The searing images from Athens -- the streets choked with rioters, stately buildings and Starbucks' ablaze -- are masking a drive to liberate markets that's unlike anything any nation has attempted to do in decades. The platform is being pushed hard by the new Papademos administration, under intense pressure from the "troika," the IMF, EU and European Central Bank. Greece will need to rapidly enact the historic list of reforms to obtain the latest grant of $170 billion from the troika, and avoid a disastrous default when its next wave of bonds come due in mid-March.
These reforms aren't just necessary to prevent bankruptcy. They're absolutely essential if Greece is to once again grow and prosper, conditions that are impossible with its current inflated level of wages and highly restricted, cartelized, uncompetitive markets.
Greece's principal problem is that it's been depending for years on selling more and more home-grown goods and services that don't face international competition -- houses, haircuts, insurance policies -- to its own people. That model appeared to work when Greeks experienced a consumer credit boom from 2001 to 2008. But the explosion in domestic demand meant that wages soared, making Greece's exports too pricey on international markets. At the same time, its domestically produced appliances and electronics couldn't compete with cheaper imports from Germany or the Netherlands. Greece also did nothing to overhaul the monopolistic practices in tourism and trucking that further curbed exports.
As a member of the eurozone, Greece can't devalue its currency to restore its competitiveness and boost exports. To grow again, Greece needs to both lower wages dramatically and enhance productivity by de-regulating markets at a wrenching pace.
It's a grinding, politically treacherous task. Still, the number and scope of reforms that Greece has either passed, or promises to pass, in the last few months is indeed impressive.
Let's examine five new measures that would totally transform the Greek economy.
The cruise industry
Its island jewels and wonders from antiquity make tourism Greece's number one industry, accounting for 15% of GDP. Greece should be one of the world's foremost destinations for cruise ships. But highly restrictive laws have long discouraged foreign tour operators such as Carnival and Princess from visiting Greece.
For decades, the law required that all foreign operators needed to hire a high percentage of Greek sailors on their crews in order to start or end a trip at a Greek port. It's remarkable that the EU didn't attack this highly anti-competitive provision, since it also applied to French, Spanish and all other players in the European Community. As a result, the world's cruise lines used Turkey or Israel as home ports. Tourists flew to Istanbul or Haifa instead of Athens, and rewarded their hotels and vendors.
In 2010, under orders from the troika, the Greek government enacted a new law that promised reform, but failed to deliver in practice. The measure finally lifted the requirement for hiring Greek sailors for EU carriers, but imposed a stiff tax on U.S., Canadian and all other non-EU companies to benefit the sailors' retirement fund. It also required cruise lines to sign a three-year contract guaranteeing visits to Greek ports.
