The Greek economy is growing, but the Greeks are getting poorer. A publication of the Financial Times solves the riddle of this paradox, presenting indicators and evidence that prove that “the wound in Greek society is open”, as it is typically stated.
Indeed, Greece’s economy is performing positively among the best in the EU, the Financial Times article initially states, but points out the paradox: At the same time that the country is indeed among the best recent performers in the Eurozone, it has also become the poorest among of these.
The British media tries to see from another point of view “Greece’s strong economic recovery” after the pandemic by placing it in a historical context.
What do the numbers say about the Greek economy?
(AP Photo/Thanasis Stavrakis)
As he mentions, Greece is indeed among the countries with the best recent performances in the eurozone, but it has also become the poorest.
Just last week, ratings agency S&P became the latest to sing Greece’s praises, as it revised the country’s outlook to “positive.” This was 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.
As the publication states, the positive outlook reflects the house’s expectation that the strict fiscal regime will continue to push the reduction of the public debt ratio, while growth will continue to exceed Greece’s counterparts in the eurozone.
In this direction, new data published by Eurostat on Monday showed that Greek public debt in relation to GDP fell by 10.8 percentage points to 162% in 2023.
At the same time, the Greek economy grew by 2% in 2023, surpassing the contraction of Germany by 0.3%. As of 2019, before the pandemic, the country grew at almost twice 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.
Tourism’s performance – in line with an improving labor market and recovery in consumption – is 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.”
The Greeks are among the poorest in the EU
(AP Photo/Thanasis Stavrakis)
However, the recovery has barely lifted Greeks’ living standards slightly above the EU average over the past two years – and not enough to lift them out of their place as the poorest people in the eurozone.
As the FT notes, this is relatively new for Greece, as GDP per capita was similar to the EU average until 2009.
But since then, living standards in 10 countries have risen above Greece’s, making Greece the second poorest country in the EU after Bulgaria and the poorest in the single currency bloc.
The ominous predictions for Greece’s outlook do not stop with the FT noting that with the gap with Bulgaria narrowing sharply, it is not unreasonable to expect Greece to soon become the EU’s poorest country.
But how do these contrasting stories of strong recovery and poverty explain?
According to the FT the answer must be sought in the wake of the financial crisis and the austerity that followed the crisis of 2010. Greek spending was cut and taxes raised to secure a bailout from the IMF and the EU, squeezing businesses and households and destroying the economy. The extent of the economic damage was enormous in peacetime.
The Greek economy shrank by almost 30%. In 2016, consumer spending fell by 24% compared to 2007, government spending fell by 20% and investment plummeted by 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%.
Economic collapse comparable only to the Great Depression
(AP Photo/Thanasis Stavrakis)
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.”
The “curse” for an entire generation
(AP Photo/Yorgos Karahalis)
There are also concerns about the country’s long-term economic prospects. Mr. Lagarias argues that leveraged development (i.e. an investment model in which the investor is required to pay only a portion of the total value of the position he wishes to take. The provider of the leveraged product is the one who lends the remaining amount) – which is Greece’s case – will remain sluggish and predicts that it will take many 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.
Finally, the FT article states that while Greece’s economic recovery is something to celebrate, it should be viewed in the context of a “remarkable economic crisis that has left it in a hole that may take a generation to climb out of.” ».
