THE ECONOMY OF GREECE:

Challenges and Prospects

Anastasia Mitronatsiou, Dimitris

Tsafoulis, Eleftheria Garozi
 BRIEF OVERVIEW OF THE GREEK ECONOMY

• Mixed capitalist economy

• Public sector accounting for about 40% of the GDP
• Per capita GDP about two-thirds that of the leading euro-
zone economies
• Tourism: 15% of the GDP
• Immigrants: Nearly one-fifth of the work force
• Rate of growth in 2008: Dropped to 2.9% as of 4% in the
years between 2003 - 2007
 BRIEF OVERVIEW OF THE GREEK ECONOMY

Greece - Key economic projections

Gross domestic product

Quarterly annualised growth rates

Gross domestic product

• Last updated: 19 November

2009
• Source:
OECD Economic Outlook: Flash file - quarterly projections

• www.oecd.org/oecdeconomicoutlook

Economics: Key tables from OECD

 BRIEF OVERVIEW OF THE GREEK ECONOMY

Greece - Key economic projections

Unemployment

In percentage of labour force



• Last updated: 19 November

2009
• Source:
OECD Economic Outlook: Flash file - quarterly projections

• www.oecd.org/oecdeconomicoutlook

Economics: Key tables from OECD

 BRIEF OVERVIEW OF THE GREEK ECONOMY

Greece - Key economic projections

Fiscal balance

In percentage of GDP

• Last updated: 19 November

2009
• Source:
OECD Economic Outlook: Flash file - quarterly projections

• www.oecd.org/oecdeconomicoutlook

Economics: Key tables from OECD

 BRIEF OVERVIEW OF THE GREEK ECONOMY

Greece - Key economic projections

Inflation

Quarterly annualised growth rate,

consumption deflator
• Last updated: 19 November
2009
• Source:
OECD Economic Outlook: Flash file - quarterly projections

• www.oecd.org/oecdeconomicoutlook

Economics: Key tables from OECD

GENERAL CHARACTERISTICS OF THE GREEK ECONOMY: LONG-
STANDING ISSUES AND THE NEED FOR A LONG-TERM
PROGRAM OF STRUCTURAL, FISCAL AND INSTITUTIONAL
ADAPTATION

•
• Chronic problems of the Greek economic system that
touch both the public and private sectors.
•
• Need for a long-term program of structural, fiscal and
institutional adaptation
 CURRENT STATE OF THE GREEK ECONOMY

• Growth remained positive until the end of 2008

• The banking sector has benefited from marginal
exposure to the toxic assets which were at the root of
the international storm
• Persistent structural imbalances
• Greece's exposure to southeastern Europe
• The long–term sovereign interest rate spread vis–à–vis
Germany widened sharply in early 2009
• Rating agencies downgraded the sovereign debt and
credit risks of the leading Greek banks

 CURRENT STATE OF THE GREEK ECONOMY

•
• Real GDP contracted in 2009 as the effects of the global crisis
gradually spread to the Greek economy
•
• The unemployment rate is set to reach a double–digit level
•
• The current account deficit is likely to remain high
•
• Long–term fiscal viability: Further pension and health care reforms
• Increasing labour and product market flexibility

•
CURRENT STATE OF THE GREEK ECONOMY
 CURRENT STATE OF THE GREEK ECONOMY

•
• 20th Annual Greek Economy Conference (Athens 30-01
Nov.2009)
•
• Meeting of the ECOFIN on December 2nd 2009 in
Brussels

 REFORMS REQUIRED FOR THE ECONOMIC
RECOVERY OF GREECE

•
• Fiscal sector
•
• Tax revenue
•
• Better control of primary expenditure
•
• Pension reform
 THE ROLE OF GREECE AS A REGIONAL TRADE PARTNER AND

INVESTING FACTOR IN THE SEE GEOGRAPHICAL CONTEXT

 HELLENIC PLAN FOR THE ECONOMIC RECONSTRUCTION OF

THE BALKANS (HiPERB): [Source Greek MFA]
HiPERB- Actions by Country-Albania:


• Public Investments: The estimated available sum amounts to

€39,413,100. An official proposal has been approved for upgrading the
Sagiada-Konispol-Sarande Highway (40.5 km in total length), of a total
cost of €29,869,983.19 and a HiPERB contribution of €23,895,986.55.
• Private Productive Investments: The estimated available sum amounts to
€9,978,000. 15 proposals, of a total cost of €31,499,035, have been
approved thus far with a total HiPERB participation of €9,516,843. Ten of
those have already been completed. The rate of absorbance is
estimated at 95,37% and 480 new jobs have been created.
• Small Projects Fund: The estimated available sum for the Small Projects
Fund amounts to €498,900. 30 projects of a total cost of €498,900 have
been approved thus far and the rate of absorbance is 100%.
 THE ROLE OF GREECE AS A REGIONAL TRADE
PARTNER AND INVESTING FACTOR IN THE SEE
GEOGRAPHICAL CONTEXT
•
HiPERB- Actions by Country-Bosnia and Herzegovina:

• Public Investments: The estimated available sum amounts to

€15,428,700. The construction of the “Greek-Bosnian Friendship
Building” in Sarajevo cost a total of €16,789,989, and the HiPERB
participation amounts to €13,497,073 (80,4%). The building was
inaugurated on 23 July 2007 by the former Prime Minister Karamanlis
and his counterpart, the President of the Bosnia-Herzegovina Council of
Ministers, Mr. N. Spiric. A proposal on the reconstruction of the Kasindo
hospital’s Serbia Pavillion, worth €1,920,000, is currently under
examination
• Private Productive Investments: The estimated available sum amounts to
€3,906,000. No proposal for private investment funding has been
approved thus far.
•
•


•
 THE ROLE OF GREECE AS A REGIONAL TRADE PARTNER AND
INVESTING FACTOR IN THE SEE GEOGRAPHICAL CONTEXT

 HiPERB- Actions by Country-FYROM:

• Public Investments: The estimated available sum amounts to
€59,123,600. Approcal has been granted for the SeeLight project
(South-East European Lambda Network Facility for Research and
Education/Interbalkan optic-fibre network infrastructure for research and
education), an optic-fibre broadband network for the interconnection of
academic communities, of a total cost of €2,007,787and HiPERB
participation estimated at €1,606,230. The project for the construction of
the Demir Kapija-Gevgelija part of the Pan European Corridor X(of a
total length of 27.75 km), with a total budget of €151.98 million, with
HiPERB participation estimated at €50 million.
•

•
•
•
 THE ROLE OF GREECE AS A REGIONAL TRADE
PARTNER AND INVESTING FACTOR IN THE SEE
GEOGRAPHICAL CONTEXT
•
• Private Productive Investments: The estimated available sum amounts to
€14,968,000. 6 proposals have been approved to this day, (total cost:
€9,605,995, total HiPERB funding: €2,861,564). Four of those have
already been completed. The rate of absorbance is estimated at 19.11%
and 660 new jobs have been created.
• Small Projects Fund: The estimated available sum amounts to €748,400. 8
proposals have been approved to this day for projects of a total cost of
€302,700. These are mostly projects of a social nature: purchase of first-
aid mobile units for Skopje, Bitola and Tetovo, provision with medical
equipment, etc. The rate of absorbance is 40.44%.
•
 THE ROLE OF GREECE AS A REGIONAL TRADE PARTNER AND
INVESTING FACTOR IN THE SEE GEOGRAPHICAL CONTEXT

HiPERB- Actions by Country-Montenegro:



• Public Investments: The estimated available sum amounts to

€13,825,000. The proposal relating to the funding for the regeneration of
the oncology clinic of the Montenegro-Podgorica Hospital (renovation,
additional work and purchase of equipment for the oncology clinic’s
short-term treatment ward, total cost: €1,342,600, HiPERB contribution:
€1,042,600).
• Private Productive Investments: The estimated available sum amounts to
€3,500,000. No application for private investment subsidies has been
submitted as yet.
• Small Projects Fund: The estimated available sum for the Small Projects
Fund amounts to €175,000. Three small projects with a total cost of
€35,560 have been funded to this day. The rate of absorbance is
20.32%.
 THE ROLE OF GREECE AS A REGIONAL TRADE PARTNER AND
INVESTING FACTOR IN THE SEE GEOGRAPHICAL CONTEXT

HiPERB- Actions by Country-Serbia:



• Public Investments: The estimated available sum amounts to

€183,675,000. 2 proposals have been approved to this day: i) The
construction of the part of the Pan European Corridor X between Nis
(Serbia) and FYROM’s borders, of a total length of 74.6 km (total budget
of €475,060,095 million; HiPERB participation estimated at €100
million), and ii) the SeeLight project (South-East European Lambda
Network Facility for Research and Education/Interbalkan optic-fibre
network infrastructure for research and education), an optic-fibre
broadband network for the interconnection of academic communities, of
a total cost of €6,125,842 and HiPERB participation estimated at
€4,900,674.

•
 THE ROLE OF GREECE AS A REGIONAL TRADE PARTNER AND
INVESTING FACTOR IN THE SEE GEOGRAPHICAL CONTEXT

• Private Productive Investments: The estimated available sum amounts to

€46,500,000. To this day, 8 private investment subsidies have been
approved, of a total cost of €20,426,300. The total funding is worth
€6,144,487, accounting for 13.21% of the budget and creating 375 new
jobs.
• Small Projects Fund: The estimated available sum amounts to €2,325,000.
Thirteen projects of a total cost of €422,410.77 have been approved, ten
of which have already been implemented to this day. These projects
concern building and school repairs, support for elderly homes and
hospitals, repair of a small dam, etc. The rate of absorbance is 18.16%.
 TRADE RELATIONS AND FIGURES OF THE GREEK
ECONOMY

• Total value of Greek trade at €72,670 million in 2007

Ι. Development of Greek foreign trade by geographical region and

country.
Α. Exports:

• Value of Greek exports at €17,1483 million in 2007, up by 4%

• Greek exports to Bosnia-Herzegovina, Croatia, Romania and Bulgaria
Β. Imports:


• Growth rate for Greece’s imports almost double than that of exports
• Imports from Albania and Bulgaria
•
 GREEK ECONOMIC DIPLOMACY-ENERGY SECTOR

• In the oil sector: Promotion of

the Burgas - Alexandroupoli
oil pipeline project (BAP
project)

 GREEK ECONOMIC DIPLOMACY-ENERGY SECTOR

• In the natural gas sector: A

geopolitical project of major
importance, the South
Energy Corridor will be
implemented.

 OVERVIEW OF THE GREEK BANKING IN LIGHT OF THE GLOBAL
ECONOMIC CRISIS

• Greek banks had very little exposure to

instruments associated with the US
sub-prime mortgage market F o r e ig n B a n k L e n d in g in
• Impact from the international turbulence
was limited and indirect
• Competition in the domestic Greek banking
market is becoming more intense and
the cost of financing is increasing
• Although the crisis initially had little effect on G re e c e
banks beyond reduced liquidity, Greek 2 1 .9
banks remain vulnerable to international
turbulence through their exposure in the 4 9 .3
Balkans, especially in Bulgaria,
Romania and Turkey, if the economic
situation in these economies were to
A u s tria
worsen substantially
• As the chart illustrates, Greek and Austrian
commercial banks are most heavily 1 7 .5
exposed to countries in central, eastern It a ly
and southeastern Europe. They both 9 .1
had the highest share of lending as a
percentage of annual GDP of all EU
countries in 2008, namely a staggering 1 2 .4
76.7 percent 49.3 percent respectively Sweden 1 8 .6
Source: Dr Jens Bastian, “Reaching out in a

time of economic crises. External anchors

and internal dynamics in South East
9 2 6 .3
Europe”, Guest Lecture Presentation in
Master’s Degree in Southeast European B e lg i u m
Studies, Athens, N0vember 23rd 2009.

OVERVIEW OF THE GREEK BANKING IN LIGHT OF THE
GLOBAL ECONOMIC CRISIS

• This chart further underlines the depth of

Greek banks’ exposure (i.e.
investments and loans) in the region of E x p o s u re o f G re e k B a n
southeastern Europe.
• At the end of 2008, the combined exposure
in seven countries of the region
(including Turkey) had reached 52.8
billion euro. T u rk e y 1 5 .3
• Broken down into individual countries, such
exposure levels reached 28,7 percent
market share in Bulgaria, 27,1 percent 4 .8
in Albania and 24,6 percent in FYR S e rb ia
Macedonia.
• Put otherwise, Greek banks are not only
heavily invested in the region, but have
also become strongly dependent on
R o m a n ia
these countries’ economies returning to
short-term stability and long-term
viability. M a c e d o n1i a. 3
Source: Dr Jens Bastian, “Reaching out


in a time of economic crises. External

anchors and internal dynamics in C r o a 0t i .a1
South East Europe”, Guest Lecture
Presentation in Master’s Degree in
Southeast European Studies, Athens,
N0vember 23rd 2009. B u lg a r i a 1 0 .2

 PROSPECTS OF THE GREEK ECONOMY

• Gross Domestic Product (GDP) at market prices (2008): 239.141 million €.

• Gross National Income (GNI) at market prices (2008): 231.285 million €.
• Net National Income (NNI) at market prices (2008): 202.075 million €.
• Net National Disposable Income at market prices (2008): 201.406 million €.
• Net Saving (2008): -12.183 million €.
• Net Lending (+) /Net Borrowing (-) (2008): -29.621 million €.
• Imports-EU Countries (Oct.2009): 2.361.5 million €.
• Imports-Third Countries (Oct.2009): 967.3 million €.
• Exports- EU Countries (Oct.2009): 765.8 million €.
• Exports- Third Countries (Oct.2009): 466.7 million €.
• Budget Deficit (as forecasted in 31/03/2009): 3.7% of the GDP.
• Government Dept (as forecasted in 31/03/2009): 99.6% of the GDP.


 Source: National Statistics Service of Greece

 PROSPECTS OF THE GREEK ECONOMY

• Although it wasn’t a surprise,the downgrade of sovereign debt by

Fitch to triple B-plus still came as a shock.
• The EU’s authorities, rightly or wrongly, are more afraid of the moral
hazard of a bail-out than the possible spillover effect of a
hypothetical Greek default.
• Greece needs to complete the structural changes, such as pension
and labour market reforms, pledged when it joined the euro but
hardly begun.
• The Greek economy has admitted that swift action is needed to
bring the budget deficit under control and rebuild confidence in its
bond and stock markets.
• Greece’s prime minister, George Papandreou, acknowledged to his
fellow European Union leaders that the Greek public sector was
riddled with corruption. He said: ‘Our basic problem is systemic
corruption’.
 PROSPECTS OF THE GREEK ECONOMY

• Economists and bankers have warned that Greece must

announce bold initiatives in the next few days to
rescue its collapsing bond market and avert default on
its public debt.
• The Greek government has announced a crackdown on
corruption and tax evasion in response to pressure
from the European Commission and European Central
Bank to accelerate economic reforms.
• The Greek Prime Minister (PM) has announced 90 per
cent tax on bonuses for senior bankers in the private
sector and a ban on bonuses for executives at public
sector corporations.
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