--- description: Greeks love to spend, but businessmen say the country's new austerity program is long overdue title: Greece's Math Problem image: https://static.time.com/v3/assets/bltea6093859af6183b/blt4670a369ed1da057/698a482216d88443bbc3d271/360_gbgreece_0308.jpg?branch=production&width=750&quality=75&auto=webp&crop=16:9 ---  * [Business](/section/business/) # Greece's Math Problem by [Dody Tsiantar](/author/dody-tsiantar/) Mar 8, 2010 5:00 AM CUT  Angry firefighters protest planned spending cuts outside Parliament on Jan. 29 Angry firefighters protest planned spending cuts outside Parliament on Jan. 29Petros Giannakouris / AP by [Dody Tsiantar](/author/dody-tsiantar/) Mar 8, 2010 5:00 AM CUT On the Thursday 10 days before lent begins, Greeks turn out in droves to stuff themselves with grilled meat before the 40-day fast. It’s known as Tsiknopempti, literally “Barbecue Thursday.” With their country at the center of a debt crisis that has world markets on edge and has cast a shadow over the long-term viability of the euro, Greeks this year must have felt as if they were the ones on the grill. Decades of overindulgent public spending have finally caught up with Greece, which, at $338 billion, is one of the smallest of the European Union’s economies but has some of its biggest macroeconomic problems. Greeks and Greek companies are bracing for what’s undoubtedly ahead. Although bigger E.U. members, including France and Germany, will essentially keep Greece from going under, the country faces years of belt-tightening, whether Greece does it for itself or the E.U. imposes it from Brussels. Members of Greece’s somewhat insular business community are rooting for the government to summon the willpower to do what it has never done before. But most of them fret that it’s not moving fast enough–and that Greece’s activist labor unions, which will fight every austerity measure, including wage freezes, will make the socialist government falter. The sense of urgency, though, seems to be finally hitting home. “Greeks have realized in the past 40 days that this is no joke,” says Eftichios Vassilakis, vice chairman of Aegean Airlines, Greece’s largest air carrier. “We are at a critical moment. Some like to say that Greeks respond best when we’re at the edge of the cliff. Well, we’re definitely at the edge of the cliff.” Greece isn’t alone on the precipice. Together with Portugal, Italy and Spain, it is part of a bloc referred to as the PIGS–PIIGS if you include Ireland. These are the E.U.’s overburdened economies, whose massive debt and high unemployment have investors worried that economic recovery is going to be a lot bumpier than anticipated. Greece’s current financial mess unfolded when the newly elected socialist government revealed in October that the country’s deficit was far larger than the previous, center-right government had let on–nearly 13% of GDP. The European Commission blasted Greece for the faulty stats, and the ratings agencies downgraded Greek debt in mid-December, sending yields on government bonds skyrocketing and stirring fears that the country was on the brink of default. In January, Prime Minister George Papandreou announced an ambitious three-year austerity plan, which the government says will reduce the deficit to 2% of output by 2013\. “Greece will put its house in order,” Finance Minister George Papaconstantinou tells TIME. “To borrow words from an ad: Watch this space.” To which traders said: We’ve already seen enough. The markets calmed a bit after Brussels announced it would support Greece, although the E.U. didn’t offer specifics and imposed a deadline giving Greece until mid-March to show results or risk demands for tougher measures. The real test will be the outcome of the country’s next bond offering. “If any other country was making the kinds of adjustments that we are, it would be applauded,” says Papaconstantinou. “In our case, they are not sure we are actually doing it.” Some Greek economists and business leaders believe that the medicine, though bitter, will eventually produce a healthier economy. “The crisis was inevitable,” says Ioannis Kamatakis, CEO of MLS Multimedia, a technology company that produces GPS systems and translation software. “It represents a unique opportunity for Greece to turn the page.” For Greece’s businesses, this new math is a challenge to growth. Borrowing costs are heading north, and with the country’s banks in a noose because of their holdings of Greek debt, credit is tight. New projects, expansion plans and investments have been put on hold, say executives. MLS’s Kamatakis, for example, admits he’s had to slow down plans to expand into Western Europe. “Everything is frozen,” says financier Paul Papadopoulos. “It’s a wait-and-see scenario.” Most Greeks agree that the tax system and the bloated public sector, dubbed “the country’s sickest patient,” are at the root of the problems. In a country of 11 million people, nearly 850,000 workers are employed by the state–the country’s biggest companies are state-run or -managed. They get generous perks, like 14 paychecks a year instead of 12\. Many enjoy a workday that runs from 7:30 a.m. to 2:30 p.m. “The state has an irrational control of the economy,” says Yannis Stournaras, director of research for the Foundation for Economic & Industrial Research, a nonprofit, independent think tank. “We need nothing less than a revolution in the public sector.” The government expects to close the $75 billion fiscal gap by cutting operating expenses 10%, freezing wages and halting new hires. The plan calls for the creation of a new independent statistical service, which should make it harder for officials to manipulate data. It also includes an improved tax-collection system designed to catch tax cheats, who have created an underground economy worth possibly as much as 25% of the country’s output. The method proposed: incentives that encourage Greeks, who for decades have paid for services in cash, to ask for receipts, to pressure service providers to report the income. “That’s a huge cultural change,” reports an American diplomat posted in Athens. Tax hikes are in the cards too: a 20% tax on alcohol and tobacco has already been approved by Parliament, a fuel tax is likely to follow, and other taxes are rumored. This worries executives like Doros Constantinou, the CEO of Coca-Cola Hellenic, which sells soft drinks in 28 countries. “An increase in taxes will have an impact on disposable income,” he says. “That’s not a good thing.” While he feels his company has already reduced operating costs and won’t be affected too much by Greece’s crisis, he admits, “We can’t be immune. After all, we’re living in a difficult environment.” Debt-laden Greek companies, with nowhere to turn for further loans, may go belly up or be gobbled up. “Without cash, you’re dead as a business,” says Aegean’s Vassilakis, whose company is in discussions for a possible merger with Olympic Air. For Basil Stephanis, president of Selonda, a $167 million aquaculture company with fish farms in Greece, Turkey and Wales, Greece’s woes are an “opportunity to consolidate and buy up companies with liquidity problems.” Constantine Petropoulos, chairman of Petros Petropoulos, a $158 million firm that sells cars, automotive supplies and industrial equipment, has already diversified his business, inking a deal to distribute Shell lubricants in Greece and Cyprus, a move he figures will keep revenues flat and prevent them from deteriorating. He plans to beef up his portfolio further. “We will acquire businesses that we wouldn’t have ever been able to consider in better times,” he says. “We will come out of this a stronger company.” Companies that have interests outside Greece are also likely to fare better. Kyriakos Sarantis, CEO of Sarantis, a $363 million consumer-products company, expects revenue to remain flat despite the problems at home, in large part because nearly 60% of his business is in Eastern Europe. “That exposure is helping,” he says. Aegean Airlines, which may have to move to short-term leases for some of its fleet, is looking outward too. In the past six months, the carrier has added routes to Egypt, Israel and Turkey. Greece’s $40 billion shipping industry–the country controls 22% of the world’s oil-tanker fleet and nearly 25% of its cargo ships–should also prove immune to the financial maelstrom because of its global reach, according to Theodoros Veniamis, the president of the Union of Greek Shipowners. “Shipping is a cyclical business that operates worldwide,” he says. “The current crisis won’t have a direct impact.” To survive the financial mess, the Greek state must also go global. Athens needs to lure foreign investors aggressively, which means everything from offering tax breaks to helping investors navigate the bureaucracy associated with setting up shop. “We must transform Greece into a welcome place to do business,” says Nikolaos Karamouzis, deputy CEO of Eurobank EFG, an Athens-based bank with $84 billion in assets in 10 countries. The potential for future investment–in tourism and renewable energy, in particular–is certainly promising. Wind-energy generation alone is expected to increase fivefold in the next decade. By the end of this year, the number of wind turbines is expected to go up 150%, to nearly 2,600, from just over 1,000\. “The new Greek government seems determined to push the green economy and is taking measures in the right direction,” says George Peristeris, executive chairman of GEK TERNA Group, one of Greece’s largest construction and energy companies. “But changes must be radical and drastic if Greece wants to achieve its goals.” That will prove difficult. For the last month, farmers have driven their tractors along Greece’s highways to protest plans to cut subsidies. Even the government’s tax collectors walked out for a day, and on Feb. 10, state employees paralyzed the country for 24 hours. A long season of more strikes is almost a certainty. It’s not easy to be told that your attitude needs to change, but that’s the Greek government’s message. Still, even as Greeks grapple with changing their lifestyle, the fact that they like to spend could turn out to be a blessing. “Greece is a poor country with rich people,” says Sarantis. “It’s a strange thing.” He has a point. Despite the economic downturn, Golden Hall, a luxury mall in the capital that opened in 2008, was packed on a recent weekend, and the shelves in many of its 131 stores were bare. Perhaps it’s a final party, just like Tsiknopempti, before things get leaner. A recent poll in the newspaper Ethnos reported that 73% of those surveyed said they were willing to make sacrifices to turn the crisis around. “Greeks know the days of living on borrowed money are over,” says investor and economist Timos Melissaris. “The time has come to pay the bill.” Lent, it seems, is going to last a hell of a lot longer this year. ```json [{"@context":"https://schema.org","@type":"NewsArticle","@id":"https://time.com/archive/6690899/greeces-math-problem/","mainEntityOfPage":{"@type":"WebPage","@id":"https://time.com/archive/6690899/greeces-math-problem/"},"headline":"Greece's Math Problem","datePublished":"2010-03-08T05:00:00.000Z","dateModified":"2026-02-27T17:14:34.239Z","description":"Greeks love to spend, but businessmen say the country's new austerity program is long overdue","url":"https://time.com/archive/6690899/greeces-math-problem/","keywords":[],"thumbnailUrl":"https://static.time.com/v3/assets/bltea6093859af6183b/blt4670a369ed1da057/698a482216d88443bbc3d271/360_gbgreece_0308.jpg?branch=production&width=1200&quality=75&auto=webp&crop=1200:675&height=675","author":[{"@type":"Person","name":"Dody Tsiantar","url":"https://time.com/author/dody-tsiantar/"}],"articleSection":"Business","image":[{"@type":"ImageObject","url":"https://static.time.com/v3/assets/bltea6093859af6183b/blt4670a369ed1da057/698a482216d88443bbc3d271/360_gbgreece_0308.jpg?branch=production&width=1200&quality=75&auto=webp&crop=1200:675&height=675","width":1200,"height":675,"headline":"360_gbgreece_0308.jpg","caption":"Angry firefighters protest planned spending cuts outside Parliament on Jan. 29","creditText":"Petros Giannakouris / AP","representativeOfPage":true}],"publisher":{"@type":"Organization","name":"Time","url":"https://time.com/","logo":{"@type":"ImageObject","url":"https://time.com/images/logo.png","width":528,"height":156},"foundingDate":"March 3, 1923","sameAs":["https://www.facebook.com/time","https://www.instagram.com/time/?hl=en","https://twitter.com/time","https://www.pinterest.com/timemagazine"]}},{"@context":"https://schema.org","@type":"BreadcrumbList","itemListElement":[{"@type":"ListItem","position":1,"item":{"@id":"/section/business/","name":"Business"}},{"@type":"ListItem","position":2,"item":{"@id":"https://time.com/archive/6690899/greeces-math-problem/","name":"Greece's Math Problem"}}]}] ```