Greece in figures
Selected economic indicators, statistics, facts and figures gathered from official sources as well as independent analysts, researchers, publications and other reliable sources
Outlook for 2007
According to Economy and Finance Minister George Alogoskoufis, in 2007 Greece's budget deficit will, for the second year in a row, stay below 3% of GDP, declining to 2.4%, from 2.6% last year. GDP growth is expected to stay at high levels until at least 2009, averaging 4% annually. The unemployment rate (8.3%) is expected to drop to 6.5% in 2009.
Outlining the Greek government's economicz priorities for 2007, Economy and Finance Minister George Alogoskoufis emphasised that the new year will be one of continued economic reforms. Alogoskoufis stressed that the government would implement new legislation on restructuring public sector enterprises and utilities, as well as promoting Public Private Partnerships (PPPs).
A new round of privatisations will include the ATHEX-listed Hellenic Telecommunications Organisation (OTE) and Greek Postal Savings Bank as well as the already privately-managed Mont Parnes Casino (Hellenic Casino of Parnitha SA) close to Athens, while he noted that privatisation of Public Gas Corporation would have to be agreed with the company's shareholders.
Alogoskoufis also said Greece's priorities in 2007 include draft legislation on regional growth, a new draft bill to sell state-owned real estate assets, a new customs code, implementing the 'Basel II' regulations on domestic financial institutions, legislation on better organising the domestic capital market, establishing a new national commission to combat tax evasion and legislation to promote transparency and more comprehensive information to investors.
Source: Greek News Agenda.
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Sixth Annual Review
December 2005 -- The New Democracy government elected in the March 2004 elections spent its first semester finishing preparations for the Olympic Games and its second concentrating on its programme of so-called 'fiscal housekeeping'. It is only in the past six months that it has really got down to the business of implementing its electoral programme. Its primary concern has been how to square the circle of balancing the budget while, at the same time, ensuring that fiscal policy does not damage growth prospects.
During the first four years of this decade Greek gross domestic product (GDP) forged ahead at annual average rates of 4.4%, while the average in the 12-member states of the Eurozone languished at 1.3%. This raised the prospect of the Greek standard of living -- which stands at about three quarters that in the EU -- rapidly approaching par.
But with the elimination of the increased demand that had been generated by the Games, the Greek growth rate dropped back to just 3.6% this year while in the EU-12 it stuck at 1.3%. (Next year the forecasts are for 3.8% and 1.9% respectively.) That is to say from having grown at a rate nearly three and a half times that of the EU-12, the Greek rate is now going to be only double which pushes back the prospect of parity by over a decade.
The rules of the Eurozone require member states to keep their budget deficits below 3% of GDP. The Panhellenic Socialist Movement (PASOK) governments, which took Greece into the EMU, used numerous accounting devices to secure such levels.
The incoming ND administration thought it could reveal just enough of these to blacken PASOK's reputation as good economic managers. Within weeks of taking office it declared that the deficit in 2004 would stand at 3.2% of GDP and not 1.2% as PASOK had projected.
The exercise went badly wrong. [more...]
The efficiency debate
Business File Special Survey No. 59, on the provision of private services
June 14, 2005 -- In the immediate aftermath of WWII, generally perceived wisdom was that the state should be the core provider of pensions, health care and higher education. The last two decades, however, have seen a drift to a more mixed system with the state providing the basics and the individual, who wants more, buying the service from private providers.
It begs many questions. Are state services sufficient? Are private services better? Are state services efficient? Is it fair that some should get more, simply because they can afford more?
Greater prosperity has brought with it higher expectations on the part of Greek citizens. The last PASOK and the present New Democracy governments have sought to fulfil them through a combination of policies that promote wealth generation and, at the same time, reduce taxation.
The corollary should be that the state spends less, however, so far, this has not happened. The Greek budget deficit has risen to a level twice that considered compatible with its membership of the Eurozone, with the result that Greece has been placed under surveillance by the budgetary authorities in Brussels.
In future, the state will have less to spend on the provision of the improved services that citizens have come to demand. Individuals will have to pay more simply sustain present levels of services and yet again more if they want improvements.
The New Democracy government is sympathetic to the notion of a mixed approach but it faces entrenched opposition from citizens who have grown used to the state footing the bill.
Then there is the matter of occupational pensions. In Greece at the moment, these are known as auxiliary pensions and they carry a state guarantee. Legislation was introduced in 2002 that allowed the creation of fully funded supplementary schemes in the private sector but the way in which it was couched effectively excluded private insurers from offering their ready-made products.
The insurance industry believes that it should get a look in here and, as well, that the state should offer tax relief that would promote the growth of private individual pension plans.
The government upgraded a number of state hospitals ahead of the Olympic Games. There are now tentative overtures being made towards private health care companies being allowed to use these against payment of fees which in turn the state could use to further upgrade the services in the public wards.
The ND government is also promoting public private partnership schemes in which private investors would finance hospital infrastructure, which the state would lease in which to provide its medical services. Eventually this concept could even extend to private hospital services such as cleaning, maintenance, catering, laundry and, provided the standards were ensured, nurses hired through private agencies.
In the sector of education the debate is even more polarised. Greece has world-class academics but universities are the preserve of the state with faculty remunerated as public servants. Pay and working conditions are poor and there is little incentive, except personal, for professors to do any more work than necessary.
The law allows for private tertiary education facilities but the degrees they award are not recognised by the state. Some are as good or better than many state institutions. Greece is the only member of the EU-25 without a quality standards mechanism to evaluate its higher educational institutions. The present government has drafted legislation to create one but it, too, has become caught up in another ideological debate as to whether the conservatives truly seek to improve educational standards or simply churn out graduate fodder for industry. [more...]
That's the way it is in Greece
Business File Special Survey, No. 55 on foreign direct investment
March 13, 2005 -- Greek GDP growth has in recent years regularly outstripped that of its European Union partners buoyed by structural fund aid of about EUR 4 billion a year from the third Community Support Framework (2000-2006). But when the fourth (2007-2013), now under negotiation, is finalised, transfers to Greece could be as much as halved as limited EU assistance is diverted to promote the convergence of the ten enlargement states that joined last May.
To compensate Greece must attract new foreign direct investment. Latterly it has not done well. According to a 2004 study by the OECD it ranked 26th out of the 29 member states with inflows in 2003 of just USD 0.7 billion (0.2% of the total), putting Greece ahead only of the Slovak Republic, Turkey and Iceland. In terms of cumulative inflows over the previous decade it attracted just USD 8.7 billion, ranking it 28th. In two of the past four years there has been net negative FDI with Greeks investing more outside the country than foreigners investing in it.
The problem is the country's general level of competitiveness. The International Institute for Management Development ranks Greece 43rd out of 60 countries surveyed and the World Economic Forum ranks it 38th out of 80. The issues are well known -- an unstable tax regime, excessive bureaucracy, and problems with land use and planning. Greece is the only European country except for Albania without a centralised Land Registry. Zoning laws are fragmented and securing planning permission is an arduous task involving multiple applications to central and local governments and other agencies.
The New Democracy administration is seeking to address the problems. It has promised to reduce the corporate tax rate to 25% from 35% in stages between now and 2007. It has introduced a new Development Law with grant aid up to 55% or tax breaks up to 100% of the investment made or with wage subsidies of up to 48% for two years for companies with limited capital but high manning requirements. The Ministry of Development has introduced legislation designed to cut permitting time from two years to 30 days. The Ministry of Environment, Town Planning and Public Works has Commissioned a study for a National Zoning Law and has promised to restart work on the Land Registry by this June.
Still foreign investors are proving reticent. The Hellenic Centre for Investment (ELKE) devoted considerable effort to the creation of a business centre in association with the 2004 Olympic Games but says it has received no follow up inquiries as yet. The organisation has 14 tourism projects in the pipeline potentially worth some EUR 1 billion but is loathe to discuss them before permitting is completed lest premature publicity provoke local backlash that could delay their realisation.
A major problem for FDI is that local business interests, without the resources themselves to develop projects, often are able to manipulate local governments to delay foreigners moving in while they manoeuvre to find the means to undertake them. Environmental groups, often delay heavy industrial projects such as mining ventures by appealing to the courts. Central government not only has to fight to attract investment but to overcome the resistance of local interest groups.
The New Democracy government appears to be willing to grasp the political nettle to cut through this labyrinth of red-tape and objections. In February, cabinet set a time limit of three months for cutting through the permitting problems that have delayed nine major investment projects, worth more EUR 2 billion, some of which have been trying to get off the ground for over a decade.
Despite these negative aspects, the general investment climate in Greece does seem to have improved since the country entered the Eurozone in 2001. The country's image has been much enhanced by the success of the Games and, as a consequence, the country is back on the investment radar screens of many companies. But most are not looking at making the greenfield investments that the country needs to sustain its growth rate. Instead they are buying up existing companies as going concerns to extend their own global networks or using them as regional headquarters for expansion in the Balkans. Over the longer term these investments will further burnish the image of the country and could promote future FDI but it does not address the immediate problem. [more...]
These issues are discussed together with profiles of many of the companies that have come to Greece in recent years in "That's the way it is in Greece," Business File, Special Survey No. 55, March 2005.
Source: Kerkyra Publications Ltd.
Taking stock: Business File Special Survey on Greek outward investment
A blue era? Business File Special Survey No. 54, December 2004
By Robert McDonald
December 20, 2004 -- The year 2004 was a turbulent one in Greek politics. The March general produced a landslide victory for the centre-right New Democracy party, thus ending a prolonged period of rule by the Panhellenic Socialist Movement (Pasok), which had been in government for all but three of the previous 23 years. In the elections for the European Parliament in June, the conservatives increased their lead over the socialists to a record nine percentage points. The magnitude of the victories suggested that perhaps a new era of conservative rule was at hand.
But the New Democracy government under Costas Karamanlis, nephew of the eponymous founder of the party, has eschewed traditional conservative policies and has instead promised "mild" policies. It has said that there will be reform but not at the expense of one political class over another. Mr. Karamanlis has repeatedly spoken of the need for dialogue and inclusiveness. In short he appears to be positioning the party in the centre of the political spectrum with a view to securing a long-term hold on office.
The socialist party meanwhile is undergoing a radical transformation under its new leader, George Papandreou, son of the party founder, Andreas Papandreou. He is seeking to establish what he terms "participatory democracy". This emphasises issues over ideology and involves greater input from non-party supporters, rather than just from party cadres. The concept envisions direct input into party policy from interest groups and non-governmental organisations rather than their views being filtered through party bureaux and committees. It is a novel concept for Greece and the effort to put it in place has left Pasok in considerable turmoil as the old-guard is only reluctantly inching aside for the new.
Immediately New Democracy came to office it had to deal with the complex national issue of Cyprus which was set to vote in a re-unification referendum ahead of accession to the European Union on May 1. In the event, the Greek Cypriots rejected the UN-brokered plan while the Turkish Cypriots accepted it. This has left the ND government with the delicate balancing act of advancing its process of rapprochement with Turkey while not being seen to abandon protection of Greek Cypriot interests.
The government also had the Herculean task of completing and executing the Olympic Games in August and the Paralympic Games in September. It performed admirably with a highly positive effect on international public opinion regarding Greece.
But despite all this, there was a nagging sense in the electorate that the government was inert. There had been great expectations of change. The government appeared constantly to have one eye on the possibility of a fresh election in March 2005 over the issue of the election of a president of the Republic. (This was resolved after our survey had gone to press when Mr. Karamanlis nominated the former socialist foreign minister Karolos Papoulias.)
The one thing that the government did do during its first semester was to undertake a thorough process of fiscal "housekeeping" which for 2004 added some four percentage points to the general government deficit (to bring it to 5.3% of GDP) and some 13.5 percentage points to general government debt (to bring it to 112.1% of GDP). The fiscal review put Greece in breach of the Economic and Monetary Union's Stability and Growth Pact and revealed that Greece had never met the convergence targets for membership of the Eurozone. The European Commission has said that there is no question of Greece being asked to leave the inner circle of the EU-12 but it has started infringement proceedings against the country for breaches of reporting regulations. The government has till January to reform its methods or the case will proceed towards a hearing before the European Court of Justice. Eurozone finance ministers (the so-called Ecofin Council) were, however, more lenient. They chided Greece for its waywardness but were equally critical of the Commission's statistical agency Eurostat for the quality of its monitoring. No sanctions were applied against Greece.
The third quarter of the new administration was filled with a rush of new legislation, including the 2005 budget, a new tax bill and a draft of the long-awaited Development Law. It also saw the conservatives and the socialists making tentative steps towards some common positions on thorny issues such as education reform.
As well as discussion of these issues, Business File Special Survey No. 54, "A blue era," contains interviews with the former and present ministers of economy and finance Nikos Christodoulakis and George Alogoskoufis and with the deputy governor of the Bank of Greece, Nikos Paleokrassas.
It also includes an extensive look at the government's pending privatisation programme based on the interview with Mr. Alogoskoufis.
Source: Kerkyra Publications Ltd.
Greek government measures to boost competitiveness (2005)
Source: Athens News (February 4, 2005).
Greece not among top-20 economies in terms of ease of doing business
September 8, 2004 -- Slovakia was the world's top reformer in improving its investment climate over the past year, allowing it to join the top-20 economies in the world on ease of doing business, according to a new report from the World Bank Group.
The report, titled "Doing Business in 2004: Understanding Regulation," ranks the world economies on their adaptability to change as well as their entrepreneurial climate. Greece is not one of the top 20 economies in terms of ease of doing business in a list that is topped by New Zealand and followed by the United States, Singapore, Hong Kong/China, Australia, Norway, the United Kingdom, Canada, Sweden, Japan, Switzerland, Denmark, The Netherlands, Finland, Ireland, Belgium, Lithuania, Slovakia, Botswana and Thailand.
Potential investors in Canada and the United Kingdom enjoy all seven main types of access to the ownership and financial information of publicly listed companies, while investors in Bosnia and Herzegovina, Bulgaria, and Turkey have less than half as much access.
"Doing Business in 2004: Understanding Regulation" is the first in a series of annual reports presenting new quantitative indicators on the performance of business regulations which can be compared across more than 130 countries, and over time. The indicators are used to analyse economic outcomes and identify what reforms have worked, where, and why.
The "Doing Business" project is the product of more than 3,000 local experts -- business consultants, lawyers, accountants, and government officials -- and leading academics, who provided methodological support and review. The data, methodology and names of contributors are publicly available on-line.
Source: World Bank.
Most attractive (and least attractive) European cities for investments
Going for Gold?
March 1, 2004 -- The Olympic Games are a branded franchise the operation of which is awarded by the International Olympic Committee (IOC) every four years to a national capital. It's Athens' turn in 2004.
It's a big gamble.
Greece is the smallest country to host the Games in more than half a century and the cost is putting a considerable strain on the economy. When Greece won the Games in 1997 it was argued that the cost would be bearable because 72% of the venues were already in place in an international standard sporting complex built in 1982 when Greece hosted the Paneuropean Games.
But bringing the 20-year old venues up to scratch and providing new infrastructure such as the athlete's village, an equestrian centre, a rowing centre, baseball diamonds and hockey fields has proved an expensive undertaking.
Initially, Athens 2004 SA, the company established to manage the Games thought it could oversee their construction using private-partnership funding. But contractors were not forthcoming and eventually the burden was passed to the state.
Athens 2004 is spending just under EUR 2 billion to organise the Games and the government EUR 4.6 billion to provide the venues and associated infrastructure. Both insist that's the absolute limit of their Games-related spending.
But the conservative opposition New Democracy party claims that the cost will mount to EUR 8.8 billion, while an anonymous official of the Ministry of Economy and Finance has been quoted in the press as saying the final bill will be EUR 10.7 billion.
All could be correct, it depends on how you tally the bill. The government has been rigorous about applying to its Olympic Budget, only those monies that are specifically Games related. [more...]
December 5, 2003 -- The Panhellenic Socialist Movement (PASOK) government is determinedly trying to capitalise on the benefits of membership of the Economic and Monetary Union (EMU) to promote what it calls "real convergence" in Greece. The government met the criteria on deficits, debt and inflation to become the twelfth member of the euro-zone in 2001. It did so with difficulty and, since, there has been considerable slippage on the fiscal and inflation fronts. The problems are compounded by the fact that the country has embarked upon a prolonged pre-electoral campaign which will drag into the Spring of 2004.
Greece conducted a highly successful presidency of the European Union during the first half of 2003, which included the signing of the Treaty of Athens to embrace 10-new member states and the presentation of the first draft of a new constitution for the Union. The government was particularly skilful in preventing open rifts between member states that supported the US invasion of Iraq (the UK and Spain) and those who opposed it (France and Germany).
It was generally thought that the government would capitalise on this - particularly the fact that after a seven-year diplomatic campaign it had secured accession for Cyprus -- in order to hold early elections this autumn. But opinion polls show that the electorate is more interested in matters such as rising prices and unemployment and think that the conservative opposition New Democracy party is better able to deal with such bread and butter issues. The socialists consistently trail the conservatives in opinion polls by between six to eight percentage points, a seemingly insurmountable deficit. The incumbent's only consolation is that the polls suggest, more often than not, that the electorate thinks Costas Simitis is the better man to be prime minister than his rival New Democracy head, Costas Karamanlis, a man who has never held a public office.
The government is thus playing a long game and will call the election close to the end of its term in April 2004. It has already announced the major elements of its economic programme, including a package of social benefits worth €1.7bn for 2004 and an integrated programme of social and development measures known as the Convergence Charter that will cost €7.7bn between 2004 and 2008. Its main targets are to increase the Greek standard of living to 80% of the EU norm and wages to 90% through a combination of policies that will promote high GDP growth and increased productivity. Defence spending will be cut to provide funds for extra spending on health and education. The conservatives say the Charter is nothing more than old promises that PASOK has failed to keep in the past but they have been parsimonious with details about their alternatives. They do say though that they will concentrate on reform of the administration, improvement in education to make it more relevant to work, liberalisation of closed markets, the promotion of competitiveness to improve the country's export potential and the introduction of measures to attract foreign direct investment.
The 2003 Update of the Hellenic Stability and Growth Programme shows budget deficits rising and debt falling more slowly than in the past with inflation regularly outstripping that in the Euro-zone by 1.5 percentage points. That said, it forecasts domestic product growing at an annual average rate of 4% a year to 2006, based on strong private consumption and gross fixed investments, with unemployment falling from 9% to 7%. The conservatives accuse the socialists of creative accounting and say they fear that the debt levels could be higher than officially recorded. They say that structural aid funds from the European Commission under the third Community Support Framework have not been wisely used and that they will have to be taken up far faster if the growth and new jobs are to be achieved. [more...]
indicators in 2002
Greece in figures 2002
Greece's immigrants' and population growth (1951-2001)
Greece's most profitable advertising agencies
Tourism: a major engine for growth
Tourism probably contributes close to 20% to Greek GDP -- directly and indirectly -- and accounts for about one in six of all jobs in the country. The foreign exchange generated is vital to sustaining the balance of payments. In 2001, the last year for which comparative figures are available, earnings from tourism covered nearly 48% of the merchandise trade deficit.
The figures above are couched in qualified terms because there are many sources of statistical data about the sector, all with their own particular definitions and interpretations. But it is fair to say that tourism contributes more to the Greek economy than manufacturing which generates a little over 12% of GDP. Government investment incentives, however, are skewed about four to one in favour of industry.
The multiplicity of data is a reflection of a major problem for the sector, namely that there are numerous representative bodies -- state and private -- all of which have their own agenda to promote. The result is that the government gets conflicting evidence on how best to proceed. Conversely, the sector must answer to a wide range of ministries -- development, transport, environment, interior, etc. -- and tourism entrepreneurs are constantly confronted with the dead hand of bureaucracy, which stifles development.
Efforts are afoot to create a Chamber of Tourism, that would be the counterpart to the Federation of Greek Industries, to provide consistent statistics and coherent policy guidance. But vested economic and political interests continue to block its creation.
Nonetheless, the sector is a major success story with between 12-14 million arrivals, depending on whose interpretation of the data is used, generating income of EUR 10-20 billion a year, again according to how the sector is defined.
Real per capita expenditure by tourists in Greece soared from USD 141 in 1950 to USD 738 in 2000. But the sector is highly cyclical, and prey to exogenous shocks. Since the September 11, 2001 terrorist attacks in New York, it has been going through a period of contraction and 2003 promises to be even worse for destinations in the Mediterranean basin because of the threat of war in the Middle East.
The question is how long the slump will go on? The Greek market expects a fillip in 2004 because of the Olympic Games in Athens. Tourist companies hope to be able to capitalise on this to generate slow but steady growth through the rest of the decade and the authorities are targeting over 19 million arrivals and receipts of USD 15 billion by 2010.
The problem is that rates of growth have slowed since the decades of the 1970s and 1980s and Greece is becoming both mature and saturated. Mature in the sense that prices are rapidly converging with European levels so that the country is losing its comparative advantage as an inexpensive destination. And saturated in that the majority of the tourists arrive in a 90-day period between mid-June and mid-September crowding venues and straining infrastructure. Some 70% of all tourists come on pre-packaged tours with charter airline companies. They spend an average of 12-days -- often in hotels filled with their own countrymen -- luxuriating in Greece's glorious sun and sea.
But other destinations in the area -- Turkey, Egypt, the Dalmatian coast -- offer similar products at cheaper prices. There is general agreement in Greece that there must be diversification in order to spread the arrivals throughout the year and to offer a multitude of new venues of which the country has many.
All the participants in the sector are agreed that there is need for the development of facilities for conferences, city breaks, golf, yachting, skiing, spa and medical tourism, etc. But aggregating the land and getting the requisite permits and licenses has to date proved a major obstacle.
The government has made a major step forward by transferring the tourist property portfolio of the Hellenic Tourism Organisation (EOT) to Tourism Development Company SA (ETA, formerly known as Hellenic Tourist Properties SA) [premium content], a state-owned development and management company. It has made a start on part-privatising facilities such as marinas and casinos and is working on developing golf and conference facilities. But even they have had difficulties in attracting investors because of the long payback periods involved in tourism projects, sometimes up to seven years. [more...] [premium content]
Greek tourism 2010: Strategy and goals
A study by the Association of Greek Tourist Enterprises
The Association of Greek Tourist Enterprises (SETE), in its study Greek Tourism 2010: Strategy and Goals, published in 2002, argued that by the end of the decade the Greek tourist industry should be targeting 19.4 million arrivals and receipts of USD 15 billion -- respectively increases of 32% and 48.5%. Such growth would only marginally increase Greece's share in the European market share from 3% in 2000 to 3.68% in 2010 and in the world from 1.87% to 1.92%.
With a rising tendency for short-duration holidays, and given the time-distance disadvantage of Greece from the main tourist generating-countries, the average length of stay, should remain at today's level of 10 days.
To support such growth, the study argued, the sector would have to invest in 128,000 new hotel beds, which will contribute to the improvement in quality of Greek hotels, and increase its stock of up-market ancillary services to 45 golf courses, 15 autonomous conference/congress centres, 24 thalassotherapy centres and 42 marinas. "These goals," the study concluded, "are ambitious but not unattainable" -- particularly in light of the potential legacy of the Athens 2004 Olympic Games.
Attracting tourists with a higher income level is expected to raise per capita expenditure from USD 737 in 2000 to USD 773 in 2010.
These goals are attainable only in case Greece moves immediately towards the development of a series of supportive tourist infrastructure, which will benefit the development of special forms of tourism and will smoothen the intense seasonality that characterises the demand for Greece.
Improvement of the investment climate, through substantial amendments and simplification of Greece's Development Law, attracting foreign investments, continuous renovations to all tourist enterprises, intensity of promotion of Greek tourism, all in connection with the Olympic Games in 2004, are the main strategic axes, to realise these goals, with of course, the constant dedication to quality and more value for money.
If you are an INVgr subscriber and wish to receive SETE's entire 32-page, Zipped Word document (1.76 MB) titled 'Greek Tourism 2010: Strategies and Goals' by E-mail, please contact us.
Sources: SETE -- Association of Greek Tourist Enterprises (2002), Business File, a survey of the Greek tourism industry by Robert McDonald ("Life's a Beach," no. 47, March 2003).
Third annual review of the Greek economy
After its success in achieving the convergence targets for membership of the EU's Economic and Monetary Union, the Panhellenic Socialist Movement (PASOK) government is now paying the political cost. It is trailing the conservative New Democracy opposition in opinion polls and it did poorly in the nationwide local elections in October 2002.
The social democratic reformers in PASOK are under pressure from the left-wing of the party to return to free-spending socialist policies and senior figures have even suggested coalitions with parties to the left as a means of retaining power. This has put a political brake on the reform effort, which has slowed, despite the leadership's continuing efforts to achieve parity with Eurozone living standards.
The economy is still growing strongly with GDP estimated at 3.8% in 2002, nearly five times the 0.8% average in the Eurozone. But the government has had to revise downwards its initial forecasts several times and the European Commission autumn forecasts suggest that the differential will narrow in the short term.
Economic fundamentals have also been tarnished by the decision this summer of Eurostat to redefine the way in which general government debt is calculated. The new definition has driven the Greek debt to GDP ratio up by 7.4 percentage points to 107% of GDP and turned the surpluses proposed for the budgets during the years 2001 to 2004 into deficits. Greece's convergence performance is back where it was in the late 1990s -- before entry into the EMU.
Inflation is sticking strong with the harmonised index of consumer prices (HICP) projected at 3.8% in 2002 compared to 2.3% in the Eurozone. The rate is forecast to come down over the next two years but the gap with Eurozone partners is expected to widen. This is having an adverse affect on Greek competitiveness making it difficult for manufacturers to export and to retain market share at home.
The current account deficit stood at 6.2% of GDP in 2001 and is anticipated to be about the same in 2002. Before entry into the EMU this would have necessitated measures such as import controls or devaluation of the currency. This will not happen now because the Greek deficit accounts for less than 2% of the Eurozone total and does not have great influence on the euro exchange rate. But it will have an affect on domestic unemployment, which still stands at 10% despite the government spending billions to try to reduce it.
Greece's estimated budget deficit for 2002 is EUR 1.5 billion or 1.1% of GDP.
"Political brakes," Business File's Special Survey (no. 46, December 2002), considers all these matters as well as examining progress on institutional reform (there is a detailed analysis of the new pensions law), institutional reform, and privatisation. It includes interviews with the new governor of the Bank of Greece, Nicholas Garganas, the Minister of Economy and Finance, Nikos Christodoulakis; his shadow, George Alogoskoufis; the Deputy Minister of Economy and Finance, Christos Pachtas (on the prospects for absorbing CSF funds); and, the Deputy Minister of Labour and Social Affairs, Rovertos Spyropoulos (on pension reform). [more...] [premium content]
State of the Greek economy since the early 1990s
Greece's public finances have improved between 1990-2002, with the deficit shrinking from a record -13.8% of GDP in 1990 to -1.4% in 2002. However, as it was revealed after the 2004 general elections, the budget deficit widened in 2003 to 3.2% of GDP (4.6% of GDP in 2003 according to Eurostat (September 2004)). This implies a swing in the stance of fiscal policy from "tight" to "easy" to the tune of 2.4% of GDP. This is in contrast to an announced 0.5% of GDP tightening at the beginning of fiscal 2003. The deterioration of public finances was concealed by not publishing data on the economy until after the general elections, which were held on March 7, 2004. Public debt as a percentage of GDP soared to an all time high of 111.6% in 1993, stabilised in the next few years, and then declined with the improvement in public finances. At the end of 2003, it stood at 102.4% of GDP (109.0%, according to Eurostat (September 2004)), still far away from the 60% ceiling of the Stability Pact. The stance of fiscal policy has been tightened since 1993. However, the improvement in public finances in the last few years exceeds the degree of fiscal tightening, as the economy has been growing faster than its potential. When the economy is growing faster than potential, tax revenues are boosted and public spending is lower, thereby reducing the public deficit more than is justified by the stance of fiscal policy. The stance of fiscal policy is judged by the change in the annual cyclically adjusted budget deficit. Thus, the deficit widened from -1.4% of GDP in 2002 to -3.0% in 2003, but fiscal policy was eased by a much larger amount, 2.4%. The smaller impact on the budget deficit is due to the fast growth of the economy above its potential. The major reason behind the fast growth of the economy has been the European Union's Third Community Support Framework (CSF III) and preparations for the Athens 2004 Olympic Games. [full report...] (28-page PDF report) [premium content]