Inefficiencies within Greek economy

Over Christmas and the New Year I visited Greece – landing at Athens airport then hiring a car to Kalamata. After writing many articles on the economic troubles of Greece, it was interesting to visit in person.

view-kalamata-greece
View of Kalamata – south coast of Greece

Whilst enjoying a holiday, I was always aware – in the back of my mind – the Greek economic crisis and I was looking for signs or anecdotal evidence of why Greece has struggled from an economic perspective.

These are a few random observations from my personal holiday.

Motorway tolls

The drive from Athens to Kalamata was on a new highway, built with EU funds, and was in very good condition. But, every 30km or so, you had to stop to pay a variable toll.  In total, we must have stopped 8-9 times (though I lost count). As an economist this struck me as inefficient.

  • Labour costs of employing people to collect fees.
  • Time lost to stopping at checkpoint and paying.
  • Slightly annoying, might discourage journeys.

If I was Greek economic minister, I would abolish all highway tolls, and raise the equivalent money from higher petrol tax. In this way, the Greek government would get the same tax revenue, but without wasted labour costs and wasted time stopping to pay the €1.30 to €2.80. (There is option to have automatic electronic payment, but over half tolls seemed to be cash payment.)

Tax evasion

The second noticeable issue occurred when paying for expensive items, I was told to pay in cash. One shop, refused payment by card and told me to go and withdraw cash € 130 from the bank. I assume this is to avoid declaring income and avoiding paying tax. It seems there is a deep seated culture of tax evasion.

A study by IMF stated that the Greek shadow economy is estimated at 27% – higher than the 20% average in other rich countries (Shadow economies at IMF. Via BBC)

Even with the car hire company (which was very cheap) I didn’t get a feeling the company were straightforward and honest. We ended up with downgrade (smaller) car for same fee. I tried to get a refund for difference, but the owner seemed adept at talking his way out of situations. The company did have poor reviews before we booked, but we chose because it was the cheapest.

Petrol station

On the way back to Athens airport, I was struck that – when filling up with petrol, there were two attendants who came out. One to fill up the petrol tank and one to wash your screen. I assume the screen washer was hoping for a tip, I wasn’t sure of the custom. But, again it seems unnecessary labour costs, which increases costs for firms and increases price for consumers.

What about unemployment?

The above suggestions seem, on first glance, to involve making people redundant and increasing unemployment. (which is already 25% in Greece)

However, this is a lump of labour fallacy. If the Greek government is employing people to sit in toll booths, it could equally employ the same people to do something more productive, e.g. filling potholes, training to be a nurse e.t.c. These jobs would help to increase productive capacity more than the job of sitting in a toll booth making journeys take longer.

Rather than employ two people to fill up a petrol tank, it would be better to have lower wage costs, lower price of petrol and therefore give consumers greater disposable income to spend on other goods and services – which would create employment elsewhere.

Local grown food

The locally grown food – olive oil fresh off the presses, honey, Greek yogurt were really excellent with a very good energy. It’s a shame the Greeks don’t have their own currency to make these exports more competitive and increase sales. Tourism and agriculture are certainly a strength of the economy.

Conclusion

Usually when writing about the Greek economy, I have been concerned with macro-economic issues:

  • Unemployment
  • Recession
  • Overvaluation of currency
  • Fiscal austerity
  • Problems of Euro

But, from this very unscientific anecdotal experience, it seems there is plenty of scope for supply side improvements too.

Though I get the feeling, it would be difficult to reform the Greek economy because people are quite attached to the way things are. (I was surprised that smoking is still allowed in public spaces; it brought back memories of England in 1990s.)

Supply side vs demand side

The fundamental issue for the Greek economy in the past few years is demand side issues. I’m not suggesting supply side reforms could solve the problems of Greece, but it shouldn’t be neglected either.

I should also add, Greece is a great venue for a holiday. There is a wonderful light and the people welcoming and friendly. The guy who asked for cash, was actually very kind and friendly. Personally I didn’t mind to go and get cash. But, when wearing an economist’s hat, I do have different view towards tax avoidance.

EU-funding

The other interesting thing was the sheer number of signs which showed a project was a joint project between the EU and Greece.

1) If only the EU spent a higher percentage of its budget on regional projects rather than giving transfers to large farms, it might have higher popularity. For all the suffering of the Euro-crisis, Greece is still in the EU, whilst the UK isn’t. I never got round to asking the Greeks what they thought of Europe / Euro. I didn’t really want to intrude on something that might bring up painful memories.

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One thought on “Inefficiencies within Greek economy

  1. There is nothing like going in with to help one understand. For us, who live in Greece, it is more than clear that the only serious problem is one of supply and never one of deficient demand (and how could it be in a small open economy ?). Just a few more visits to Greece and you, too, will see the light. For the time being, please note one statistic. The are 2.67 million “old age” retirees drawing a pension in Greece, out of nearly 11 million inhabitants. Talk of “aggregate demand” lagging “aggregate supply” !
    Tax evasion is not the only reason people ask to get paid in cash. Cash withdrawals from bank accounts are limited to 420 euros per week. So, if your payment by card goes into the bank account of the merchant, it gets blocked. In effect, Greece is in a system of parallel currencies, the free euro and the blocked euro. The probable exchange rate is about 1.07 blocked euros for one free euro. So, if you paid cash to those extra nice Kalamata folks (reputed throughout Greece and the Greek diaspora to make excellent teachers and … pimps), you paid 7% more and, besides, helped tax and social security contributions evasion.
    Good old Greece keeps teaching the world new tricks. Especially the “dim-witted Franks”, as Greeks like to call Westerners …

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