Greece’s Highways Are Smoother Than Its Finances

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By Marc Champion

Driving across Europe, the roads tell you a lot about the continent and its crisis.

Cross the border to Greece from Bulgaria or Turkey -- as I recently did on a 2,800 mile road-trip from Istanbul to London -- and you move from narrow, potholed, lethal truck runs onto the wide and empty magic carpets of Greece's freeways. The financial crisis is global, but it's Greece that's a mess, despite (or maybe because of) its wealth of infrastructure.

Having highways is good. They support commerce and reduce road fatalities. They connect Europeans again, like Roman roads did when Thessaloniki in northern Greece was an important center for the empire. If you need to get your car across the continent, as I did, they're a godsend.

Highway networks are also part of the trappings and signals of having made it in Europe. Greece, which joined the European Union in 1981, now has plenty of motorways. Its neighbors still aspire.

The Greek highways were rolled out thanks in large part to EU development funds. In the 2000-2006 budget period, Greece spent 5.3 billion euros of its 11.6 billion euros of EU development aid on transport. That accounted for 19 percent of the total EU funds spent on the sector, second only to Spain, at 35 percent.

So two countries representing 11 percent of the EU's population accounted for 54 percent of the bloc's transport funds. And within that, Greece spent by far the largest proportion on motorways. This was part of a gusher of cash that helped float the Greek economy and made a number of people rather wealthy. At the peak in 2008, Greece received an annual net payment from the EU of more than 6 billion euros, or 2 percent of the country's GDP.

All those fast and smooth roads should help Greece export goods. But even in 2008, before the crisis, Greece didn't export that much: 24 percent of GDP, compared with Bulgaria's nearly 60 percent. The remainder of Greek's EU money could have been spent developing other infrastructure, such as its judicial system or its universities. Instead, what the free cash mainly did was to release other Greek government money for misspending on the public sector, jobs-for-votes merry-go-round that collapsed under pressure from the global financial crisis. Greece's best university still ranks only a little better than 300th in the world.

Now Thessaloniki, a Greek city with a glamorous Byzantine history is a depressed scene of shuttered stores and unemployed youth. The main export growth in the area lately has been of companies, especially international ones, which over the past two years have chosen to relocate operations to cheaper Bulgaria.

Greek exports as a whole rose by a miraculous 37 percent last year. But that was almost entirely due to rising oil prices, which increased the value (not the volume) of Greek oil product exports. Exports of manufactured goods, agricultural products and commodities that might create jobs and growth were all flat or down. Greek businessmen are breathing a sigh of relief after the recent elections produced a rational government and, at the very least, a stay of execution.

"OK, we made mistakes, but Greece did not cause the euro catastrophe," says Dimitrios Lakasas, chief executive of Olympia Electronics, a manufacturer of fire security systems and chairman of SEVE, an exporters association in Northern Greece. Greece's troubles were, he thinks, created first by Germany and international creditors, such as the International Monetary Fund and the EU, which thought growth could come from austerity alone. Now, he thinks the political climate has changed, and there may be money to help oil the process.

Where will the money come from? Lakasas is hopeful it won't have to involve large sums of further aid but can come instead from trimming the bureaucracy and EU development funds. The same funds that built those empty highways.

(Marc Champion is a member of the Bloomberg View editorial board. This is the first in a series of posts chronicling his trip across Europe, from Istanbul to London. Follow him on Twitter.)

-0- Jul/17/2012 21:33 GMT