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Special Report: A tale of two Europes

Jul 5, 2011, 2:37 a.m.

By Harry Papachristou and Josie Cox

THEBES, Greece/STUTTGART, Germany (Reuters) -Petzetakis likes to call itself the first Greek multinational. The company began making plastic pipes and hoses in the early 1960s and grew steadily over the next couple of decades, opening a plant in Portugal and pushing into Germany. Proud of its role as a pioneer, the firm dreamed of bigger things.

Opportunity came when Athens joined the euro at the turn of the millennium. Like other Greek companies, Petzetakis feasted on the easy credit that was suddenly available to it, snapping up smaller rivals around the world.

But when the global financial crisis hit, the firm found itself overstretched. Late last year, it shut its main plant in Thebes, a provincial city of around 30,000 people an hour's drive north of Athens, and stopped paying its workers. "They employed 150 people from the area," said former employee Spyros Megaritis two weeks ago. "Since November we don't work unless we are paid what we are owed."

The company's German plant is busier than ever.

Woe is a relative thing in the euro zone -- and nowhere is that more striking than in a comparison between Greek and German manufacturers. More than 1,600 km (1,040 miles) north of Thebes, in a town outside the German city of Stuttgart, Stefan Wolf also grapples with the consequences of operating with Europe's single currency. The impact for the CEO of car parts supplier ElringKlinger, though, has been much milder.

Greece's debt crisis has boosted rival currencies such as the Swiss franc, Wolf said, sitting in an airy room that looks out onto the Swabian Alps. That's made financing ElringKlinger's 2008 acquisition of a Swiss company more expensive. "It is hard to predict the extent of costs related to forex overall, but to a limited extent there may be some negative currency effects. On the other hand, though, a weak euro is certainly a good thing for German business and exports and many companies may well benefit."

These contrasting fortunes tell the story of two Europes -- and the story of the euro itself. Euro zone membership plus low labor costs were supposed to be a winning combination for Greece. In those early days of the common currency, Germany was the sick man of Europe, weighed down by the costs of reunification and an expensive labor market.

Since then, rising labor costs in Greece have forced many manufacturers to shift to Asia or eastern Europe, or even to countries like Germany, where productivity is much higher. Germany, meantime, has thrived. Hard years of reforms have helped it to strong jobs growth and record exports.

Now, Greece is the one facing hard times. To avoid a default, Athens is negotiating with fellow euro zone members and the International Monetary Fund for a second bailout. The country faces massive unemployment, years of austerity budgets and even possible ejection from the common currency.

The euro was meant to bring Europe together. Instead, it's splitting the currency bloc apart. Greeks are furious that its rescuers, led by Berlin, are imposing ever tougher conditions on the aid Athens receives. Germans are baffled that they should be burdened with the cost of rescuing what they see as a badly managed country.

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