Legal and Finance Finance The Greek Economy
The Greek Economy
The Greek economy grew at a rapid pace prior to the recent global financial crisis. It is a key exporter of manufactured goods, food and drink, petroleum products, cement, pharmaceuticals and chemicals. It imports industrial and capital goods, foodstuffs, and petroleum. The standard of living in the country is high and this is demonstrated by the Quality of Life and the Human Development indices.
The Evolution of the Greek Economy
Towards the end of the 19th Greece adopted social and industrial laws as well as protective tariffs, which formed the backbone of a new Greek economy. Formerly an agricultural society, Greece embraced the Industrial Revolution and focused on key areas like food processing, shipbuilding, textiles and some consumer products. Between 1833 and 1911 the Greek Gross Domestic Product (GDP) was only slightly less than that of countries in Western Europe. Once the Greek Civil War ended in 1949 the Greek economy boomed over two decades and the country’s economic growth rate was only second to that of Japan. The Greek economic miracle brought an increase in the standard of living, which continued up until the mid-1970s, when labour and oil prices increased and GDP declined along with the rate of investment. Greece joined the European Community in 1981 and EU funds were used to boost the economy so much so that by the end of the Eighties, Greece had become one of 23 "advanced economies". The Geek government adopted a series of growth policies, which backfired and caused increases in inflation and difficulties with the balance-of-payments. Inefficiency in the public sector along with excessive government borrowing lead to a government debt that exceeded GDP by 100% in 1992 and this situation continued until the end of the Nineties. Greece tried to meet the requirements of the EU’s Economic and Monetary Union by reducing the budget deficit and the rate of inflation, but it was not until 2001 that Greece was able to join the Eurozone and adopt the Euro currency.
The Greek Economy Today
The Nineties were not all gloom and doom for Greece; economic measures taken contributed towards significant growth rates from 1994, which by 1996, resulted in rates above the EU25. The rate of economic growth was 4.7% by 2004 and was noted as the fastest in the EU15. The massive investment in the country’s infrastructure in the run up to the 2004 Olympic Games in Athens contributed greatly to this. Eurostat, the European Commission’s statistics and data agency show that real income has grown from 85% of the EU27 average in 1997 to 100% in 2007. Greece has continued to make good economic progress achieving growth rates of 4.4% in 2006 – one of the highest in the EU, where average rates are 1.7%. Challenges lie ahead in maintaining strong growth and in further improving the economy; Greece must tackle its unemployment figures, which currently hover around 8.8%. Plans are also afoot to reform the social security system and continue to privatise the public sector as well as overhauling the tax system. Greece has benefited greatly from its EU membership; in 1998 the EU made $4.9 billion in net payments. In 1994 the EU and the Greek government agreed on EU financing of 16.6 billion ecus and this money went towards building up the economy particularly in the realms of funding significant public works, economic development projects, competitiveness and human resources programmes. Differences in living conditions between poorer and rural parts compared to some of the wealthier towns and cities of the country have also been addressed.
Greece and the Economic Crisis
Greece launched a 100,000 euro guarantee over three years to cover the 230 billion euro bank deposits in the country, which was well above the EU-wide obligatory minimum of 50,000 euro over one year. This act demonstrated the stability of the Greek banking system despite having one of the highest lending growth rated in the EU. The Greek government expects a drop in economic growth from 4% to 3.3% due to decreased consumption as a result of rising food and petrol prices. Business and household debts owed to banks stood at 189.9 billion euro, which equated to 91% of GDP, a significant increase year on year. This trend of over lending meant that the rate of lending exceeded the rate of deposits.