Greek Banks in the Balkans

Effects of the Crisis and the Internationalist Deficit

Introduction

Since the demise of “actually existing socialism” in the 1990s, a process of mostly neoliberal reforms was put forward in the Balkan countries 1 with the aim of preparing their transformation into capitalist economies which would eventually join the European Union. Bulgaria and Romania are already in it, while Croatia, FYR of Macedonia and Serbia are in line for their acceptance. The discussion on the effects of the last EU enlargement on the entering countries (i.e. the economic model which they were obliged to follow, the level of their economic dependence on Western European capital and its political and social effects, etc.), but also on the neighbouring older member states, like Greece, and on the EU as a whole, is ongoing. This discussion is even more relevant in the context of the present financial and economic crisis.

The interest of Greek banking capital in the markets of the Balkan countries

Greek capital has greatly contributed to the transformation of its geographic neighbours into capitalist economies through a process that one could legitimately call economic imperialism. It is currently estimated that around 8,000 Greek enterprises have investments in the Balkan countries, while around 20% of the annual turnover of many of them is realised there. It is beyond the scope of this essay to map the various ways in which Greek capital has in general “invaded” the economies of these countries. Here we will restrict ourselves to the banking sector, not only for the sake of brevity, but also because it is a modern and very profitable sector of the Greek economy, crucial for the development of the crisis in Greece and the other Balkan countries.

We will look specifically at those Balkan countries where Greek banks hold important market shares and have many subsidiaries and employees, in other words the countries where Greek banking capital has been growing since the 1990s – Albania, Bulgaria, Romania, FYR of Macedonia and Serbia 2. The main reasons why Greek banks invested heavily in these countries are:

• a) The high growth rates in the Balkan area and the existence of an underdeveloped and inefficient native banking system, which was undergoing a huge privatisation programme. These two factors offered profitable opportunities due to the increased demand both from households and from various, mainly foreign, manufacturing and service enterprises, a considerable number of which were Greek. For the last 5 to 10 years, the annual GDP growth rate in the above mentioned Balkan countries has been considerably higher than that of the EU-27 average: 5-10% versus 1-3% (see Table 1 and Graph 1).
• b) The so-called “maturity” of the Greek banking market, which was starting to suppress profit margins.
• c) The need to face competition from other European countries, mainly Austria, France, Italy and Germany, which were also eager to acquire increased shares in the Balkan banking sector for the same reasons as their Greek counterparts.
• d) The low labour costs in the host countries (which are two or more times less than those in Greece and 30% to 70%, respectively, of those in Central and Eastern Europe).
• e) The general geostrategic and imperialist plans of the Greek state for the Balkan countries, the EU and generally the West. In their effort to expand in these countries, Greek banks were assisted by the Greek state, as part of the so-called “economic diplomacy” which served “national interests” (i.e. Greek imperialism), as well as by the general economic and military presence of Western imperialism in the Balkan area. Important in this framework is the Hellenic Plan for the Economic Reconstruction of the Balkans (HiPERB), undertaken by Greece as a member of the EU, which is particularly interested in the area. The Plan covers Albania, Bosnia-Herzegovina, Bulgaria, Macedonia, Montenegro, Romania and Serbia. “The plan’s purpose is, above all, political, economic and social stability in Southeast Europe, while its ultimate goal is the modernisation of infrastructure, promotion of productive investments, and support for democratic institutions and the rule of law…in the recipient countries. Another equally important objective of HiPERB is to support the recipient countries’ European perspective” (3).
• f) Geographic proximity, cultural and historic ties with almost all Balkan countries. The existence of a Greek minority in Albania is a very important reason for the increased presence of Greek banks in this country.
• g) Tax and other incentives offered by the host countries.

During the last 15 years, Greek banks have penetrated deeply into the banking system of the Balkan countries. As can be seen in Table 2, in 2007 seven major Greek banks had established a network of around 20 subsidiaries in the Balkans with around 1,900 branches, employing ca. 23,500 people (4), with the strategic goal of gradually increasing retail banking services (mainly consumer and housing loans and credit cards).

In 2005, the participation of Greek banking capital in the granting of loans was 35.7% in Albania, 26.2% in Bulgaria, 37 % in Macedonia, 13.6% in Romania and 17% in Serbia (5). The total loans of the seven Greek banks to customers in the Balkans amounted, at the end of 2008, to 1 47.1 billion, while total deposits were 125.8 billion and total funding from the parent banks 1 21.8 billion. (6)

Greek banks are not the only ones that have invested in the Balkans. The rapid privatisation of the banking sector in these countries resulted in considerable market shares being controlled by other foreign banks as well. In Table 3, one can see the evolution of the market shares of foreign banking capital in Albania, Bulgaria, FYROM, Romania and Serbia since 1998. In 2007, foreign banks owned 94.2 % of the banking sector in Albania, 82.3% in Bulgaria, 85.9% in Macedonia, 87.3% in Romania and 75.5% in Serbia.

Effects of the crisis on the economies of Balkan countries and spillover effects on Greece.

The situation in the Balkans before the economic crisis can be briefly described as follows: High growth rates, rapid privatisations, penetration of foreign capital in the countries’ vital sectors (including the banking sector), demand-led growth based on national consumption (financed mostly by loans from foreign banks in foreign currency) and external demand. However, the effects of the economic crisis have already started to manifest themselves:

• a) As one can see in Graph 1, the 2009 forecasts of the European Bank of Reconstruction and Development (EBRD) for the Balkan countries indicate a sharp decline in GDP growth. High growth levels during the previous years were largely based on consumer demand, fuelled by the parallel increase of lending provided by foreign banks. This means that the present liquidity shortage in Western European banks will primarily affect loan provisions of their subsidiaries in the Balkans. The example of Greece in this case is characteristic. When the Greek government offered a support package of 128 billion to domestic banks, the governor of the Central Bank of Greece hastened to “advise” them to be “prudent” in extending funds to their Balkan subsidiaries… The consequences of such a credit cut-off, if really meant and complied with, can be very damaging for the host countries, as this will accelerate the decline of consumption and investment.
• b) In addition, foreign investment which used to be an important source of income for Balkan countries is expected to decline, mainly due to the economic problems of the developed capitalist countries. The 2009 forecast in Graph 3 is indicative.
• c) Immigrant remittances from Balkan nationals working in foreign countries used to be a very important factor for the health of Balkan capitalist economies. In the last years, these transfers constituted an important share of the Balkan countries’ GDP, but today they are expected to be negatively influenced by the crisis. These workers are employed in sectors of foreign countries hit hard by the recession, such as car manufacturing, construction or household services. What is more, dismissals and lack of demand for labour in the host countries, as a result of the crisis, are expected to force many of these immigrants to return to their home countries. The return of expatriates will put additional pressure on the labour markets of the Balkan countries, that is, unemployment is expected to rise.
• d) An additional strain for the economies of the Balkans is the pressure on the national currencies. Some of the countries already face the dilemma of either devaluing their currency or keeping it stable, that is, pegged to the euro. It is a choice between two evils. Currency stability will lead them deeper into recession, while currency devaluation will increase default, since households and enterprises will not be able to serve their loans made in Euros or Swiss francs, when interest rates in EU and Switzerland were very low.
• e)Export growth is expected to decline, as demand in the Balkan countries’ major EU importers is decreasing also.

The effects of the crisis on the Balkan countries are anything but a local phenomenon. The comparative advantage of the increased presence of Greek banks in this area, could turn into a comparative disadvantage, for the following reasons:

• a) The potential economic turmoil is likely to have adverse spillover effects on the domestic markets of parent banks. The risk of default on loans that their subsidiaries have been extensively offering during the last period is not insignificant, especially in cases where there is a devaluation of the host country’s currency that increases households’ loan obligations. According to the Greek government and the Central Bank (Bank of Greece), Greek banks are safe, despite the fact that they are over-extended in the Balkans. This claim is based, among others, on the so called “stress test” of the Greek banking system administered recently by the Bank of Greece and the IMF. However, we believe that it is not possible to be so sure of the future, since the crisis has only now started to hit the Greek and the other Balkan countries’ economies and nobody knows how grave the situation will be in the next one or two years.
• b) As mentioned before, the urging of the governor of the Greek Central Bank to “loan locally” will not only adversely affect households and enterprises in the host countries, but also Greek businesses in the region. Moreover, Greek banks are risking losing market shares and the confidence of clients who - as Serbia’s minister of Finance recently warned, reacting to the call of the governor of the Bank of Greece 7- may channel their deposits towards other foreign banks.

These questions do not concern Greece only. Austrian authorities, for example, seem to have acknowledged the danger of a Balkan collapse more clearly, perhaps because Austria has the biggest market share and a considerably large exposure in the Balkan countries’ banking sectors. It is for this reason that the Austrian government pressured the EU to intervene with a comprehensive stimulus package in order to support the economies of South East Europe- a proposal which was not adopted. Under these circumstances, the questions which the developed West European states, EU and other international organisatioins have to answer are: In what way will the Balkan countries, especially those under the constraint of large external debt, be assisted in facing the crisis? Or, put in another way, has the EU any role to play in supporting the Balkan economies? These are of course rhetorical questions. How can the Balkan NMCs (new member-countries) or FMCs (future member-countries) expect actual “EU solidarity”, when this is not even manifested in the case of the old member-states? Just after the eruption of the financial crisis, Ecofin issued a statement stressing the common aim of preventing the collapse of European banks, but decided that each member country will be free, i.e. not helped, to design and implement measures towards this end.

During “difficult times”, like the present, no single truth exists in economics or politics. Thatcher’s “TINA” (There Is No Alternative”) is not useful at all. Nowadays, many myths of the mainstream neoliberal “paradigm” are on the verge of collapse. Governments of EU member states, especially the large ones, are reacting against fundamental EU rules and/ or decisions, granting state subsidies to national companies, taking various measures to protect their national economies from competition and encouraging national enterprises to trim or close down their subsidiaries, even those located in EU countries, etc. At the same time, the EU, by actually refusing to assist NMCs and FMCs, sends them to the International Monetary Fund (IMF) and/ or other international financial institutions. The IMF, whose notorious role has often been seriously questioned, especially during the East Asian and the Latin American crises, is very much present in the Balkans. Recently it has concluded an agreement with Serbia for a 1 3 billion loan, on the condition that Serbia substantially limits its public expenditures. Romania signed a similar agreement with the IMF and other institutions, which extended a loan of 1 25 billion (1 12.95 billion from the IMF, 5billion from the EU and 1 1 billion from the World Bank 8) with very restrictive conditions 9, while Bulgaria is considered the new candidate for an IMF loan, especially after the recent elections which brought conservatives to power. On the other hand, Albania seems now to be in a better position due to its relatively loose ties to the international economy. According to the country’s Central Bank, its banking sector is well capitalised and liquid. However, the fall in deposits from 1 5.7 billion in February 2008 to 1 4.9 billion in February 2009, led the authorities to increase the deposit insurance from 1 5,400 to 1 25,000.

The internationalist deficit

The financial and economic crisis has brought crucial questions to the fore, the answers to which relate to strategic prospects of the European radical left, which must be tackled sooner or later by various participants 10: the role of the EU and of the national states, economic imperialism, the geopolitics of the crisis, the role of parties, trade unions and social movements, the most appropriate geographic scope of todays workers’ and citizens’ struggles (nation-state, Europe and other regions, the world), the question of internationalist solidarity, the relative importance of resistance and programmatic proposals for the alleviation of the effects of the crisis, etc. Let us, however, now do something more modest: using as a case study the Greek banks’ presence in the Balkans, before and after the crisis, in order to show that real internationalist solidarity, not to speak of cooperation and common action of European left political and social actors, is less than adequate. Our view of the main reason for this lack is the following:

The dominant power blocs and their political representatives in different countries do not count only on the support of national states – which have not disappeared with globalisation, contrary to the prophecies of some rightwing (but also leftwing) intellectuals. They also try – and in some cases succeed – in cooperating among themselves under the auspices of various supranational organisatioins and institutions, like the EU, IMF, World Bank and the OECD. Unfortunately, this is not usually the case for the subaltern classes in various countries, largely because of the policies of most left parties, trade-unions and social movements. Conceiving class (and other) struggles solely as a national issue, these actors aim only at separate national political and class alliances, programmes and “anti-imperialist resistances”.

Regarding Greece, most left parties, trade unions and social movements believe that the answers to the crisis cannot but be “national”. The interesting “European” proposal to abolish the Stability Pact, made by SYRIZA 11 during the recent European elections, is an exception that confirms the general rule. Referring particularly to the banking sector, actions (strikes, demonstrations, programmes etc.) of all parties of the Greek left are oriented against the Greek government’s measures and the banks, which made huge profits in the years preceding the crisis. They reject the above-mentioned support package, claiming that for reasons of social justice and economic effectiveness the government should have diverted these funds directly to small and medium- sized companies 12 and increase wages and pensions in the public and private sector. Furthermore, the left proposes a full or partial re-nationalisation of the Greek banking system.

Regarding international activities, the expressions of solidarity to striking or laid off workers in Balkan companies, generously affirmed on paper by trade-unions, the declarations of the European Left Party, meetings and statements of the European Social Forum or the actions of some anti-nationalist fringe social movements and anarchist groups were not effective in changing actual policies at any level.

Returning to our case study, until the late 1980s, the Greek banks workers trade-union movement waged very militant and effective struggles. Some people believe this was the result of its corporatism and its close ties to the parties of the right and the centre left. This is close to the truth, although another factor is the traditional radicalism of the Greek bank employees, some examples of which are a strike under the German occupation and a successful fight for the preservation of their pension funds during the Colonels’ dictatorship. As to internationalist solidarity, during the Balkan wars the OTOE (the Federation of Greek Bank Employees) managed to bring around the same table representatives from all countries (Serbia, Montenegro, Croatia, Slovenia, Bosnia, Macedonia) in the conflict. This courageous and praiseworthy move could not, of course, hide the clear preferential relation of the Greek unions to their Serbian counterparts, which were assisted in various ways. Following the end of the wars, the OTOE and its Labour Institute cooperated with the Balkan bank trade-unions mainly through EU projects. In some cases, this resulted in the transfer of serious knowledge and know-how for the preparation of collective agreements, bargaining techniques, etc. In others, cooperation was mainly a PR exercise as well as an opportunity offered to some Greek or Balkan trade-unionists for holidays and shopping.

As time went by, cooperation and solidarity between the Greek and the Balkan trade-unionists began to decline. A good example of this is the event that occurred before the present crisis: Greek trade unionists participate in the European Works Councils (EWCs) of several multinational banks which have subsidiaries in Greece. However, the reverse has not occurred until now, despite the fact that some Greek banks with subsidiaries in Balkan countries comply with the legal requirements of establishing EWCs with members (or observers) from their subsidiaries in countries which are or are not EU members. This was not only due to the quite expected unwillingness of the Greek bankers to create these bodies, despite their very limited scope. Reluctance to establish them came also from Greek trade-unionists. We are aware of a case in which a Balkan trade-unionist for years asked his counterparts in Greece, in vain, to assist him in establishing an EWC in a Greek bank subsidiary. We have reasons to believe that this lack of internationalist solidarity was due to the Greek trade-unionists’ unwillingness to disgruntle the administration of “their” bank and thus possibly break an old relationship of mutual trust and respect. The EWC was the victim of a “contract” between national “social partners”.

We will end our essay with a quote from an e-mail sent by a demoralised Balkan trade unionist, addressed to his colleagues in Greece: “We believe that there should be no more delay (in our cooperation) because there are a lot of problems which should be addressed. If Greek banks come to the Balkan market, it was logical that Greek trade-unions would follow, but this did not happen. The response to the globalisation of capital should be the globalisation of trade-unions”. We consider this appeal to be an urgent call for cooperation and coordination of actions addressed to all European left parties, trade-unions and social movements. This is the only way to be collectively more effective in our struggles, in periods both of crisis and prosperity.

Notes

1) The Balkans include the following:

a)countries fully located within the Balkan Peninsula: Albania, Bosnia and Herzegovina, Bulgaria, Greece, the Republic of Macedonia (FYROM), Kosovo (disputed independence) and Montenegro;

b)countries significantly located within the Balkan Peninsula: Croatia and Serbia;

c)countries located mostly outside the Balkan Peninsula: Romania, Slovenia and Turkey

2) Turkey is also a very important host country for Greek banking capital. However, due to the country’s specific geographic features (its territory largely lies in Asia) and its particular position vis-à-vis the EU, it has not been considered here.

3)Hellenic Republic, Ministry of Foreign Affairs (http://www.agora.mfa.gr/frontoffice/portal.asp?cpage=NODE&cnode=86&clang=1)

4) excluding Turkey which, if included, would increase the respective numbers to 2,400 branches and 40,000 employees

5) www.euro2day.gr/dm_documents/150207_maties_oikonomia.doc , «Greek and Foreign Banks in Southeast Europe»

6) Source: Bank of Greece

7) www.foreignpress-gr.com/2009/03/blog-post.html

8) news.bbc.co.uk/2/hi/business/7962897.stm

9) See Petre Damo’s article in this issue

10) The ongoing Transform! Project “Strategic Prospects of the European Radical Left” is a collective effort towards this goal.

11) The Greek acronym for the “Coalition of the Radical Left”, in which Synaspismos (Coalition of the Left of Movements and Ecology) is the main component.

12) The majority of the old Greek “Orthodox Communist” or “Eurocommunist” left and their present day heirs traditionally consider the owners of the national medium and small sized companies as “allies” of the national working class.