El Confidential - interview on the state of European and Greek economy 25-8-2023

August 2023

Mavroudeas Stavros
Professor of Political Economy
Dept. of Social Policy
Panteion University
e-mail: s.mavroudeas@panteion.gr

1. The first question is obvious: while Germany went into technical recession and is still
stagnating and now the Netherlands is entering, it seems that Greece, Portugal and
Spain are maintaining high levels of economic growth. Is this real or just a mirage,
can we talk about a resurgence of the so-called PIGS?

This is indeed an intriguing question. The 2022 data (see Table 1 below) show a
noticeable superior performance of the so-called PIGS (or better the euro-periphery
economies) compared to the euro-centre economies. They surpass remarkably the EU average
growth rate and the growth rates of the euro-centre economies.

Table 1: GDP growth (annual %) World Bank national accounts data, and OECD National
Accounts data files
 However, if we take a more long-run view (see Graph 1 below), we see that this
superior performance has happened also during past periods, but it was not sustained for long.
Thus, the structural rift between the euro-centre and the euro-periphery economies –
irrespective of conjunctural variations – has persisted.

Graph 1: GDP Growth

Nevertheless, the question remains: what has caused the 2022 overperformance of the
euro-periphery economies?
We can exclude from the analysis Malta, Cyprus and Ireland, which are very special
type economies: the former are small and mainly financial centres and the latter has weak
linkages to the EU and a special role for internet companies (Google, Microsoft etc.).
The explanation for the overperformance of countries like Portugal, Greece, Spain
(but also Croatia, Slovenia, and Austria) lays in the crisis of the backbone of the productive
structure of the European integration edifice. This is composed by the Northwestern
powerhouse of strongly industrialised economies (Germany, Netherlands etc.). The eruption
of the Ukrainian conflict led to a rapid increase of energy costs, amplified by the volatile
nature of the European energy stock-exchange system. Moreover, the aggravation of global
geopolitical tensions and conflicts (for example, the US (plus EU)-China trade war) have
affected traditional global value chains on which EU’s economy was depending. Thus, the
increase of energy costs is leading to a de-industrialisation of euro-centre economies. The
sanctions game of the Western countries is increasingly disrupting established production and
trade links.
In contrast, less industrialised economies (like those of the euro-periphery) are
affected less from the increase in energy costs. Additionally, they have the advantage of
lower wages. Thus, there are signs of a relocation of productive and trade activities from the
euro-centre to the euro-periphery by firms of the euro-centre economies. In simple words,
German firms relocate and/or subcontract some of their activities to euro-periphery
economies.
Does this lead to a reduction of the rift between euro-centre and euro-periphery? It is
very doubtful and very premature to confer an opinion on this. Such moves happened in the
past, but they affected only marginally this rift. In any case, the commanding heights of the
EU edifice remain always in the euro-centre economies irrespective of how they allocate their
activities.
The case of the Greek economy is characteristic. There is an increase in Foreign
Direct Investment (FDI) as a percentage of GDP from 0,4% in 2010 to 2,2% in 2022.
However, this goes mainly to mergers and acquisitions and to real estate. The number of new
investments remains stable. Moreover, a big part of FDI’s going to productive activities are,
in reality, recapitalisations and other financial restructurings.

2. The Financial Times spoke in May of a Greek export miracle, for an economy that has
always been in deficit in its balance of trade. How much of this is due to the internal
devaluation of its labour force? Are there other reasons?

This is more of a publicity stunt than a serious analytical finding. There is no Greek
export miracle and there cannot be one. The two leading Greek export sectors are oil products
and tourism. The former is a manufacturing activity and the latter a service one. Both depend
crucially on imports. The oil industry for obvious reasons: Greece is not an oil-producing
country. The tourist sector is notorious for its so-called ‘leakages’; that is the imports that are
necessary for its operation, and which are quite expensive. Thus, the very structure of the
Greek productive model precludes the possibility of becoming an export economy. The
general picture is very accurately depicted in Graph 2:

Graph 2: Greece Trade Balance 1960-2023

 There is an additional problem regarding the trade balance of the Greek economy. The
majority of its sectors are medium technology and low value-added, depending critically
upon the import of intermediate goods. Thus, every increase in GDP growth necessarily
brings forth a deterioration of the trade balance and the current account.
Because of these structural characteristics the barbaric ‘internal devaluation’ -
instigated by the IMF and the EU in cahoots with the Greek oligarchy – did not led to a
significant increase in competitiveness. Moreover, Greek enterprises used the reduction in
wages as a means to increase their profit margins instead of lowering their prices. For all
these reasons, the reduction of wages did not transform Greece to an export-led economy,
despite the IMF-EU-ECB troika declarations.

3. In political terms, many authors, including on the left, spoke of an EU shift in

economic policy during the pandemic by accepting some mutualisation of debt with
European recovery funds. Is this true, can it be verified in Greece? Has there been
room for more social policies during these years?

During the COVID-19 pandemic the EU was obliged to relax the Maastricht+ conditions
and to introduce a limited mutualization of debt with the newly created EU recovery funds.
However, this was – and still is – an exceptional measure caused by abnormal conditions.
Once the COVID-19 double crisis (health cum economic) was over, a return to fiscal and
monetary prudence is already pronounced. Thus, from 2024 the Eurozone monetary and
fiscal rules will be reapplied. Moreover, a reconsideration of the recovery funds and their
terms (which include conditionality, that is require specific institutional and policy measures)
is scheduled.
Hence, the expectations for a permanent EU shift in economic policy – including those
from certain left quarters – are rather wishful thinking. To put it bluntly, the eurozone was
built in order to facilitate European integration on the basis of a given division of labour. The
latter comprises of a euro-centre (of more advanced economies) and a euro-periphery (of less
advanced economies). If the surpluses of the former are spent as fiscal transfers to the latter
then this specific division of labour (and the concomitant European integration) becomes
nonsensical. After all, the myth of social Europe is nowadays quite old and has been repeated
disproved.

4. How do you see the future situation for Greece, will growth be maintained or could fiscal
problems and problems of maintaining stable payments on public debt return?

The Greek economy remains in deep structural crisis. It is extensively de-

industrialised (since its accession to the European integration) and transformed into a weak
service economy (a ‘waiters’ economy) that is terribly vulnerable to the fluctuations of the
world economy. It is increasingly dependent on foreign capitals and subject to their whims. It
has a high rate of unemployment and its recent reductions are the product of a statistical
reduction of the active workforce rather than a straightforward reduction of unemployment.
Moreover, youth unemployment is very high and goes hand-in-hand with a serious brain
drain and migration.
The Greek state debt has skyrocketed in 2022 to more than 400 bn dollars. The debt to
GDP ratio exhibits a reduction but this is due to a statistical artefact: the denominator (the
GDP) has increased because of the increased inflation (see Graph 3). But this cannot hide the
spectacular increase of Greek state debt.

Graph 3: Greek state debt as of GDP

 Additionally, there is a new deterioration of the current account, caused by the
problematic Greek productive model adopted after the accession to the European integration
as explained above (see Graph 4).

Graph 4: Current account balance as of GDP - Greece

 These go hand-in-hand with an increase in poverty and inequality. The rampant
inflation of recent years has ‘taxed’ heavily especially the wages (with a reduction analogous
to that of the first troika austerity programme).
All these facts negate the rosy official and mainstream accounts and point towards a
possible new crisis. The reapplication of the Maastricht+ conditions would aggravate further
this situation. The increasing flight of Greek big firms abroad is a possible forewarning sign.

5. Last questions: on the one hand, how does the crisis in central and northern Europe affect
the countries of the south? On the European fiscal rules, which are now in the final stages of
negotiation, what is your perspective: will the strict Maastricht rules be re-established or will
there be room for more expansionary policies? What influence can southern European
countries have in these negotiations?

I have already replied to the first and the second question.

Regarding the third question, I do not think that there is a unified southern European
front in the EU negotiations. There is Italy which attempts to avoid the treatment of the PIGS
by the EU; but at the same time it is too big (as is Spain) to be put in an austerity programme.
Spain is rumoured to have a dubious stance in these negotiations. Portugal and Greece are too
small to matter significantly and try not to confront the dominant views. France – which was
in the past projected, rather unjustifiably, as a champion of the south – is in a mess and
practically without a government. But the situation in Germany and its alliance of the
‘prudent’ is not better.
 To put it in a nutshell, the EU edifice is in deep crisis. Its economic backbone (the
Northwestern powerhouse) is destabilized and faces de-industrialisation and falling
competitiveness. Its political backbone (the German-French axis) is in tatters with weak and
rudderless governments in both countries. And all these happen during turbulent times. In the
emerging multi-polar world, the EU seems to be one of the weakest and least independent
and coherent ones. Consequently, the negotiations and power tugs of war within the EU
become increasingly chaotic and volatile.