Greece Economy Facts
Greece has been in a constant economic crisis since the autumn of 2008 – the deepest so far in an EU country. During the period 2009–2014, the country’s gross domestic product (GDP) shrank by a quarter, and a roughly equal share of the workforce lost their jobs. Wages have been reduced by an average of 20–25 percent, while pension levels and benefits in social security systems have been significantly reduced. In 2017, however, an economic recovery could be discerned.
One of the reasons why Greece is in this situation can be found in the military dictatorship of the 1960s and 1970s, when the country developed an extensive and expensive public sector, not least a great defense. Combined with low tax revenues, extensive tax evasion, a large informal (black) market and widespread corruption, the country has since incurred large deficits in the state budget, and a high government debt. In other words, the nation has long survived its assets. Many public servants were long paid without performing any actual work. The proportion of government employees in the workforce rose from 7.5 percent in the 1960s to over 22 percent in 2008.
- Countryaah.com: Major imports by Greece, covering a full list of top products imported by the country and trade value for each product category.
Basically, Greece has a broad economic base with multiple sources of income. By far the largest industry by far is the service sector, which, apart from the public sector, also consists of trade (not least shipping and shipping) and an important tourism industry. The latter accounts for almost a fifth of GDP and employs an approximately equal share of the labor force. Compared to other EU countries, agriculture is also of great economic importance, while the industrial sector is relatively small.
Greece was one of the poorest countries in the EU in the 21st century. However, economic growth was good from the mid-1990s to 2007. Growth was mainly driven by large foreign investment, especially from the EU’s various support programs. During this period of growth, the country’s fundamental economic weaknesses were hidden.
- Abbreviationfinder.org: Check this abbreviation website to find three letter ISO codes for all countries in the world, including GRC which represents the country of Greece. Check findjobdescriptions to learn more about Greece.
Strong state influence
The Greek economy was long characterized by a large state influence. Yet in 1998, almost half of all state-owned economic activities took place. During the 1990s, a privatization program was launched with the aim of adapting the economy to a future membership of the EU’s currency union (EMU), also called the euro zone. Since 2010, a number of state property sales have been conducted as a condition for support loans from, among others, the EU (see further below). State ownership has more than halved since the late 1990s.
For EMU membership, sound finances were required, such as a government debt of no more than 60 percent of GDP and a government budget deficit of no more than 3 percent of GDP. Prior to EMU entry in 2001, when Greece introduced the euro as currency, Greece increased both VAT and corporate tax. The soaring costs of the public sector, especially the military and state administration, sought to reduce the government by laying off staff and freezing or lowering the salaries of government employees.
In the fall of 2004, however, the new bourgeois government’s internal audit revealed that the former Pasok government had provided incorrect figures for the budget deficit in 1998 and 1999 – the years that underpinned the Greek EMU entry. The actual deficit was so great that Greece would not have been allowed to join the currency union if it had been known. Later that year, EU statistics revealed that since 1997, Greece’s budget deficit had never been below 3 percent. Between 1992 and 2009, the deficit actually averaged 7.2 percent of GDP.
As there was no legal basis for excluding Greece from EMU, the European Commission decided to monitor the Greek economy for the time being. The country was urged to reduce the budget deficit to the EMU’s maximum limit of 3 percent. Since Greece reported figures below that level in both 2006 and 2007, EU surveillance ceased, but a few years later, it would appear that these data also did not match reality.
The financial crisis in 2008 is hitting hard on Greece
Combined with a sovereign debt that has been well above 100 percent of GDP since the turn of the millennium, this was an important reason for Greece being hit so hard when the global financial crisis broke out in the fall of 2008. The Greek economy began to shrink immediately and the country was in a financial depression. (recession) until 2013. In 2009, the situation deteriorated rapidly, and in early 2010, the government presented a austerity package, which aroused strong popular protests but which was approved by the European Commission. However, Greece was again under surveillance because the EU feared that its crisis could spread to other euro countries.
As GDP continued to shrink, the budget deficit to rise (to a record 15.6 percent of GDP in 2009) and government debt measured at over 130 percent of GDP, in May 2010, the government was forced, in exchange for severe budget cuts, to take a € 110 billion loan from the EU, the European Central Bank (ECB) and the International Monetary Fund (IMF). Also in 2011, the government was forced to take a similar loan from the same lenders, this time at € 159 billion. At that time, the national debt was 175 percent of GDP. In autumn 2011, the EU pushed European privately owned banks to write down Greece’s debt to them by 50 percent.
In both cases, the loan terms meant, among other things, that the number of public employees would be reduced, that state property would be sold out, that tax collection would increase, that government employees would receive frozen salaries, and that pension levels and benefits in the social insurance systems would be lowered. All these measures led to rapidly declining living standards for many Greeks and rising poverty in the country.
It became increasingly clear that Greece was in a vicious circle that was difficult to get out of. The severe tightening increased unemployment dramatically and lowered the purchasing power of the population. Lots of stores and small businesses had to strike again and fewer and fewer euro banknotes poured into the system. The formerly large informal economy increased in scale as the Greeks tried to feed on services and gene services or on street trade. The state’s already weak ability to collect taxes hardly got any better from this. At the same time, the state’s income from corporate taxes decreased as many companies went bankrupt.
The country’s banks soon had a shortage of capital when large numbers of private individuals and companies could no longer pay off their loans. Many Greeks also emptied their bank accounts, fearing that the bank would collapse and the savings would disappear – or because they had nothing but saved money to live on. The mass withdrawals increased the risk of a bank collapse and made the banks increasingly cautious about lending money to companies, which therefore probably renounced new investments that could have created more jobs.
In an assessment in June 2013, the IMF stated that the negative effects of austerity policy had been underestimated by the lenders and that the budget cuts had exacerbated the Greek crisis. The limited debt write-offs that Greece should have come a long time ago, according to the IMF. The evaluation included criticism of the European Commission and showed contradictions between the three lenders.
Some hope for better times
Economic experts now pointed out that Greece’s crisis was not just due to carelessness, neglect and low productivity. The very construction of the euro co-operation was considered to have paved the way for problems when countries with very different economies and conditions joined forces in a currency union without a common fiscal policy. The countries could end up in different economic situations without the possibility of steering themselves out of a recession by lowering interest rates to accelerate the economy. There were also no mechanisms for redistributing resources between countries.
When 2013 was over, it turned out that the budget deficit fell to just over 2 percent of GDP during the year. 2014 saw for the first time since 2008 a marginal growth in the economy, while the figure the following year was down to zero. Despite the ambition to negotiate less stringent terms than in previous loan settlements, the new Syriza government was forced in August 2015 to take a third support loan, of EUR 86 billion, with the toughest reform demands to date (see Calendar).
During the first half of 2016, the economy shrank again. The problem with a so-so high debt, as was the lack of money for the state and the banking system. In May 2016, unemployment was 23.5 percent.
The economy is starting to grow
In the fall of 2017, Prime Minister Tsipras announced that the government has spent a total of € 1.4 billion on facilitating the most vulnerable households. The Greek state had strengthened its economy over the past year. EUR 720 million would be paid in the form of cash grants to households with a total annual income of less than EUR 18 000, which affected around 3.4 million Greeks. EUR 315 million would be spent on compensating pensioners for increased health care costs and EUR 360 million went to the indebted state electricity company Dei so that it could offer cheaper electricity to poor consumers.
In March 2018, the government further released the capital controls introduced in June 2015. Now the Greeks can withdraw a maximum of EUR 2,300 in cash per month compared to EUR 1,800 previously. When traveling abroad, EUR 2,300 in banknotes can be withdrawn from the bank. The limit for bank withdrawals from abroad has also been increased, to EUR 2,000 every two months.
Capital controls were introduced to prevent bank customers from plucking out too much money too quickly during the culmination of the debt crisis. The Greek economy has slowly strengthened since then, showing GDP growth of 1.4 percent in 2017.
In March 2018, the lenders made a final payment of EUR 5.7 billion. A final payment is expected to be made later this spring. The rescue program from the lenders expires in August 2018. Then Greece is expected to stand on its own.
In June 2018, the eurozone’s 19 finance ministers agreed to pay out EUR 15 billion to the Greek government to facilitate the country when it leaves the rescue program on August 20.
FACTS – FINANCE
GDP per person
US $ 20,324 (2018)
US $ 218,032 million (2018)
1.9 percent (2018)
Agriculture’s share of GDP
3.7 percent (2018)
Manufacturing industry’s share of GDP
9.6 percent (2018)
The service sector’s share of GDP
68.1 percent (2018)
0.6 percent (2019)
Government debt’s share of GDP
184.9 percent (2018)