Piraeus, Greece: Nikos Mavrikos has fired half of his employees since 2010 as the Greek economy imploded, leaving his ship supply business on the verge of collapse. February marked a turning point, however: Mavrikos made a hire, his first in four years.
“People are slowly starting to trust Greece again,” says Mavrikos, who hopes to take on even more employees soon at his family-owned business.
Greece is experiencing a remarkable financial recovery. Just two years ago, the country was expected to default and exit the euro, possibly setting off a messy unravelling of the entire currency bloc.
Today, after a tough regime of layoffs, wage cuts and reductions in government spending, factories are beginning to hum again, Greeks are starting to buy cars and other products again and the country is being courted in financial markets. The government is looking to the end of a tough international emergency aid programme at the end of the year.
On Tuesday, Greece sold six-month Treasury bills at the cheapest borrowing cost since 2010. Most of the buyers were foreign. It is planning a return to the international bond markets for the first time in four years on Thursday, with the sale of a five-year euro bond.
“The image of Greece abroad has changed dramatically. Now the sentiment is changing in Greece as well,” Greek Prime Minister Antonis Samaras told Reuters in an interview last week.
“We are now at the edge where unemployment has stopped rising, no more people are being fired, and there are some very positive indications of new hires.” For all the green shoots, it is too early to talk about long-term economic stability. Thousands of businesses closed across Greece last year. Unemployment is at a record of nearly 28 per cent, and large numbers of Greece’s 20- and 30-somethings have lost precious years of early employment that are likely to hamper their work and earnings potential for the rest of their lives. Strikes against austerity continue.
MASSIVE DEBT Greece’s debt is still a massive 175 per cent of economic output, and meeting a target to reduce that to 110 per cent by 2020 will be difficult without economic growth.
In its latest report on Greece last November, the Paris-based Organisation for Economic Cooperation and Development said the country’s international bailout had not yet led to a true economic recovery. “Restoring growth, making it sustainable and dealing with social costs are essential,” the OECD said.
According to James Howat, an analyst at London-based Capital Economics, despite the fall in borrowing costs, direct investment flows remain weak — suggesting longer-term investors are not yet convinced by the first signs of economic recovery.
Mimis Vanos, who runs one of the biggest marine supply companies in Greece, has like his colleague Mavrikos seen an uptick in demand. But he says the problems that have plagued Greece’s economy for decades — including widespread corruption, tax evasion and barriers to competition across industrial sectors — haven’t been solved. Vanos also says bank credit remains extremely tight.
“For the last 50 years I’ve been hearing that things are changing in Greece,” said Vanos. “I’ll believe it when I see it.
BANK LENDING Greece’s economy is the most dependent on bank lending in the euro zone, with bank credit to the private sector making up 40 per cent of total funding in 2000-2008 compared to 33 per cent across the single currency bloc.
But bank credit to the private sector has been in decline since 2011, aggravating the country’s six-year economic slump.
Prospects of a mild economic recovery this year will largely depend on new lending.
According to the latest Bank of Greece data, in February lending to the private sector shrank 4 per cent year-on-year, while loans to businesses dropped 5.2 per cent year-on-year.
The port of Piraeus — one of the busiest tourism ports in Europe — has long been a benchmark of the wider Greek economy.
It is a hub for Greece’s vibrant tourist business and the transport of goods between Asia and Europe.
Yet marine supply firms, many of which are small and family-run, have suffered brutally during the economic crisis.
Lending from the stricken banking sector dried up, leaving many firms starved of cash even though the shipping business, which accounts for 5 per cent of Greece’s overall economic output, held up better than many other sectors.
The Hellenic Ship Suppliers Association said 40 per cent of its members had gone out of business since 2010 when Greece’s economic disaster began to unfold.
For ship suppliers, problems began when insurers that cover exporters against the risk of not getting paid, started tightening the terms for business with Greece in mid-2012. That forced exporters to clamp down on credit, often demanding cash on delivery or upfront. Short of cash, Greek importers had to place smaller staggered orders which pushed up delivery costs.
CASH RESERVES At the height of Greece’s economic crisis, it was impossible for firms to order anything on credit, forcing them to burn through cash reserves to pay upfront.
“In the beginning companies gave you credit, then that stopped. Then they wanted bank guarantees, but then that stopped too because they didn’t trust the Greek banking system,” says Mavrikos, whose firm supplies drinks, food and tobacco to ferries, cruise and cargo ships. He says he had no choice but to lay off nearly half of his 40 employees.
Things began to shift towards the end of 2013, however.
Last year, passenger traffic in Piraeus rose 11.1 per cent from 2012, and there was a 3.7 per cent increase in container ships on the Asia-Europe route. Greek supplies to EU-flagged ships improved considerably, says Nikos Archontis, from the Panhellenic Exporters Association.
Now, says Mavrikos, the foreign businesses from which he buys most of his stock are accepting bank guarantees. “That’s given us breathing space. It means we can import goods, we can pay our bills.” More good news could lie ahead for the port. Last year, China’s largest bulk shipper, COSCO Holdings, agreed to a multimillion euro deal to expand its container operations at Piraeus. That deal is expected to increase the port’s cargo handling capacity by two thirds in the next seven years.
On a recent afternoon, Vanos’ warehouse was bustling. His company mainly supplies tankers, container ships and gas carriers from countries such as China, Panama and Liberia. For his stock, he in turn buys flour and pasta from Turkey, canned fish from Malaysia and meat from Brazil. Vanos says his inward and outward business has picked up in recent months.
“Ships that had never sailed to Greece before are starting to arrive,” he said, as truckloads of food, alcohol, brooms and maps were being prepared for dispatch to ships at Piraeus.
Yet Vanos says the Achilles heel of the Greek economy remains tight credit.
“Before the crisis, banks would approve the amount we asked for in a week. For the last three years, they haven’t given us a cent,” he says. “Until the bank tells me ‘take the money you need,’ nothing has changed.”