In an analysis of the prosperity of the economic data of Greece but the impoverishment of the country, the financial newspaper Financial Times proceeds with its article, something that is of course interpreted as a need to change course.
Without dealing with the individual impoverishment policies, to be precise, the super profits in energy due to class politics in the last five years with the Mitsotakis government, he points to the destruction of the economy during the memorandums to which he partly attributes the current picture.
He adds that despite relatively (and comparatively) good growth rates, Greece is at the bottom of Europe in the Eurozone and marginally penultimate in Europe of 27, making the country the poorest in the Eurozone.
As it states despite GDP per capita being similar to the average in 2009, since then ten countries have surpassed Greece.
He even notes the sad prediction:
“As the gap with Bulgaria narrows sharply, it is not unreasonable to expect that Greece will soon become the poorest country in the EU.”
According to the Financial Times, “the answer lies in the wake of the financial crisis and the austerity that followed the 2010 crisis. Greek spending was cut and taxes raised to secure an IMF and EU bailout, squeezing businesses and households and demolishing the economy. The extent of the economic damage was extraordinary for peacetime.”
As he reports the economy shrank by nearly 30% across the board, noting for example that “in 2016, consumer spending fell by 24% compared to 2007, government spending fell by 20% and investment collapsed by 65%.” .
As he notes in the same period, manufacturing activity fell by almost half, retail trade and business activity shrank by almost a third, while unemployment soared to a historically high level of nearly 30%.
However, at the same time that the Greek economy has been undergoing a catastrophic contraction (today the Greek economy is about 19% smaller than in 2007) the EU economy as a whole has grown by 17%.
However, the tragic conclusion remains that with this policy we are going to drop one more place among the “27” of the EU.
Here is the full article as published in the Financial Times:
It is time to see Greece’s strong economic recovery after the pandemic in a historical context. The country is indeed among the eurozone’s best recent performers, but it has also become the poorest.
Last week, rating agency S&P was the latest to sing the country’s praises, as it revised its outlook to “positive.” This occurred in the context of the Greek authorities undertaking “a wide-ranging structural reform agenda and addressing long-standing bottlenecks”, which boosted growth above the eurozone average and resulted in a reduction in the debt-to-GDP ratio. The positive outlook reflects our expectation that the tight fiscal regime will continue to drive the reduction in the public debt ratio, while growth will continue to outpace Greece’s eurozone counterparts.
Indeed, new data published by Eurostat on Monday showed that Greece’s public debt-to-GDP ratio fell by 10.8 percentage points to 162% in 2023.
The Greek economy grew by 2% in 2023, surpassing Germany’s contraction of 0.3%. As of 2019, before the pandemic, the country grew at almost double the rate of the eurozone. Last week the IMF said that the Greek economy will grow by 2% again this year and will continue to exceed the average growth rate of the monetary union for the next two years.
Strong tourism numbers – which are in line with an improving labor market and recovery in consumption – are helping. So are structural reforms aimed at removing barriers to growth, such as increasing digital access to public services, speeding up judicial decisions and improving transparency and public finances.
As BNP Paribas economist Guillaume Derrien told FTAV:
Renewed political stability and sharp fiscal consolidation make Greece a much more attractive country for investment than in the past.
However… The latest recovery has only slightly raised Greeks’ living standards relative to the EU average over the past two years – and not enough to lift them from their place as the poorest people in the eurozone.
This is relatively new for Greece, as GDP per capita was similar to that of the EU average until 2009. Since then, in 10 countries living standards have risen above Greece’s, making Greece the second poorest country in the EU after Bulgaria and the poorest in the single currency bloc
With the gap with Bulgaria narrowing sharply, it is not unreasonable to expect that Greece will soon become the poorest country in the EU.
How do these contrasting stories of strong recovery and poverty reconcile?
The answer lies in the wake of the financial crisis and austerity that followed the crisis of 2010. Greek spending was cut and taxes were raised to secure a bailout from the IMF and the EU, squeezing businesses and households and wrecking the economy. The extent of the economic damage was extraordinary for peacetime.
The Greek economy shrank by almost 30% from top to bottom. In 2016, consumer spending fell 24% from 2007, government spending fell 20% and investment collapsed 65%. Over the same period, manufacturing activity fell by almost half, retail trade and business activity shrank by almost a third. Unemployment soared to a historically high level of nearly 30%.
As a result, the Greek economy is now around 19% smaller than it was in 2007 – despite the country’s strong post-pandemic recovery – while the EU economy as a whole has grown by 17%.
The economic blow is almost unprecedented in modern times, comparable only to the Great Depression of the US in the 1930s, notes Giorgos Lagarias chief economist at Mazars Wealth Management.
Real wages fell steadily through 2022, the latest available figure in the OECD database, and are down 30% from pre-financial crisis levels, leaving the country with one of the lowest average wages among developed economies.
The construction sector – a major driver of growth before the crisis – has been almost wiped out. Housing investment, which accounted for more than 10% of GDP at the height of the 2008 bubble, has since fallen to 2% of GDP, the lowest among eurozone countries. As BNP’s Derrien says: “Greece now has a less unbalanced model of economic growth – which is positive – but the decline in construction activity has not yet been fully balanced by expansion into new sectors.
There are also concerns about the country’s long-term economic prospects. Mr. Lagarias argues that growth with limited leverage* – which is the case of Greece – will remain sluggish and predicts that it will take several years of “persistent reforms” to get Greece back to where it was in 2007. Low investment and sluggish productivity also continue to limit Greece’s economic potential , according to Derrien. In its latest report on the country, the IMF also cites climate change as a risk – as 90% of the country’s tourism infrastructure and 80% of industrial activity are located in areas exposed to high climate risks – and the increasingly dismal Demographics. Births in Greece fell to a nine-decade low in 2022, exacerbating the country’s aging and shrinking population as many young people leave the country each year.
Overall, Greece’s economic recovery should be celebrated, but it should be seen in the context of a remarkable economic crisis that has left it in a hole that may take a generation to climb out of.
* Leverage is an investment model whereby the investor is required to pay only a portion of the total value of the position they wish to take. The provider of the leveraged product is the one who lends the remaining amount.
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