A Bridge To Nowhere

As the money flowed, politicians were free to attend to their own domestic squabbles, rather than pushing harder for economic reform. Some of that changed in 1996, as Papandreou's successor, Costas Simitis, used the run-up to eurozone entry to get a better grip on public spending and to deregulate certain key markets, like banking. Still, it wasn't always smooth sailing. During one meeting to merge two large banks, a fistfight broke out between employees and management. In other cases, privatization was half-hearted. Hellenic Telecom, the country's main phone company, was floated on the stock market, but the state retained an indirect holding of 51 percent. Even now Greece's public debt remains just under 100 percent of GDP, and the state employs more than half of the work force. Red tape is omnipresent: getting a license plate requires stamps from several agencies; setting up a business takes months or years, rather than weeks. Experts say none of it would be tenable without EU money. "All of the aid has helped Greece sustain the unsustainable," says Willem Buiter, chief economist for the European Bank for Reconstruction and Development.

The new batch of accession countries won't have that luxury. While Greece received around 3 percent of its GDP in annual fund transfers, Eastern European and Baltic countries will be lucky to get 1 percent. Many say the EU's relative lack of generosity will turn out to be a good thing. After only 15 years of capitalism, a number of the new entrants already have a higher per capita GDP than Greece. Several--Estonia, Slovakia, Slovenia and the Czech Republic--are ahead of Greece on Lisbon Agenda issues like privatization, market liberalization and the use of information technology. Slovakia and Estonia have also carved successful niches for themselves in the global economy, slashing tax rates and investing in skills for workers rather than simply trying to be the cheapest source of labor--a battle increasingly being won by Asia. "The new accession countries really can't afford to not be competitive," says Heather Grabbe, deputy director of the Centre for European Reform in London. "In a way, they've been relieved of the burden of large subsidies."

But Greece and the new entrants do share a number of problems, among them high deficits and an unwillingness to restructure politically sensitive areas of the economy. Poland, the largest new member, is struggling with a 7 percent deficit. And like Greece (not to mention France) it's all in favor of keeping Europe's massive system of agricultural subsidies in place. Poland's hugely inefficient farming sector represents about 16 percent of the work force. In Greece, the numbers are slightly lower but both countries know how to work the system. Polish cab drivers with vegetable plots that qualify as farms for purposes of EU subsidies are not unknown. But they have a long way to go before they rival the Greek government, which Brussels officials accuse of outright theft. "At one point, we saw the unedifying spectacle of senior government officials colluding with farmers to make falsified claims for olive subsidies," says a senior Brussels official who worked on Greek issues in the early 1990s. "It was as though the Union was a cash cow to be milked. Not terribly communitaire."

What will happen when the subsidies dry up? Beginning in 2006, Greece must start sharing its slice of the EU pie. Ideally, the Olympics would have been a catalyst for sustainable growth, as it was in Barcelona. But while Spain used the 1992 Olympics as a platform to market Barcelona to the world, turning it into a tourism hot spot and high-tech hub, the Greeks have shown no such initiative. Amazingly, three months before the Games, hotel operators say tour bookings are down as much as 30 percent from last year. Little EU aid has been used to invigorate the tourism sector, representing 8 percent of GDP. Instead, new business and investment has gone to Turkey, where rooms are cheaper and marketing is savvier. Meanwhile Greece remains the least attractive destination for FDI in Europe.

Here again, there are lessons for the new entrants. Investment flooded into countries like Ireland and Spain because they made it easy for companies to do business. Not so in Greece. The country's legal system is a morass. Greece remains the only nation in the EU without a land registry, which leads to large property disputes, despite the EU's providing several hundred million euros to create one. Brussels insisted that 100 million euro be returned, and this year Athens is in danger of forfeiting another billion euros in EU aid because it couldn't come up with a detailed plan for using the funds. The solution isn't just to get more organized. It's to figure out how to create jobs and generate growth without EU handouts.

The lessons that newcomers should take from Greece are not all cautionary. EU membership has helped Greece mend ties with Turkey, something that analysts say Poland could replicate with Ukraine, and the Baltic states with Russia. The EU has also given Greece regional economic clout. Greek companies are moving into Macedonia, Romania and Bulgaria, and the Greek government is doling out its own aid to Bosnia-Herzegovina and Serbia. As one graffiti artist recently summed up on a wall in Athens, GREECE IS THE AMERICA OF THE BALKANS.