At the close of March 2010, a solution seemed to have been found for Greece’s parlous state of affairs: a pledge of a bailout by fellow eurozone members in the event that the market fails to help the country out of a debt crisis that has forced new levels of economic stringency; the imposition of new taxes; and a public sector salary freeze in an attempt to prove to the world it is capable of imposing economic discipline – albeit after the horse has bolted and to the background chorus of demonstrators and strikers.

While the Greek crisis has been a major test of the EU’s economic resilience, it could also have repercussions in the non-EU Balkan countries bordering the region, some of which might now be stifling the merest snigger of schadenfreude. There is a certain irony that while such countries are under a strict regimen of reform in order to meet the threshold criteria for EU accession, the largest economy in the Balkans, a long-established member of the EU, has found itself embarrassed by its own economic mismanagement.

Advertisement

The irony is all the richer given there are rumblings emerging from the western Balkans that Greece acts like a regional hegemon, treating the Balkans as its own backyard – though this is a charge Athens would deny, arguing that Greece has only ever tried to help its poorer neighbours and accelerate their entry into the EU fold.

What, from an FDI perspective, does all this mean? And what kind of shadow will Greek woes cast on the region at large?

 

Ripple effect

In a speech delivered before the economic crisis broke, Greece’s alternate minister of foreign affairs Dimitris Droutsas described his country as a “leading voice in the Balkans”, and as instrumental in the creation of regional political stability, economic and social development and the “strengthening of a European perspective”. As Mr Droutsas pointed out in his speech, Greek investments in south-east Europe are worth more than $20bn while “more than 3500 Greek enterprises are active in the region, having created some 200,000 jobs”.

Greece, he said, is the top foreign investor in Albania, the former Yugoslav Republic of Macedonia and Serbia, and is second among foreign investors in Romania and Bulgaria. In spirit at least, this is true. In FYR Macedonia, for instance, the National Bank of the Republic of Macedonia ranks Greek investors as possessing 15.2% of total FDI stock in the country between 1997 and 2007, just behind Hungary and the Netherlands.

Political relations are somewhat at odds with this economic good news story. (It is perhaps worth noting that the European Bank of Reconstruction and Development declined the opportunity of being interviewed for this story.) Greece has long exerted a strong cultural influence on its north-western neighbour, Albania, which boasts a large Greek-speaking population. But while the two countries like to make a show of bilateral solidarity, there are issues on both sides: the size of the Greek population in Albania is heavily disputed and there are also simmering territorial grievances.

Meanwhile, the Greek dispute with FYR Macedonia over the country’s name looks unlikely to be resolved anytime soon. Indeed, in his speech, Mr Droutsas described it as the national “red line” and said a “resolution” – ie, the unambiguous addition of a geographic qualifier to the name Macedonia – is a prerequisite for opening accession negotiations with the EU. Relationships with Sofia and Belgrade are easier: Greece’s affinity with the Slav states and the Orthodox Church creates a vehicle for cultural understanding.

 

Opportunity knocks

But even where there are gripes, Greek investors have been among the keenest to recognise opportunities in the Balkans. This has certainly been facilitated by a massive spree from 2000 onward by Greek banks – including Alpha Bank, National Bank of Greece, Piraeus Bank and Eurobank – enabling Greek investors to raise the finance they need for those underpriced Balkan assets.

And those target countries are not complaining. One Macedonian official tells fDi Magazine that while the political issues are difficult, “Greek investment is extremely important to Macedonia, and Greece remains our largest investor by number of investor companies”. And, it is not just the big players, such as National Bank of Greece, Hellenic Petroleum and Titan, he says, but smaller, low-key players that are taking advantage of FYR Macedonia’s lower labour costs and, of course, proximity.

Greek investment in Serbia makes up a significant part of the country’s total FDI. In 2008 and 2009 it hovered around the $65m mark, and between 2004 and 2008 was worth some $1.61bn – second only to Austrian investments of $2.5bn.

However, it has not only been the private sector taking an interest. The Greek government has attempted to formalise the country’s role as a regional super-economy through a number of multilateral schemes, including the Hellenic Plan for the Reconstruction of the Balkans (HiPERB), which it describes as an ­initiative to streamline various efforts to channel €550m of infrastructure and private ini­tiatives earmarked for seven recipient countries: Albania, Bosnia-Herzegovina, FYR Macedonia, Bulgaria, Romania, Montenegro, Serbia and Kosovo.

Projects under the HiPERB scheme have included road construction, hospital improvements and the laying of fibre-optic cables – though cynics might wonder whether an agenda lurks behind some of the fundings; for example, the renovation of the Hellenic exhibit wing of the Museum of the 21st Century in Constanta or the reconstruction of the Greek-Bosnian Friendship government building in Sarajevo.

The inward investment agencies are optimistic that the Greek crisis will have a limited impact – even, perhaps, a positive effect on investment outside of Greece. Nikola Jankovic, an advisor at the Serbian inward investment agency Siepa says his organisation believes it is “too early to draw any conclusions… but Greek companies may turn to investing in more competitively priced countries… because of the increase in taxes in Greece. They might also look to export more due to decreased demand at home, in part as a result of the public sector wage freeze.”

He adds that since the crisis began, Siepa has received interest from Greek companies with which it had not had contact before. But others point to a late-2009 diktat from the Central Bank of Greece aimed at curbing Greek bank lending and exposure in the Balkans.

The reality is that the Greek financial crisis will almost certainly discourage Greek investors from over-extending themselves, either domestically or abroad. Access to capital and, likewise, general investor confidence will take a knock – at least until a measure of certainty returns to the economy. If there is any consolation for the Balkans, it is perhaps that progress to date since the 1990s has been in fits and starts. There has been no boom and, consequently, little likelihood of an imminent bust.

At the close of March 2010, a solution seemed to have been found for Greece’s parlous state of affairs: a pledge of a bailout by fellow eurozone members in the event that the market fails to help the country out of a debt crisis that has forced new levels of economic stringency; the imposition of new taxes; and a public sector salary freeze in an attempt to prove to the world it is capable of imposing economic discipline – albeit after the horse has bolted and to the background chorus of demonstrators and strikers.

While the Greek crisis has been a major test of the EU’s economic resilience, it could also have repercussions in the non-EU Balkan countries bordering the region, some of which might now be stifling the merest snigger of schadenfreude. There is a certain irony that while such countries are under a strict regimen of reform in order to meet the threshold criteria for EU accession, the largest economy in the Balkans, a long-established member of the EU, has found itself embarrassed by its own economic mismanagement.

The irony is all the richer given there are rumblings emerging from the western Balkans that Greece acts like a regional hegemon, treating the Balkans as its own backyard – though this is a charge Athens would deny, arguing that Greece has only ever tried to help its poorer neighbours and accelerate their entry into the EU fold.

What, from an FDI perspective, does all this mean? And what kind of shadow will Greek woes cast on the region at large?

 

Ripple effect

In a speech delivered before the economic crisis broke, Greece’s alternate minister of foreign affairs Dimitris Droutsas described his country as a “leading voice in the Balkans”, and as instrumental in the creation of regional political stability, economic and social development and the “strengthening of a European perspective”. As Mr Droutsas pointed out in his speech, Greek investments in south-east Europe are worth more than $20bn while “more than 3500 Greek enterprises are active in the region, having created some 200,000 jobs”.

Greece, he said, is the top foreign investor in Albania, the former Yugoslav Republic of Macedonia and Serbia, and is second among foreign investors in Romania and Bulgaria. In spirit at least, this is true. In FYR Macedonia, for instance, the National Bank of the Republic of Macedonia ranks Greek investors as possessing 15.2% of total FDI stock in the country between 1997 and 2007, just behind Hungary and the Netherlands.

Political relations are somewhat at odds with this economic good news story. (It is perhaps worth noting that the European Bank of Reconstruction and Development declined the opportunity of being interviewed for this story.) Greece has long exerted a strong cultural influence on its north-western neighbour, Albania, which boasts a large Greek-speaking population. But while the two countries like to make a show of bilateral solidarity, there are issues on both sides: the size of the Greek population in Albania is heavily disputed and there are also simmering territorial grievances.

Meanwhile, the Greek dispute with FYR Macedonia over the country’s name looks unlikely to be resolved anytime soon. Indeed, in his speech, Mr Droutsas described it as the national “red line” and said a “resolution” – ie, the unambiguous addition of a geographic qualifier to the name Macedonia – is a prerequisite for opening accession negotiations with the EU. Relationships with Sofia and Belgrade are easier: Greece’s affinity with the Slav states and the Orthodox Church creates a vehicle for cultural understanding.

 

Opportunity knocks

But even where there are gripes, Greek investors have been among the keenest to recognise opportunities in the Balkans. This has certainly been facilitated by a massive spree from 2000 onward by Greek banks – including Alpha Bank, National Bank of Greece, Piraeus Bank and Eurobank – enabling Greek investors to raise the finance they need for those underpriced Balkan assets.

And those target countries are not complaining. One Macedonian official tells fDi Magazine that while the political issues are difficult, “Greek investment is extremely important to Macedonia, and Greece remains our largest investor by number of investor companies”. And, it is not just the big players, such as National Bank of Greece, Hellenic Petroleum and Titan, he says, but smaller, low-key players that are taking advantage of FYR Macedonia’s lower labour costs and, of course, proximity.

Greek investment in Serbia makes up a significant part of the country’s total FDI. In 2008 and 2009 it hovered around the $65m mark, and between 2004 and 2008 was worth some $1.61bn – second only to Austrian investments of $2.5bn.

However, it has not only been the private sector taking an interest. The Greek government has attempted to formalise the country’s role as a regional super-economy through a number of multilateral schemes, including the Hellenic Plan for the Reconstruction of the Balkans (HiPERB), which it describes as an ­initiative to streamline various efforts to channel €550m of infrastructure and private ini­tiatives earmarked for seven recipient countries: Albania, Bosnia-Herzegovina, FYR Macedonia, Bulgaria, Romania, Montenegro, Serbia and Kosovo.

Projects under the HiPERB scheme have included road construction, hospital improvements and the laying of fibre-optic cables – though cynics might wonder whether an agenda lurks behind some of the fundings; for example, the renovation of the Hellenic exhibit wing of the Museum of the 21st Century in Constanta or the reconstruction of the Greek-Bosnian Friendship government building in Sarajevo.

The inward investment agencies are optimistic that the Greek crisis will have a limited impact – even, perhaps, a positive effect on investment outside of Greece. Nikola Jankovic, an advisor at the Serbian inward investment agency Siepa says his organisation believes it is “too early to draw any conclusions… but Greek companies may turn to investing in more competitively priced countries… because of the increase in taxes in Greece. They might also look to export more due to decreased demand at home, in part as a result of the public sector wage freeze.”

He adds that since the crisis began, Siepa has received interest from Greek companies with which it had not had contact before. But others point to a late-2009 diktat from the Central Bank of Greece aimed at curbing Greek bank lending and exposure in the Balkans.

The reality is that the Greek financial crisis will almost certainly discourage Greek investors from over-extending themselves, either domestically or abroad. Access to capital and, likewise, general investor confidence will take a knock – at least until a measure of certainty returns to the economy. If there is any consolation for the Balkans, it is perhaps that progress to date since the 1990s has been in fits and starts. There has been no boom and, consequently, little likelihood of an imminent bust.