What Ails Greece; A Personal Odyssey

By Henry Teitelbaum

By now, most of us understand that six years of forced austerity and restructuring have failed to bring about an economic recovery in Greece.

Greece’s creditors say the country still pays out too much of its GDP in the form of public pensions, and they insist further restructuring is the only way to put its economy on a sustainable growth path.

Like many, I feel the entire Troika approach to fixing Greece has been myopic and wrong-headed. The narrow focus on deficit reduction, especially in the midst of a prolonged financial crisis, has been a recipe for disaster. My website, P3 Planet, tries to show how long-term investment in public infrastructure is a much more effective way to bring about recovery from financial upheavals such as these. As things stand, Greece and Europe find themselves at a fateful crossroads.

Yet, my own experiences tell me things do need to change. If anything, restructuring needs to be accelerated, and Prime Minister Alexis Tsipras only invites questions about whose interests he’s really protecting when he stands in the way.

Walking on the Beaches

I have visited Greece with my family for holidays virtually every summer since the turn of the millennium. I go because my wife’s family lives there. But then, no one has to drag me. I find the place endlessly enchanting — lovely people, food and wine, entertainment, history, weather and of course some of the most splendid beaches you could ever hope to sink your feet into.

In recent years, the deteriorating state of the country’s finances has led me to begin a personal search for clues in day-to-day life that may help me to build a view on what really ails the economy. I have found plenty to ponder.

On the one hand, I haven’t found the kind of rampant tax evasion I would have expected from shops, restaurants, cafes or other outlets. For what they’re worth, receipts are printed out and copies shared whenever I do a transaction.

But then, I’m a tourist. I accept that there is massive tax evasion underway. It’s just not evident at the retail level. In a way, that’s good news from a creditor perspective because it suggests that any increase in the VAT tax, as sought by the Troika, would be an effective way to boost revenue. Whether it is fair to the many unemployed people on survival budgets is another matter.

More interesting to me is what I find when I visit my local supermarket. Like any EU country I have visited, there are aisles and aisles of well-stocked shelves that feature many of the familiar brands you would expect at home. Relatively speaking, there aren’t many local brands competing with the multi-nationals. But there are some recognizably Greek brands to be found, notably in the dairy, olive oil, and canned food sections.

Looking At the Peaches

It is in these places that I was able to find what seemed compelling evidence of the market manipulation and price distortion that should not exist if competition was free and fair.

In the fresh fruit section, there were Dutch hot-house grown peaches to be found at a significant discount to what the same supermarket was charging for in-season Greek peaches. Considering the distance that the Dutch peaches needed to travel to get to a grocery store near the southern tip of the Peloponesian peninsula, there would seem to be no reason why they should be costing so much less than the Greek ones.

I found other price anomalies at the cheese counter, where among the many wheels of locally produced sheep’s and goat’s milk cheeses, shoppers were still able to pay less for foreign-made cheeses, including Dutch, Irish and even premium Italian parmesan. Not surprisingly, given the dire state of people’s finances, I observed many of the shoppers queuing to buy the cheap, discounted Dutch processed cheese.

There was evidence of this pattern in the pricing of other Greek products, such as canned fish, which was more expensive than canned fish from Italy, or for that matter, from Thailand. And Greek honey, which was abundantly stocked under numerous brand labels, (but with imported honey conspicuously absent) was more expensive than I ever recall paying in London.

Then there was the real shocker. Greek yoghurt, including Internationally known brands, had stamps on their containers specifying that the yoghurt was made from German and French milk. In the example of market-leading Fage’s Total, the percentages were specified as 65% German and 35% French milk. In other words, no Greek milk was going into Greek yoghurt made in Greece for the Greek market.

This was true for virtually every local yoghurt brand I could find in this shop and several others. I had to go to the Carrefour hypermarket near Kalamata, itself a French global retailer, before I could find a yoghurt made with Greek milk. As it happened, it was Carrefour’s own-brand yoghurt.

Anti-Competitive Practices Revealed

I put these observations to a Greek economist I met on the flight back to London. He came back to me with a plausible explanation after he had spoken with another economist he knew in government.

He felt the price distortions were likely due to a wide range of anti-competitive practices. Many were inspired by elusive ‘cartels’ that were able to have them coded into law, often many years ago. Indeed, many of these rules and practices can trace the roots of their continued existence to the corrupt economic system Greece inherited from the Ottomans two centuries ago. This is because nothing has really changed in the way patronage is parceled out. Successive governments have all benefited from this system because it has helped to ensure re-election for the two institutional parties that have governed Greece since the restoration of democracy in the 1970s. A vote for PASOK or New Democracy has always been a ticket to finding a well-paid government job-for-life for yourself, your family or your friends. Price fixing and anti-competitive practices are merely the means by which they are able to pay for it all.

A 2013 OECD report assessing competition in Greece hinted at the extent of the problem. The report found 555 problematic regulations and 329 provisions where changes could help to foster competition. That’s just from an assessment of practices in the food processing, retail trade, building materials and tourism — four areas that account for 21% of GDP and 27% of employment in the Greek economy. The report specified that removing barriers to entry to support competition in each of these areas of the economy would lower prices and increase revenue generation to the tune of EUR 5.2 billion a year, or 2.5% of GDP.

It’s always gratifying to find data to support anecdotal observations, and in the case of milk, yoghurt and dairy generally the report didn’t disappoint. One big distortion that the study noted is that Greece is the only country in Europe that legally defines terms for pasteurized milk to be called “fresh” on the label. It is also the only country to require that this milk have a shelf life of only five days, despite technological advances that allow milk anywhere in Europe to have double that shelf life. The price distortion that arises from this is that 17% of the cost of milk is in distribution, 5% of which is for returns of milk that is “expired” due to the law.

Unsold milk also figures in very high farm gate prices for the white stuff, which represent 35% of the final cost and the second highest in the EU. Taken together, the average liter of milk in Greece costs about 34% more than the average price that consumers pay elsewhere in the EU.

For yoghurt, Greece applies a vary narrow definition of what can be sold by that name, which uniquely within the EU, must be made from full-fat raw milk without the addition of milk proteins. The OECD assessment describes this as yet another way to favor local production, restrict market entry and reduce consumer choice. In the production of cheese, a range of obsolete rules exist, including a particularly odd one that allows only one type of milk mixture, 50% goat’s milk and 50% sheep’s milk. This seems to unnecessarily restrict innovation to meet changing consumer preferences and at least partially explains the higher prices I encountered.

Third Party Levies For Special Interests

In distribution, my economist friend’s concerns about cartels were confirmed by the study’s assessment that despite significant changes to the legislative frameworks for trucks and transportation companies since 2010, market entry and competition from smaller operators continue to be restricted due to non-sensical rules. One such rule requires the award of trucking licenses and maximum loads to depend on the annual gross profit of the company applying.

The study also identified anti-competitive practices in several sectors in the form of “third-party levies” on materials and services, which can account for some 20% of certain material costs. These are used to finance pension funds for special interest groups, but they distort markets and raise prices for everyone.

More than anything, the OECD study’s conclusions point to a continuing need for Greece to reform and restructure its economy. Syriza, a party with no links to the taint of patronage that previous governments feasted on for four decades, was handed a mandate to radicalize and accelerate reforms. It was an opportunity to rid the economy of anti-competitive and corrupt influences once and for all.

Instead, Tsipras and Finance Minister Yanis Varoufakis chose to focus all of their attention on shaking down the rest of Europe for more bailout money. Tsipras’ populist rhetoric, it turns out, has been nothing more than a disguise for a recidivist agenda.

Syriza has nothing to show for all of its posturing, and is instead courting a disaster that will indefinitely prolong the suffering of the Greek people.

Whatever the outcome of Sunday’s referendum, I sincerely hope Greece stays within the eurozone. It deserves at least that much for all the indignities its people have had to suffer.

editor’s note:

Henry Teitelbaum is an independent financial journalist, blogger and social media consultant at P3 Planet. He is available for freelance commissions and long-term assignments and is reachable at hthq@hotmail.com.