Investment Adventures in Emerging Markets

Greece: Opportunities Despite the Challenges


I recently returned from Athens, where we met with executives of companies in which we first invested many years ago.  We started buying stocks on the Athens Stock Exchange when Greece was still considered an emerging market. Since then, it has joined the European Union in 1981, adopted the Euro in 2001, and hosted the Summer Olympic Games in August 2004.

Athens was the only Olympic Games that I ever attended. It was quite thrilling to visit the home of the original Olympics and see records being broken in the swimming events that year. You may remember that this was the first time since 1896 that the Olympics were held in Greece. I remembered that there were doubts as to whether Greece could actually pull off this big expensive event because Athens and the other cities lacked good infrastructure, suffered from air pollution and had many other problems.  There were also doubts that the budget of $11 billion could be raised in a country with a population of only 11 million.  However, they did it and the Olympic Flame was lit again in Olympia.

The benefits of the Olympics to Greece’s infrastructure were substantial. A new modern international airport was built, a relief for travelers like me who had to suffer in the past at the terrible old airport.  Other infrastructure developments include a new metropolitan light rail system, a suburban railway system linking the new airport and suburban towns to the city, a motorway encircling the city, and the conversion of streets in the historic center of Athens into fashionable pedestrian walkways.


As we sat down for lunch with a number of Greek executives, they were gloomy about the negative press that Greece has been getting regarding the country’s debt problems.  Greek’s public debt is higher than 100% of GDP and the budget deficit is forecasted to hit 12% of GDP in 2011.[1] Although the ruling Pasok party had promised to reduce the deficit at the beginning of 2010, the market was not showing confidence since the interest rate spreads of 10-year Greek bonds compared to German bonds has risen substantially and credit default swaps (these are the insurance policies for investors holding debts) for Greek credit are higher than that for South Africa, Poland or Peru.

The government has rejected speculation that it would need a bail-out to tackle its swollen budget deficit and I told the Greek executives that I thought that with Brussels behind them, the country would pull through.  As we spoke, officials from the EU were flying into Athens to scrutinize the government’s tax and spending plans.  Excessive government spending to support a burgeoning bureaucracy and welfare payments landed the country in dire financial straits.  The medicine will be painful as the government said they were committed to cutting the budget deficit from 12% to 3% of GDP – the eurozone target – by the end of 2012.  Their plan is to boost revenues significantly (which would mean higher taxes) and curb administrative spending (which would mean government job cuts). EU officials have been particularly irked by what we see as misleading statistics being sent to Brussels by the Greek government and have called for legislation to make the country’s statistical service independent of political influence.  Certainly the recent announcement by the EU that they are backing Greece’s plan to slash its budget deficit is a positive development for the country. Of course, implementation of the program will not be easy and only time will tell if the bitter medicine is taken.

The strong Euro has been cited as a disadvantage to Greek exporters, but there are some who have used the well-known Greek creativity and trading ability to build excellent global businesses.  One Greek company that designs, manufactures and distributes jewelry, watches and fashion accessories has grown from a small local business to an international enterprise with 380 retail outlets in 25 countries. The company has been able to position itself in a reasonably priced luxury category and has been very creative with jewelry innovations such as silver combined with Murano glass and watches in ceramics.  Augmenting the jewelry and watch lines, the company has branched out into handbags, belts, sunglasses and other items.

Our time was limited but we look forward to coming back for a more intense study of Greece – and seeing the progress they’ve made toward resolving their deficit.

[1] Source: EIU, as of Jan 2010.

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