Economy of Greece

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

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

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.

Greece achieved high rates of growth in the late 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. The general government debt was $119 billion at the end of 1998, or 105.5% of GDP. Greece's external debt was $32 billion at the end of 1998.

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, 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 historicallz 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.

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. In 2003 the Greek economy grew at an estimated rate of 4.7, the fastest in the EU. A part of this has been sustained by the investment in infrastructure in the run up to the Summer Olympic Games 2004 to be held in Athens.

Recent economic performance has been satisfying. However the challenge for policymakers now is to avoid an economic slump after the enthusiasm of the Games has gone and the EU farm subsidies get cut in 2006.

In 2004, Eurostat, the statistical arm of the European Commission revealed that the budgetary statistics, on the basis of which Greece joined the European monetary union, had been massively falsified (http://epp.eurostat.cec.eu.int/cache/ITY_PUBLIC/GREECE/EN/GREECE-EN.PDF) by the Greek government.

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 subway 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.

GDP: purchasing power parity - $187.7 billion (2002 est.)

GDP - real growth rate: 4,7% (2003 est.)

GDP - per capita: purchasing power parity - $17,697 (2002 est.)

GDP - composition by sector:
agriculture: 8%
industry: 22%
services: 70% (2002)

Population below poverty line: 20%

Household income or consumption by percentage share:
lowest 10%: NA%
highest 10%: NA%

Inflation rate (consumer prices): 2.6% (1999 est.)

Labor force: 4.32 million (1999 est.)

Labor force - by occupation: services 59.2%, agriculture 19.8%, industry 21% (1998)

Unemployment rate: 8.9% (2003 est.)

Budget:
revenues: $45 billion
expenditures: $47.6 billion, including capital expenditures of $NA (1998 est.)

Military expenditures: - dollar figure:
$6.12 billion (FY99/00 est.)

Military expenditures - percent of GDP:
4.91% (FY99/00 est.)

Industries: tourism; food and tobacco processing, textiles; chemicals, metal products; mining, petroleum

Industrial production growth rate: 1% (1999 est.)

Electricity - production: 43,677 GWh (1998)

Electricity - production by source:
fossil fuel: 8.26%
hydro: 91.24%
nuclear: 0%
other: 0.5% (1998)

Electricity - consumption: 42,180 GWh (1998)

Electricity - exports: 900 GWh (1998)

Electricity - imports: 2,460 GWh (1998)

Agriculture - products: wheat, corn, barley, sugar beets, olives, tomatoes, wine, tobacco, potatoes; beef, dairy products

Exports: $12.4 billion (f.o.b., 1998)

Exports - commodities: manufactured goods, food and beverages, fuels (1998)

Exports - partners: EU 56% (Germany 25%, Italy 11%, UK 8%, France 6%), US 16% (1997)

Imports: $27.7 billion (c.i.f., 1998)

Imports - commodities: manufactured goods, foodstuffs, fuels, chemicals (1998)

Imports - partners: EU 61% (Italy 16%, Germany 16%, France 8%, UK 7%, Netherlands 5%) US 11% (1997)

Debt - external: $41.9 billion (1998)

Economic aid - recipient: $5.4 billion from EU (1997 est.)

Currency: (Note: Greece has joined the eurozone in 1999 and the drachma has ceased to be national currency. The irrevocable exchange rate is 340,75 drachmas per 1 euro) 1 Euro (€) = 100 lepta (or cents)

Exchange rates: Euro (€) per US$1 - 1,24 (January 2004), Drachma (GRD) per US$1 305.65 (1999), 295.53 (1998), 273.06 (1997), 240.71 (1996), 231.66 (1995)

Fiscal year: calendar year

See Also

• Economy of Europe
• Greece

Template:WTOes:Economía de Grecia

fr:Économie de la Grèce