Economic restructuring and the debt problem: the Greek case TAKIS FOTOPOULOS

International Review of Applied Economics, Volume 6, Issue 1 (1992), pp. 38-64

Abstract: The Greek post-war economic development process clearly illustrates the links between the debt explosion, that many countries in the periphery and semi-periphery face at the moment, and the strategy of free-market economic restructuring. It is argued that both the balance of payments and the budget deficits, which fuelled the Greek debt expansion in the eighties, have been heavily conditioned by structural problems that are directly related to the development strategy adopted by the Greek ruling elite. In the absence of radical structural changes, a new stop-go cyclical pattern tends to become a permanent feature of the development process: debt-led growth followed by Stabilisation Programs to secure the external debt servicing.

This article attempts to show that the rapid debt deterioration in the eighties is not just a short-term phenomenon exclusively related to the socialist government's (PASOK) economic policy in this period, as the Greek neo-liberals, who took over after the April 1990 general election, assert. Instead, the hypothesis may be put forward that this deterioration, as well as government policy during the PASOK era, have been heavily conditioned by long-term structural problems. As therefore the policy debate over the debt crisis increasingly shifts lately from the short-term adjustment problem to the long-term restructuring issue, (Pollin and Alarcon, 1988) the case of Greece presents a special interest, as it makes particularly explicit the connection between economic restructuring and debt.

The twin deficits in the balance of payments and the budget are the main manifestations of the current economic crisis as well as the principal causes of the present foreign debt explosion. Both could be meaningfully explained in terms of the chronic resource imbalance and the structural constraints on public revenue and expenditure, rather than in terms of cyclical or other short-term fluctuations, as it is usually the case put forward by orthodox economic analysis.

The first part of this article examines the relationship between the chronic balance of payments (BP) deficit and the resource imbalance that resulted from the post-war free market economic restructuring strategy. It is argued that the production structure has proved increasingly incapable to cater for domestic needs, let alone foreign needs, within a pattern of export-led growth. This is directly related to the fact that the production structure was the outcome of the hegemony held by elite interests that never allowed the state any effective planning role in the development process but forced it to rely instead on an indirect role of inducing foreign investment and financing domestic investment through an elite-controlled banking system.

However, contrary to the liberal view which has presently been adopted by the new Greek "technocratic left", it is not the inefficiency of the state or the banking sector, indisputable though it may be, "that led to processes that dampened competition and ultimately distorted the country's development" (Papandreou, 1991:1). It is instead what is taken for granted by the liberal approach i.e. the rapidly increased liberalisation and openness of the Greek to the world economy in the post war period, which has not been preceded or accompanied by the creation of a competitive productive base, that constitutes the ultimate cause of the failure of Greek development. This is because the existence of enough competitive assets has always proved necessary to offset the productivity or wage differentials that foreign products incorporate. In other words, as it has been repeatedly shown (see for evidence Pollin and Alacron, 1988: 140), it is not competition that has historically led to significant advances in the production efficiency and international competitiveness of late-developers, but protectionist/ interventionist policies.

Such policies, contrary to the advice provided by the liberal approach, have usually involved not only nationalisation of the banking system but also deliberate distortion of the relative prices formed by the free market, in order to stimulate investment and trade (Amsden, 1989: ch. 6). One may therefore argue that if the Greek state is to blame for the failure of development, this should be done not on the basis that it did not allow market forces enough freedom to eliminate inefficient businesses and reward efficient ones but, on the contrary, on the basis that it did allow too much freedom to big business and have never had the willingness or the ability to discipline them, as it was for example the case with other late-industrialisers (Japan, Korea, Taiwan). As J. Petras incisively observes about the inability of the Greek state to discipline business

Amsden (1990:16-21) points out that competition acted as a disciplinary mechanism for development only in the First Industrial Revolution and was replaced by technological change in the Second. However, it is state power to discipline business (and labour) that has historically proved the necessary condition for late development. This power is in turn, according to Lipietz, (1987:72-3) a function of the degree of autonomy of the state from traditional forms of foreign domination, from ruling classes that are connected with earlier regimes of accumulation, as well as from populist parties or social organisations. Late development therefore takes place only within a particular balance of power between social classes/ groups. It is this balance that empowers the state with the ability to discipline business and results in appropriate developmental structures for the state machine, the financial sector etc and not the other way round, as the liberal-technocratic approach, which is deprived of any real social content, assumes. In this sense, development can be fruitfully explained by reference to the concrete historical process that has led to specific structures and processes rather than with reference to the incompetence of the personnel that manned he state machine (or its "political dependence"), patronage, favouritism etc, i.e. factors that would leave unexplained the fact that similar phenomena were successfully controlled by other late developers (Amsden, 1990: 21-5). In other words, the structure and efficiency of the state (or the financial sector) in promoting development is not an "independent variable", as liberals assert.

As far as the demand structure is concerned, the rapid expansion in the post-war period of income and capital flows from abroad, on account of conjuncture (emigration), temporary factors (foreign aid and EEC subsidies) and factors of diminishing significance (tourism), has led to a volume and pattern of demand that is in flagrant contradiction with the production structure. The paradox of the emergence of a "consumer society without a production base" epitomizes the causes of the resource imbalance.

In the second part of the article I will discuss the structural aspects of the Greek fiscal crisis. It is shown that the historical failure of the industrialisation process, combined with the exhaustion of the emigration opportunities, left the socialist government in the eighties with the clear choice of either expanding the development role of the state, by adopting a radical restructuring program, or expanding its consumption function with the double objective to avoid a massive rise in unemployment and to reproduce the consumer society. At the same time, the service character of the Greek economy and the significant size of the black economy have led to a restricted and distorted tax base that has extensively contributed to the explosion of the public debt.

In the third part, an attempt will be made to assess the debt implications and the prospects for the future. In the conclusion the article touches upon the proposal for an alternative development strategy whose primary objective is the satisfaction of domestic needs within the framework of income redistribution and regional integration policies in an EEC sub-community of regions at similar level of development.

Greece occupied at the end of the last decade the 15th place in the world debt league with one of the highest per capita debts in the world. Also, Greece's debt service as a percentage of GNP and exports of goods and services is slightly higher than the average of the top borrowers (World Bank). Although the seeds of the present debt problem were sown earlier in the post-war period and the foreign debt had reached 15% of GNP as early as 1967, still, it was during the eighties, as Table 1 shows, that the debt condition became explosive. Thus, the total debt (excluding military loans) has more than quadrupled within the last ten years whereas the debt/GNP ratio has trebled. As a result, service payments have increased rapidly between the seventies and the eighties and at present they absorb over a fifth of Greece's current receipts from exports and income transfers, as against a debt service ratio of about 10% in the seventies. Furthermore, the situation has been sharply deteriorating in the early nineties as Greece continues borrowing heavily, partly in order to meet the mounting service payments on past loans which for the period 1990-91 alone amount to about $10 bns. Thus, the external debt (private & public) is estimated to have been about $25 bns. in 1990 and it is forecasted to be at least $28 bns. in 1991.

Year	1979	1980	1981	1982	1983	1984	1985	1986	1987	1988	1989
TOTAL DEBT	5.1	6.9	7.9	9.5	10.6	12.3	15.5	18.0	20.7	19.7	21.3
% of GNP	13.0	18.7	22.1	26.0	33.9	41.5	50.0	43.3	42.3	40.6	38.0
Public (1)	3.1	4.4	5.4	7.0	8.2	9.9	13.3	16.0	18.6	17.8	18.7
% of GNP	7.9	11.9	15.2	19.0	26.4	33.4	42.4	40.4	37.3	35.0	33.3
Private (2)	2.0	2.5	2.5	2.5	2.4	2.4	2.2	2.0	2.1	1.9	2.6
Interest	0.3	0.4	0.8	0.8	0.8	1.1	1.2	1.3	1.5	1.6	1.7
Amortization	0.5	0.5	0.6	0.7	0.7	0.8	0.9	1.6	2.1	2.2	1.9
TOTAL SERVICE	0.8	0.9	1.4	1.5	1.5	1.9	2.1	2.9	3.6	3.8	3.6
Debt service/GNP	2.0	2.5	4.0	4.0	4.9	6.2	6.7	7.3	7.3	7.5	6.5
Debt serv.ratio (3)	8.0	9.1	12.8	14.4	16.0	19.2	21.8	21.7	25.5	23.7	22.2

1) It includes medium, long-term and short-term public and publicly- guaranteed loans by general government and banks as well as suppliers' credit.

2) It includes medium, long-term and short-term private loans as well as suppliers' credit.

3) Debt service as percent of current receipts from the export of goods and services as well as from income transfers.

Throughout the post-war period there had been a huge gap between spending and production which, measured at constant prices, had increased from about 15% of GDP in the fifties to 20% in the period 1960-1989. This chronic resource imbalance implies not just a familiar excess demand problem but serious structural problems both on the production and on the demand side. In fact, the deterioration of the resource imbalance that started in the sixties coincided with the acceleration of the process of opening the Greek economy to the world economy which was marked by Greece's association agreement with EEC at the beginning of that decade. The massive expansion of emigration and tourism with the corresponding growth of transfers from abroad has since then been used to finance the growing resource imbalance. This process is clearly reflected in the chronic and constantly deteriorating balance of trade (BT) deficit and the ways used to finance it, which, in the last resort, relied on foreign borrowing.

The BT deficit/GDP ratio, as Table 2 shows, has doubled in the post war period, from 9% in the fifties to 18% in the eighties. During the same period the corresponding average ratio for the 9 EEC countries, before the southern enlargement, ranged from - 1% to +1% of the GDP. A significant part of this deterioration can be attributed to the "oil factor". However, apart from the fact that Greece, unlike ACCs[1], was unable to adjust successfully to the new conditions, the non-oil BT deficit/GDP ratio has also grown by about 20% since the sixties. At the same time, Greek dependence on foreign trade, (measured by the proportion of the semi-total of Greek foreign trade out of GDP), has almost doubled since the fifties and it is about double that in ACCs.

TABLE 2. Balance of Payments trends

PERIOD	1950-9	1960-9	1970-9	1980-9
Exports/imports of goods	43.8	37.4	38.9	42.1
Imports of goods/GDP(1)	16.3	18.3	26.5	31.3
BT deficit/GDP(2)	9.2	11.5	16.2	18.1
Current account/GDP	4.6	3.5	5.1	5.6
Semi-total of exports & imports/GDP	14.3	14.2	20.0	26.8
% BT deficit covered by net invisibles	50.3	66.7	68.5	52.8(3)
% BT deficit covered by tourist revenue	11.5	17.5	24.7	26.6
% BT deficit covered by emigrant remittances	22.7	32.1	24.5	16.7
% BT deficit covered by shipping remittances	18.5	27.6	33.0	20.8
% BT deficit covered by EEC transfers	―	―	―	16.3
Capital outflows/inflows	―	23.3	49.5	68.9
% Net invis. spent on interest/profit payments (net)	―	2.1	4.8	22.2

1) The figures of import coefficients in the table were derived from Bank of Greece data in dollars. The corresponding coefficients from National Accounts data in drachmas are as follows: 16.1, 17.2, 27.6 and 33.8.

2) The corresponding figures from National Accounts data are as follows: 9.7, 9.8, 16.2, and 18.7.

3) Excluding EEC net transfers that started in 1981. The inclusive figure is 69.1%.

Source: T Fotopoulos (1986), National Statistical Service of Greece and Bank of Greece.

The above developments in the BT can be adequately explained by the fact that the increased openness of the economy since the sixties implied an effective take over of the Greek market by foreign industrial products which was not, however, matched by a corresponding increase in exports. The inevitable outcome was an increasing reliance, after the phasing out of US aid in the fifties, on income and capital flows from abroad to cover the chronic and widening BT deficit. Thus, the average propensity to import in Greece is almost double that in the ACCs (0.294 and 0.155 respectively in 1988, World Bank) and it has almost doubled since the fifties. Despite the fact that the volume of Greek exports has increased faster than the volume of imports especially in the seventies, still the proportion of imports that is covered by exports is one of the lowest in the world (less than half that of ACCs) and in the eighties it was still lower than in the fifties and much lower than in the pre-war period (53% in 1929 and 66% in1938, versus 37% in 1989-90).The almost constant deterioration in the Greek terms of trade throughout the post-war period has been a significant contributing factor for this development.[2]

As regards income flows from abroad, net invisible receipts and transfers, as Table 2 shows, have covered more than two-thirds of the BT deficit since the sixties, when the massive post-war emigration together with the significant expansion of tourism started having their effect. However, the gap between the balance of trade deficit and the balance of invisibles surplus seems to be growing over time implying a declining long-run trend with respect to the contribution of invisibles to finance the BT deficit. This is confirmed by Table 2 which reveals that this contribution reached a peak in the seventies and has declined sharply since then. It is only because of the significant EEC transfers, that started with Greece's entry and covered an average 16% of the BT deficit in the eighties, that the Current Account ―which has steadily deteriorated since the sixties― does not presently show a worse deficit.

Furthermore, there are grounds to suppose that the future prospects of invisibles are bleak, since all three main sources of invisible receipts seem increasingly problematic. Thus, emigrants' remittances, after reaching their peak in the sixties, have been declining since then. The halving, within two decades, of emigrants' contribution to financing the BT deficit could be attributed not just to economic factors (recession and some repatriation following the second oil shock) but also to demographic and socio-economic changes affecting Greek emigrants i.e. retirement of first generation, integration of second generation etc. Also, the contribution of Tourism to the BT deficit, that showed a significant growth from the fifties to the seventies, stagnated in the eighties, despite the fact that the number of tourists visiting the country almost doubled during the last decade. Increasing competition by Greece's competitors in the Mediterranean, especially Turkey, and a shift in tourist patterns, particularly as far as wealthier tourists is concerned, away from the increasingly polluted Mediterranean and towards long-haul holidays, play a significant part in this development. Finally, shipping remittances had been badly affected by the world shipping crisis that halved the huge Greek- flag fleet.

However, net invisible receipts were also adversely affected in the last decade by a drastic increase of interest payments to service the growing external debt. The net ouflow of interest and repatririated profits (the latter did not increase in the eighties) which in the seventies absorbed only some 5% of net invisible receipts has grown to absorb about 22% of these receipts in the eighties and the trend is expected to deteriorate sharply in the early nineties.

Finally, as regards capital flows, Table 2 shows that the ratio of capital outflows/inflows has trebled since the sixties, to reach 80% in 1989, mainly because of the growing needs of debt servicing in terms of amortization payments. At the same time, although non-debt inflows increased significantly in the sixties and seventies, there was a decline in the eighties, from an average of 3.5% of GDP in 1975-79 to 2.9% in 1980-89 (OECD, 1990:68/Bank of Greece). So, whereas non-debt capital inflows covered about 81% of the current account deficit in 1976-79, the coverage ratio fell to 60% in the 1980s. The inevitable increased reliance on foreign borrowing is also indicated by the fact that net compensatory official borrowing to cover the chronic BP deficit in goods services and incomes has grown to over 40% since the sixties, from 28% in the fifties.

The fundamental cause of the resource imbalance is the contradiction created in the post-war period between a relatively high and sophisticated consumption standard that relied, in the last resort, on the significant income and capital inflows from abroad and a very weak and non-sophisticated manufacturing sector

Greece's development process, unlike the one historically followed by today's ACCs, does not include any significant industrialisation phase. From an agrarian economy in the pre-war period, with over half the active population employed in agriculture, it moved directly to the stage of a services economy in the post-war period, with more than half the total income produced in the tertiary sector since the early fifties and with half the active population engaged in this sector today. It was only in the seventies that manufacturing output had overtaken agricultural output. The service character of the economy was the inevitable result of the growing significance of the tertiary sector to the expansion of the economy. This sector's contribution to GDP growth had steadily increased (from 47% in the fifties to 81% in the eighties) and had also been much faster than the corresponding expansion of the tertiary sector in ACCs during the same period (the respectives growth rates for the period 1965-80 were 6.2% for Greece and 3.7% for ACCs, World Bank).

The outcome of these diverse growth paths was the significant structural divergences between Greece and ACCs, and therefore her main competitors within EEC. Greece's manufacturing share has been, throughout the post-war period, about half the size of the corresponding share in ACCs and the convergence that has taken place since the late seventies is due to the de-industrialisation process in the latter rather than to any significant industrialisation in the former. In fact, Greece has one of the lowest manufacturing shares in the OECD area (in 1988 this share was 18% for Greece versus an average of 28% in OECD- Europe) and indeed "the lowest, if allowance is made for Greece's comparatively low per capita income and the predominance of small firms not really engaged in manufacturing activities proper" (OECD, 1987:29), a fact that brings Greece closer to the peripheral countries than to ACCs.

It is therefore clear that the heavy import dependence of Greece may be explained by the very limited size of its manufacturing base. Almost a quarter of total consumption consists of imported industrial products and it is significant that the situation is worsening over time. Industrial imports covered 46.5% of the total supply of industrial products in 1964, 50.2% in 1975, 52.2% in 1978 (Papandreou, 1981:259) and about 60% in 1987. Furthermore, not only import substitution has produced insignificant results (the same study estimated it to be just 5.3% of total supply in 1974) but, also, a process of "domestic products substitution" is developing with foreign products rapidly substituting for domestic ones[3].

However, it is not only the limited size of the Greek manufacturing sector that may explain the heavy import dependence. A comparison of manufacturing structures in Greece and the EEC reveals not only a very different pattern in the former but also an unchanging one. As Table 3 shows, whereas the bulk of Greek manufacturing takes place in the processing of agricultural products and textiles/clothing, the bulk of EEC's manufacturing takes place in the production of machinery, transport and chemicals. It should also, be noted that most of Greek manufacturing consists of either processing raw materials/assembling imported components or just repair work and that manufacturing activity takes place mostly in very small units. In 1980, 85% of industrial establishments were employing less than 4 persons and only 30% of the manufacturing labour force was employed in establishments with more than 100 persons (NSSG, 1986). Not surprisingly, there has always been a significant productivity gap between Greece and the EEC which in 1972 implied that the EEC average labour productivity index was 80% higher than in Greece. The gap has since then widened further. In the seventies, labour productivity increased at about the same rate in Greece as in the EEC, but in the eighties, Greek productivity was rising at an annual rate of 0.2% compared to an average rise of 2.3% in the EEC (OECD, 1989).Not, of course, an unexpected fact if one takes into account the interrelationship between investment and labour productivity changes and the fact that gross domestic investment was falling in Greece in the eighties, whereas it was rising in the OECD high income countries

TABLE 3a. Structural characteristics: % shares of output and employment: Greece and ACCs(1)

	Agriculture				Industry				Manufacturing				Services
	Greece		ACCs		Greece		ACCs		Greece		ACCs		Greece		ACCs
	GDP	L*	GDP	L	GDP	L	GDP	L	GDP	L	GDP	L	GDP	L	GDP	L
1960	23	56	6	16	26	20	40	39	16	―	30	―	51	24	54	45
1965	24	47	5	14	26	24	40	38	16	―	29	―	49	29	54	48
1979	16	38	4	6	32	28	37	38	19	―	27	―	52	34	59	56
1986	17	29	3	7	29	28	35	31	18	―	23	―	54	43	61	62

	1970		1978		1987
	Greece	EEC	Greece	EEC	Greece	EEC
Food & agriculture	20	15	20	15	20	15
Textiles/clothing	20	10	26	8	25	7
Machinery/transport	13	27	8	29	10	30
Chemicals	7	9	9	11	8	11
Other	40	39	37	37	36	37

Table 3c. Structure of merchandise exports: Greece and EEC

	1960		1965		1977		1988
	Greece	EEC	Greece	EEC	Greece	EEC	Greece	EEC
Fuels, minerals, metals	9	11	8	9	14	9	15	6
Other primaries	81	23	78	21	36	15	30	16
Machinery, transport	1	30	2	31	5	39	3	33
Other manufactures	8	29	11	39	27	32	52	45
(Textiles, clothing) (3)	1	7	(3)	(7)	18	5	(31)	(6)

The lack of sufficient manufacturing investment that, in fact, characterised the entire post-war period, implied that the competitiveness of Greek products at home and abroad was mainly based on the high tariff protection and low relative labour cost respectively. However, both these two determinant factors of Greek competitiveness have been gradually eroded since the mid-seventies. Thus, high labour differentials between Greece and her EEC partners (EEC total labour cost was 146% of Greek labour cost in 1972) were significantly reduced, as a result of the liberalisation of the post-civil war repressive regime, which followed the collapse of the military junta in 1974. The liberalisation led to a significant growth in trade union power. Also, tariff protection has been phased out after the 1981 entry in the EEC.

Thus, the political liberalisation, that had taken new dimensions in the eighties with the PASOK take over, made possible an increase of unit labour costs during the last decade which, at 18.8% was only slightly lagging behind the very high inflation rate that reached an average of 19.6%. The government attempt to recover part of the loss in competitiveness through a controlled but drastic depreciation of the Greek drachma (it lost more than 70% of its value against the US dollar in the eighties) did not have any significant beneficial impact on the balance of trade. Instead, it had contributed to the inflation explosion of the eighties. The result of further opening the economy to Europe in 1981 (when the association agreement with EEC was converted, after 20 years, to full entry) and of the gradual lifting of all protection that followed was the doubling of EEC import penetration within just seven years after Greece's entry: from 13% in1980 to 25% in 1987 (OECD, 1990: 77).

Furthermore, the erosion of the Greek comparative advantage in terms of labour costs and the failure of free-market economic restructuring to change the export pattern implied a very weak response of exports to the continuous expansion of imports. Greece's export shares have been declining steadily since the mid- seventies. In particular, the world share of Greek manufactures has fallen sharply by some 10% since the mid-seventies (OECD, 1990:73) and the Greek export share of industrial goods is presently the lowest among EEC countries. Empirical analysis also confirms a strong correlation between the overall loss in Greek market shares and the feeble expansion of export capacity (ibid: 79).

As Table 3 shows, the bulk of Greek exports, throughout the post-war period, consists of primary products and textiles/clothing (91% in 1960, 89% in 1965,68% in 1977 and 76% in 1988) i.e. commodities which face increasingly tough competition from both Community countries with higher productivity and peripheral countries in S.E. Asia with cheaper labour cost than Greece. It is, also, important to note that machinery and transport commodities, that have always taken the lion's share of ACCs exports, constitute an insignificant part of Greek exports. It is therefore obvious that Greece's specialisation pattern has not changed significantly to meet changing demand patterns with the result that presently (and for the past 15 years, which implies that EEC entry did not help Greece's export pattern) three-quarters of her manufacturing exports are still concentrated in just six products (textiles, clothing/footwear, cement, aluminium, iron and steel).

However, although the manufacturing sector takes most of the blame for the resource imbalance, the agricultural sector, despite its size which is still much bigger in Greece than in ACCs, contributes significantly to the same imbalance. Thus, the primary sector is still characterised by low levels of productivity due, mainly, to the very small size of farm holdings and under-investment. Thus, value added per person in Greek agriculture is about 10% lower than in Italy and 30% lower than in Ireland (Williams, 1984:42). It is, therefore, not surprising that even the agricultural trade balance of Greece has turned negative after entry in the EEC, whereas dependence on agricultural imports is growing all the time. Import penetration in food products has increased from 21% in 1981 to 34% in 1985, versus an average increase in EEC countries from 22.4% to 23.4%.

The ruling elite, that emerged victorious-with massive US military and economic aid-from the civil war in the forties, based Greece's economic development on a free-market economic restructuring process[4]. However, as far as Greek capital is concerned, neither local capital nor the large Greek shipping capital abroad ever showed any significant interest in undertaking the country's industrialisation. Manufacturing investment, during the entire post-war period, was stable at the very low rate of about 15% of total fixed investment. As percentage of GDP, Greek manufacturing investment was one of the lowest among OECD countries (3% in Greece versus an average 4.5% in OECD and 5% in EEC during the boom period of 1960-76). The bulk of investment, both public (about 28% of the total) and private, was oriented towards "social capital". In particular, low-productivity investment in housing absorbed almost 40% of total private investment in the period 1950-89 whereas about 2/3 of public investment was diverted towards the infra-structure (energy, transport, communications).

Public investment concentration in infra-structure may easily be explained by the usual development strategy that involves the state creating external economies for private capital and sharing its fixed cost of production. On the other hand, private capital's lack of interest in manufacturing may be explained in terms of the historically low profitability of manufacturing compared to commercial and land-speculation activities[5]. This low manufacturing profitability is in turn a function of the small size of the internal market for domestic manufactures and of the significant productivity differentials with competitive manufacturing products from ACCs. As long, therefore, as these underlying causes persist and given that competition alone, without active state support, can not remove them, policies like the liberalisation of the finance sector will not help to resolve the fundamental problem of the investment pattern, as Papandreou (1991:9) implies, but will simply reinforce the existing pattern.

The relatively limited amount of private investment that is diverted to manufacturing has been traditionally oriented toward the production of light consumer goods. It has survived competition, despite its low productivity and low concentration of capital and labour, only thanks to the autarkic policies followed in the pre-war period (when in Greece, as well as elsewhere in the periphery, the dependency links with ACCs loosened) and tariff protection and state support in the post-war period. In 1980, the traditional sectors (food, drinks, tobacco, textiles, clothing, footwear, leather products, furniture, printing, cement) accounted for nearly 60% of manufacturing output and 2/3 of employment in manufacture. The phasing out of state protection, since Greek entry in the EEC has hit particularly hard local capital's activity in these sectors. EEC import penetration in the traditional sectors quadrupled from 1980 to 1987 whereas average EEC penetration just doubled. Furthermore, lately and in view of "1992", the process of foreign (mainly EEC) capital taking over the few viable Greek firms which operate in these sectors has accelerated dramatically. The difference from similar movements in EEC countries at the centre is that whereas the movement of capital there is a two-way flow, in Greece it is definitely a one-way take over process.

But if the state's effort to induce private capital to undertake a significant industrialisation process met the indifference of local capital, the results of its policy to attract foreign capital, through the creation of significant incentives since the early post-war period, were equally meagre. Despite the large post war outflow of metropolitan investment capital to the periphery and the European semi-periphery, foreign investment in Greece, during the entire period up to 1980, represented less than 3% of the annual capital formation. Still, its concentration in just three manufacturing sectors (aluminium, oil refineries and chemicals), which belong to the "key sectors" of the greek economy (Fotopoulos, 1980:78-86), resulted in a very fractional pattern of industrialisation in the "modern" sectors, which did not however include any investment in the vital machine-based metalworking industry. Still, as the modern sectors were characterised by higher productivity and concentration of capital/labour than the traditional ones (Fotopoulos, 1986, 198-206) a significant degree of dualism developed.

The net effects of this limited and highly uneven industrialisation on the BP were negative. Thus, the benefits of some expansion in the exports of modern sectors were far outweighed by the adverse effects, first, on the balance of trade because of increased import coefficients and, second, on the balance of invisibles because of the repatriation of profits/dividends and payments of royalties etc, (on account of the foreign technologies used by the TNCs). Also, the capital-intensive nature of the imported technologies meant that the absorption of labour by the new industries was marginal. The consequence therefore of this pattern of industrialisation was that, instead of any significant restructuring that would have created the conditions for self-sustaining development, the dependent and unbalanced nature of the developmental process was further enhanced. However, even this partial and uneven industrialisation proved to be short-lived. It eclipsed in the aftermath of the first oil shock, as soon as foreign capital lost interest in further direct investment in these sectors and started concentrating ―as local capital has always done― in services and the traditional industrial sectors.

On the demand side, it seems that the size of the market for local industrial goods is determined by the pattern rather than by the level of demand. Still, both the level and the pattern of demand significantly contribute to the growing resource imbalance. As regards the level of demand, the service character of the economy in combination with the massive inflow of income transfers from abroad (shipping and emigrants' remittances) have given rise to the creation of a highly consumerist type of society "exhibiting features typical of a 'rentier' mentality" (OECD, 1987:38). Thus, Greece's private consumption absorbed 68% of GDP in1988 versus an average 61% in ACCs and 60% in Upper middle- income economies (the group in which the World Bank classifies Greece). Also, the domestic saving ratio in Greece was in 1989 one-third below that of OECD Europe (OECD, 1990:37). Most worrying, the situation is worsening over time. Consumption growth rates have overtaken production rates and whereas during the period 1965-80 GDP was growing faster than private consumption (5.6% and 4.9% respectively), in 1980-88 consumption was growing at double the GDP rate (3.2% and 1.4%, World Bank).

Despite, however, the relatively high levels of consumption, a demand pattern has developed which is incompatible with the development of mass markets for local manufactures. The main factors that condition the pattern of demand in Greece are the high degree of inequality in the distribution of income, the small proportion of wage/salary earning persons in the active population and the relatively low real wages.

As far as the distribution of income is concerned, due to the large size of the black economy and the high degree of tax evasion, estimates of the degree of inequality in the personal distribution of income are not only difficult and sparse but also not particularly reliable. The Gini coefficient, according to one study (Karageorgas, 1973), is 0.54, whereas according to a more recent study (Negreponti-Delivani, 1983), though lower, it has been growing over time: from 0.31 in 1961 to 0.40 in 1978. A recent study (Eurostat, 1990), which is more reliable because it is based on expenditure rather than on income that is under-estimated in Greece, shows not only that in 1980, two-thirds of the poor were found in the EEC South (Portugal, Greece, Spain, Italy) but also that Portugal and Greece had the highest poverty rates in the Community (poverty line defined as 50% of national mean expenditure).

The average EEC poverty rate (excluding Portugal) was 13.6% versus 21.5% in Greece. Although the gap has narrowed between 1980 and 1985 (the respective rates for EEC and Greece in 1985 were 13.7% and 18.4%) the Greek distribution of income has worsened since then because of the Stabilisation Programs that followed the debt explosion. Still, the fact that by 1985 Greece had the same poverty rate as UK could be attributed to the impact of the policies followed by the socialist and neo-liberal governments respectively.

As regards the structure of employment, only about half the Greek civilian employment consists of employees versus an average 82% in the 12 EEC countries (Eurostat). Furthermore, as a result of the lack of any significant industrialisation phase, the number of self-employed in the active population (excluding agriculture) increased in the post-war period, from 14% in 1960 to 27% in 1981 (M. Negreponti-Delivani, 1983: 25-26) and to about 33% in 1988 versus an average 10.7% in ACCs (OECD,1990b).

Finally, as regards wages, gross hourly earnings of manual workers in Greece (expressed in purchasing power parities) were less than half the EEC average in the seventies (47% in 1977, Eurostat 1988). Although in the eighties wage rates improved, gross hourly earnings in 1987 were still about 56% of the EEC average. As it can be shown that local manufactures are preferred by wage-earners (Negreponti-Delivani, 1983:60), the small size of the domestic market for them could be largely explained in terms of the high degree of inequity, the relatively low real wages and the small proportion of wage/salary earning persons in the active population.

Furthermore, it seems that a vicious circle has been established which restrains the growth of the internal market. The small size of the market for domestic manufactures discourages local investors and leads to a rising proportion of self-employed persons. As the income of the latter grows, mostly uncontrolled within the black economy where self-employment flourishes, the demand for foreign products accelerates and correspondingly the demand for local manufactures declines. An 'income effect' and a 'demonstration effect', typical cause of uneven demand in several Latin American countries, (Pollin and Alarcon, 1988: 131-32) seems to be at work in Greece as well.

The second major factor in the growth of the Greek debt, that may particularly account for the explosion of foreign debt in the eighties, is the growing public sector deficit. Thus, although the central government's budget has always been in the red, still, as Table 4 shows, it was during the last decade that the deficit took off, more than trebling as proportion of GDP compared to the previous decade. Furthermore, during the same decade and for the first time in the post-war period, the general government's finances developed a widening gap between current revenue and spending. A current surplus, that reached 4% of the GDP in the sixties was halved in the seventies and converted into a deficit (i.e. negative saving) that amounted to 10% of the GDP in the eighties.

TABLE 4. Public Sector trends (% of GDP)

PERIOD	1950-9	1960-9	1970-9 (1)	1980-9
General government (2) current spending	18.5	23.0	28.8	41.1
General government current revenue	19.9	27.4	30.8	30.8
General government current saving	1.4	4.4	2.0	-10.3
Interest on public debt	0.1	0.7	1.7	6.9
Central government spending (3)	―	―	28.6	44.3
Central government revenue	―	―	23.6	28.1
Central government budget deficit	―	―	5.0	16.2
Servicing of government debt	―	―	2.6	8.2
Primary budget deficit	―	―	2.4	8.0
Salaries (central government)	―	―	7.1	10.3
Pensions (central government)	―	―	2.3	3.1
Investment (central government)	―	―	5.3	5.8
Other central government spending	―	―	1.3	16.9
Foreign borrowing to cover budget deficit	―	―	1.3	4.0
Public Sector Borrowing Requirement (4)	―	―	4.4	14.4

2) General Government includes central government plus local authorities and other public funds as well as social insurance funds.

4) The broader Public Sector includes general government plus public corporations and enterprises.

As a result of these trends, foreign borrowing, just to cover the central government budget deficit, more than trebled as a proportion of GDP between the seventies and the eighties. The inevitable consequence was that the central government's foreign debt has grown from about 5% of GDP in 1979 to 23% in 1985-8. As similar trends marked the broader public sector the outcome of these developments was that the PSBR/GDP ratio more than trebled between the seventies and the eighties. Inevitably, the net public sector debt has climbed to 105% of GDP in 1989 (versus 27% in 1979) and the foreign part of this debt represented 35% of GDP in 1985-8, versus 5.6% in 1979 (OECD,1990)

However, contrary to the neo-liberal mythology, it is the insufficient public revenue rather than the "exorbitant" public spending that is to blame for the public sector deficit. Although the growth in Greek government spending during the 1980s was faster in Greece than in ACCs, still, it simply helped to close the huge gap with these countries. Thus, the general government spending/GDP ratio was 33% and 45% in Greece and OECD- Europe respectively in 1979-80. By 1986-87 the respective figures were 48.3% and 48.6%. On the other hand, the Greek tax revenue/GDP ratio has increased from 30.3% in 1979-80 to 35.8% in 1987-88, versus a respective rise from 41.4% to 44.6% in OECD-Europe (OECD 1990). Inevitably, the budget deficit takes a much larger proportion of GDP in Greece than in ACCs and by 1989 the Greek PSBR was 14 times higher than the OECD average (Bank of Greece, 1990).

As Table 4 shows, central government spending has increased from an average 28.6% of the GDP in the seventies to 44.3% in the eighties. However, more than one third of this increase in government spending is due to the huge growth of debt service payments that trebled as percentage of GDP. Still, even excluding debt servicing, the "primary" budget deficit more than trebled as a proportion of GDP between the two decades.

The main primary cause of the growth in government spending was the increase in salaries and pensions, accounting for some two-fifths of the total growth in non debt-related government spending as a proportion of GDP. As public investment accounts for only 5% of the growth in primary spending, it is obvious that investment bore the brunt of the doubling of the debt servicing share in total government spending (from 9% in the seventies to 18% in the eighties). Thus, the investment share was halved from the seventies to the early nineties, despite the fact that increased public investment is vital not only for the improvement of the infra-structure, given that Greece "lags considerably behind OECD countries generally in infra-structure" (OECD, 1990:50), but also for the betterment of the environment which is rapidly being destroyed, with dangerous levels of pollution in the Athens and Salonica areas that concentrate 70% of the urban population.

A combination of factors, some referring to the general role of a modern capitalist state and others specifically related to the free market economic restructuring process in Greece, may explain the broader public sector's expansion which, before the massive privatisation program that the neo-liberal government launched, controlled two-thirds of the economic activity recorded by the GDP. As far as the economic restructuring process is concerned, despite the fact that the post-war state in Greece has always controlled, directly and mostly indirectly, a significant part of economic activity, it has never played any important role with respect to the restructuring of the productive economy.

Restructuring has always been left to the market forces with the state restricting itself to providing indirect fiscal and financial support to local capital but never directly undertaking any significant investment program to alter the emerging services character of the Greek economy. State investment in manufacturing, for instance, was frozen at about 1.5% of total fixed investment during the entire post-war period. Instead, the state took positive action to facilitate this "servicisation" process. First, by taking steps to encourage a massive emigration and second by significantly expanding employment opportunities in the public sector. The objectives in both cases were economic as well as political.

The economic aim of emigration policy was on the one hand to export the bulk of the growing labour surplus and on the other to create a financial flow from abroad that would allow continuous expansion of domestic living standards irrespective of restructuring. The political objective was to defuse the time-bomb that potential massive unemployment represented for the ruling elite whose survival, in the aftermath of the civil war in the forties, crucially depended on economic growth.

As for the expansion of the public sector, the political objective was to control a significant part of the electorate through the expanding provision of job opportunities in the state controlled part of the economy. The economic objective, however, was the same as that of emigration policy i.e. to create a safety valve to the unemployment problem by absorbing the labour surplus that the private sector was unable to do. Thus, the number of employees in the broader public sector has doubled in the past 15 years, from an estimated 344.000 in 1974 to 467.000 in 1981 and 693.000 in 1989 so that this sector is estimated to employ almost a fifth of the active population. This process was accelerated in the eighties, when the combination of the growth slowdown in ACCs and the stagnation of private investment at home led to an annual growth rate for government employment which, at 2.9%, was twice as fast as that for private employment (OECD, 1990: 43).

As regards developments abroad, the tight monetarist policies that were adopted by ACCs after the second oil shock implied that emigration opportunities were drastically reduced in the eighties. As a result, the public sector found itself under increasing pressure to absorb the rapidly rising surplus labour that was indicated by the fact that recorded unemployment (which in Greece has always been an under-estimate of actual unemployment) had quadrupled, from about 2% of the labour force in 1979 to 8% in 1989.

Finally, the domestic slump was initiated by an "investors' strike" which began in the late seventies but intensified in the eighties, as a result of the uncertainty created by two major events in 1981. First, the rise to power of a socialist government, for the first time in Greek history and, second, Greece's entry in the EEC. Gross domestic investment growth rates, which were faster than those in ACCs in the period 1965-80 (5.3% versus 3.3 respectively), turned negative in 1980-88 (-3.9%), whereas those in ACCs accelerated (3.7%, World Bank).

PASOK was the first major party in post-war history that blamed the endemic crisis of Greek economy and society on the dependent character of the developmental process. The socialist takeover, therefore, meant that Greece had a socialist government that was committed to substantial transformations in the structure of wealth, property and power, both, within Greece, and with respect to its relations with ACCs. In the original PASOK program an all-round modernisation of the productive system was envisaged to take place through a significant expansion of the economic role of the state in the development process, with the aim to transform Greece from a dependent service economy, based on semi-skilled labour, to an independent industrial economy, based on skilled labour

In the event, a significant expansion of state's activity has taken place since 1981, but one which had nothing to do with any economic restructuring. Thus, despite the fact that the broader public sector increased its GDP share from some 50% in 1981 to 65% in 1989, not only the GDP proportion of state investment declined, but its structure also remained unchanged, with the bulk of state investment again diverted to the infra-structure. At the very time when the market forces could not deliver the goods and private fixed investment in manufacturing was declining at an alarming rate, public investment in manufacturing was fixed, as it has always been during the post-war period, at 1.4% of total fixed investment! The only direct state intervention in the productive process came by default. When in the early eighties a number of private firms, principally in the traditional sectors which were gradually losing state protection, became bankrupt, the state took them over, mainly, in order to avoid a rise in unemployment.

The PASOK government was not prepared to risk a conflict with local and foreign capital in order to fulfil its election development promises and initiate a massive public investment program, for instance, in differentiated and science-based goods, where Greece has an import share of 24% and an export share of only 6%, versus an OECD import share in these products of 33% (OECD, 1990:76). Given the massive support that the government enjoyed in the early eighties and the radicalisation of a significant part of the electorate in the aftermath of a right-wing military dictatorship, it may be argued that a historic opportunity for economic restructuring has been lost. With long-term restructuring aims abandoned or left to the initiative of the non-obliging private capital (domestic and foreign), the socialist government could only aspire to minimise unemployment and maintain a positive growth rate in the face of the private investment slump. The outcome was, as an OECD Report observes, that in the early eighties "the expansion of the public sector more or less fully accounts for the growth of GDP" (OECD, 1987: 36).

However, given PASOK's unwillingness to come to conflict with the tax evading economic elite[6], the outcome of the policy adopted was a process of debt-led growth. This outcome became inevitable once the growing public sector deficits did not initiate a process, that could also justify the growing debt, to expand and improve productive capacity but financed instead the maintenance and expansion of consumption standards. Thus, the total consumption/GDP ratio (at constant prices) increased from 93.5% in the seventies to 97.5% in the eighties (almost two-thirds of the increase due to the growth of public consumption), whereas the investment ratio fell from some 25% to 18% respectively. Inevitably, the consumption nature of the growing deficits significantly contributed not just to the debt explosion but to the acceleration of inflation as well[7], further eroding the competitiveness of greek exports.

Finally, the fact that the socialist government's development objective was abandoned did not mean that another major socialist objective, i.e. the setting up of a Welfare State, has been achieved. A proper Welfare State, characterised by an effective provision of education, health and social security services, has always been lacking in Greece as generally in the periphery. In the eighties there was a significant increase in the proportion of general government's social spending out of GDP (from 15.5% in 1980 to 22.6% in 1987). However, over 80% of this increase was due to the huge rise in pension payments, whereas the GDP share of public expenditure on education and health was still in 1988 half the one in OECD-Europe (5% versus 10%, OECD: 1990b).Although a significant part in the growth of pension funds' expenses was due to demographic changes, as well as to government policy to improve the poor standard of living of pensioners, another significant part was due to bad state management of pension funds. The result was that the deficit of the pension system rose from less than 1% of GDP in 1980 to 9% in 1989 and an estimated 13% in 1995 representing, presently, a major contributory factor to the public deficits

The total tax burden is not only low in Greece, compared to that in ACCs, but it is very unequally distributed as well. Income taxes, despite relatively high tax rates, constitute only 6% of GDP in Greece, versus 13% in the OECD countries and the state has to rely heavily on indirect taxation (47% of total revenue in 1988 versus an average 31% in OECD Europe). Furthermore, widespread tax evasion imposes a disproportionate burden on low-income groups as the bulk of direct taxes falls on wages and salaries. In 1989, for instance, wages and salaries accounted for about 50% of GDP and 68.5% of the total declared taxable income. Structural factors, like the service character of the Greek economy, the predominance of small business, the high share of self-employment and the structure of the direct tax system itself play a crucial role with respect to both the size and the distribution of the tax burden.

The service character of the Greek economy significantly strengthens the black economy. Estimates about the size of the black economy vary from 24% (Negreponti-Delivani, 1990) to 30% (Pavlopoulos, 1987). However, whereas unrecorded output in the manufacturing sector was only 15% of the recorded output, it ranged from 30% to about 90% in services which account for almost 2/5 of recorded activity. The fact that service employment rose by 46.5% between 1970 and 1985, at a time when total employment was stagnant, implies not just an increasing weight for the service sector in the economy but also an expansion of the black economy. A fact, confirmed by Negreponti-Delivani's study which shows that the size of the black economy has increased from an average 17% in 1977-85 to 24% in the last 4 years of the period.

As regards the direct tax system, despite its strong progressiveness by OECD standards, it is structured in a way that minimises the tax burden on the high and upper mid-income groups. Incomes e.g. that are supposedly earmarked for investment are exempted from taxation (up to half the amount of investment), whereas interest income from saving accounts (including interest income of corporations) used to be exempted from tax altogether and has just been subjected to a uniform tax rate that is independent of the deposit size. However, the poor investment performance of private capital hardly justified any policy to create saving and investment incentives. A further example of how the tax system alleviates the tax burden of profit-earners is given by the latest OECD Survey on Greece: "corporate taxes in proportion to total corporate profits (estimated at about 5% in 1986) are extremely low by international standards. Consequently, the ratio of the effective tax rate to the statutory tax rate was the lowest in 1986 of 12 OECD countries, reflecting revenue foregone due to tax deductions, the application of reduced tax rates for certain corporations and, more importantly, tax avoidance (OECD, 1990:55).

Although Greece has not yet fully entered the "debt trap" in which many Latin American countries find themselves having to borrow increasing amounts to service old loans and, in the process, having also to face negative capital transfers (M Marcel and G Palma, 1988 & 1987: Table 7), still, as Table 5 shows, it is in the very threshold of the trap. If net interest and profit payments abroad are subtracted from net capital inflows, then, net capital transfers are declining steadily, from an average 19% of exports of goods and services in the seventies, to about 4% in late eighties. Furthermore, if the same payments are subtracted from long-term private net capital inflows, which represent autonomous capital movements as opposed to borrowing, then net transfers have become negative since the early eighties. Also, the self-sustained impetus of growing service payments implies that the PSBR is rising automatically, even if public spending is kept stable. For the same reason, the public debt almost doubles every four years even if the government does not borrow any more. For instance, the PSBR as percentage of GNP has increased from 14.3% of GNP in 1981 to 17.7% in 1985, almost exclusively because of higher net interest payments (OECD, 1987: 49).

As a result of these trends, in 1985 the debt-led growth engineered by PASOK reached its limits. First, because the increase in debt servicing, by some 55% from the previous year, triggered a record PSBR. Second, because the expansion of internal demand, due to both the explosion of public sector consumption and to the redistribution of income in favour of wages/salaries led to a record BP deficit as well. The government had to resort to emergency borrowing from its EEC partners to face the crisis and a ù1.3 billion loan was granted to Greece, conditional on the implementation of a strict Stabilisation Program.

(1) Year	(2) Net capital inflow	(3) Private capital inflow (a)	(4) Net payments (b)	(5)=(2)―(4) Net capital transfers % of X (c)		(6)=(3)―(4) Net private capital transfers % of X
1970	290	229	45	245	15.6	184	11.7
1971	409	219	63	346	18.0	156	8.1
1972	677	265	57	620	25.3	208	8.5
1973	889	343	52	837	24.4	291	8.5
1974	944	383	95	849	20.5	288	6.9
1975	1.090	425	100	990	21.4	325	7.0
1976	728	536	112	616	11.4	424	7.8
1977	1.288	611	138	1.150	18.5	473	7.6
1978	1.241	749	142	1.099	14.8	607	8.2
1979	2.037	973	158	1.879	19.6	815	8.5
1980	2.311	1.059	267	2.044	19.9	792	7.7
1981	2.265	829	589	1.676	14.9	240	2.1
1982	1.767	629	647	1.120	10.9	―18	―0.2
1983	2.004	649	793	1.211	12.6	―144	―1.5
1984	2.228	646	946	1.282	13.2	―300	―3.1
1985	3.107	642	1.116	1.991	20.8	―474	―5.0
1986	2.015	701	1.272	743	6.7	―571	―5.2
1987	2.035	982	1.426	609	4.3	―444	―3.1
1988	2.115	1.493	1.478	637	4.0	15	0.0
1989	2.240	1.084	1.548	692	4.3	―464	―2.9

The stated goal of the Stabilisation Program was to reduce the balance of payments deficit and the rate of inflation, through an increase in net exports and a decrease in the PSBR effected by means of a reduction in the "primary" budget deficit (Spraos,1989) The non-stated objective was, as it is always the case on similar occasions, a squeeze of the incomes of the masses and consequently of internal demand, through both a cut in public sector spending and a redistribution of income in favour of profits. In other words, the government, taking for granted the productive structure, set itself the objective of tackling the symptoms of the disease, as expressed by the twin deficits, instead of the disease itself, which is reflected in the resource imbalance.

As far as supply is concerned, the only provision made was to create favourable conditions for local and foreign capital within a process of shifting the emphasis in the development strategy away from the state. It is the familiar development strategy which is being, at the moment, forced through all over the periphery (Baker Plan, Brady Plan etc) and semi-periphery (Spain) i.e. the strategy of enhancing the process of economic restructuring through the market forces and minimising, if not eliminating, any effective state interference in development. The fact that public investment was the only part of government spending that showed an impressive decrease during the implementation of the Stabilisation Program may reflect the "elastic" nature of this type of spending but it also expresses the low priority assigned to state's role in the development process.

The instruments used (devaluation of drachma, tightening of fiscal, monetary and incomes policies) had the desired effect. During the period of the Stabilisation Program (1985-87) a significant reduction in the budget and Balance of Payments deficits was accompanied by a marked deceleration of inflation, although part of the improvement in the macro-picture was due to the drop of the world price of oil. At the same time, real average earnings fell by about 12.5% between 1985 and 1987, whereas profits in manufacturing increased by about 50% in 1986 and 150% in 1987.

However, as soon as the tight fiscal and monetary restraints of the Stabilisation Program were relaxed in 1988/89 to allow for pre-election expansion, the familiar pattern of the growing twin deficits was inevitably resumed. Thus, the PSBR, which fell from its peak level of 17.9% of GDP in 1985 to 14.2% and 13.5% in 1986 and 1987 respectively, it went up again to 16% in 1988 and 20% in 1990. Also, the current account deficit followed a similar pattern: from a peak of 10% of GDP in 1985, it was halved in 1986 and halved again in 1987/88 (mainly, because of favourable price developments abroad) but in 1989/90 it rose to over 5% of GDP. Finally, inflation that was also almost halved by the end of 1987, from a peak of some 25% at the end of 1985, accelerated again to 23% in 1990.

The re-emergence of the crisis forced the government that was elected in 1990 to request a new EEC loan of about $3 billion that was granted reluctantly and only after the imposition of strict terms to be included in the new (1990-92) Stabilisation Program. The short-term government policy is a repeat performance of the1985-87 Stabilisation Program with basically the same instruments used and the pursuit of identical objectives. The only significant differences are that a drachma devaluation is not included in the instruments but on the other hand a 10% reduction in the number of Public Sector employees is now required. Also, the new Stabilisation Program, in conjunction with the abolition of the automatic indexation scheme is expected to lead to a new decline in real earnings estimated to be about 5% for 1991 alone. However, high and upper mid-class incomes are hardly expected to be affected by the government measures, which once again call upon wage-earners to bear the brunt of higher indirect taxes and prices of services provided by public corporations. Also, as a result of the imposed cuts in the size of the public sector, unemployment is estimated by OECD to rise to over 9% in 1991-92, from about 7.5% in 1986-90. Still, the implementation of the new Stabilisation Program is much harder than the previous one, as debt servicing is estimated, according to the 1990 Budget, to absorb over half the total tax revenue in 1990/91 versus 25% in 1985!

The long-term objective is expressed in a typical neo-liberal development strategy that involves, on the one hand, the creation of new opportunities for private (particularly foreign) capital, through the massive privatisation of public enterprises and, on the other, the establishment of appropriate stability conditions, through deregulation, liberalisation of markets, anti-union legislation etc. Economic restructuring is left once more to the market forces, this time even more so than in the past as it is now the state to blame for everything, including the development failure. However, in view of domestic capital's inability to compete with foreign capital and the latter's unwillingness to undertake the massive investment that is required for Greece's economic restructuring, one could seriously doubt the chances of success of this strategy. The fact that foreign capital has not played a significant restructuring role in the sixties and the seventies is indicative of the prospects. Greece was then not only in a better position to offer significant comparative advantages, especially in terms of lower wages, but also did not face, as today, additional serious competition from East European economies. Finally, the revealed preferences of foreign capital in the eighties highlight the limited chances of success of the development strategy: the bulk of imported capital in the last decade aimed at either the takeover of the few viable Greek firms or the purchase of urban land, the latter alone amounting to over 54% of total private long-term capital imported in 1986-89.

It is therefore reasonable to assume that the new Stabilisation Program will not have a different fate from the old one. The twin deficits will surely decrease, at least temporarily, to the extent that the measures will be successful in reducing the income of the masses and demand. However, as long as the country’s economic structure is not radically changed, Greece faces the prospect of going through the same cycle sometime in the future. Alternatively, in case debt-led growth is precluded in the nineties, within the context of EEC's Economic and Monetary Union, the country faces the prospect of stabilising at a low growth long-term equilibrium that would constantly increase the gap between Greece and the rest of EEC.

Even though the present level of autonomous capital and income inflows implies that Greece has to be excluded from the list of "problem borrowers" (Nunnenkamp (1986: 37) ―the precarious character of capital/income inflows apart― still, a significant contradiction is emerging in the development process. The stop-go cyclical pattern of debt-led growth followed by stabilisation programs, that seems to have already been established, indicates that the limits of Greek development have been reached. In other words, the new pattern highlights the failure of Greek development strategy. Not only the objective of "qualitative" growth, that involves significant structural changes, seems unattainable but, also, the objective of sustained quantitative expansion appears increasingly non-feasible. Thus, the possibility of a repetition of the steady post-war expansion, that brought about 6% per capita growth rates in 1960-79 versus 4% in ACCs, looks remote.

Greece, after 40 years of free market restructuring, does not show any tendency to close the huge gap with ACCs. This is true either the gap is measured in terms of structural differences or in terms of the usual, though blatantly inadequate, index of welfare, i.e. the real per capita GNP[8]. In fact, the process of further opening the economy to the world market, that was initiated with Greece's entry in the EEC, has coincided with a process of increasing import penetration, sharply deteriorating export performance, extensive take-over of viable Greek enterprises by foreign capital and a further widening of the gap.

The question of whether regions in the South European semi-periphery (Greece, Portugal, Spain, S. Italy) should continue the process of their integration within an EEC dominated by the Northern metropoles, or whether, instead, they should pursue a programme of regional integration within a Mediterranean sub-Community of regions at similar levels of development (that could now include the Balkans as well) will probably become an important issue in the eve of the new millennium. The European Green movement's objectives for the "Europe of regions" and regional/local development highlight the need for an alternative process of integration. A restructuring program for self-reliant development (Ekins, 1986:ch. 4, Robertson, 1990:ch. 6), that will be based on a drastic redistribution of income, may be the only long-term solution for countries like Greece in the European semi-periphery

In either case, contrary to the liberal argument, economic restructuring is not a purely economic issue which can be resolved by the strict implementation of supposedly "neutral" economic criteria that in fact favour elite interests. Economic restructuring for self-reliant development will necessarily challenge the prerogatives of the domestic elite and as such it is definitely a political issue.-

VI. References

VII. Statistical sources

[1] Advanced Capitalist Countries (ACCs) are the countries that the World Bank classifies in the group of high-income OECD members.

[2] With base year 1975 the Greek terms of trade (TT) fell from109 in 1960 to 91 in 1979 (versus 100 and 98 respectively in ACCs). Also, with base year 1980 the Greek TT were 89 in 1988,versus 103 in ACCs (World Bank).

[3] Negreponti-Delivani (1983:99-100) has estimated that the percentage of substitution was +1.4 in 1966,-2.5 in 1973,-16.7in 1978 and -22.3 in 1980.

[4] There is a limited literature in English on the nature of Greek post-war development, see e.g. Mouzelis(1978) & (1986),Tzannatos (1986), Williams (1984) and a growing one in Greek e.g Negreponti-Delivani (1979) & (1983), Papandreou (1981), Fotopoulos (1986).

[5] In 1986-89, return on commercial firms was over five times higher than that of manufacturing firms (27.5% versus 5% respectively, ICAP). Also, according to evidence quoted in Papandreou (1991:13) manufacturing profit rates were 8 percentage points lower than in trade and construction in the 1960s whereas return on industrial firms was about 10 percentage points lower than in nonindustrial firms throughout the 1970s and the 1980s.

[6] When, for instance, in the early eighties the socialist finance minister tried to introduce a small tax on urban real estate he was promptly forced to resign and the idea was dropped by the Prime Minister.

[7] The inflation rate jumped from an average of 1.9% in the sixties and 12.3% in the seventies to an average of 19.% in the eighties. Most of the acceleration of inflation in the last decade can be explained in terms of the rise in money supply to finance the growing public sector deficits as well as the depreciation of the drachma. Wages in the eighties, though rising much faster than productivity, had simply kept pace with inflation, unlike what happened in the seventies when they were rising at almost double the rate of inflation.

[8] Despite the high growth rates achieved in the post-war period the greek per capita income in 1979/80t was still only 42% (at current exchange rates) of the ACCs' income, or 58% (at purchasing power parities) of the EEC average. Since then the gap has further widened and by 1987/1988 the Greek per capita GNP was only 30% of the ACCs 'income or 54% of the average EEC income (at current exchange rates and PPP respectively). (World Bank and Eurostat).

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TABLE 2. Balance of Payments trends

Table 3c. Structure of merchandise exports: Greece and EEC

TABLE 4. Public Sector trends (% of GDP)

VI. References

VII. Statistical sources