Five years after his team presented a report that was supposed to serve as a blueprint for Greece’s transformation into “Europe’s California” with a new production model – using resources from the EU’s Recovery and Resilience Fund – Christopher Pissarides takes stock of what has and has not been done.
Speaking to Kathimerini, the 2010 Nobel Prize-winning economist says that while some progress has been made in areas like investments, Greece has not simplified its bureaucracy and changed the model of small, family-run businesses. Education also remains a problem, he adds.
Pissarides continues to maintain that Greece should prioritize agricultural production, but also bolster industry and – “why not?” – start producing things like small electric city cars.
The London School of Economic professor, who was also recently given an honorary doctorate from Athens University, also spoke of the impact of US President Donald Trump’s trade policy, saying that the uncertainty may be even worse for investments than the tariffs themselves.
How do you see Donald Trump’s trade war panning out? Are we in for a recession? Will there be winners and losers?
We can’t know what will happen because President Trump keeps changing the policy. If he’d clarify what the tariffs would be over the four years of his term, there’d be less uncertainty and the damage would be smaller. There are two negative developments right now: tariffs, which are a form of tax on commodities, and uncertainty, which is, perhaps, an even bigger disincentive for investments. The only “positive” is that the US Treasury will bring in more revenue and it can use this however it likes. That’s what has prompted discussions about how the Senate can reduce income taxes. It’s as if money is being taken away from consumers and being given to the rich in the form of lower taxes.
We’re all going to lose. The more open an economy is and the higher the tariffs, the greater the damage. China will take a hit from the tariffs, but so will America. Europe does not seem to be too affected because the tariffs are relatively low, while some, such as on cars, were already in effect. It will suffer some damage no doubt, but not as much as China and other Asian countries. Europe may run into bigger problems down the road because many Chinese [companies] are looking at a more aggressive penetration of the European market through platforms like Temu and Shein, for example. The competition will be fierce and European production will not be able to stem this Chinese “invasion.”
How should Europe react? With tariffs of its own? For the time being it seems to be adopting a moderate stance, relying on dialogue.
I agree with Europe’s policy. China is a different story; there are geopolitical issues at play, and it borders large Asian countries that it believes it can bring to its side, so it feels it can stand up to Trump. It has clout. Europe, on the other hand, can’t start a trade war with the United States; it would be unsustainable and, besides, the tariffs aren’t very high, so it’s better for Europe to carry on with this more moderate approach.
You have spoken in favor of ReArm Europe, but have expressed some reservations about where the funding will come from.
Europe’s effort to create its own defense arm is a very good move. We were late getting there, but we’re there now. That said, it’s not easy and it will take time. You can’t create a defense industry just like that, mainly because even though we are all members of NATO, we have different defense industries. The US has one type of tank; Europe has 15-16. It will be hard to fight as one army – if it comes to that.
Should Europe be defending its industrial base? The German auto industry, for example, is coming under threat from China’s electric cars.
Europe’s industry must definitely be bolstered with new technologies and I also think that this would not be too hard. We’ve already lost the first round in AI because we don’t have big digital technology companies and it’s too late to develop them now. Apple, Alphabet and Μeta have been around for 20-30 years and they’ve become so big, amassed so much experience and, more importantly, have so much big data that it’s almost impossible for Europe to develop a company that could compete. What we can do, though, is exploit digital technology; we can develop it and use it in a way that suits Europe’s needs and economy. I also believe it is essential for Europe to develop its own electric car industry. The Chinese have done so over the past five years and even Tesla can no longer compete. Why shouldn’t Germany or Sweden be able to do the same? Even Greece could potentially do it, because it’s not as heavy an industry as traditional car manufacturing: A small electric car designed for European cities – why not?
Has Greece made any progress in developing the production model you described in your report five years ago?
A lot of ministers have implemented reforms and these are in the right direction. But this has been picking the low-lying fruit. Investments have gone up from 12% to 16% of GDP; they need to go up to at least 20%, though this is not something that can happen overnight. If 16% is sustainable, then this is a very good development. I’ve also spoken with financial market firms that bring in foreign investments and they say that they’re seeing such strong interest, at least from foreign investors, for the first time. Something is definitely happening in the direction we had discussed.
But you had spoken of the need to increase productivity and create bigger companies, and we’re not seeing that happening.
Yes, that has not happened. It’s Greece’s perpetual problem: Greeks like small shops, small businesses; they want to be the director, have their family working with them. This is a mentality that needs to change, of course. At the same time, though, the Greek economy’s sectors, and tourism especially, are such that it’s hard to create big companies. You don’t want the islands packed with gigantic hotels. Therefore, more sectors need to be developed so we can have bigger and more productive units. Tourism has no real prospects for increasing productivity – unless it adopts humanoid robots, but I don’t think we’ll get to the point where tourists in Greece are being served by robots. At least, I hope not. The last thing I’d want is to be on a Greek island and have a robot come up to me and say, “What would you like, sir?” Even though [Nouriel] Roubini, who was at Delphi [at the Delphi Economic Forum], insisted that this is going to happen very soon.
You had said that Greece could become “Europe’s California.” Where do you think we need to focus now?
We need to focus on more than just one thing. I still believe that we have not taken advantage of agriculture as much as we should have, especially given the popularity of the Mediterranean diet. There are two Greek products you find everywhere: yogurt and feta. Yet a major yogurt producer told us at Delphi that its production is at risk because it is not getting the support it needs from the state. There are fresh products too, and olive oil, which we’re not exploiting as much as we should, not to mention that we’re still exporting olives to Italy. Then there’s manufacturing and industry, which also need support. Non-salary labor costs are high and are a disincentive for expanding productive activity. We also need to bring back the well-educated Greek workforce that is leaving to work for high-tech companies abroad. This could greatly benefit companies like Microsoft and others that want to establish data centers in Greece. And of course, we should always focus on export-oriented companies, not those that produce only for the Greek market.
What are Greece’s prospects in technology?
We believe that we have potential in these areas, together with data centers, but there are also challenges. If there is one reform that we had underlined quite heavily in our report and which has not been implemented, that is the simplification and digitization of the public sector.
What are some of the other essential reforms that are overdue?
The public sector is first and foremost. I’m also not seeing results with schools and universities despite everything that has been done. We see it in PISA [the Organization for Economic Cooperation and Development’s Program for International Student Assessment] and more generally, too, even though Greeks love education.
Businesses are complaining about shortages in the workforce. What can be done to achieve some kind of balance in this area?
Young men and young women even more so need to be given incentives to join the labor market. We had recommended a slew of different measures, such as more creches for very young children. Then there’s the need to shift to other forms of growth that do not require so much staff, because Greece’s population is dwindling along with the decreasing birthrate. This is also a problem in tourism, because tourism needs a lot of hands and is not highly productive. The mentality of starting a small business with just one or two employees also needs to change.
