Economy of Greece
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| Economy of Greece | ||
|---|---|---|
| Currency | 1 Euro = 100 cents | |
| Fiscal year | calendar year | |
| Trade Organisations | WTO and full member of The EU | |
| Statistics | ||
| GDP Ranking (2004) | 28th (nominal) by volume; 27th per capita (nominal) | |
| GDP (2005) | $226.4 billion(nominal) | |
| GDP growth rate (2005) | 3.7% | |
| GDP per Capita (2005) | $22,800 | |
| GDP by sector (2004) | agriculture (7%), industry (22%), services (71%) | |
| Inflation rate (2005) | 3.5% | |
| Pop below poverty line (2003) | 13% | |
| Labour force (2005) | 4.39m | |
| Labour force by occupation (2001) | agriculture (13%), industry (22%), services (65%) | |
| Unemployment rate (Q4 2005) | 9.7% | |
| Main Industries | tourism; food and tobacco processing, textiles; chemicals, metal products; mining, petroleum | |
| Trading Partners | ||
| Imports (2005 est) | $52.76bn | |
| Main Partners (2004.) | Germany 13.3%, Italy 12.8%, France 6.4%, Netherlands 5.5%, Russia 5.5%, U.S. 4.4%, UK 4.2%, South Korea 4.1% | |
| Exports (2005 est.) | $17.38bn | |
| Main Partners (2004) | Germany 13.2%, Italy 10.3%, UK 7.5%, Bulgaria 6.3%, U.S. 5.3%, Cyprus 4.6%, Turkey 4.5%, France 4.2% | |
| Public Debt | 104.8% of GDP (2006 est) | |
The Greek economy is growing fast after the implementation of stabilization policies in recent years. Greece remains a net importer of industrial and capital goods, foodstuffs, and petroleum. Leading exports are manufactured goods, food and beverages, petroleum products, cement, chemicals, and pharmaceuticals.
Contents |
Recent economic history
The development of the modern Greek economy began in the late 19th and early 20th centuries with the adoption of social and industrial legislation and protective tariffs and the creation of the first industrial enterprises. Industry at the turn of the century consisted primarily of food processing, shipbuilding, and the manufacture of textiles and simple consumer products.
The evolution of the Greek economy in relation to that of Western Europe can best be represented by comparative measures of standard of living. The per capita income (purchasing power terms) of Greece was 65% that of France in 1850, 56% in 1890, 62% in 1938, 55% in 1970 and 76% in 2005 (Paul Bairoch, 'Europe's GNP 1800-1975', J. of European Economic History, 5, pp. 273-340 (1976); Angus Maddison, 'Monitoring the World Economy 1820-1992', OECD (1995); CIA, The World Factbook, data for 2005).
Greece achieved high rates of growth in the 1960s and early 1970s due to large foreign investments. In the mid-1970s, Greece suffered declines in its GDP growth rate, ratio of investment to GDP, and productivity, and real labor costs and oil prices rose. In 1981, protective barriers were removed when Greece joined the European Community. The government pursued expansionary policies, which fueled inflation and caused balance-of-payment difficulties. Growing public sector deficits were financed by borrowing. In October 1985, supported by a 1.7 billion European Currency Unit (ECU) loan from the European Union (EU), the government implemented a two-year "stabilization" program with limited success. Public sector inefficiency and excessive spending caused government borrowing to increase; by the end of 1992, general government debt exceeded 100% of GDP.
Greece continued to rely on foreign borrowing to finance its deficits. Public sector external debt was $32 billion at the end of 1998, only 1/4 of the total. The general government debt was $119 billion at the end of 1998, or 105.5% of GDP. Greece, as a member of the European Union, strived to reduce its budget deficit and inflation rate in order to meet the prerequisites for the Economic and Monetary Union. Although growth remained above the convergence program guidelines, high budget deficits and deficient infrastructure continued to dampen the economy's long-term potential growth rate.
In May 1994, the Bank of Greece successfully managed a currency crisis triggered by the lifting of currency restrictions on short-term capital movements. The bank contained speculative attacks on the drachma by tightening its monetary policy and raising interest rates dramatically: For a few days, interest rates pushed as high as 180%. In less than 2 months, with speculation on the drachma no longer a threat, interest rates returned to normal levels. A similar wave of speculation was beaten back in the fall of 1997, following the Asian financial crisis.
One of the successes of recent Greek economic policy has been the reduction of inflation rates. For more than 20 years, inflation hovered in the double digits, it reached 23% in late 1990. But a combination of fiscal consolidation, wage restraint, and strong drachma policies resulted in lowered inflation. Inflation fell to 2.0% by mid-1999. High interest rates have been historically a significant problem. The government's strong drachma policy and Public Sector Borrowing Requirement (PSBR) made the lowering of interest rates difficult, but progress was made in 1997-99 and rates gradually declined in line with inflation and the rest of the Eurozone.
In 2001 Greece joined the Economic and Monetary Union (eurozone). Interest rate policy is now in the hands of the European Central Bank.
Due to the more stable macroeconomic framework and lower interest rates, growth has picked up significantly. The Greek Economy has been growing continuously since 1994 and above the EU25 average since 1996. In 2004 the Greek economy grew at an estimated rate of 4.7%, the fastest in the EU15. A part of this has been sustained by the investment in infrastructure in the run up to the Summer Olympic Games 2004 that were held in Athens. As a result, real incomes have risen throughout the 1990s from 70% of EU25 average in 1996 to 84% in 2006 (source Eurostat).
Recent economic performance has been satisfying. However there are two challenges for policymakers: a)to avoid an economic slump after the enthusiasm of the Games has gone and the EU farm subsidies get cut in 2006 and b) to proceed with structural economic reforms, especially in the areas of social insurance, welfare, and the labour market which will encourage further investments, lower the country's high unemployment and promote growth and economic stability. The first step was taken on the 30th June 2005 with substantial reforms of the insurance system for bank employees against fierce opposition from the unions and the main opposition political party PASOK with laws liberalising working hours in retail trade and employment and providing for public/private financing initiatives of public works and services to follow over the summer.
In 2004, Eurostat, the statistical arm of the European Commission (after an audit performed by the New Democracy government) revealed that the budgetary statistics, on the basis of which Greece joined the European monetary union, had been massively falsified by the previous Greek government (mostly by delaying accounting for huge military expenses; the country, though, had met the criteria for entry into the Eurozone even with revised numbers, when calculated with the Eurostat methodology still in force at the time of Greece's application for entry).
Principal sectors
Services, including tourism, make up the largest and fastest-growing sector of the Greek economy, accounting for about 70% of GDP in 2002.
Tourism is a major source of foreign exchange earnings. Although it is one of the country's most important industries, it has been slow to expand and suffers from poor infrastructure. With more than 14 million tourists visiting Greece in 2002, the tourist industry faced declining revenues, partly due to the strong drachma. Revenue from tourism exceeded $5.2 billion in 1998, having increased somewhat as Greek tourism benefited from problems in neighboring countries and an economic recovery in the European Union.
The manufacturing sector accounts for about 13% of GDP. The food industry is one of the most profitable and fastest-growing areas of manufacturing, with significant export potential. High-technology equipment production, especially for telecommunications, is also a fast-growing sector. Other important areas include textiles, building materials, machinery, transport equipment, and electrical appliances.
Greece is traditionally a seafaring nation and has built an impressive shipping industry based on its geographic location and the entrepreneurial ability of its ship owners. The Greek-owned fleet (all flags), one of the three largest worldwide, totalled 3,358 ships (134 million DWT) in 1998.
Construction activity (about 10% of GDP) has increased due to infrastructure projects partially financed by European Union structural funds and the public investment for the Olympic Games in Athens. Up to 1999, about $20 billion has gone to projects to modernize and develop Greece's transportation network. The centerpiece of this effort was the construction of the new international airport El. Venizelos near Athens and the new ring road "Attiki Odos" to connect it with the city and the south of the country. In addition, the Athens metro system is being greatly expanded, and construction or expansion of roads, railway lines, and bridges is either underway or planned.
EU membership
Greece must realign its economy as part of an extended transition to full EU membership that began in 1981. Greek businesses are adjusting to competition from EU firms and the government has had to liberalize its economic and commercial regulations and practices. However, Greece has been granted waivers from certain aspects of the EU's 1992 single market program.
Historically, Greece has been a net beneficiary of the EU budget. Net payments to Greece totaled $4.9 billion in 1998, representing 4.2% of GDP. Net inflows were estimated at about $5 billion in 1998. These funds contribute significantly to Greece's current accounts balance and reduce the state budget deficit.
Greece is receiving additional substantial support from the EU through the Delors II package. In July 1994, the Greek government and the EU agreed on a final plan which provided Greece 16.6 billion ECU for the period 1994-1998, of which 14 billion ECU was from the Community Support Framework and 2.6 billion ECU was from the Cohesion Fund. This level of assistance was continued in 1999 and finances major public works and economic development projects, upgrades competitiveness and human resources, improves living conditions, and addresses disparities between poorer and more developed regions of the country. Greece is set to receive 20.1 billion Euros of funds from the EU's 2007-2013 budget.
See also
- OECD's Greece country Web site and OECD Economic Survey of Greece
- Economy of Europe
- Greece
- Agriculture in Greece
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