Greece’s economy is mired in a deep recession. As Helen Caraveli notes, however, there are large regional disparities within Greece. While some areas of the country experienced a boom during the country’s integration into the EU, other areas have struggled to cope with structural changes, such as the reduction in agriculture’s role in the local economy or de-industrialization. Pursuing development policies within these regions may help furnish a solution to the country’s economic problems.

When analyzing the structural weaknesses of countries that have a low international competitive position, commentators rarely take into account regional imbalances. A neglect of domestic space issues is also apparent in the current debate on the causes and effects of the economic crisis in Europe – generally acknowledged to have ‘hit’ peripheral EU countries harder, strengthening the existing divide between the rich countries of the “core” such as France and Germany, and the “periphery”, represented by Spain, Greece, Italy and Portugal. Yet, in Greece, the persistence of such regional imbalances can be regarded as a serious structural weakness, reflecting a ‘defective’ production and governance model. They are in this sense greatly responsible for the country’s current economic stalemate. Keynesian-type policies, implemented through regional development programs, have at best proved inadequate to reverse the above trends. These problems have been more clearly exposed by the current financial crisis, and provide an opportunity for redesigning national policy strategies through alternative development paths at the regional level. This could promote both a rise in competitiveness and regional cohesion, reconciling the traditional growth vs. equity trade-off and the more recent ‘financial stability vs. economic growth’ one.

Uneven geographical development, reflected in the core-periphery pattern (Attica-rest of the country), is mainly the result of urbanization economies largely stemming from the concentration of inefficient public sector services in the capital region. Regional disparities have followed structural changes linked to economic development (e.g. the reduction in agriculture’s participation in the economy) as well as state expansion towards unproductive spheres in a clientelist pattern. They are thus linked to an unsustainable development model, based on (private and public) consumption rather than investment and production – following an expansionary fiscal policy financed by a rising public debt. This model was consolidated from the 1980s onward, when the ratio of consumption to investment rose substantially due to Common Agricultural Policy (CAP) farm price subsidies and the misuse of EU structural funds. Moreover, Greek industrial and agricultural production was negatively affected by exposure to the highly competitive European single market in the 1980s and 1990s.

And while real convergence between Greece and the EU was achieved from about the mid-1990s to 2008 due to higher than average growth rates – owing to the rise in internal demand – lagging agricultural and industrial production led to an increasing dependence on imports and rising foreign trade surpluses, strengthening the peripheral position of Greece. In the same period, the widening disparities among Greek regions resulted in their divergence from the EU average (with the exception of the capital region). This was, among other reasons, due to the de-industrialization process in many regions (mainly in northern Greece) which were not sufficiently diversified and lacked a significant tertiary sector to counterbalance the loss in productive potential.Regional disparities then have contributed to the country’s ‘production deficit’, limiting employment opportunities and the economy’s export potential.

The wide availability of credit following Greece’s entrance into the Eurozone in 2001 further boosted debt-financed private and public consumption, with growing imports and large-trade deficits. Moreover, the parity at the time of accession was unfavourable to exports, given the country’s structural deficiencies. The current financial crisis revealed the acuteness of the above problems and since 2010 Greece has entered a phase of deepening recession and political instability.

Without tackling the ‘structural deficiencies’ of the Greek economy and the unsustainable production and state management model, economic policy implemented through ‘stabilization programmes’ since the mid-1980s could not succeed in reducing macroeconomic and fiscal imbalances. In parallel, regional policy, implemented through the Community Support Frameworks (CSFs) since the late 1980s, has been unsuccessful in limiting the country’s polarised development pattern. A series of ‘systemic’ factors, traditionally inhibiting the implementation of CSFs (mainly bureaucratic inefficiencies leading to a low ‘absorption rate’ and mismanagement or misuse of state funds) have been major causes for this failure.

In an increasingly globalized environment and, even more so, under the current crisis, an inward directed growth model is bound to fail and pressures for the transition to dynamic and innovatory sectors will become stronger. For many Greek regions, this implies promoting alternative development paths based on innovation and ‘knowledge’ (‘green economy’ methods, farm production with ‘designation of origin’, ‘quality’ tourist services etc.), adapting to regional/local comparative advantages. Both regional policy, currently implemented through the fourth CSF and rural development policy of the CAP place particular emphasis on boosting regional resilience through these paths. If successful, improved social and regional cohesion would also contribute towards reducing macroeconomic imbalances.

This article is a shorter version of the GreeceSE paper, Economic restructuring, crises and the regions: the political economy of regional inequalities in Greece.

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Note:  This article gives the views of the author, and not the position of EUROPP – European Politics and Policy, nor of the London School of Economics.

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About the Author

Helen CaraveliAthens University of Economics and Business
Helen Caraveli is an Assistant Professor at the Department of Economics of the Athens University of Economics and Business. Her research interests are centered on the Agricultural and Rural Development Policy of the European Union, as well as on topics related to regional inequalities and the core-periphery pattern in the EU and Greece. Within this framework, she has participated in EU-funded research programs and has collaborated with European research institutes (such as the Institute of European Environmental Policy based in London and the Economic and Social Cohesion Laboratory of the LSE). Furthermore, she has presented papers in many international congresses and has published a number of articles in books and international journals.Dr. Caraveli was a Senior Visiting Fellow at the Hellenic Observatory-European Institute of the LSE for the summer term of the academic year 2012.

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