the only country with a well developed economy, sufficient infrastructure, a well established democratic regime and political stability. More importantly, however, Greece is the only country in Southeastern Europe and Eastern Mediterranean which is among the founding members of the OECD and a member of the European Union. At the same time our cultural and economic ties to the peoples of this region, together with Greece's advantageous location at the crossroads of three continents, create the potential for Greece to become an efficient gateway to the regional emerging markets. We are determined to realize this potential and play our historical role as a stabilizing factor in the region, promoting free market principles and the establishment of democratic regimes.

In the last three years the Greek economy has shown considerable progress on many fronts. The fiscal deficit has already been reduced by 7 percentage points of GDP since 1993, from 14.4 percent to 7.4 percent in 1996, and is expected to fall to 4.2 percent of GDP at the end of 1997. The debt to GDP ratio has been stabilized and is expected to start falling from this year. Consumer price growth has fallen from 12.3 percent at the end of 1993 to 6.0 percent in Larch 1997 and is expected to fall below 5 percent at the end of the year. At the same time, GDP growth has gradually accelerated from minus 1 percent in 1993 to an expected 3.5 percent in 1997. Greece is now moving on a Virtuous cycle with lower deficits, lower inflation and higher growth. Undoubtedly, these developments have been among the most intensive macroeconomic adjustments recorded in the European Union over the period in question.

The major forces that have created this virtuous cycle have been increased policy credibility, a considerable boost in business confidence and profitability, a significant fall in real lending rates and an expansionary public capital formation programme, which is partly supported bv European Union funds. All these factors have brought substantial benefits and have made the Convergence Programme targets more accessible. Present trends indicate that Greece can achieve the Maastricht Treaty convergence criteria in 1998 or 1999 and hence participate in the third stage of the European Monetary Union by the year 2000 or 2001 at the latest. In this process, the handling of the fiscal crisis at the end of 1993 and of the foreign exchange crisis in NIay 1994 have had catalytic effects on subsequent developments.

The increase in the primary fiscal surplus in 1997 will be mainly the result of the tax expenditure bill and the public spending bill. These two bills have been voted by Parliament in February. Certain new taxes (on large property, on new issues of treasury bills and bonds etc.) have also been imposed.

The public spending bill establishes expenditure cuts in budget transfers. freezes new recruitment and imposes institutional spending constraints on numerous public entities. At the same time, it liberalizes legislation concerning the management of state property, including that belonging to various agencies and entities of the wider public sector, such as hospitals, universities, social security funds etc. In addition, all budget transfers to public entities and corporations are made conditional on business plans being submitted to the Ministry of National Economy and Finance. On the other hand, according to the tax expenditure bill, more than three hundred tax benefits have been eliminated, including those concerning Members of Parliament, journalists, and other powerful groups.

The restrictive stance of fiscal, monetary and exchange rate policies has contributed to the substantial deceleration of inflation since 1993. The stable drachma policy did not have serious adverse effects on competitiveness, taking into account the substantial fall in lending interest rates to which it has contributed. Profitability levels of the business sector in recent years, which mainly produces traded goods, support this view. However, from now on, cost developments in the private sector should be geared more closely to the exchange rate policy pursued, in order to avoid loss of competitiveness.

Apart from macroeconomic policies pursued, the Government is determined to put more emphasis on policies aimed at enhancing competitiveness and adjusting the Greek economy to globalization. Recent legislation which introduces market oriented management of public corporations, the partial privatization of the Hellenic Telecommunications Company and other public utilities, as well as the full privatization of industrial firms, the creation of the Hellenic Investment Center (one stop shop) to facilitate foreign direct investment, and legislation concerning new labor market policies and putting more emphasis to labor market flexibility, are expected to produce favorable results for the Greek economy in the coming years.

One may ask what are Greece' s virtues that might attract an astute investor or business person to this country. Admittedly this is a very legitimate question, especially in an international economic arena characterized bv the competition of countries to attract foreign direct investments and business presence. I have a number of answers to offer, pointing to two levels. The national market and the regional market level.

Let us take the national market first. Today Greece is the focal point of some of the biggest infrastructure projects in Europe. We have embarked on a vast programme for infrastructure development and improvement, a programme that will enable Greece to become South Europe's crossroads for air, road and ship transport both to and from eastern and western Europe.

The new Athens International Airport, a 3 billion USD facility that will handle about 16 million passengers annually is currently under construction. Egnatia, the biggest highway pro ject in Europe today linking the northwestern coast of the country to the port of Alexandroupolis, near the Turkish boarder is advancing in good pace. The Hellenic Telecommunications Organization, the biggest enterprise of the country, which is to offer a second tranche of shares of 1.2 billion USD in the international markets in June, has embarked on a 2.2 billion USD programme to digitalize the network and offer new alue added products and services, like packet switching, high density networks. cellular telecommunications and videotext. Meanwhile, the Hellenic Railways Organization pushes forward with an investment plan of 4.S billion USD to modernize Greece's rails and establish a rail gateway to Europe.

In the energy sector, Greece is emerging as a key player in the region. The 3 billion USD gas network project to introduce Russian natural gas and Algerian gas into the Greek energy mix as of July 1997 is nearing completion. The same is true for oil exploration as three major companies, two of whom from the US industry, have been given licenses to explore in western Greece. Moreover, a consortium of private interests among which a major US oil company, promote, with full support from the Greek government, a project to construct a 280 klms oil pipeline that will allow the vast reserves of oil from Russia and the Black Sea to reach a secure outlet in a northern Greek port Via Bulgaria.

Business initiatives in Greece can be supported by high quality human capital regarding managers as well as skilled labor, and a fast developing financial sector. The Greek banking system is now functioning in a fully competitive environment, and will be further strengthened as a big tranche of private capital is to be injected to large state controlled banks, by the issue of new shares to private investors, while two small state controlled banks are to be sold to private investors in 1997.

At the same time, the Athens Stock Exchange has had a market capitalization of USD 2.5 billion as of February 1997. Further growth in both size and price is forecast for the Stock Exchange in the medium term. The developments in the financial sector are probably better understood if they are viewed together, in the perspective of Greek banks and the Athens Stock Exchange to become regional financial centers for trading in the Balkans, the Black Sea and the Eastern Mediterranean. This potential is supported by our policy to promote privatization of more public utilities and industrial enterprises, to further modernize the capital and money markets, and to establish schemes for attracting more private capital for public works. Furthermore, foreign exchange controls have been lifted and capital movements are now completely free while significant reforms for the adjustment of the labor markets are been undertaken.

At the regional and international level, the advantages, geographical as well as historical, that Greece possesses for having a priority access to the emerging markets of the region have already been mentioned. However, these advantages constitute opportunities to be exploited by business, based on favorable historical circumstances.

To help the business community realize this potential, the Greek administration has had to leave behind its old ways of carrying business as usual, as new strategies had to be analyzed and implemented. We have done so and, I think, we have moved to the right direction. Greece, with a renewed emphasis on economic diplomacy, participates actively in the new regional fora, where the economic future of the region is negotiated and drawn. We have played a major role in shaping the Black Sea Economic Cooperation Organization and establishing the Black Sea Bank for Trade and Development which is to start its operations next month in Thessaloniki. On the other hand, we have been an active founding member of the South Eastern Europe Cooperative Initiative, a US promoted programme to support regional development.

But although the Balkans and the Black Sea region are the obvious areas where Greece has an important role to play, the Mediterranean countries and north African region represent another area of increasing significance as well. Greece has long and lasting ties with these countries and Greek businessmen know the ground. Overall. Greece can be considered as an efficient corporate base for the potential investor who is attracted by the stability of the country while sharing with Greek partners risks in the broader area

Ladies and Gentlemen,

I have been for some time now describing to you all, rather one-dimensionalls, the virtues of Greece as an investment place. And some of you might have been asking themselves "where is the snake in this place". Well, I admit there is one, and its name is Greek bureaucracy. But, apart from our commitment to proceed to an overall restructuring and upgrading of our public service, we have tried to develop a more direct response to the problem. It is the Hellenic Investment Center, that is the one stop shop aimed at helping the potential investor, by removing bureaucratic red tape and promoting international alliances with Greek entrepreneurs. The one stop shop supports investors throughout the implementation stage and suppresses bureaucracy which used to be a counter incentive for such endeavors.

In this context, we are confident that the outward orientation and dynamism of Greek and foreign investors will generate higher growth over the medium term, thus making the prospects for sustainable expansion of the Greek economy look promising. Having this in mind, it is your business judgment that will locate partners and opportunities, in order to establish a successful presence in the wider region.