About 14 years since the “good courage” of the then commissioner Ollie Wrenbut also from the famous Kastellorizo that signaled the debt crisis and the controlled bankruptcy, the Greek economy seems to be still looking for its new production model in the country’s attempt to recover the losses of the previous period and achieve economic convergence.
However, depending on which narrative one wants to put forward, the country is currently presented as either at the bottom of the EU economies, as the post-bankruptcy collapse of the economy led to a 33.7% loss in average household income, or as a from the “economic tigers” of the eurozone, as it has seen multiple growth rates in recent years.
The development
According to the Stability Program, in summary form, which was submitted to the Commission, the Greek economy grew at a fourfold rate compared to the Eurozone in 2023, while it is expected to grow at a threefold rate in 2024 (+2.5%) and with a significantly higher rate in 2025 (+2.6%), while a New York Times article spoke of the once lagging countries of the European South, such as Greece, Spain and Portugal, which have now become the euro zone leaders.
However, the figures show that although the nominal GDP of Greece will return in 2025 to close to pre-crisis levels, the real GDP is still smaller, by 18.9%, compared to 2007, while the EU economy grew by 17% in the same period. Greece’s real GDP per capita in purchasing power equivalent units actually fell from 95.3% of the EU in 2009 to 62.0% in 2020, before recovering to 68% today, just slightly above that of Bulgaria.
It should be noted, however, that according to data from Maddison Datadase, the “Greek Great Depression” characterized by the Bank of Greece as more or less terra incognita (unknown land), can be compared in peacetime only with the “Great Depression” of the USA in the 1930s, although it was faster, stronger, and deeper than that, and it was one of the strongest historically recorded since 1870, including the period of war conflicts. The economy shrank by almost 30%, consumer spending by 24%, manufacturing by 50%, government spending by 20% and investment by 65%, losses that are not easy to make up anytime soon.
The Greek crisis of the previous decade is due to the wrong development model that was followed and was mainly based on the consumption, to a significant extent, of imported products, with state and private loans, economists say.
The “bubble” of domestic demand that was created between 1999 and 2009, when the banks and the State borrowed more than 60 billion euros and 200 billion euros respectively (a total of 450 billion euros flowed in if the community funds and the inflows of international funds), maintained the Greek development model with loans but also a level of income that was glaringly disproportionate to the real productive potential of the economy.
The target
Despite the return to growth and primary fiscal surpluses, but also the recovery of the investment grade, although for economists the goal should be the “A+” rating, i.e. an assessment five notches above Investment grade, which it had the country before the default, with debt-to-GDP estimated to peak at 152.7% in 2024 and 146.3% in 2025, the long-term challenges facing the Greek economy appear to be continuing. In 2009 e.g. consumption reached 74% of GDP, while today it is at 70% while in the eurozone it is at average levels at 52%.
However, the country’s new development model, as economists argue, should be based less on consumption and more on investments and extroversion.
Although the economy has strengthened, now attracting more domestic and foreign investment capital, growth should acquire more sustainable characteristics compared to the past, without the existence of high and prolonged fiscal and external imbalances.
Delays in the administration of justice, bureaucracy and inefficiencies that still exist in some areas of public administration, the lag in basic infrastructure burdened by climate change, tax evasion, quasi-oligopolistic conditions in certain markets that reduce competition and exacerbate inflationary pressures are some of the factors that act as a deterrent to the implementation of large productive business ventures.
The reforms
Overall, in the field of reforms, economists say, the difficult part of creating a functioning state with strong institutions is now left, a process that is moving very slowly, as a result of reactions from society and the reluctance of part of the political system to undertake the associated political cost, at a time when the need for some degree of political consensus in correcting significant long-term problems is evident.
Expectations have shifted to the capital flows of the Recovery Fund, with the economy’s prospects for the next 3-4 years being good and clearly better than the European average, but in order not to miss the window of opportunity, reforms need to be accelerated so that a new production model to support the sustainable growth of the economy and make it more resistant to external shocks.
Businesses: Productive investments are needed
Without increased productive investments, it is difficult for total investment to reach the desired levels, above 20% of GDP, while the investments that collapsed in the crisis are currently at 15% of GDP, compared to an average of 23% in the EU.
According to OECD data, in 2023 Foreign Direct Investments (FDI) fell by 35.7% to 5.43 billion euros compared to 8.44 billion euros in the record year of 2022, while the trend of the FDI flows of the last 10 years, which were directed by 70% to services with a large percentage (35%) concerning the real estate sector, has not changed substantially. The part of investments aimed at the creation of new direct productive enterprises that increase the production and export potential of the economy, still constitutes a small part of the total foreign investments in the country.
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