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. Between 1997 and 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 2.4% 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.
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 to12.5% in 2010 and to 20.7% as of March 2012. 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.
European Union (EU) Membership
Greece has been a major net beneficiary of the EU budget; in 2009, EU transfers accounted for 2.35% of GDP. From 1994 to 1999, 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 continue, 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. The EU plans to phase them out in 2013.
In 2010 the U.S. trade surplus with Greece was $880.2 million. There are no significant non-tariff barriers to American exports. U.S. exports to Greece were $1.6 billion, accounting for 2.5% of Greece's total imports in 2010. 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.
Sources:CIA World Factbook (March 2012)
U.S. Dept. of State Country Background Notes ( March 2012)