Economic History, Greece.

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 $26.9 billion at the end of 1993. The general government debt was $129 billion at the end of 1995, or 120% of GDP. Greece's external debt was $32.7 billion at the end of 1994.

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 for 1994-95, 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 was close to 4.3% in February 1998.

High interest rates are still 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.

Principal Sectors

Services, including tourism, make up the largest and fastest-growing sector of the Greek economy, accounting for about 66.5% of GDP in 1997.

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 $3.7 billion in 1996 and increased somewhat in 1997 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 a successful shipping industry based on its geographic location and the entrepreneurial ability of its ship owners. The Greek-owned fleet (all flags) totaled 3,204 ships (128 million DWT) in 1997.

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.

EU Membership

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 increased to $5.1 billion in 1996, representing 5% of GDP. Net inflows were estimated at about $5 billion in 1997, or 4% of GDP. 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 provides Greece 16.6 billion ecu ($20 billion) for the period 1994-98 of which 14 billion ecu is from the Community Support Framework and 2.6 billion ecu is from the Cohesion Fund. This total will finance major public works and economic development projects, upgrade competitiveness and human resources, improve living conditions, and address disparities between poorer and more developed regions of the country.

(Source from HRI.org)