Greece and its Investments in the Balkans: Trojan Horse or Reliable Partner?

Even as Greece and Macedonia continued to wrestle with the name issue (should the young Republic monopolize the ancient name or not), the former continued its furious pace of investments in the latter.

According to the Greek newspaper, Elefteros Topos, between the years 2000-2006, Greeks invested almost 263 million USD in their nascent neighbor. That would make Greece the second largest foreign investor in Macedonia. Of the 20 most sizable investments in Macedonia's economy, 17 are financed with Greek capital. More than 20,000 people are employed in Greek-owned enterprises (c. 6% of the active workforce in this unemployment-plagued polity).

Greeks are everywhere: banking (28% of their total investment in the country); energy (25%); telecommunications (17%); industry (15%); and food (10%).

The foundations of the current presence of Greece in all Balkan countries - including EU members, Romania and Bulgaria - were laid in the decade of the 1990s.

Overview of Greek Investment Strategy in the Balkans in 1995-2000

On December 10, 2001 the Brussels-based think tank, International Crisis Group, proposed a solution to the Greek-Macedonian name dispute. It was soon commended by the State Department. The Greeks and Macedonians were more lukewarm but positive all the same.

The truth, though, is that Macedonia is in no position to effectively negotiate with Greece. The latter - through a series of controversial investments - came to virtually own the former's economy. So many Greek businessmen travel to Macedonia that Olympic Airways, the Greek national carrier began regular flights to its neighbor's capital. The visa regime was eased. Greeks need not apply for Macedonian visas, Macedonians obtain one year Schengen visas from the applicants-besieged Greek liaison office in Skopje. A new customs post was inaugurated in 2000. Greek private businesses gobbled up everything Macedonian - tobacco companies, catering cum hotel groups, mining complexes, travel agencies - at bargain basement prices, injecting much needed capital and providing access to the EU.

The sale of Macedonia's oil refinery, "Okta", to the partly privatized Greek "Hellenic Petroleum" in May 1999, was opaque and contentious. Then Prime Minister of Macedonia, Ljubco Georgievski, and then Minister of Finance, Boris Stojmenov, were accused by the opposition of corrupt dealings. Rumors abounded about three "secret annexes" to the sale agreement which cater to the alleged venality of top politicians and the parties of the ruling coalition. The deal included a pledge to construct a 230 km. $90 million oil pipeline between the port of Thessalonica and Skopje (with a possible extension to Belgrade). The Greeks would invest $80 million in the pipeline and this constitutes a part of a $182 million package deal. This was not "Hellenic Petroleum"'s only Balkan venture. It acquired distribution networks of oil products in Albania as well.

After the Austrian "Erste Bank" pulled out of the deal, "National Bank of Greece" (NBG) drove a hard bargain when it bought a controlling stake in "Stopanska Banka", Macedonia's leading banking establishment for less than $50 million in cash and in kind. With well over 60% of all banking assets and liabilities in Macedonia and with holdings in virtually all significant firms in the country, "Stopanska Banka" is synonymous with the Macedonian economy, or what's left of it. NBG bought a "clean" bank, its bad loans portfolio hived off to the state. NBG - like other Greek banks, such as Eurobank, has branches and owns brokerages in Albania, Bulgaria, and Romania. But nowhere is it as influential as in Macedonia. It was able to poach Gligor Bisev, the Deputy Governor of Macedonia's central Bank (NBM) to serve as its CEO. Another Greek bank, Alpha Bank, has bought a controlling stake in Kreditna Banka, a Macedonian bank with extensive operations in Kosovo and among NGO's.

The Greek telecom, OTE, has acquired the second mobile phone operator licence in Macedonia (Cosmofon). The winner in the public tender, Link Telekom, a Macedonian paging firm, has been disqualified, unable to produce a bank guarantee (never part of the original tender terms). The matter went to the courts.

Local businessmen predicted this outcome. They say that when "Makedonski Telekom" was sold, surprisingly, and under visible American "lobbying", to MATAV (rather than to OTE), Macedonian politicians promised to compensate the latter by awarding it the second operator licence, come what may. Whatever the truth, this acquisition enhances OTE's portfolio which includes mobile operators in Albania (CosmOTE) and Bulgaria (GloBUL).

Official Greece clearly regards Greek investments as a pillar of a Greek northern sphere of influence in the Balkan. Turkey has Central Asia, Austria and Germany have Central Europe - Greece has the Balkans. Greece officially represented the likes of Bulgaria in both NATO and the EU until their accession.

Greek is spoken in many a Balkan country and Greek businessmen are less bewildered by the transition economies in the region, having gone through a similar phase themselves in the 1950's and 1960's. Greece is a natural bridge and beachhead for Western multinationals interested in the Balkan. About 20% of Greece's trade is with the Balkan despite an enormous disparity of income per capita - Greece's being 8 times the average Balkan country's.

Exports to Balkan countries have tripled between 1992 and 2000 and Greece's trade surplus rose 10 times in the same period. Greek exports constituted 35% of all EU exports to Macedonia and 55% of all EU exports to Albania. About the only places with muted Greek presence are Bosnia and Kosovo - populated by Moslems and not by Orthodox coreligionists.

The region's instability, lawlessness, and backwardness have inflicted losses on Greek firms (for instance in 1997 in disintegrating Albania, or in 1998-9 in Kosovo and Serbia). But they kept coming back.

In the early 1990's Greece imposed an economic embargo on Macedonia and almost did the same to Albania. It disputed Macedonia's flag and constitutional name and Albania's policy towards the Greek minority within its borders. But by 1998, Greeks have committed to invest $300 million in Macedonia - equal to 10% of its dilapidated GDP. Employing 22,000 workers, 450 Greek firms have invested $120 million in 1280 different ventures in Bulgaria. And 200 Greek businesses invested more than $50 million in the Albanian and economy, the beneficiary of a bilateral "drachma zone" since 1993. In 1998, Greece controlled 10% of the market in oil derivatives in Albania and the bulk of the market in Macedonia. Another $60 million were invested in Romania.

Nowhere was Greek presence more felt than in Yugoslavia. The two countries signed a bilateral investment accord in 1995. It opened the floodgates. Yugoslavia's law prevented Greek banks from operating in its territory. But this seems to have been the sole constraint. Mytilineos, a Greek metals group, signed two deals worth $1.5 billion with the Kosovo-based Trepca mines and other Yugoslav metal firms. The list reads like the Greek Who's Who in Business. Gener, Atemke, Attikat (construction), 3E, Delta Dairy (foodstuffs), Intracom (telecommunications), Elvo and Hyundai Hellas (motor vehicles), Evroil, BP Oil and Mamidakis (oil products).

The Milosevic regime used Greek and Cypriot banks and firms to launder money and bust the international sanctions regime. Greek firms shipped goods, oil included, up the Vardar river, through Macedonia, to Serbia. Members of the Yugoslav political elite bought properties in Greece. But this cornucopia mostly ended in 1998 with the deepening involvement of the international community in Kosovo. Only now are Greek companies venturing back hesitantly. European Tobacco has invested $47 million in a 400 workers strong tobacco factory in Serbia opened in 2002.

Still, the 3500 investments in the Balkan between 1992-8 were only the beginning.

Despite a worsening geopolitical climate, by 2001, Greek businesses - acting through Cypriot, Luxemburg, Lichtenstein, Swiss, and even Russian subsidiaries - have invested in excess of $5 billion in the Balkan, according to the Economic Research Division of the Greek Alpha Bank. Thus, Chipita, the Greek snacks company bought Romania's Best Foods Productions through its Cyprus subsidiary, Chipita East Europe Cyprus.

The state controlled OTE alone has invested $1.5 billion in acquiring stakes in the Serb, Bulgarian, and Romanian state telecoms. This cannot be considered mere bargain hunting. OTE claims to have turned a profit on its investments in war torn Serbia, corruption riddled Romania and bureaucratic Bulgaria. Others doubt this exuberance.

Greek banks have invested $400 million in the Balkans. NBG has branches or subsidiaries in Macedonia, Bulgaria, Romania, and Albania. EFG Ergasias and Commercial Bank are active in Bulgaria, and Alpha Bank in Romania. The creation of Europe's 23rd largest bank as a result of the merger between NBG and Alpha is likely to consolidate their grip on Balkan banking.

Greek manufacturing interests have purchased stakes in breweries in Macedonia. Hellenic Bottling - formerly 3E - started off as a Coca-Cola bottler but has invested $250m on facilities in the south Balkans and in Croatia, Slovenia and Moldova. Another big investor is Delta dairy products and ice cream.

Moreover, Greece has absorbed - albeit chaotically and reluctantly - hundreds of thousands of Albanian, Macedonian, Serb, Romanian, and Bulgarian economic immigrants. In the late 1990s, Albanian expatriates remitted home well over 500 million drachmas annually. Thousands of small time cross border traders and small to medium size trading firms control distribution and retailing of Greek, European, Asian, and American origin brands (not to mention the smuggling of cigarettes, counterfeit brands, immigrants, stolen vehicles, pirated intellectual property, prostitutes, and, marginally, drugs).

As a member of the EU and an instigator of the ineffectual and bureaucratic Stability Pact, Greece has unveiled a few megabuck regional reconstruction plans. In November 1999, it proposed a $500 million five year private-public partnership to invest in infrastructure throughout the region. Next were a $1 billion oil pipeline through Bulgaria and northern Greece and an extension of a Russian gas pipeline to Albania and Macedonia. The Egnatia Highway is supposed to connect Turkey, Greece, Bulgaria, Macedonia, and Albania. Greece is a major driving force behind REM - a southeast Europe Regional Electricity trading Market declared in September 1999 in Thessalonica.

The Hellenic Observatory in the London School of Economics notes the importance of the Greek capitalist Diaspora (Antonis Kamaras, "Capitalist Diaspora: The Greeks in the Balkans"). Small, Greek, traders in well located Thessalonica provided know-how, contacts and distribution networks to established Greek businesses outside the Balkan. The latter took advantage of the vacuum created by the indifference of multinationals in the West and penetrated Balkan markets vigorously.

The Greek stratagem is evident. Greece, as a state, gets involved in transportation and energy related projects. Greek state-inspired public sector investments have been strategically placed in the telecommunications and banking sectors - the circulatory systems of any modern economy. Investments in these four sectors can be easily and immediately leveraged to gain control of domestic manufacturing and services to the benefit of the Greek private sector.

Moreover, politics is a cash guzzling business. He who controls the cash flow - controls the votes. Greece buys itself not only refineries and banks, telecoms and highways. It buys itself influence and politicians. The latter come cheap in this part of the world. Greece can easily afford them.

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