Greece is entering the latest stage of its long decline, as businesses flee the country and move their headquarters away from the collapsing country. Those businesses that choose to remain not only face rising taxes and increased regulations; they are also risking credit downgrades for the simple fact that they are located in Greece. Coca-Cola’s Hellenic branch and yogurt company Fage (known for its distinctive Greek yogurt) have already moved their headquarters elsewhere, and other businesses are considering following suit. The Washington Post has the story:
For workers on the production line like [Marios] Vrachnakis, 52, the movements are yet another sign that their futures are crumbling. Fage, which makes the yogurt labeled as Total in the United States, benefited from the good years in Greece, he said, but it’s escaping the rough ones, since it will avoid the rapidly shifting tax situation and the instability of the grinding austerity measures that every month seem to bring new pain.
“We must all be patriotic,” companies included, he said. “All Greeks must contribute to save the country.”
But the country’s biggest, healthiest businesses have the most to gain by moving their headquarters elsewhere. Many economists say the prospect of a Greek revival remains in doubt, in part because of the churning cycle that is driving companies away. So long as the threat of being pushed out of the 17-nation euro zone remains real, few investors can be secure about getting payouts in euros, not drachmas. And as companies pull back, the country becomes even more difficult to save.
Credit costs more in Greece these days, thanks to the crippled Greek banking industry and investor fears that loans made in euros will be repaid in drachmas if Greece leaves the eurzone before the loans come due; companies who move their headquarters out of Greece can save get more credit at a cheaper price. Perversely, European policy is creating incentives for companies to shift business away from Greece, further undermining the fragile economy.
Greece’s troika of lenders recently agreed on terms for a bailout-payment that will enable the Mediterranean nation to continue using the euro, for now. As a result, some Greeks are attempting to keep a positive outlook, saying that Greece can count on agriculture and tourism at to help it stay afloat (ignoring the fact that neighbors like Turkey and Bulgaria are cheaper alternatives in these sectors). But the combination of austerity and massive business flight will make it extremely difficult for Greece to deal with its unemployment crisis and is likely to make the situation worse.
Unless this dynamic changes—and quickly—Greece is set up for failure, bailout or no.