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Published 01:46 30.06.11
Latest update 01:46 30.06.11
A white elephant in northern Greece
The foul child of the deadly marriage of megalomania and easy credit
By Doron Tsur
How is it possible, in today's information age, that Greece is facing bankruptcy? The very fact of a Western nation, a member of the euro bloc, defaulting on its liabilities, calls for sober consideration on the part of anyone involved in economics and investments.
How is it that despite all our accrued experience and economic knowledge, our models and theories, our monitoring and controls, the mistakes of 50 and 100 years ago are repeating themselves? There was no information then. Today there is. What happened?
Last year at about this time I toured northern Greece by car. I highly recommended visiting this area, which is absolutely lovely.
On one serpentine mountain road, a surrealistic vista suddenly opened before me - that of my narrow hill track feeding into a superhighway of monstrous dimensions - at least for Greece. It tunneled through mountains and spanned valleys over vast bridges. This state-of-the-art roadway outdid the German and Austrian Autobahnen and the Italian Autostrade of my experience. Israel's Route 6 is a goat track by comparison to the grand Greek road.
My astonishment only grew as the days passed and I availed myself of this extraordinary road. Mainly because I was all but alone on it. Traffic was ludicrously thin.
Since one doesn't run into a white elephant like that every day, my curiosity was piqued. How did such a gigantic project come into being, and why? And above all, how much did it cost and who footed the bill??
The bill: 6 billion euros
In our information age, obtaining information is easy. The project turned out to be the New Via Egnatia, a 670-kilometer speedway connecting Igoumenitsa in the west to the Turkish border in the east. It crosses the Pindus Mountains, which stretch from northern Greece to southern Albaria, maintaining roughly the same altitude throughout, thanks to that impressive arrangement of bridges and tunnels.
In some places the highway parallel the original Via Egnatia, an ancient Roman road.
Construction took a decade and was completed in 2009, with some ancillary works still being carried out. The cost of the project - at least 6 billion euros - was financed by the Greek government, the European Development Bank and the European Union.
The logic underlying the New Via Egnatia was as follows: Turkey will be accepted into the EU, after which overland traffic to and from that country will increase dramatically. Its neighbors - Greece, Bulgaria and Macedonia, as well as Albania and Montenegro - will see a surge in growth. They will want to connect to Europe in the northwest and to Turkey in the southeast. The road will go on to link up with the great pan-European highways, and has the potential to become a key axis of development of the region.
But Turkey isn't a member of the EU, not yet. The Balkan nations and the rest of southeastern Europe are not growing like weeds. The result is a 670-kilometer white elephant.
It was not Greece's only mega-project of the past decade. Athens got a spanking new airport and subway system. The 2004 Olympics were a terrific boost to development, whose bill the Greeks are still paying for.
The whole world is pointing fingers, accusing Greece of laziness, profligacy and living high on the hog at the expense of others (mainly the Germans ). True in part, but not the whole story.
Some of Greece's economic problems lie in its desire, in the past decade, to bring its basic infrastructure closer to the European standard. The reason? Sheer, human envy.
Take the ease of obtaining big financing for big projects (that masquerade as investments in the future ). Marry it to the natural tendency of politicians to approve any project that will entail a photograph of them cutting a ribbon. This unholy union is an incubator for white elephants.
It happens with people, cities, companies and countries: At some point, everyone takes a bite that is too big to chew.
Greece is a small state, with a widely scattered population of 11 million. Its north is mountainous, and much of the south consists of numerous small islands: not promising conditions for building Western-European-style infrastructure.
Considering the size of the population that has to foot the bill, there is no way to make building such infrastructure projects economically feasible. One cannot expect a nation with just 81 people per square kilometer to create projects like the ones in Germany, where the population density is nearer 230 per square kilometer. (The population density in central Israel was 329 people per square kilometer in 2009, according to the Central Bureau of Statistics. Today it is about 340. )
A company making huge investment in building production capacity, for which it has to borrow money, could flourish if its underlying assumptions were correct. But if its assumptions turn out to be nonsense, its borrowing could wipe it out. That is Greece's problem in a nutshell. There are other reasons, such as a high standard of living not supported by the country's resources, not to mention the willingness of creditors to lend money, which greatly exacerbated Greece's problems.
Several conclusions can be reached from the story of Greece.
1. Big national projects can lead to prosperity. Or they can turn out to be megalomaniac fantasies that will bury their investors alive.
2. Easy credit can create a kind of blindness to the merits of a project, which can end up charging forward with no controls, or even serious thought. That is true of people, of companies, and of nations. We all have a touch of megalomania, and when it meets easily available credit the result can be economic dynamite.
3. Sometimes a drive through the mountains can bring economic insights just as profound as sitting at a desk in front of a computer monitor glowing with spreadsheets.
The author is the CEO of Compass Psagot.
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Taken from The Marker-Ha'aretz |
