No one-size-fits-all policy for the crisis

By Harry van Versendaal

When Latvia was hit by a financial crisis in 2008, the government had few qualms about embracing cost-cutting measures and structural reforms, while keeping its national currency pegged to the euro.

Now in the waiting room for eurozone membership, due in January 2014, this Baltic nation’s decision makers appear undeterred by a rather skeptical public and the woes dogging other eurozone countries, most prominently Greece.

In an interview with Kathimerini English Edition during his visit to Athens this week, Latvian Foreign Minister Edgars Rinkevics said he sees his country’s euro entry as a further step into the West by the former Soviet republic after it joined the European Union in 2004.

Notwithstanding Latvia’s portrayal by several Western policymakers as a poster child for austerity that could serve as a roadmap for other troubled economies, Rinkevics is reluctant to draw parallels with Greece, stressing instead the economic and cultural particularities of each country.

The eurozone is in crisis but Latvia still plans to join in January 2014. Haven’t you been deterred by the difficulties faced by countries using the single currency?

I really do not believe that the problems are caused by the single currency. We have seen – and also our own experience between 2008 and 2011 has shown – that the currency has had no direct effect on the crisis. It’s about the economic and financial policies of the country in question. Keeping this in mind, we see eurozone membership as an opportunity to boost trade relations with other countries in the euro area. Membership however is also a geopolitical choice. By signing the accession treaties here in Greece 10 years ago, we joined a political and economic union. But we still have to integrate more in terms of the financial system, transportation and energy. In a way, it completes the move away from the former Soviet Union to a more European union.

Is the close presence of Russia also a geopolitical incentive?

It’s more about the economic and financial security of the country. It’s more about deeper integration in the EU. Given that, I would not say that joining the eurozone is specifically against somebody. It’s about boosting our own standing when it comes to politics and the economy.

Polls show that only one in three Latvians wants to join the euro. Why is the figure so low and is this enough support to give the government’s decision legitimacy?

First, our public reads what is happening in the eurozone. Two or three years ago, newspapers, Internet media, TV and radio were full of doomsday scenarios that the euro is going to crash and that the eurozone is finishing, which is not what we see now. We actually see that the eurozone is well and alive. Secondly, it’s also an emotional issue. Our currency, the lat, was reintroduced after Latvia gained independence back in 1993, and for 20 years the currency has been very stable. We had a very strong monetary policy by the Bank of Latvia; we did not devalue even when probably it could have been a possible course of action back in 2008 and 2009. So there is a very strong emotional attachment to the currency and even if people understand that there can be gains, they still find it hard to say good bye.

How to tackle this [public skepticism]? I think the only way is for the people to see that nothing bad happens. Money is money, what you call it does not really say much. It is going to take about six months to a year for people to see the effects and to understand that actually nothing bad happens.

How will the Latvian people react if the country has to contribute to eurozone crisis funding after it joins?

That’s something that certainly people really don’t want to do. But this is about solidarity and we also remind ourselves that it was the IMF and the EU that actually saved our country back in 2009 by providing loans. Solidarity works both ways.

Are you worried about growing Euroskepticism in Europe?

Yes, although as far as Latvia is concerned, the recent Eurobarometer poll showed an interesting picture. Ten years after joining the EU, 57 percent of the general population believe that membership has benefited more than caused problems, against an average EU rate of 54 percent.

Decision making

Within a European Union where the power to make decisions appears to be increasingly concentrated in the hands of a small group of member states, what role is there for smaller countries like Greece and Latvia to play?

I think that with things being delegated to Brussels – particularly economic and financial issues such as banking union and more regulation of financial institutions – we still have an opportunity to use instruments like the Council, where we can work with like-minded countries to change or influence decisions that are not really in our interest. We had a very good experience when discussing the so-called Friends of Cohesion group, where Athens and Riga worked together to make sure that countries that receive European funds – including Greece and Latvia – prevent drastic cuts to the European budget.

There are some areas, like EU foreign policy, where I would like to see a more unified approach. We have a lot of success stories, like the EU standing on Syria, the EU standing on Iran. But then you have the Middle East peace process, where you have three different groups. Similarly, the EU policy on Russia has not always been unified.

Do you see any areas where it would be possible for Greece and Latvia to help each other?

Certainly. As we join the eurozone we are interested in working more closely with Greece on reform and development of eurozone policies, banking and financial regulations. Secondly, I think we have common interests and will work together because our presidency is in the first half of 2015, and then there is the Eastern Partnership initiative. I also expect that your presidency is going to address EU institutional issues – there can be a discussion about some changes in the institutional framework and this is something that small countries are particularly sensitive about.

As far as NATO is concerned, we are both members of this alliance and we have already worked quite closely also on issues that are related to, for instance, Article 5 operations and exercises [Article 5 requires NATO member states to come to the aid of any member state that comes under armed attack]. Greece is currently participating in a NATO exercise in the Baltic area. Also, we understand your concerns about immigration policy, so there are plenty of issues of common interest. And, of course, economic cooperation, which is probably not reaching the highest level and there is room to expand, and tourism.

Crisis response

What would you say were the main reasons for Latvia overcoming its crisis? What kind of austerity measures were involved?

It seems to me that each country has to tackle the crisis in its own way, taking into account its own history, traditions, structure of society, economy and so on. But we basically did three things. One was to introduce very severe cuts to public spending. These had been implemented by the end of 2008, and by the end of the crisis we had cut our public sector on average by 25-30 percent. All ministries suffered very severe cuts, the Ministry of Foreign Affairs lost about 30 percent of its employees. The remaining staff had their salaries slashed by about an average 30 percent. Operational budgets were also cut. Second, we did our best to keep programs that were co-financed by the EU. That was almost the only stimulus package for our economic growth. And third, while we were cutting our public expenditure, some taxes were raised, such as personal income tax and VAT.

Now, in the third year of economic growth, we are actually going back to reducing some taxes. People need to feel the crisis is over. Yes, on a macroeconomic level everyone considers we are out of the woods, but on a personal level, it is only now that people are probably starting to feel a modest increase in their salaries.

You say every country has to deal with the crisis in its own way. Does Latvia then not vindicate the tough approach taken in bailing out countries like Greece and Portugal?

Latvia, as well as Estonia and Lithuania are sometimes mentioned as good examples of how you do things. At the same time, we live in the north and that makes a difference. The root causes of our economic and financial crisis were different from those here in the south. We had an enormous real estate problem. After joining the EU, salaries skyrocketed in many areas. And, of course, they then went down like a stone. Public perception of what happened and who was responsible was also different. The new government that came in in 2009 was able to convince people that things had gone wrong because of bad polices introduced by a couple of governments before, and people actually acknowledged this. Our prime minister is in his fifth year in power, which is kind of a record for our country, where we tend to change governments and prime ministers quite often – even in good times. There was a general understanding among the public regarding the austerity policy. It was bad, but it was the right thing to do.

Did the Protestant culture in your country play a part in helping your country adjust? Did the fact that your country had been occupied for so many years also have an impact on how people accepted the measures?

It certainly worked, I think you are right. It was part of the solution. But, let’s face it, another part – which is now also an issue in Greece as far as I know – was that a lot of people left for jobs and opportunities in the UK, Ireland and other countries.

Government critics have said that high emigration was used to mask Latvia’s unemployment problem.

It helped mitigate the social effects. However, if you look at figures from the good years following EU accession in 2004, emigration was already in full swing as people were now free to move abroad for studies or work. Interestingly, we are starting to see that some of these people are starting to return as they are being offered competitive jobs [in Latvia].

What are the other major problems caused by the cuts you pursued?

Certainly one issue is the quality of public services after a lot of people left the government. Some cuts have been too severe and we need to rebalance. Another is how to get our demographic problems solved as birthrates dropped during the crisis years, in fact, for the second time – the first was in the early 1990s when the Soviet Union collapsed and we had to change our whole economic and social system. Demography is a problem for most EU countries and is closely connected to the issue of social security reform. We had to raise the retirement age from 62 to 65 and to severely cut social security programs including unemployment benefits.

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For Greek mainstream parties, it’s still business as usual

By Harry van Versendaal

It almost defies reason. Six years into a wrenching recession and amid heavy speculation of a snap election next year, Greece’s mainstream parties are still locked in a self-destructive business-as-usual mode.

The survival of the power-sharing government seems to depend upon support from a critical mass of disaffected – albeit moderate – middle-class voters who are wary of the implications of an anti-bailout SYRIZA administration. And yet New Democracy and PASOK coalition politicians continue to dangerously indulge in the bad old partisan habits that are, at least in part, responsible for the nation’s current woes.

“This is all path dependence. It is not really rational, but this is what they know well, what they have been doing all these years,” says Elias Dinas, a political scientist at the University of Nottingham, ahead of a Greek Public Policy Forum conference later this month on Crete which is set to discuss the impact of the euro debt crisis on national party politics and the European project.

The Greek Cabinet primarily consists of MPs who are picked on the basis of preference votes. “This creates personal obstacles for the implementation of reforms. You need a large stock of support to enter into seemingly painful negotiations with specific professional sectors,” Dinas says.

The abrupt closure of Greece’s public broadcaster ERT earlier this summer, traditionally seen as a political fiefdom of the ruling party, raised some hopes among pro-reform centrists that – notwithstanding the questionable legality of the move – Prime Minister Antonis Samaras was finally prepared to build on a clean sheet and break with a long tradition of corruption and political patronage. Those expectations were soon defeated by a number of less-than-transparent appointments at ERT’s successor, DT, and a very messy launch that has been a cause of constant embarrassment for the government.

“The logic that has prevailed in this administration is a minimum-cost logic. This is clearly a very risk-averse government, primarily aiming at maintain marginal support and sacrificing reforms that might potentially harm this fragile equilibrium,” says Dinas, an expert on the development of partisan preferences.

The government has largely shied away from much-hyped structural reforms aimed at unlocking growth and creating jobs. The most common response to pressure from Greece’s foreign lenders – the European Union and the International Monetary Fund – has been haphazard, horizontal measures designed to meet nominal staff reduction targets in the country’s sizable public sector.

Samaras, who has been premier since June 2012, has heralded Greece as a “success story,” but the numbers tell a very different one. Unemployment is stubbornly stuck above 27 percent. A stunning 58.8 percent of under-25s are out of work. Over 20 percent live beneath the poverty line. The number of live births has declined by 10 percent since 2009, while suicides have soared.

Many analysts say that it is realistic to expect the debt-wracked nation to need further support from the eurozone before it can return to the markets. It is estimated that Greece will need around 10-11 bullion euros for the second half of 2014 to stay afloat next year and in 2015 – a prospect dreaded by euro-area governments faced with an increasingly skeptical public opinion.

The big shake-up

The crisis has radically transformed the two-party political system which was established after the collapse of a seven-year military dictatorship in 1974. A long-lasting tradition of nepotism gives the impression that Greece’s fate is in the hands of the same people who created the mess.

“But we must not forget that after the May 2012 election, PASOK has seen its vote decrease to unprecedented levels while New Democracy is still a key player only because of a record increase in party system fragmentation,” Dinas says. Last year’s vote still has the record of all inter-election volatility indices among established democracies, comparable only to the very first and formative elections of new democratic regimes.

Used to sweeping more than 40 percent of the vote, PASOK is now polling around 7 percent. A Public Issue survey published last week suggested that the conservatives have slipped behind SYRIZA, although a majority of respondents still consider Samaras a more suitable premier than opposition leader Alexis Tsipras.

“I cannot see a clear solution to the crisis in the foreseeable future, which means that a SYRIZA government might at some point become inevitable,” Dinas says.

However, the big shake-up of the Greek political system came with a self-destruct button. Neo-Nazi Golden Dawn is now polling at 13 percent, almost double the figure for PASOK.

The party with the swastika-like emblem already controls 18 seats in the 300-member House after winning nearly 7 percent in the May elections. Its members have been repeatedly connected to violent attacks on immigrants, gays and political opponents. In the latest assault, nine members of the Communist party (KKE) were hospitalized last week after suspected Golden Dawn supporters wielding metal clubs and poles set upon them while they were putting up posters in Perama, near Piraeus.

The response from New Democracy – which only provided a belated and rather vague condemnation of the Perama assault – has been uncomfortably cynical. Party spinmeisters and conservative pundits have tried to play the polarization card by investing heavily in what is known as the theory of the two extremes. The idea is to discredit SYRIZA by playing up abusive language and rowdy behavior on the left and equating it with far-right violence.

At the same time, Samaras’s hard-line approach on illegal immigration combined with a political credo animated by emphasis on devotion to the nation, Orthodoxy and traditional values aspires to hijack Golden Dawn’s strongest catchment area. Studies show that four in 10 Golden Dawn voters in the May ballot came from the New Democracy camp.

Bridge building

All this polarized multipartism is unsustainable in the long run, Dinas says. One way to ease the pressure on the political system would be to reduce the number of parties in Parliament, now seven – an unlikely prospect given that all of the newly formed parties have more or less held their own since the last election. To avoid implosion, Dinas thinks, Greece’s political system must rather aim to build bridges between the pro- and anti-bailout camps, mainly by priming issue dimensions where there is room for consent, or, equivalently, potential for within-group divisions.

“This is the strategy that Abraham Lincoln used to win the 1860 US presidential election, introducing slavery as a new cleavage cross-cutting the existing cleavage structure and dividing the Democrats internally,” he says.

For Greece’s post-1974 system, the predicament is an existential one: Golden Dawn’s threat to democracy must become the glue for political action.

A lot will have to change. Until the May election, the political class was simply too busy with its own survival to grapple with the rise of Golden Dawn, as the grouping made its crucial early steps by operating as the typical local mafia branch, Dinas says, describing a protection industry that used conventional – and often illegal – means to provide services in the state’s stead.

Since then, Dinas says, the picture is similar to the contrast between guerilla and incumbent warfare in civil wars. Golden Dawn employs grassroots practices that are specifically targeted at local communities, such as – Greek-only – food handouts, blood drives and neighborhood patrols. Mainstream political parties, on the other hand, try to challenge the party through their discourse in the media. The problem, as several surveys demonstrate, is that the mainstream media – like most of the country’s other institutions – are heavily discredited in the eyes of angry voters. The elite message easily plays into the hands of the anti-systemic party.

“For Golden Dawn supporters, any criticism coming from the main parties against their own party is not going to change their sentiments; if it does, it will probably be in the opposite direction,” Dinas says.

The political system, he says, needs to adopt a different strategy – one that is built around the idea that representative democracy cannot tolerate its enemies.

“What needs to be done is to challenge Golden Dawn using its own means. You need a strong state that is prepared to take legal action against any deviation from the law in order to confront the problem,” says Dinas while also stressing the need to invest resources in creating strong social disincentives for the party’s supporters, in schools, the working environment and universities.

“One of the reasons Golden Dawn has been successful is that it provides a clear and unambiguous identity; everyone needs to belong somewhere. There is a whole socialization process,” Dinas says. For a state that managed to mobilize support for the criminal regime of former Yugoslav President Slobodan Milosevic in the 1990s, a similar anti-fascist mobilization should be a doable task, he says.

“Otherwise, Golden Dawn can only fall if it tries to embrace the political system,” says Dinas, pointing a finger at other radical right parties in Europe – such as the Freedom Party of Austria and Geert Wilder’s Party for Freedom in the Netherlands – that lost most of their appeal once they entered government coalitions.

“To be sure, this is not a prospect that we should be looking forward to.”

Made in Greece

Illustration by Manos Symeonakis

 

By Harry van Versendaal

In a white, minimalist bedroom, a man in boxer shorts is getting dressed. His sated partner lies in bed. The door opens, and an older, besuited man walks in. Calmly, the woman introduces her lover, and her husband promptly asks him to lunch. And then the slogan flashes on the screen: “We Greeks aren’t like this — why should our furniture be?”

As Greece tries to deal with a contracting economy and sky-high unemployment, local businesses are trying to gain an advantage over the competition by advertising their Greek credentials. This commercial for Neoset furniture, poking fun at the local company’s bigger Swedish rival, is only one of many new ads popping up on the radio, television and in the press that are pitching the Buy Greek message.

“Despite Neoset being a Greek company that has worked in the sector for over 30 years, it’s the first time it has ever come out so strongly in advertising its products’ provenance,” the company’s retail marketing coordinator, Marita Kazadelli, said in a recent interview.

“As a company, but also as consumers, we want to support Greek companies and Greek products, so in this way we show our support for Greek businesses, Greek exports, Greek workers and all the rest,” she said.

A whole variety of businesses from travel agents to the fashion industry are catching the trend.

One of these is Helmi, a Greek company that makes edgy clothes for women who until now, its officials admit, had let consumers think it was not local.

“For years our customers considered us a foreign company, an assumption which… we never tried to correct. Now, however, we are letting our consumers know that this supposedly foreign brand is actually Greek,” Helmi CEO Dimosthenis Helmis said.

A radio ad by Bic, the France-based company specializing in the manufacturing of stationery products, lighters and razors, claims that 97 percent of the company’s disposable razors are manufactured in Greece. Around 860 million razors were manufactured in Bic’s factory near Athens last year, 90 percent of which were exported to 153 countries, according to the company website.

But nowhere is the Buy Greek penchant more prominent than where Greeks already held a strong position: the dairy and food market.

Melissa pasta last year used its Greek identity as the central slogan for a big campaign celebrating the firm’s 60th anniversary.

People at the company herald the newfound patriotism.

“I think this trend is natural and that it was late coming. Turks always bought Turkish products, the Germans always bought German products, why did Greeks think Greek products were inferior?” public relations manager Tina Kikiza asked.

The company has for years had to combat the general wisdom that Italian pasta is the best. What many people do not know, says Kikiza, is that many Italian rivals depend on wheat imports from Greece for their products.

The company’s turnover has not been dented by the economic crisis, climbing from 45 million euros in 2007 to 70 million in 2010. It is expected to reach a similar level in 2011.

Marketing pitfalls

However, marketing experts are wary of the long-term implications of the Buy Greek drive.

“All products are now brands. Their image is important to their viability. So the question is not whether Greek products are better or worse, but what their being defined as Greek has to add to their brand image,” said Daphne Patrikiou, associate creative director at the BBDO advertising agency.

Strategies vary. Some companies — not always Greek-owned — have adopted a consistent corporate approach, emphasizing their contribution to the local economy. The more opportunistic have pitched their Greek credentials with one-dimensional advertising campaigns or with simply putting “Made in Greece” stickers on their products to encourage impulse buying.

To be sure, not all firms have an interest in advertising their Greekness. Those who have for years invested in strategic planning, like eco-friendly detergent manufacturer Planet or natural skincare company Korres, are rather laconic about their origins, reaping instead the benefits of their longstanding niche strategies.

“Being associated with a Greek identity may benefit a product in the short term, but it could backfire in the long run,” Patrikiou said.

Particularly for companies specializing in hi-tech products and devices, experts warn, a Buy Greek strategy could be damaging. Computer and technology retailer Plaisio has made a profitable business in branding its own PC series, but success is attributed to its value-for-money image, not its being Greek.

Irrational exuberance

Made in Greece has never been associated with innovation, quality or style. And this one of the reasons why the country has for decades spent more than it made as consumers looked outside for good products.

But the situation really spun out of control after the country joined the eurozone in 2001. Thanks to the stable and trusted currency, Greeks were able to borrow cheaply. The balance of trade took a nosedive as Greece imported more goods than it produced.

In 1990, Greece’s balance of trade deficit was 446 thousand euros, by 2002 it had soared to 1.7 billion, while in 2006 it hovered at 2.1 billion. Meanwhile, Greek imports in 1990 were valued at 1.6 billion euros; in 2002 the figure went up to 4.7 billion and by 2006 it had skyrocketed to 5.9 billion.

The overconsumption of foreign goods also had a cultural aspect. After a long stretch of political instability and poverty, the newly empowered Greeks — often powered by provincial attitudes — developed a soft spot for foreign goods. The figures were backed by anecdotal stories of Greeks infamously storming London’s Harrods and Selfridges on weekend shopping sprees.

The situation prompted a reaction by the now defunct association for the promotion of Greek products. A Buy Greek promo made at the time mocked Lakis, a tacky character showing off his flashy designer buys — all foreign imports. At least Greeks created their own word for the trend, “xenomania,” meaning the extreme love for all things foreign — a regular topic of high school essays during the 1980s and 90s.

These days, the Buy Greek message is mostly spread by private firms and business associations, while a number of Facebook pages and citizen groups have also added their voices to the campaign. The Greece520.gr website for one aims to inform consumers that products carrying bar codes starting with 520 are made in the country.

The costly truth

The campaigns seem to be paying off. The National Confederation of Hellenic Commerce recently said sales of local products have gone up 44 percent this year as Greeks turn away from dearer imports.

“It seems crazy to me to buy American rice when I can buy Greek-grown rice,” said Katerina Petraki, a mother of two who works as a food inspector.

In the case of foodstuffs, Petraki says, she usually prefers Greek products — including the supermarkets’ increasingly popular own-name brands. They are just as good, she says, and at the same time you support homegrown products.

“I mean, I know it’s a profit-driven ideology — but why not support it? After all, it will help us become more competitive,” she said.

But not everyone appears convinced. Products made here often cost more and some consumers won’t hesitate to opt for cheaper foreign-made items to help their own finances.

“I haven’t started buying more Greek products because of the crisis. I buy what’s on sale. I look at the price, not the origin,” said Maria Andritsou, a civil engineer who has been unemployed for over a year.

“Until now I used to buy Greek flour. Now I buy foreign-made,” said Andritsou, the mother of a 3-year-old daughter.

People like her dislike the idea of having to accept poorer quality or more expensive products in the name of alleged benefits to the national collective. Such misplaced patriotism, she says, would be like a reward to substandard local suppliers.

“Greek manufacturers have overcharged for so long. Why should I support them now?” she said.

The costly truth is that concepts like home economics and consumer education have long been mostly alien to the average Greek. Consumers rarely did any market research, thus discouraging price competition among local retailers. Greek products were as a result more expensive than their foreign counterparts, which made little economic sense given the cost of transport and logistics.

Who gains?

Consumers often complain it’s hard to know if their money goes to the right place. Product identity in the globalized marketplace of complex ownership structures and competing loyalties can become uncomfortably fuzzy.

The fact is it’s not always clear where products are manufactured or who profits. The Misko pasta factory is controlled by the Barilla Group, Marinopoulos has been taken over by Carrefour, even Metaxa, the world-famous brandy maker, is now owned by France’s Remy Cointreau Group.

But commerce is not necessarily a zero-sum game. Although owned by Barilla, Misko still makes the brand’s products using Greek raw materials. For obvious commercial reasons, Barilla has kept the famous Misko brand logo featuring a Greek Orthodox monk riding a donkey. But, more importantly, the Italian giant operates one of Europe’s biggest pasta factories in Viotia.

Foreign companies like Ikea, Bic or the AB Vassilopoulos supermarket chain, which is controlled by Belgium-based retailer Delhaize, are keen to stress their contribution to the local economy, since they employ thousands of Greek staff and pay taxes to the Greek state.

“We don’t see ourselves as a foreign supermarket,” AB’s communication manager Alexia Macheras said, noting that the company is the fifth-biggest employer in Greece with more than 11,000 staff.

She said AB has for years supported local production by promoting homegrown goods while running campaigns to support Greek foods, clothes and tourism.

I want that Pony

Despite upbeat early statistics, experts insist that Greekness alone is not enough to shape people’s long-term purchase preferences and ensure sustainable growth for the companies.

“Consumers can see through advertising practices and remain rather skeptical toward them. They need a stronger sell to adopt a habit. A product’s national identity is not a strong sell on its own,” Patrikiou said.

Business gurus have a tendency to urge us to see crises as opportunities. Reports last month said that former Greek car manufacturer NAMCO is due to begin production of a new version of the poor man’s SUV, the Pony, which hit the country’s streets in the late 1970s and early 80s. If Greece were to exit the eurozone and return to a devalued drachma, beloved products like quality German cars would be out of reach for local consumers, who would have to depend heavily on locally made products. It would be interesting to see then how many people here would give up their dearest BMW or Mercedes for the more humble Pony.