The Greek economy, a market oriented economy with limited state intervention, bound by the rules of international organisations such as the World Trade Organisation (WTO) and the European Union (EU), has been characterised by renewed dynamism since the mid-1990’s.
This is mostly due to a highly disciplined macroeconomic policy which was implemented in the framework of the 1994-1999 convergence programme designed to enable Greece to comply with the criteria of the Maastricht Treaty on the Economic and Monetary Union. Hence, on 1/1/2001 Greece became the 12th member of the Euro area.
The Greek economy is already in the second year of being a member of the Euro area. It functions in a new common monetary environment which is defined by the European Central Bank, whereas at the same time Greece coordinates its financial policy in the framework of the “Stability and Growth Programme” and the “General Economic Policy Orientations ”.
The abovementioned framework inevitably defines the position of the Greek economy in the international economic environment. Greece, a small open economy, has the advantage of having one of the strongest currencies in the world on the one hand, and on the other hand, though, it is considerably influenced by the economic developments in the European Union as well as the rest of the world.
Despite the adverse picture of the world economy, the Greek economy will continue its high growth rate in the years to come. It is expected that in 2003 the Greek economy will, along with the Irish, be one of the fastest developing economies in the EU – the growth rate is approximately five times faster than Europe- with an acceleration of the growth rate both in terms of private consumption as well as investments. At the same time, the country’s defence mechanisms regarding international uncertainties and recession have been dramatically improved for three very specific reasons. The first one is consistent fiscal stability with the basic priority being the drastic reduction in public debt, the second the intense investment activity of the private and public sectors and the third the fundamental structural changes in companies, the banking system, markets and the supervising institutions.
Since 1996, the Greek economy has been on a course of real convergence as its growth rates are much higher than the average rate of the EU. This growth is due to the extensive infrastructure projects, the expansion and modernization of businesses, improved competitiveness, reduced interest rates, the strength of competition and structural changes. These rates are based on the implementation of private and public investments, whereas economic reforms and the exploitation of the comparative advantages of the country in the wider area are expected to accelerate the growth process even more.
The growth rate of the volume of overall investments is expected to further accelerate in 2003. This increase comes both from the private sector, showing the market’s trust in the prospects of the Greek economy, and also from the public investment programme. Public investments will increase per 13% in 2003 reaching € 8.9 billion. Of this amount, only € 2.8 billion, that is 30%, comes from the EU Structural Funds, whereas the main part of the € 6.1 billion is financed from national resources. This expenditure contributes to the maintenance of high growth rates with the creation of a modern infrastructure network which upgrades the productive fabric and the human resources of the country. It includes among other things: € 2.1 billion for the railway network and other transport networks for regional cohesion, € 1.3 billion for works related to the Olympic Games all over Greece, € 1.2 billion for training and education, and € 1.6 billion for local projects which complete major regional infrastructure. Apart from infrastructure, investment activity in Greece also has a second dimension; investments in education, training, new skills, research, innovation, which form production capacity for the future.
Deficits – Debt
The basic prerequisite for maintaining high growth rates is a prudent fiscal policy fully adhering to the Stability and Growth Pact and tidying up the state’s functions, producing better results for each sector financed. A primary surplus of 4.4% has been secured for 2003, and 4.6% for 2004. Following changes in how Eurostat records increases in share capital and forfeited guarantees based on new methodologies, Greece had a general public deficit of 1.1% of GDP during 2002. This will gradually recede in the following years, reaching a macroeconomic balance immediately after the Olympic Games. Debt is also expected to reduce by approximately 5% of GDP in 2003. It is the largest planned reduction of public debt as a percentage of GDP in a one-year period. This reduction will be due to the acceleration of the privatization programme, which will generate revenues of approximately 2% of GDP in 2003, the reduction of the guarantee payments for loans given to public companies, the de-escalation of armament loans in accordance with the pluriannual defence programme and reduction in consumer expenditure. The reduction of the expenditure for interest rates, which will be 6.3% of the GDP from 6.6% in 2002 and 7.4% in 2001, is also important.
Employment – Unemployment
According to research on the workforce, total employment increased by 31,000 people during the second quarter of 2002, compared to the corresponding period in 2001, (20,000 of them were salaried employees) and at the same time the number of the unemployed decreased by 24,000 people. This development is particularly positive if compared with the development in 2001, when the number of the unemployed and employment in general decreased (indicating withdrawal of people from the labour market because of discouragement). The unemployment rate decreased in 2002 for the first time in recent years below 10% reaching 9.6% in the second quarter from 10.9% in the previous quarter and 10.2% in the corresponding quarter of 2001. The decrease in the unemployment rate continued in the third quarter as well during which it stood at 9.5% compared to 10% in the corresponding quarter of 2001.
Inflation –following the dramatic decline by 12 percentage points approximately (from about 14.4% in 1993 to 2.6% in 1999)- remains relatively low. In 2000, it was approximately 3.2% and in 2001 3.4% mainly due to pressures exerted by the rising price of oil and the appreciation of the dollar against the drachma. The average inflation rate for the twelve-month period (December 2001- November 2002) in comparison with the rate for the previous twelve-month period was 3.6% compared to 3.4% for the previous year. However, according to estimates the rate of increase is expected to return to a downward path. Moreover, economic policy for the forthcoming years plans to maintain macroeconomic stability, ensure further fiscal consolidation (an overall tax reform is already underway), strengthen structural reforms, preserve competition and establish the necessary institutional framework for the smooth operation of production and financial markets.
The Greek industry is constantly growing and in 2001 the Greek industry sector accounted for 22,3% of GDP and 22,8 per cent of the total employment rate and it still makes a vital contribution to the value of the exports (59%). The most important branches of economic activities are: manufacturing, which accounts for 12% of GDP and 14.4% of the total employment rate, and construction, which accounts for 7.2% of the GDP and 7.3% of the total employment rate.
The manufacturing industry includes a large number of small and medium-sized enterprises, characterised by a high degree of flexibility and initiative. The majority of manufacturing firms are small family businesses and major branches traditionally included food and beverages, clothing, chemicals and plastics, oil and coal products, glass products and cement, while new industries are now emerging in technology and telecommunications.
Agriculture still represents a major source of income. In 2001, it accounted for around 8,2% of GDP, 16% of the total employment rate and agricultural exports constituted about 22% of the total of exports, while agricultural imports corresponded to around 11% of the total of imports.
The climatic conditions of Greece favour the cultivation of vegetables, fruits (olives and olive oil, grapes, melons, peaches, tomatoes and oranges are among Greece’s most important crops), tobacco, cotton, vines, olives and extensive rearing of sheep and goats.
The primary sector activities have long benefited from European Union subsidies. However, the implementation of the GATT accord, as well as the EU regulations in force in the framework of the Common Agricultural Policy (CAP), governing the markets for cotton, fruits, vegetables and rice, led to an increase in the international competitive pressures on the Greek agricultural production.
In view of such developments, the agricultural policy is currently focusing on the improvement of agricultural competitiveness through production, processing and marketing mechanisms, the modernisation of the agricultural infrastructure and the upgrading of the rural areas, through the protection and improvement of natural resources as well as the environment.
Finally, in the fishing sector, fish farming has emerged as one of the fastest growing Greek industries, establishing the country as a world leader in the cultivation of Mediterranean fish.
The services sector in Greece is the most prominent and rapidly growing sector of the economy, contributing around 70% of the GDP and accounting for over 61% of the total employment rate. The most important fields of the Greek services sector are tourism, shipping, banking and trade.
• Tourism is Greece’s biggest industry; as the country ranks in the 15th place in the world classification of tourist destinations, receiving 12,605,928 tourists in 1999, more than the country’s total population. The majority (93.2%) comes from Europe (70.2% from the EU).
The government policy, which is implemented through the state-controlled Hellenic Tourist Organisation (EOT), focuses on developing high quality and alternative forms of tourism. This strategy focuses on the construction of four and five-star hotels, together with golf courses, conference centres, marinas, spas, thalassotherapy centres, aqua parks etc.
• Shipping is another dynamic sector of the Greek economy and a powerful world representative of Greece. The Greek merchant fleet ranks first among EU member-states constituting about 50% of the total Union fleet and fifth on a worldwide basis thus offering a leading position in international organisations. In fact, Greek controlled shipping (which includes Greek-owned ships registered under various flags as well as ships with the Greek flag), amounts to 3,618 ships of all types (over 1000 grt). This number corresponds to the 18.6% of the international maritime force.
Among Greece’s steady objectives is to maintain a free competitive environment in international sea transport and to improve the safety standards of the ships, marine environment protection and seamen’s training standards.
Important changes have taken place in the banking sector. State banks have already been bought by the private sector - the Hellenic Bank for Industrial Development being the last one. Nowadays, even in the biggest state bank (the National Bank of Greece) private investors hold more than 50% of share capital. At the same time, private banks have strengthened their balance sheets through sizeable capital increases and compete to offer new products. Leading Greek banks also have a strong regional presence. Their strategy is to support Greek corporate clients investing in the Balkans, to finance trade and to acquire an active role in the capital market development in the region.
•In 2000, the total volume of exports (including services) amounted to 25% of the GDP, while they were valued at 30 billion Euros (European Statistical Accounts). Nowadays, its main exports include food, textiles, chemicals, mineral products, cement and refined oil products. As for its main export markets, Germany accounted for 16.5% of the total volume of exports, Italy for 13.8, the United States for 5.4, France for 4.3, other European non-EU countries for 23% and Asian countries for 10.6%.
On the other hand, the total volume of imports amounted to 33 per cent of GDP, while they were valued at 40 billion Euros. Greece imports energy, certain food categories, all its transport equipment and much of its machinery and electric goods. In 1999, the principal sources of imports were Italy and Germany which accounted for 15.7% and 15.5% of the total number of imports respectively. The other main sources of imports are France (8.9%), the Netherlands (6.4%), the United Kingdom (6.4%), United States (4.9%) and other European non-EU countries (7.3%).
In the last three years (1999-2001), there was an increase of 8.8% in the exports of goods and services contrary to an increase of 5.5% in the imports of goods and services.
The Balkans –Southeastern Mediterranean
The recent strides taken in Greece’s economic prospects have improved the country’s position regarding international investments. Greece is becoming a more advanced market as well as a gateway to the wider market of Southeastern Europe, including Cyprus. On the other hand, many joint ventures in the Balkans have been formed in which Greek companies play an important role. The advantageous position of Greece provides access and opportunities to the neighbouring local markets, while Thessaloniki, the capital of Northern Greece, provides the financial and commercial opportunities necessary in order to engage in business activities on local markets.
Joint ventures of Greek and foreign businesses mainly focus on construction, via companies in the production, distribution and services sectors in traditional fields such as shipping, tourism as well as in high-tech.
The Greek government believes in private business activity and has created the conditions necessary to promote it better (tax reform, insurance reform, administrative simplification, Investor Reception Centres, Project Private Co-financing Framework). Markets have been deregulated and competition has been strengthened.
The ultimate goal is to promote and strengthen private business activity by developing a strong productive fabric to increase the competitiveness of the economy in the context of globalized markets. The top priority of the Greek economy, nowadays, is to promote private initiative and attract investments. That is why it moved towards instituting new licensing mechanisms for investments, particularly foreign investments, and their implementation. The operation of the markets has been modernized with the introduction of international accounting models and tools for modern company management – leading with way in many cases in relation to other European countries. Mergers have been made simpler so that companies can become larger. This year, it is expected that there will be 300 mergers – twice the number last year.
The growth process of the country is directly linked to the ongoing privatization process and the market deregulation process. Privatizations, apart from the reduction in public debt generated, have changed form and orientation in order to contribute more to the strengthening of entrepreneurship. Two thirds of privatizations now concern strategic alliances and participations or strategic investors.
Market deregulation is expanding. The restriction of the participation of the state in the administration of businesses and the banking system has advanced resulting in the re-organization and improvement of services.
In the field of fixed and mobile telephony, there have been significant moves towards deregulation which led to the attraction of investments, many of which came from abroad, as well as to the reduction in telephone costs bringing it close to the average levels of the EU. In the field of electric energy, the target is not only to attract private capital for renewable energy sources, but also their participation in electric generation. The aim is that Greece with cheap energy will become the energy crossroads of the wider area.
As far as natural gas is concerned, the construction of pipelines connecting Greece with Turkey and Italy is planned so that Greece will become a bridge for transporting natural gas from Azerbaijan, Russia, and Iran to Western Europe. Moreover, in the field of natural gas, international calls for tenders have attracted foreign capital amounting to € 125 billion in total for urban supply, while similar calls for tenders are expected to take place in other areas of Northern and Central Greece.
Market deregulation favours business alliances for financing investment projects and new activities in Greece (supply of natural gas in cities, fixed and mobile telephony, venture capital, expansion into the regional energy market, major tourist infrastructures, coastal shipping).