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Startups and Bitcoins in Greece

Greece is the oldest European civilization. However, modern Greece independent political history began only in 1821. In 1830 Greek’s state was recognized by the majority of world’s countries after the Republic had proclaimed its sovereignty from the Ottoman Empire. In Greece, which historically serves as a bridge between Europe and Minor Asia, politics has often been defined by geography. Occupying the tip of the Balkan Peninsula, internally divided to several rivaling provinces, the Ancient Greece presented itself a perfect target of military opportunity for its less decentralized but more aggressive neighbors, such as Persia, Imperial Rome, Ottoman Empire and the 3rd Reich. Bound to defend their independence from multiple invaders, Greeks have nourished a strong sense of the national identity.

The Mediterranean sea — historically vibrant European merchant and military high-way — is Hellenic Republic’s the most important strategic asset. Greek’s formidable sea fleet (fourth largest in the World) is the major source of revenues for the government’s budget. Two other key contributors to Greece’s GDP — agriculture and tourism sectors — have proved to be largely relying on the stable growth of the EU economy. That, in particular, has made Greece’s prosperity highly susceptible to periodic EU’s economic busts.

Faced by the periodic economic instability, Greeks have always been receptive to various types of populist ideologies. At the start of the 20th century, when peasants and unskilled workers had constituted the majority of Greece’s population, Kommounistiko Komma Elladas or KKE ( Communist Party of Greece) was the leading political force in the country. After the end of the World War II, KKE popularity had skyrocketed, which led to the Greek Civil War (1946–1949), during which USA-backed ultra-conservative political forces established the militants-led, dictatorial regime in the country.

The postwar era of the economic growth, spearheaded by the Marshall plan, was abruptly ended in 1970s when the Western world was hit by the most severe economic crisis since 1930th. In 1975 Greek’s declining economy led to social unrests, which resulted in the Constitutional referendum. Greece was converted into a parliamentary democracy, where the role of the President is mostly nominal and where the Parliament appoints the majority party’s leader as the country’s Prime Minister. In 1970th Greece’s two major political parties emerged: left-wing Panhellenic Socialist Movement or PASOK and centrist New Democracy. For more than 40 years (until 2014) those two parties had almost unilaterally shaped country’s internal and external policies.

World’s debt market crash, which led to 2008 global financial crisis, hit Greece with its full force. Overstretched state’s budget quickly descended into the red accounting zone. Specifically worrisome was the fact that numerous social expenditures accounts were balanced by expensive international credits. To bypass the Maastricht Treaty, which strictly limits the size of external debts for each of EU countries, global bankers camouflaged those credits as short-term spot contracts. As a result, Greece’s public debt rose to 130% of GDP, which made it the largest in EU. On top of that, 2008 economic crisis critically reduced the volume of maritime trade and number of international tourists. In 2013 Greece’s unemployment rate skyrocketed to 25%.

Greece economic crisis was soon followed by the political one. During May 2012 parliamentary elections both PASOK and New Democracy, which both took the pro-EU position publicly advocating for harsher austerities measures, including drastically reducing social expenses, saw their popularity plummeted from 43% to 13% and from 33% to 18%respectively. The newly formed, left-wing opposition party SYRIZA, won 16% of popular votes on a promise to exit EU while keeping social welfares programs intact.

As a result, with 52 seats SYRIZA became the second biggest faction in Greece parliament and its boss Alexis Tsipras took the prime ministerial seat. However, catching external observers by surprise and breaking his main electoral promise, Tsipras ended up by supporting the EU austerity program. Although, since then SYRIZA had significantly strengthened its political position and, in 2018, holds 145 out of 300 seats in the Hellenic Parliament, Greece economic situation has hardly been improved. GDP growth rate crossed back to green zone only in 2017 and stays under 1% in 2018, unemployment level is registered at 20% and debt to GDP ratio has risen to 191% (from 179% in 2015).

Today, Greece, with its 11 million population, suffers from chronic budget deficit, with almost halve of people younger that 25 unemployed. Additionally, with new austerities programs implemented, population’s standards of living, which traditionally been on the level of the most developed European nations, are now dropping dramatically.

Not surprise that the bad economy has negatively affected Greece startups too. This country, where Internet penetration rate stands at around 60 percents, and living costs are generally lower than those in the rest of EU, once had had the potential to became one of the European startups’ emerging centers. However, those prospects are now seriously undermined by the deteriorating economy, multiple bureaucratic barriers and progressive tax system.

2008–2018 debt crisis has positioned Greece among those EU states (together with Spain, Italy and Cyprus), which financial gate-keepers had publicly revealed their inability to face the challenges of the new, open, technology-based XXI century’s economy. At the same time, Greek banking system near-collapse in 2015 led to the astronomical surge of crypto-currencies’ popularity.

Greece authorities’ long-lasting reliance on EU fractional-reserve, highly centralized banking system led to the complete unraveling of country’s financial markets. National debt skyrocketed and international creditors shut their doors to Greek’s counterparts. The government reacted by trying to postpone June 2015 installment to IMF. Massive panic ensued with population racing to empty their banks’ accounts. In response Syriza’s cabinet introduced capital control regime, which limited withdraws to 120 EUR per week. No wonder, then, that so many Greeks saw the light those days and started to convert their savings into Bitcoins.

It came to the point where Tsipras cabinet closely considered an option to use Bitcoin as the anti-austerity measure. That didn’t happen, however, but, thanks to this crisis Bank of Greece position on crypto-currencies became significantly less hawkish, compare to that of their EU mates. When BOG issued its first, February 11, 2014 memorandum on Bitcoin it turned out that its content and wording are both measured and thoughtful.

This positive trend was reinforced in February 2018, when BOG stated the following: “Given that virtual currencies, such as Bitcoin, are still at the forefront of publicity and with a view to informing the public of the risks associated with their use, including the loss of money, the Bank of Greece refers to the recent Communication from the European Banking Authority (EBA).”. It easy to see how this type of matter-of-fact statements is more professional than FUD spread by many other EU central bankers.

Notwithstanding, it hasn’t yet led to the massive adaption of crypto by Greek population. Neither it resulted in Bitcoin to be declared a legal tender in this country. Greece official position on crypto is, still, the caution one, and it’s unlikely to change without the consent of the ECB. Meanwhile, Bitcoin stays in a gray, “unregulated” zone in Greece.

Business Notes for Startups Founders:

  • political climate: friendly;
  • economic climate: not friendly;
  • regions to focus: locally, Eastern Europe, EU;
  • industries to focus: e-commerce, FinTech, transport, tourism;
  • major limitations: economy in downfall, very high unemployment (although, it started to slowly fall in 2017), over-regulation, high taxes;
  • stimulus: closeness both to EU and to Eastern markets, relatively low costs of living;
  • opportunities: many;
  • Cryptocurrencies and ICOs (outlook): unregulated (moderately positive).

The author: Svyatoslav (Svet) Sedov

Angel investor and founder of The First International Incubator for Silicon Valley Companies (FirstInternational.In) in the Bay Area, CA, USA.

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