Can Europe Make It?

Can the Greek textile industry be a driver for growth?

Due to the crisis, Greece has been experiencing unprecedented deflation and labour laws have started to liberalize, thanks to reforms that were demanded by its EU-IMF creditors.

Ilektra Tsakalidou
7 April 2014

On February 3, a survey indicated that Greek manufacturing activity has grown for the first time in almost five years. While macroeconomic indicators suggest that the economy has started motoring slowly, analysts and entrepreneurs remain cautious. "I am positive about the future. Yet, the amount of red tape I have to face every day, discourages me sometimes" said Dimitris Baltas, a 27 year-old newly established textile entrepreneur from Thessaloniki.

In the 1980s, textile factories spread like mushrooms through northern Greece. Their construction and initial costs were subsidized by the EU's 'Delors' aid packages while the world's largest fashion companies flew in to take advantage of the expertise and low labour costs.

In the 2000s, the outlook appeared grim. Global garment production shifted to Asia, while inflation affected the price of raw materials and wages adjusted across the newly-created Eurozone. Greek entrepreneurs were either forced to close down or to relocate to Bulgaria or to the former Yugoslav republic of Macedonia where salaries and taxation remained low.

So why would young graduates like Dimitris choose to re-invest in a sector that until recently appeared unprofitable? Efforts in recent years have started to pay off. The World Bank ranks Greece 36th out of 189 economies – from 147th the year before – for starting a business in its 'Doing Business project'. Due to the crisis, Greece has been experiencing unprecedented deflation and labour laws have started to liberalize, thanks to reforms that were demanded by its EU-IMF creditors.

Also, the key has been to revamp existing expertise; invest in more sustainable machinery and test new marketing techniques. To assist in the process, employees who lost their jobs in the 2000s are hired back by the new generation. Ultimately the industry's development could be a catalyst in reversing the country's current account deficit.

However, household spending continues to plummet and disposable income in the country is down by more than 22% over the last three years alone. That leaves entrepreneurs relying entirely on exports, mainly to Turkey and the Balkans, Greece's largest trade partners.

At the same time, Greece is still negotiating further debt relief and more bailout aid with its international lenders. The time is therefore one for exerting caution rather than optimism.

Despite his positive attitude, Dimitris noted that "until the regulatory framework is revised, I will continue to be insecure about the future of my company." A complex taxation scheme, difficulty in accessing credit, and antiquated insolvency proceedings are obvious hurdles to the business environment. To ensure long term financial viability, even today, businessmen would rather register their company's legal seat in Bulgaria and make the two hour commute to Thessaloniki every day.

The road to recovery first requires an overhaul of taxation and insolvency policies. The existence, for example, of a solidarity tax on income exceeding 12.000 euros per annum may be one of Greece's largest barriers to economic development.

How can entrepreneurs focus on innovation when they still face considerable red tape, notably when using public administration services? Thankfully, what young Greeks lack in resources they make up for in motivation.

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