Greece - Economy
Greece lost a quarter of its economic output during its eight-year depression. Unemployment peaked at 28 percent in 2013 and remained at 19 percent in 2019. Economists recorded it as the worst contraction of any developed economy since the second world war. And although a recovery did begin under Syriza, it has been weak. The economy grew by less than two percent in 2018, a performance it is set to repeat in 2019.
On 20 August 2018, Greece exited the third and final bailout program of a nine-year debt crisis that had chopped around a quarter off the country's economy. Since the crisis exploded fully in 2010, four different governments have battled to keep the country going via the biggest bailout in economic history: loans of more than €260 billion ($296 billion) lent by EU countries and the IMF.
Eurozone states agreed 22 June 2018 on a plan that they say would allow Greece to exit its eight-year bailout program and make its massive debts more manageable. The finance ministers of the 19 EU countries reached the compromise after a day of marathon talks in Luxembourg. The ministers were under pressure to finalize a deal that would allow Greece to safely emerge from the bailout program on August 20 and face the markets again.
"The Greek crisis ends here tonight," said EU Economic Affairs Commissioner Pierre Moscovici. "We finally got to the end of this path which was so long and difficult. It is a historic moment." Under the deal, Greece can delay repayment on billions in loans for another 10 years, giving it a financial breather. It also got another injection of another 15 billion euros ($17.5 billion).
Despite all the mistakes and all the hardships that the Greek people had to endure, the country's return to profitability was a success for the EU — and for the states that use the euro in particular. In 2010, when it became apparent that excessive deficits, wages and public debt had left the Greek state on the verge of bankruptcy, the EU and International Monetary Fund (IMF) offered loans. They didn't have to. The EU's treaties specifically exclude bailouts. An agreement was reached to lend Greece money at extremely favorable conditions to enable it to continue to meet its obligations, such as paying state wages and pensions. Naturally, eurozone countries were not solely motivated by solidarity. Self-interest was also part of it: The deal also ensured that banks in Germany, France and Spain weren't bankrupted and dragged into the abyss along with Greece.
The triangular struggle between Greece, the European Union and the International Monetary Fund (IMF) had raged since late 2009, with no end remains in sight. By 2017 the Greek economy finally emerged into consistent growth, following eight years in which the country's output declined by 25 percent, and almost 25 percent of the Greek workforce were forced out of their jobs.
The International Monetary Fund (IMF) said 07 February 2017 that Greece may require additional debt relief despite harsh austerity policy and Europe's help, the policies to restore growth will have to be carried out. "Most Directors [of the IMF Executive Board] considered that, despite Greece’s enormous sacrifices and European partners’ generous support, further relief may well be required to restore debt sustainability. They stressed the need to calibrate such relief on realistic assumptions about Greece’s ability to generate sustained surpluses and long term growth," the statement read. According to the Executive Board directors, "debt relief needs to be complemented with strong policy implementation to restore growth and sustainability."
On 15 February 2017 German finance minister Wolfgang Schauble renewed his strict stance on Greece, dismissing the embattled Syriza government's fresh calls for debt relief, and insisting on yet more austerity. Schauble demanded Greece stick to an agreed budget surplus target, and meet debt service payments of 3.5 percent of GDP until 2028, despite the IMF deeming these targets highly unrealistic.
On August 14, 2015 Eurozone finance ministers approved the first $29 billion payment of a $93 billion bailout deal for Greece after the Greek Parliament approved the package earlier in the day. The bailout package passed the Greek parliament by a comfortable margin in early Friday, but many lawmakers from Prime Minister Alexis Tsipras' leftist Syriza party voted against the deal. Growing discord within Syriza could split the party and lead to early elections.
Greek stocks plunged 03 August 2015 when the Athens Stock Exchange opened for the first time in five weeks, losing nearly 23 percent in the opening moments of trading, but later recovering some lost ground. By day's end, the Greek market closed down 16 percent, with bank stocks battered as the Greek government struggles to negotiate a new bailout with its international creditors, the country's third in the past five years. Capital controls were still in place, and the government continued to talk with creditors on exact terms for a new rescue package that could be worth up to $94 billion.
Greece reached agreement with the European Union and International Monetary Fund in July 2015 to negotiate the new bailout and reopened its banks on July 20. Talks on the new bailout came after weeks of negotiations and controversy. Many Greeks oppose the type of harsh austerity measures creditors demand, saying they only have made the country's economic woes worse.
Greek voters overwhelmingly rejected the demand by the country's lenders to impose more austerity measures on them in exchange for new bailout loans for the government in Athens. In the Sunday 05 July 2015 referendum, more than 60 percent rebuffed warnings from European leaders that ignoring their calls for more austerity could force the country from the 19-nation euro currency bloc.
The International Monetary Fund reported 02 July 2015 that significant changes in policies since 2014 — not least, lower primary surpluses and a weak reform effort that will weigh on growth and privatization — were leading to substantial new financing needs. Coming on top of the very high existing debt, these new financing needs render the debt dynamics unsustainable. If grace periods and maturities on existing European loans are doubled and if new financing is provided for the next few years on similar concessional terms, debt can be deemed to be sustainable with high probability. A lower medium-term primary surplus of 2½ percent of GDP and lower real GDP growth of 1 percent per year would require a significant haircut of debt.
Eurozone finance ministers agreed February 20, 2015 to extend Greece’s bailout loan program for four months, overcoming a Greece-Germany stand-off. Greek officials are expected to present a list of comprehensive reforms on Monday for the country's debt inspectors to assess. Parties realized that is more beneficial to be “logical than ideological,” an EU official said. European creditors had insisted that any extension to loans should have strings attached to some budget measures and reforms.
The Athens stock market plunged 9 percent 28 January 2015, and key banks lost more than a quarter of their value, as new Greek Prime Minister Alexis Tsipras vowed to no longer blindly submit to the austerity demands of other European governments. "We did not come here to take over institutions and to enjoy the trappings of power," Tsipras told his new cabinet that is dominated by leftist academics.
Prime Minister Tsipras took power 26 January 2015, after an election campaign in which he vowed to end the severe austerity measures that have led to sharp pension and wage cuts, higher taxes and massive unemployment. Greece was seeking to eliminate some of its massive debt and ease austerity measures the creditors forced on the country in exchange for more than $300 billion in bailouts.
German Finance Minister Wolfgang Schaeuble said August 20, 2013 Greece will need a third international bailout when money from its current economic rescue package starts to run out in 2014. The blunt-spoken Schaeuble told a political rally that Athens will need another infusion of cash to keep it from defaulting on its financial obligations. Greece's international lenders already have approved $320 billion in two bailouts to keep it from going bankrupt.
Greeks saw their incomes plunge by about a third since the debt crisis erupted in 2009 and prompted Greece to seek two bailouts from the EU and the IMF. The unemployment rate has hit nearly 27 percent and suicide rates have soared. Worst hit have been the youth, nearly 60 percent of whom were unemployed by 2013. The International Monetary Fund acknowledged on 05 June 2013 that it had underestimated the damage done to Greece's economy from spending cuts and tax hikes imposed in a bailout, which was accompanied by one of the worst economic collapses ever experienced by a country in peacetime.
The Executive Board of the International Monetary Fund (IMF) stated that "... a priority now is to tackle tax evasion by reforming the revenue administration to improve collection efficiency and enhance its operational independence, and if necessary, consideration could be given to creating an independent tax agency. Directors encouraged the authorities to save any gains from better tax collection, continue to broaden the tax base, and press ahead with public administration reform, particularly the targeted reduction in staff and replacement of under-performing workers with better qualified staff."
The monetary crisis in Greece, which first exploded in 2009, set off a chain reaction across Europe. By 2012 Greece was in its fifth year of recession, with unemployment spiraling to above 22 percent. Greece adopted the euro as its currency in January 2002. The adoption of the euro provided Greece (formerly a high inflation risk country under the drachma) with access to competitive loan rates and also to low rates of the Eurobond market. This led to a dramatic increase in consumer spending, which gave a significant boost to economic growth.
The country's biggest bank, the National Bank of Greece, said in mid-2012 that a eurozone exit “would lead to a significant drop in living standards for Greek citizens.” The bank said Greeks would lose more than half their income and the value of the reinstated drachma would fall 65 percent. The country's already high jobless rate would soar to 34 percent, and inflation would surge to 30 percent. While Greece's economy accounts for just 2 percent of the eurozone economy, some analysts think a default on its financial obligations and a eurozone exit could easily lead to turmoil on world financial markets and a sharp downturn in the U.S. and world economies.
Greek unemployment hit a record 21.7 percent in February 2012. More than half of young people had no job. European neighbors and the International Monetary Fund have twice bailed out the country, sending it billions of dollars in the two years since mid-2010. Foreign creditors had eliminated more than half the debt Greece owed them. But many Greeks were angered at the terms of the rescue packages — that the government impose far-reaching austerity measures, cut wages and pensions, and eliminate thousands of government jobs. On the other hand, Greece's European neighbors said they would cut off the flow of bailout funds if a new government reneged on the country's earlier austerity pledge.
Between 1997-2007, Greece averaged 4% GDP growth, almost twice the European Union (EU) average. As with other European countries, the financial crisis and resulting slowdown of the real economy have taken their toll on Greece's rate of growth, which slowed to 2.0% in 2008. The economy went into recession in 2009 and contracted by 2.0% as a result of the world financial crisis and its impact on access to credit, world trade, and domestic consumption--the engine of growth in Greece. Key economic challenges with which the government is currently contending include a burgeoning government deficit (13.6% of GDP in 2009), escalating public debt (115.1% of GDP in 2009), and a decline in competitiveness. The EU placed Greece under its Excessive Deficit Procedure in 2009 and has asked Greece to bring its deficit back to the 3% EU ceiling by 2012.
In late 2009, eroding public finances, misreported statistics, and inadequate follow-through on reforms prompted major credit rating agencies to downgrade Greece's international debt rating, which has led to increased financial instability and a debt crisis. Under intense pressure by the EU and international lenders, the Greek Government has adopted a three-year reform program that includes cutting government spending, reducing the size of the public sector, tackling tax evasion, reforming the health care and pension systems, and improving competitiveness through structural reforms to the labor and product markets. The Greek Government projects that its reform program will achieve a reduction of Greece's deficit by 4% of GDP in 2010 and allow Greece to decrease the deficit to below 3% by 2012. In April 2010, Greece requested activation of a joint European Union-International Monetary Fund support mechanism designed to assist Greece in financing its public debt.
The financial crisis and the consecutive recession caused an increase in unemployment to 9% in 2009 (from 7.5% in 2008). Unfortunately, foreign direct investment (FDI) inflows to Greece have dropped, and efforts to revive them have been only partially successful as a result of declining competitiveness and a high level of red tape and bureaucracy. At the same time, Greek investment in Southeast Europe has increased, leading to a net FDI outflow in some years.
Greece has a predominately service economy, which (including tourism) accounts for over 73% of GDP. Almost 9% of the world's merchant fleet is Greek-owned, making the Greek fleet the largest in the world. Other important sectors include food processing, tobacco, textiles, chemicals (including refineries), pharmaceuticals, cement, glass, telecommunication and transport equipment. Agricultural output has steadily decreased in importance over the last decade, accounting now for only 5% of total GDP. The EU is Greece's major trading partner, with more than half of all Greek two-way trade being intra-EU. Greece runs a perennial merchandise trade deficit, and 2009 imports totaled $64 billion against exports of $21 billion. Tourism and shipping receipts together with EU transfers make up for much of this deficit.
Greece has been a major net beneficiary of the EU budget; in 2009, EU transfers accounted for 2.35% of GDP. From 1994-99, about $20 billion in EU structural funds and Greek national financing were spent on projects to modernize and develop Greece's transportation network in time for the Olympics in 2004. The centerpiece was the construction of the new international airport near Athens, which opened in March 2001 soon after the launch of the new Athens subway system.
EU transfers to Greece continued, with approximately $24 billion in structural funds for the period 2000-2006. The same level of EU funding, $24 billion, has been allocated for Greece for 2007-2013. These funds contribute significantly to Greece's current accounts balance and further reduce the state budget deficit. EU funds will continue to finance major public works and economic development projects, upgrade competitiveness and human resources, improve living conditions, and address disparities between poorer and more developed regions of the country. They are planned to be phased out in 2013.
In 2008, the U.S. trade surplus with Greece was $1.1 billion. There are no significant non-tariff barriers to American exports. U.S. exports to Greece reached $2.4 billion, accounting for 2.7% of Greece's total imports in 2008. The top U.S. exports remain defense articles, although American business activity is expected to grow in the tourism development, medical, construction, food processing, and packaging and franchising sectors. U.S. companies are involved in Greece's ongoing privatization efforts; further deregulation of Greece's energy sector and the country's central location as a transportation hub for Europe may offer additional opportunities in electricity, gas, refinery, and related sectors.
High growth and low interest rates had masked major fiscal and structural weaknesses that were aggravated by the global financial crisis and ensuing recession. As a result of a high 2009 fiscal deficit (revised upward by Eurostat to 15.4% of GDP from 13.6% of GDP), mounting entitlement costs, and deteriorating competitiveness resulting from higher than Eurozone-average inflation and rigidities in product and labor markets, markets in early 2010 began to question the sustainability of Greece’s public debt (2009 debt revised upward by Eurostat from 115.1% of GDP to 126.8% of GDP). Ever-increasing market doubts and pressures resulted in higher and higher borrowing costs throughout the winter and spring of 2010.
Eventually, unsustainable borrowing costs caused Greece to lose market access, forcing Prime Minister Papandreou on April 23, 2010 to request an emergency assistance program from his Euro-area partners and the International Monetary Fund (IMF). In early May, the Greek parliament, Euro-area leaders, and the IMF Executive Board approved a 3-year €110 billion (about $145 billion) adjustment program to be monitored jointly by the European Commission, the European Central Bank, and the IMF. Under the program, Greece has promised to undertake major fiscal consolidation and to implement substantial structural reforms in order to place its debt on a more sustainable path and improve its competitiveness so that the economy can re-enter a positive growth trajectory. Specifically, the 3-year reform program includes measures to cut government spending, reduce the size of the public sector, tackle tax evasion, reform the health care and pension systems, and liberalize the labor and product markets.
Since that time, the Greek Government has legislated a number of these important reforms and reduced the deficit from 15.4% of GDP in 2009 to 10.6% of GDP in 2010. Slow implementation of the reforms, along with a deeper than projected recession, led Eurozone leaders to a new agreement on October 26-27, 2011. It includes a “voluntary” nominal loss of 50% on private holdings of Greek Government debt (known as Private Sector Involvement, PSI) worth €100 billion (approx. $133 billion), an EU contribution to PSI of €30 billion (approx. $40 billion), and an additional €100 billion (approx. $133 billion) in official loans through 2014.
The global crisis and the consequent recession caused an increase in unemployment to 12.5% in 2010 (from 9.5% in 2009). Unemployment is expected to continue to rise, reaching 15.2% in 2011. Foreign direct investment (FDI) inflows to Greece have dropped, and efforts to revive them have been only partially successful as a result of declining competitiveness and a high level of red tape and bureaucracy. At the same time, Greek investment in Southeast Europe and Turkey has increased, leading to a net FDI outflow in some years.
Greece has a predominately service economy, which (including tourism) accounts for almost 79% of GDP. In 2010, the Greek merchant navy was the largest in the world at 15.96% of the world's total capacity. Other important sectors include food processing, tobacco, textiles, chemicals (including refineries), pharmaceuticals, cement, glass, telecommunication and transport equipment. Agricultural output has steadily decreased in importance over the last decade, accounting now for only 3.3% of total GDP. The EU is Greece’s major trading partner, with more than half of all Greek two-way trade being intra-EU. Greece runs a perennial merchandise trade deficit, and 2010 imports totaled $64.5 billion against exports of $22 billion. Tourism and shipping receipts together with EU transfers make up for much of this deficit.
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