Greece Beaches Gain as Swiss Franc Boosts Greek Export Economy

The EU lurches further into economic collapse with Italy austerity, Germany election losses and France growth concerns the latest. The current Euro crisis kicked off with the debt ridden Greek economy. Investors fled to safe havens like gold and the Swiss Franc. The Euro currency was hammered to EURCHF parity before the Swiss National Bank set a limit of 1.2000.The Swiss were flocking to the majestic Greece beaches. European nationals were also vacationing on the Greek beaches. Is this way out for Greece?

The Greek rescue package, the EU, ECB and IMF Troika and the European trillion-dollar rescue package deal have failed to calm the markets. The Greece Export economy is hampered by the strong Euro against the dollar.

Greece has announced it will crack down political corruption. However the government needs to invoke laws to remove protectionism and the debilitating union powers. Greece needs to be licked into the free market world to truly take advantage of a weak Euro where it can. If they are to repay the debt through the emergency package or default either way Greece needs to attract foreign funds to the country. A weak Euro gives them a unique ability to do so.

There is little doubt Greece sits on a precipice and the Greek contagion has infected the rest of Europe, indeed the world. These are drastic times and Greece to succeed must embark on a truly breathtaking economic transformation. It must grab every opportunity it can with both hands. One such opportunity is the weak Euro. This has a three-fold benefit, Greece exports are cheaper, imports from elsewhere are more expensive and Greece is cheaper for tourists to visit. 

The politicians have taken two necessary steps already, agreeing to tough austerity measures with Europe and announcing they will attack political corruption. The later is necessary not only to change Greece’s ways but also to let the Greek citizens that it not just them has to bear the brunt of the change. Greece is effectively hostage to corruption, antiquated laws and inept socialist mentality that enables the unions to work in a threatening manner that has left Greece behind, economically and socially.

Exports are crucial to Greece being able to ratchet up and maintain the growth necessary to turn the ship around. The key will be developing a wider export base. This means beyond the Eurozone. The failed socialist measures have left Greece with a public debt expected to rise to 149 percent of GDP in 2013. These are amazing levels of debt and give a clear indication that this problem is not just a banker’s lot. It is the result of a country living way beyond its means.

The Euro having fallen so dramatically gives Greece a rare opportunity to tap into non-Eurozone markets. Given the globally growth is stuttering at best measures must be enacted to break down the special interests that keep large parts of the economy regulated and grossly inefficient with absurdly high business costs which work as barriers to entry.

Citigroup economist Giada Giani reminds of another risk, 'If the economy contracts massively, by more than 4 percent, reform fatigue could set in.' Fatigue risk is common when people feel they are making no head way. The collapse then becomes self-fulfilling. The other advantage of a strong export product is rebuilds national pride and character. Strong examples are Sweden with Ikea and Volvo or Finland and Nokia.

The International Institute for Management Development (IMD ranks Greece at 52 in a competitiveness survey of 57 developed countries. This is Greece’s biggest challenge, the socialist government of Prime Minister George Papandreou must impose what will be painful austerity measures to satisfy the caveats of the EU and IMF aid of 110 billion euros. If they don’t than Greece really ahs little alternative to default on it’s debt and suffer the separate issues that will arise from that. Greece may even be forced to exit the euro zone and reintroduce the drachma. 

The Cruse Ship Industry 

If you were do a poll and you were to ask people what they know about modern Greece tourism and shipping would come back high on the list. Thus one would suspect the cruise ship industry is a natural for Greece. Any one who has lay on the stunning beach s of the Greek island would be in full agreement. 

I chose the Cruise ship industry as an example of just uncompetitive Greece is within the European Union. It is estimated that the Cruise sector is operating at about one third of its estimated potential input to Greece. Why? Greece has arcane laws that restrict any foreign-flagged cruise ships. Thus the cruise ship sector contribution to the economy is effectively capped at approximately 500 million euros ($635 million). The industry is estimated to worth 1,500 million euros a year. That does include all add on benefits of hotels, onshore tourism, ancillary exports and goodwill. 

Michael Nomikos a Royal Caribbean agent at the Piraeus port sums it up, 'It's sheer suicide to be losing that kind of money in the debt crisis we're in. ' Royal Caribbean is the world's number two cruise operator.

You are well versed on the PIIGS and the European contagion that has ensued from their downgrades of sovereign debt. To underscore just how uncompetitive and what kind of barriers to foreign investment are at hand, Portugal significantly outdraws foreign capital than does Greece. United Nations Conference on Trade and Development (UNCTAD) data show Portugal attracted more than twice as much foreign direct investment between 2001 and 2008. Portugal’s economy is roughly two-thirds the size of Greece’s.

Reuters quoted Claude Giorno an OECD expert on Greece as saying, 'Greece has perhaps the most stringent regulations of any OECD country'. Ominously he added, 'When it comes ... starting a business, public sector influence (and) ... restrictions on certain professions (means) it is often dead last.'

The export industry offers the best way out for Greece, and the lower Euro makes this easier as Greek exports will become cheaper outside of the Eurozone. The potential of this is massive, particular if Greece is able to get through austerity measures such as simplified licensing procedures and to open up what have been restricted professions like accountants, lawyers and freight services. The crack down on corruption includes these services and makes it a more ready sell to the public. If you can achieve these measures in tandem with the weaker Euro Greece can back to strong growth surprisingly quickly.

The potential is massive because of the low base Greece has. Greece’s GDP got only 24 percent from exports of goods and services in 2008. This is the lowest share of any of the EU economies from Exports. Of the 24% number the majority of exports are the tourism and shipping industries. Greece’s main manufactured exports are foodstuffs such as olive oil and mineral fuels. The Euro will help here as Greece has lost market share from when the Euro went as high as 1.60 to the dollar. Also a change in regulatory barriers will allow the development of higher tech export industries,

What makes this potential most exciting for Greece is it’s fastest Export markets have been on non-EU countries. Mainly to Turkey and the Middle East.

Ken Watrett, chief euro zone market economist at BNP Paribas says. 'Greece does more trade outside the euro zone than within it, so the falling euro is a help,’ and he adds 'Supply-side reforms are the make-or-break for the Greek economy over the longer term. '

Following are upcoming events for Greece in the debt crisis:

Reforms:

• May – The Government plans a pension reform bill for parliament.
• June - Parliament is expected to vote on the pension reform bill

Strikes:

• May 20 – The main private and public sector unions will strike for 24 hours and march to parliament to protest against austerity measures and the pension reform.
• Economic Data:
• May 25 – Greece Central Bank releases March current account deficit.
• May 28 – April Producer price index data is released
• May 31 – March Retail sales data is released

Political Events:

• May 17/18 - Prime Minister George Papandreou attends the 6th EU-Latin America and Caribbean Summit in Madrid.
• May 19 – PM Papandreou delivers speech at the 'Mediterranean Sustainable Energy Summit'
• May 20/21 – PM Papandreou participates in the Arab Economic Forum in Lebanon

Big Greek Debt Maturities:

• May 19 - Refinance of 10-year, fixed-coupon 6.0 percent bond 8.5 billion euros. Funds from loans that are part of the 110 billion euro emergency package.

European Union Meetings

• May 21 - First meeting in Brussels of EU task force set up to discuss reform of euro zone.
• June 7 - Regular meeting of euro zone finance ministers.
• June 8 – Regular meeting of all EU finance ministers.

There is no easy manual for Greece but there are successful precedents. The two Uralian linguists, Finland and Estonia are shining examples. Finland and Estonia both faced separate crisis when the ‘evil empire', the Soviet Union collapsed. Russia was both Finland and Estonia’s biggest export market. Estonia’s crisis was developing new markets directly after being taken over by the Soviets after World War II. Finland overhauled its regulatory regime and like Estonia privatized formerly state-owned industries. They both also reformed their tax systems.

Finland took about five years to achieve this, however Estonia in its recent austerity measures has got back to positive growth in less than two years. The difference is of course Finland and Estonia did not have the legendary corruption and waste of Greece. Thus it is possible that Greece can pull it off and the lower Euro makes it possible. Greece is not able to devalue its currency, as did Finland with the Markka and Estonia with the Kroon so the Euro falling does give them defacto devaluation.

Thus the weak Euro helps the Greek economy, however if the Government can bring down true competitive measures and break the disruptive regulations, unions and corrupt politicians than it is doable.