Greece’s Cosseted Classes Fight Red Tape Reform

Commentary, Taxation, Frontier Centre

After a year full of strikes protesting reforms and budget cuts, Greece is bracing for more unrest.

The Socialist government’s efforts to liberalize the country’s hidebound service industries is threatening to provoke a storm of protests from groups ranging from taxi drivers to bakers.

Early next month, the Greek parliament is expected to vote on legislation that would abolish regulations on up to 150 cosseted professions. The proposed law would sweep away rules that govern everything from minimum fees to geographical restrictions and the number of permits issued each year.

The focus is mainly on a handful of key sectors—such as lawyers, auditors, engineers, architects and notaries—but the scope of the plan promises to completely shake up the Greek economy. 

It is hard to overstate the stifling level of regulation in Greece, which has suffered for decades from outdated protections that have weighed on economic growth and hamstrung any economies of scale.

Under current law, pharmacies are guaranteed a 30% profit on their sales—a huge burden for the Greek public health system and consumers.

Pharmacists are also protected by fixed working hours, a restricted number of licenses based on total population, and the right to pass on those licenses to their children.

As a result, Greece has a surfeit of pharmacies—about 10,000 in all—and pays some of the highest drug prices in Europe. On a per capita basis, it has twice as many pharmacies as Belgium or Spain, and three times as many as the European average.

Likewise, Greece’s 45,000-odd lawyers collect the highest fees in Europe thanks to set minimum fees. Each year, 1,000 attorneys join the profession and there are now more lawyers in Greece, relative to its population, than in the U.S.

Under the proposals, there will be sharp reduction of the minimum fees for real estate transfers that are now set at about 2% of the sale price.

Auditors, architects and engineers will also see standardized minimum fees abolished and will in future have to pitch competitively for work. The streamlining of bidding for public works projects should help engineers without direct experience win orders for government tenders more easily.

Even ballet teachers will be able to own and manage more than two schools and they will be able to establish them beyond the limits of their prefecture for the first time.

According to economists, the sweeping new reforms, which follows a similar overhaul of the trucking sector last year, could boost Greece’s economy more than €20 billion over five years—equal to around 10 percentage points of gross domestic product.

Many say the measures will also help boost employment, attract new foreign investment and even put a brake on the country’s chronically high inflation rate.

"After the reforms to fix public finances, this is the most important structural reform Greece is undertaking, and one that is being most closely watched by the foreign community," said Nikos Magginas, a senior economist at the National Bank of Greece.

"The reform will have strong direct gains for various sectors of the economy, but also a series of second round benefits as well."

In May, Greece avoided default with the help of a €110 billion bailout from the European Union and International Monetary Fund in exchange for measures to cut its deficit and overhaul its heavily regulated economy.

Since then, Greece has narrowed the government deficit from a record 15.4% of GDP in 2009 to 9.6% last year.

The government has also ushered in measures to reform the social security system, liberalize the labor market, and restructure loss-making, state-owned enterprises among other things.

Under the terms of its bailout, Greece must also pass legislation opening up the so-called closed professions by the end of next month, and this will be a key consideration when the EU and IMF decide whether to approve the next disbursement of their loan.

But the measures also threaten many long-cherished sacred cows and brings dire warnings from those affected.

"The government’s bill will abolish minimum fees for our services but that will certainly create chaos," warns Pantelis Roussos, a 51-year-old Athens-based engineer with 26 years of experience in the profession.

"In addition to all the confusion which will occur at the most inopportune time, many in the profession fear that in the medium term a few large companies will dominate the sector in Greece and prices will be manipulated sharply higher, so that will really hit the public’s pocket for engineering services."

As it is, opposition to the plan is mounting. Attorneys around the country, but not including Athens, have held one 72-hour strike to protest a measure that would abolish geographic protections in their profession.

Civil engineers walked off the job last week in a similar protest over government plans to eliminate minimum fees, while doctors and dentists have also held their own recent strikes.

More disruptive was a three-day strike last week by Greece’s pharmacists, who are facing sweeping reforms in their sector under a separate but companion piece of legislation. A second 72-hour walkout is scheduled for this week, and more strikes are planned after that.

"The idea that our hours have to be completely liberalized is absolutely unacceptable and ignores the structure of the pharmacy sector in Greece," said Savvas Tsakiris, a 48-year-old pharmacist and sole proprietor of a pharmacy for the past 22 years.

"Most Greek pharmacies are owned and run by a single person. So to expect us to work up to 70 hours a week is just not feasible. And we can’t hire staff because the cost won’t allow us to survive."

The strikes come as Greece’s economy is already in intensive care. In the third quarter, GDP contracted by 4.6% from a year earlier, and 1.3% on a quarterly basis, with little signs of improvement since then. A turnaround is not expected until the second half of the year at the earliest.

"The Greek economy is already facing two to three months of very poor economic activity, and these strikes will surely have an impact and will likely increase in the months ahead," said Mr. Magginas.

However, even with the disruption that the strikes are sure to bring, most Greeks support the reform. A poll in the Proto Thema Sunday newspaper earlier this month showed 63% of Greeks approve of government efforts to pry open closed professions.

"Greece is the last Soviet-style economy in Europe," said Yannis Stournaras, director general at the Foundation for Economic and Industrial research, a think tank. "These reforms will bring about a lot of resistance, but it won’t last.

"And as details of these closed-shop professions emerge, public support will grow."