Economy of Greece

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Greece has managed to achieve a strong economy that 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.

Economy of Greece
Greek One Euro coin
Currency	1 Euro = 100 lepta (cents)
Fiscal year	calendar year
Trade Organizations	WTO and full member of The EU
Statistics
GDP Ranking (2004)	28th (nominal) by volume; 27th per capita (nominal)
GDP (2006)	$251.7 billion
GDP growth rate (Q4 2006)	4.3%
GDP per Capita (2006)	$23,500
GDP by sector (2006)	agriculture (5.1%), industry (20.6%), services (74.4%)
Inflation rate (February 2007)	2.7%
Pop below poverty line (2003)	9.2%
Labour force (2006)	4.91 million
Labour force by occupation (2004)	agriculture (12%), industry (20%), services (68%)
Unemployment rate (Q4 2006)	8.8%
Main Industries	tourism; food and tobacco processing, textiles; chemicals, metal products; mining, petroleum
Trading Partners
Imports (2006 est)	$59.12 billion
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 (2006 est.)	$24.42 billion
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	104.6% of GDP (2006)

1 Recent economic history
2 Principal sectors
3 EU membership
4 See also

[edit] 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, 70% in 1980 and 79% in 2006 (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); Eurostat, including updated data since 1980 and data released in December, 2006).

Greece achieved high rates of growth from the 1950s through the early 1970s due to large foreign investments. After the end of the Greek Civil War in 1949 and for more than two decades Greece achieved the second highest economic growth rate in the world after Japan, resulting in a dramatic improvement of living standards (the "Greek economic miracle"). 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 on January 1, 1981 and cohesion funds contributed considerably to the country's fast economic development in the 1980s. By 1989 Greece belonged to a group of 22 "advanced economies". 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 ¼ 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 85% in 2006 (source Eurostat).

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 not recording a large share of military expenses). However, even according to the revised numbers calculated according to the methodology in force at the time of Greece's application for entry into the Eurozone, the criteria for entry had been met.

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 30 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.

During the third quarter of 2006, Greece experienced a strong 4.4% growth rate, while in the same period of the previous year, the growth rate was 3.8%. This is among the highest rates in the EU and the Eurozone, where the average growth rates for these periods were estimated to stand as 2.7% and 1.7% respectively. Current challenges include the further reduction of unemployment which currently stands at 8.8%, the reform of the social security system, the further privatization of the public sector, the overhauling of the tax system and the further reduction of certain bureaucratic inefficiencies. Reduction of the fiscal deficit to the Eurozone target of 3% of GDP had also become a key issue. Under a negotiated agreement, the EU has given Greece a two year deadline (budgets of 2005 and 2006) in order to bring the deficit in line with the criteria of the European stability pact, namely below 3%. In 2005, the deficit had declined significantly and stood at 4.5% of GDP, in line with Greece's commitments to the European Union. As of late 2006, the achievement of that goal is deemed as certain within the time constraints set by Eurostat. The current estimate for 2006 is a deficit of 2.6% of GDP.

[edit] 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.

[edit] Tourism

Tourism is a major source of foreign exchange earnings. Despite concerns over infrastructure and an often controversial tourism model, Greece welcomed a record setting 16.5 million tourists in 2004. At the same time, tourism consumption increased considerably since the turn of the millennium, from US$ 17.7 bn. in 2000 to US$ 29.6 bn. in 2004. For that same year, tourism receipts accounted for 14.3% of Greece’s total GDP while the number of jobs directly or indirectly related to the tourism sector were 659,719 and represented 16.5% of the country’s total employment for that year.

In a recent report in Meeting and Incentive Travel, Greece was ranked eighth in the world in overnight stays for conferences. Figures from Tourism Satellite Accounting Research, conducted by WTTC (World Travel & Tourism Council), project a worldwide increase in revenues in business travel to Greece from US $1.51 bn. in 2001 to US $2.69 bn. in 2011. In 1998, the figure stood at US $1.18 bn.

[edit] Shipping

Greece has an ancient seafaring tradition and has built an impressive shipping industry based on its geographic location and the entrepreneurial ability of its ship owners. The Greek-owned fleet is the largest in the world with a total of 3,850 ships of over 1.000 gt capacity and a total capacity of 98.195.100 gt, translating to 15.5% of the international shipping capacity. Due to widespread use of convenience flags, the fleet flying the Greek flag is somewhat smaller but nevertheless ranks 4th in the World, representing 40% of EU fleet capacity and 5% globally. In 2004, the Greek commercial fleet contributed approximately €14 bn to the Greek economy and employed approximately 11,000 people. YEN - Hellenic Ministry of Mercantile Marine

[edit] Banking

The Greek Banking sector is an important source of employment, revenue and foreign investment for Greece. With total assets of 260bn Euros, employing 63,040 people (2005), Greek banks are among the top performers on a European level with core revenue growth (17% yoy for the combined three majors), among the highest in Europe. Benefitting from a largely deregulated -and often widely criticised- market, the five biggest banks (The National Bank of Greece, Alpha Bank, EFG Eurobank Ergasias, Emporiki Bank, and Piraeus Bank) recently reported net profits after tax of 1.24 billion euros, an increase of 13.86% over the previous financial year.

Greece’s 5 largest commercial banks operate a network of 950 branches across the Balkans, employing 16,000 people there and accounting for 16% of the market share. Total assets in the Balkan banking sector amounted to 36bn euros in 2005.

[edit] Manufacturing

The manufacturing sector accounts for about 13% of GDP. Due to its abundance of high quality raw materials, including fruits and vegetables, olives and olive oil, dairy products, and other specialty items, the food industry is one of the most profitable and fastest-growing areas of manufacturing, with significant export potential. According to ELKE, food processing in Greece increased its output from 1995 to 2000 by 27% and the 8 billion Euro industry employed more than 130,000, accounted for about 6.5% of GDP, roughly 25% of all exports. High-technology equipment production, especially for telecommunications, is also a fast-growing sector. The ICT sector accounts for aprox 6% of GDP. Other important areas include textiles, building materials, machinery, transport equipment, and electrical appliances.

[edit] Construction

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.

[edit] Agriculture

Greek agriculture employs 528,000 farmers, 12% of the total labour force and produces 7% of the national GDP (about $16 billion annually). Greece produces a wide variety of crops and livestock production. For more information see: Agriculture in Greece

[edit] EU membership

Greece realigned its economy as part of EU membership that began in 1981. Greek businesses are adjusting to competition from EU firms and successive governments have had to liberalize their economic and commercial regulations and practices. However, Greece had 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. Greece received 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, of which 14 billion ECU was from the Community Support Framework and 2.6 billion ECU was from the Cohesion Fund. That level of assistance continued in 1999 financing major public works and economic development projects, competitiveness and human resources programs, the improvement of living conditions and also addressed 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 budget, or approximately 1,8% of GDP.