The Olympics and the Greek Economy

[ken hanly <khanly@xxxxxxx>]

Globe and Mail    Tuesday, September 14, 2004 - Page A1

Olympics put Greek economy in tailspin

By Doug Saunders

London -- After a summer of fun, Games and frantic spending on the world's
largest party, the people of Greece are waking up this week to an Olympic
hangover of truly gold-medal proportions.

Greeks were proud of an Olympics that took place on schedule and without any
serious security or organizational threats, but they are now learning the
true cost of all that last-minute construction and street cleaning: a bill
that could cripple the country's economy for a generation.

Greek Prime Minister Costas Karamanlis conceded yesterday that the country's
deficit has soared faster and higher than that of any European country,
reaching four times its projected level and twice the legal limit allowed
for European Union member countries.

In response, the bond-rating agency Standard & Poor's lowered the country's
debt-rating outlook from "stable" to "negative" yesterday, blaming "an
accelerating loss of fiscal discipline" partly related to the Games. The
agency declared Greece's fiscal position the weakest of any major European
economy.

Mr. Karamanlis placed the blame squarely on the Olympics. The scramble to
get a half-dozen stadiums finished in time for the August games rang up
billions in overtime costs, and security and terrorism-prevention costs were
five times as high as the pre-Sept. 11 games in Sydney, Australia.

"A large part of Olympic, social and other spending was not written up in
the budget. . . . The public debt exceeds even the most pessimistic of
estimations," he said, laying much of the blame on the moderate-left
Socialist Party, which his right-leaning party defeated in March. "The real
deficit was not recorded."

The Games, which cost Greek taxpayers at least $10-billion, are credited
with at least a fifth of the soaring debt. Total Greek public debt has now
reached 112 per cent of the country's gross domestic product, which amounts
to $75,000 for each Greek household.

By contrast, Canada's debt peaked at 68.4 per cent in the mid-1990s,
prompting huge cuts in federal spending.

While Greek politicians had optimistically promised a tourism-driven
economic boom and an improved standard of living in the wake of the Games,
the opposite seems to be taking place. The International Monetary Fund
predicted a period of contraction: "Underlying fundamentals suggest the
economy may slow materially in 2005."

A harsh period of fiscal austerity and reduced ambitions was predicted
yesterday, with both the IMF and the Organization for Economic Co-operation
and Development declaring that Greece will have to slash wages and social
spending if it is to remain competitive enough to earn its way back into
prosperity.

Greece has now joined a large club of governments that have been
economically crippled by playing host to the Olympic Games. The most famous
member is Montreal, whose municipal bill for the 1976 Olympics is not
expected to be fully paid until 2006.

Mr. Karamanlis acknowledged that repaying the Olympic debt would entail
sharp cuts to public services -- an awkward move, as the Games were sold to
the Greek public as an economy-building event that would raise their
standard of living. The Prime Minister tried to describe the cuts in
optimistic terms.

"We will implement radical tax reforms that support investment . . . a new
development law that helps small and medium enterprises flourish . . . new
business frameworks that cut down bureaucracy," he said. "We will make good
use of the post-Olympic period and promote our country's competitive
advantage in combination with the new investment-friendly environment that
we are creating."

However, the only concrete moves he announced were the sale of a
government-run savings bank, a cut in military spending and an attempt to
privatize Olympic Airlines.