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Prior to the global financial crisis of 2008–2009, Greece had managed to achieve a fast-growing economy after the implementation of stabilization policies in recent years. It remains a net importer of industrial and capital goods, foodstuffs, and petroleum. Leading exports are manufactured goods, food and beverages, petroleum products, cement, chemicals, pharmaceuticals and telecommunication equippment. The people of Greece enjoy a high standard of living, reflected by the country's high Human Development Index (the world's 18th highest) and Quality-of-Life Index.

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 20th century consisted primarily of food processing, shipbuilding, and the manufacture of textiles and simple consumer products.

The evolution of the Greek economy during the 19th century (a period that transformed a large part of the world due to the Industrial revolution) has been little researched. Recent research examines the gradual development of industry and further development of shipping in a predominantly agricultural economy, calculating an average rate of per capita GDP growth between 1833 and 1911 that was only slightly lower than that of Western European nations. Other studies support this view, providing comparative measures of standard of living. The per capita income (in purchasing power terms) of Greece was 65% that of France in 1850, 56% in 1890, 62% in 1938, 75% in 1980 and 90% in 2007 , while it stood at 96.4% in 2008 according to CIA Factbook (September 2009 data).

After the end of the Greek Civil War in 1949 and for more than two decades Greece achieved the second highest economic growth rate in the world after Japan, resulting in a dramatic improvement of living standards (the "Greek economic miracle"). 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 on January 1, 1981 and cohesion funds have contributed considerably to the country's economic development.

Although by 1989 Greece belonged to a group of 23 "advanced economies", the 1980s was a period of serious economic problems. 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, only ¼ of the total. The general government debt was $119 billion at the end of 1998, or 105.5% of GDP. 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, reaching 23% in the early 1990s. 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 historically 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 and the rest of the Eurozone.

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. The Greek Economy has been growing continuously since 1994 and above the EU25 average since 1996. In 2004 the Greek economy grew at an estimated rate of 4.7%, the fastest in the EU15. A part of this has been sustained by the investment in infrastructure in the run up to the Summer Olympic Games 2004 that were held in Athens. As a result, real incomes have risen from 85% of EU27 average in 1997 to almost 100% in 2007 (revised data, source Eurostat, 21 April 2007).

In 2004, Eurostat, the statistical arm of the European Commission, after an audit performed by the New Democracy government, revealed that the budgetary statistics on the basis of which Greece joined the European monetary union (budget deficit was one of four key criteria for entry), had been massively underreported by the previous Greek government (mostly by not recording a large share of military expenses). However, even according to the revised budget deficit numbers calculated according to the methodology in force at the time of Greece's application for entry into the Eurozone, the criteria for entry had been met.

Recent economic performance has been satisfying. However, there are two challenges for policymakers: a)to avoid an economic slump after the enthusiasm of the Games has gone and the EU farm subsidies get cut in 2006 and b) to proceed with lala structural economic reforms, especially in the areas of social insurance, welfare, and the labour market which will encourage further investments, lower the country's high unemployment and promote growth and economic stability. The first step was taken on the 30 June 2005 with substantial reforms of the insurance system for bank employees against fierce opposition from the unions and the main opposition political party PASOK with laws liberalising working hours in retail trade and employment and providing for public/private financing initiatives of public works and services to follow over the summer.

During the third quarter of 2006, Greece experienced a strong 4.4% growth rate, while in the same period of the previous year, the growth rate was 3.8%. This is among the highest rates in the EU and the Eurozone, where the average growth rates for these periods were estimated to stand as 2.7% and 1.7% respectively. Current challenges include the further reduction of unemployment which currently stands at 8.8%, the reform of the social security system, the further privatization of the public sector, the overhauling of the tax system and the further reduction of certain bureaucratic inefficiencies. Reduction of the fiscal deficit to the Eurozone target of 3% of GDP had also become a key issue. Under a negotiated agreement, the EU had given Greece a two year deadline (budgets of 2005 and 2006) in order to bring the deficit in line with the criteria of the EU's stability pact, namely below 3%. In 2005, the deficit stood at 5.5% of GDP, while in 2006 the deficit fell below 3%, standing at 2.6% (figure approved by Eurostat in April 2007). Based on this figure and forecasts for the following years, EU's Excessive Deficit Procedure for Greece officially ended on June 5, 2007.

Following European Union rules, Greece revised its GDP in October 2007 upwards by 9.6% (a much smaller revision than the one originally planned in 2006). In contrast to other member states, Greece had not revised its base of measuring its GDP for several years.

On 9 October 2008, as a response to the subprime mortgage crisis, Greece introduced a 100,000 Euro guarantee for the 230 billion Euro bank deposits in the country for three years, well above the EU-wide Ecofin-mandated minimum of 50,000 Euro for one year, and gave assurances that the Greek banking system is stable, while the Greek central bank announced a drop in the expected growth of the Greek economy to 3.3% (from 4%) because of decreased consumption caused by high petrol and food prices. (ekathimerini), (ekathimerini), (Forbes), (Wikinews). Although remaining above the euro area average, economic growth will turn negative in 2009 for the first time since 1993.

Household debt

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The explosion of borrowing and lending was that they emerged after the banking deregulation and the falling interest rates caused Greece to have among the highest lending growth rates in the EU.

Between January and July, the business and household debts to the banks, including corporate bonds issued by enterprises reached 189.9 billion euro or 91% of GDP, showing an increase of 20.6% over the corresponding period last year. Household debt in mortgage and consumer loans increased by 23.9% to 89.3 billion euro.

Foreclosures of debtors who could not repay their loans, have reached 55,000.

Indicative of the 'trend' of over-loaning in recent years is the fact that the ratio exceeded deposits for lending in the first half of the 100 units, suggesting that the allocations are now more than deposits.

EU membership

Greece realigned its economy as part of EU membership that began in 1981. Greek businesses are adjusting to competition from EU firms and successive governments have had to liberalize their economic and commercial regulations and practices. However, Greece had 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. Greece received 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, of which 14 billion ECU was from the Community Support Framework and 2.6 billion ECU was from the Cohesion Fund. That level of assistance continued in 1999 financing major public works and economic development projects, competitiveness and human resources programs, the improvement of living conditions and also addressed disparities between poorer and more developed regions of the country. Greece is set to receive 20.1 billion euros of funds from the EU's budget, or approximately 1.8% of GDP.

References

1. K. Kostis and S. Petmezas (ed.), I anaptixi tis Ellinikis oikonomias ton 19o aiona (Development of the Greek economy in the 19th century), Alexandria publications, Athens (2006)
2. Paul Bairoch, Europe's GNP 1800-1975, J. of European Economic History, 5, pp. 273-340 (1976)
3. Angus Maddison, Monitoring the World Economy 1820-1992, OECD (1995)
4. Eurostat, including updated data since 1980 and data released in April, 2008
5. "REPORT BY EUROSTAT ON THE REVISION OF THE GREEK GOVERNMENT DEFICIT AND DEBT FIGURES" (pdf). 2004-11-22.
6. "Finmin says fiscal data saga has ended in wake of EU report". 2004-12-08.
7. European Commission, Economic Forecast – Spring 2009, 65
8. "Ζούμε με δανεικά" (in Greek). 2007-10-16.

See also

• OECD's Greece country Web site and OECD Economic Survey of Greece
• Companies of Greece
• Economic history of Greece and the Greek world
• Economy of Europe
• Agriculture in Greece
• Tourism in Greece
• Social Insurance Institute

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• Economy of Greece
• European Union member economies
• OECD member economies