Sovereign Debt Crisis in Greece and Its Relation with Foreign Direct Investment and Competitiveness in Greece

The current European financial crisis is a triple threat and the austerity measures that have been pursued to tackle it (at least so far) have led to a fiscal trap that slides into a deflationary vortex which, on the one hand, pushes economies into a recession by increasing the number of the long-term unemployed, and, on the other hand, keeps their central governments’ deficits at risky levels, thereby avoiding unsustainable development of their external and/or public debt. Greece is permanently one of the Eurozone countries that performs poorly in the Institute for Management Development’s annual competitiveness surveys. A change in competitiveness policy is needed in order for the expectations of enhancing competitiveness to come from a realistic basis. The rapid increase in Greek FDI outflows over the past decades (and before the crisis) could theoretically be attributed to the influence of the euro. The relatively low attractiveness of foreign direct investment inflows in Greece is attributed to ineffective public governance, high taxation, inadequate infrastructure (in some sectors), and unfavorable macroeconomic conditions. The peculiarities of foreign direct investment (outflows) from Greece to foreign countries foresee positive externalities in the Greek economy. This means increased tax revenues from increased GDP and expectations for new foreign direct investment inflows, and also, increased skilled employment in Greece, and increased competition among foreign companies over non-international Greek companies, which do not internationalize their activities, but reinforce competitiveness of non-international Greek companies over multinationals.