The Greek economy is slowly coming out of a slump caused by a drop in investment and the implementation of stabilization policies in recent years. Greece remains a net importer of industrial and capital goods, foodstuffs, and petroleum. Leading exports are manufactured goods, food and beverages, petroleum products, cement, chemicals, and pharmaceuticals.
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 century consisted primarily of food processing, shipbuilding, and the manufacture of textiles and simple consumer products.
Greece achieved high rates of growth in the late 1960s and early 1970s due to large foreign investments. 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. 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 2-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. The general government debt was $119 billion at the end of 1998, or 105.5% of GDP. Greece's external debt was $32 billion at the end of 1998.
Greece, as a member of the EU, is currently striving to reduce its budget deficit and inflation rate in order to meet the prerequisites for the European monetary union. Although growth remained above the convergence program guidelines, high budget deficits and deficient infrastructure continue 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 fall 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, 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 a significant problem, despite recent cuts in both treasury bill and bank rates for savings and loans. The government's strong drachma policy and Public Sector Borrowing Requirement (PSBR) make the lowering of interest rates difficult, but progress was made in 1997-99 and rates are gradually declining in line with inflation.
Services, including tourism, make up the largest and fastest-growing sector of the Greek economy, accounting for about 62.7% of GDP in 1998.
Tourism is a major source of foreign exchange earnings. Although it is one of the country's most important industries, it has been slow to expand and suffers from poor infrastructure. With more than 10 million tourists visiting Greece in 1996, the tourist industry faced declining revenues, partly due to the strong drachma. Revenue from tourism exceeded $5.2 billion in 1998, having increased somewhat as Greek tourism benefited from problems in neighboring countries and an economic recovery in the European Union.
The manufacturing sector accounts for about 14% of GDP. The food industry is one of the most profitable and fastest-growing areas of manufacturing with significant export potential. High-technology equipment production, especially for telecommunications, is also a fast-growing sector. Other important areas include textiles, building materials, machinery, transport equipment, and electrical appliances.
Greece is traditionally a seafaring nation and has built an impressive shipping industry based on its geographic location and the entrepreneurial ability of its ship owners. The Greek-owned fleet (all flags) totaled 3,358 ships (134 million DWT) in 1998.
Construction activity (about 7.5% of GDP) is expected to increase due to infrastructure projects partially financed by European Union structural funds. Through 1999, about $20 billion will go to projects to modernize and develop Greece's transportation network. The centerpiece of this effort will be the construction of a new international airport near Athens. In addition, the Athens subway system is being greatly expanded, and construction or expansion of roads, railway lines, and bridges is either underway or planned.
Greece must realign its economy as part of an extended transition to full EU membership that began in 1981. Greek businesses are adjusting to competition from EU firms and the government has had to liberalize its economic and commercial regulations and practices. However, Greece has 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. These funds contribute significantly to Greece's current accounts balance and reduce the state budget deficit.
Greece is receiving additional 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 ($17.1 billion at current exchange rates) for the period 1994-98 of which 14 billion ecu was from the Community Support Framework and 2.6 billion ecu was from the Cohesion Fund. This level of assistance was continued in 1999 and finances major public works and economic development projects, upgrades competitiveness and human resources, improves living conditions, and addresses disparities between poorer and more developed regions of the country.
GDP: purchasing power parity - $149.2 billion (1999 est.)
GDP - real growth rate: 3% (1999 est.)
GDP - per capita: purchasing power parity - $13,900 (1999 est.)
GDP - composition by sector:
services: 64.4% (1998)
Population below poverty line: NA%
Household income or consumption by percentage share:
lowest 10%: NA%
highest 10%: NA%
Inflation rate (consumer prices): 2.6% (1999 est.)
Labor force: 4.32 million (1999 est.)
Labor force - by occupation: services 59.2%, agriculture 19.8%, industry 21% (1998)
Unemployment rate: 9.9% (1999 est.)
revenues: $45 billion
expenditures: $47.6 billion, including capital expenditures of $NA (1998 est.)
Industries: tourism; food and tobacco processing, textiles; chemicals, metal products; mining, petroleum
Industrial production growth rate: 1% (1999 est.)
Electricity - production: 43.677 billion kWh (1998)
Electricity - production by source:
fossil fuel: 8.26%
other: 0.5% (1998)
Electricity - consumption: 42.18 billion kWh (1998)
Electricity - exports: 900 million kWh (1998)
Electricity - imports: 2.46 billion kWh (1998)
Agriculture - products: wheat, corn, barley, sugar beets, olives, tomatoes, wine, tobacco, potatoes; beef, dairy products
Exports: $12.4 billion (f.o.b., 1998)
Exports - commodities: manufactured goods, food and beverages, fuels (1998)
Exports - partners: EU 56% (Germany 25%, Italy 11%, UK 8%, France 6%), US 16% (1997)
Imports: $27.7 billion (c.i.f., 1998)
Imports - commodities: manufactured goods, foodstuffs, fuels, chemicals (1998)
Imports - partners: EU 61% (Italy 16%, Germany 16%, France 8%, UK 7%, Netherlands 5%) US 11% (1997)
Debt - external: $41.9 billion (1998)
Economic aid - recipient: $5.4 billion from EU (1997 est.)
Currency: 1 drachma (Dr) = 100 lepta
Exchange rates: drachmae (Dr) per US$1 - 326.59 (January 2000), 305.65 (1999), 295.53 (1998), 273.06 (1997), 240.71 (1996), 231.66 (1995)
Fiscal year: calendar year