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Does Greece have a future?

Greece’s prime minister contends his country will emerge stronger.

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A tourist takes pictures at the Acropolis archeological site in Athens on May 8, 2010. (AFP/Getty Images)

ATHENS, Greece – In Paris this weekend, finance ministers from the world’s leading economies brainstormed on a fix to Europe's crisis, with attention on Greece’s debt and European bank strength following Belgian-French lender Dexia’s failure.

And long-awaited answers on Greece’s future are expected by October 23 when European Union leaders meet in Brussels to make decisions about future bailout loans. The G-20 leaders said in a statement Saturday that they expect the
Brussels summit to "decisively address the current challenges through
a comprehensive plan."

Beyond that near-term horizon are seldom-asked questions. What can we expect for the future in Europe? And how likely is it that an embattled country like Greece will emerge from the crisis in serviceable shape?

From Greece: "Don't blame us"

That’s a question Greek Prime Minister George Papandreou has been answering recently, in an effort to reassure European lenders and his compatriots that a better future awaits.

Papandreou acknowledges that Greeks face a monumental or seemingly Sisyphean task of rebuilding the economy, which is forecast to shrink by 5.5 percent this year. But he has portrayed himself as an optimist, believing that the crisis-driven change will forge lasting improvements.

“We need to lead to sustainable growth and investments because Greece has great potential, but this potential has in the past been mismanaged,” he said Thursday after a meeting in Brussels with European Council President Herman van Rompuy.

“That’s why we are moving ahead with major reforms — radical changes that we are implementing throughout the Greek economy and in the public administration to guarantee competitiveness, productivity, growth, transparency and social justice,” Papandreou said.

Papandreou’s administration, which inherited debt of $400 billion when he took office two years ago this month, has raised taxes, slashed public sector wages and pensions, consolidated agencies, and is trying to attract investors by making it easier to do business here.

It has also passed legislation opening dozens of “closed” professions, which will raise competitiveness and productivity – assuming the law is enforced.

Papandreou has pointed out that Greece is exploiting its comparative advantages. It is targeting new markets for tourism, which is up this year. Government officials also have high hopes for Project Helios, a $27 billion plan to export solar power.

From Greece: Feeling Greece's pain

But is the prime minister – a socialist who has betrayed his ideological roots by imposing a painful deficit-reducing program under pressure from foreign lenders – merely putting a positive spin on things? Or is it possible that the crisis will retool Greece into a leaner, stronger and more modern state?

Despite boisterous street protests by opponents of the changes, many agree that Greece was in dire need of reform.

The country’s economic model was “fundamentally flawed and no longer possible,” said Vagelis Agapitos, an independent economist in Athens.

Successive governments overspent, handed out jobs to political supporters, and barely collected taxes. It left Greece flat-footed when he crisis struck.

“Government was the main customer of private enterprises,” Agapitos said. “Lots of companies became too dependent on governments. Their concern wasn’t in making real competitive products at real competitive prices.”

A 2010 report by Eurostat, the EU’s statistical arm, gave high marks to the continent’s governments and business communities regarding investment in innovation, research and development. The exceptions: “Only the innovative enterprises of Greece and Portugal seem to need to invest heavily in machinery, equipment and software.”

Greece’s bureaucratic red tape means it’s easier to do business in Guyana or Ethiopia, according to this year’s World Bank survey. Greece ranked 109th out of 183 countries in terms of ease of doing business.  Greece expects its ranking to improve in the next annual report, to be released later this month.

Time will tell whether the country will emerge stronger. Indonesia and Russia, among others that have suffered financial crises, have bounced back. But those countries had the “luxury” of devaluing their currencies, which boosts export revenues because of lower prices. Greece, of course, is tied to the euro.

For the moment, there’s little evidence of a brighter future.

“The problem,” Agapitos added, “is that not everyone realizes [the old] model is no longer in operation.”

Greece’s powerful unions, as well as opposition parties, have resisted changes. Transit strikes stall commutes and sporadic violence has erupted during protests.

Trash is spilling into Athens’ streets because garbage