The Financial Times, with its lengthy article on the course of Greece, puts the finger on the types of the eels for the essential situation of the citizens, beyond the resounding reports about success stories in the economy. Essentially, the prestigious newspaper records what many analysts note in relation to the fact that the country may have turned the page, however it remains with strong “wounds in its body” without managing to get into a rota of inclusive development.
Especially in the era of the inflationary “rally” that brutally affects many households, the FT describes how the impressive recovery of the Greek economy does not “go hand in hand” with the many. In fact, the Financial Times cite indicators and evidence that prove that the wound in Greek society is open, as is typically reported.
However, in the Financial Stability report of the Bank of Greece published on Thursday, it also refers to important issues that create challenges and extend from the course of management of bad loans, the issues of housing and disposable income. “The maintenance of inflation at a still high level, combined with the ECB’s increased key interest rates and the slowdown in the pace of economic growth, is testing the resilience of households and businesses and may contribute to the creation of new non-performing loans (NPLs)” it is noted in report of the Board of Directors.
However, the FT article also mentions something that many media outlets that do not operate in the “success story constellation” have demonstrated. Indeed, the Greek economy is achieving positive performance among the best in the EU, states the Financial Times article at the beginning, but pointing 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 between them.
Last week, the British newspaper reports, rating agency S&P was the latest to praise Greece, upgrading its outlook to “positive.”
This is because the Greek government is implementing “a far-reaching structural reform program to address long-standing problem areas”, boosting growth above the Eurozone average and resulting in a fall in the debt-to-GDP ratio. The positive outlook reflects markets’ expectation that the tight fiscal regime will continue to drive down public debt, while growth will continue to outperform Greece’s Eurozone peers, the FT reports, adding:
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, the same one that saw a contraction of 0.3% in Germany. As of 2019, before the pandemic, the country had growth rates almost twice that of the Eurozone. Last week, the IMF said that the Greek economy will grow by 2% again this year and will continue to outpace the average growth rate of the Eurozone for the next two years.
The strong performance of tourism — in line with an improving labor market and recovery in consumption — is helping in this direction. The same applies to structural reforms aimed at removing obstacles to growth, such as increasing digital access to public services, speeding up judicial decisions and improving transparency and public finances.
As Guillaume Derrien, BNP Paribas economist at FTAV, told the Financial Times: “Renewed political stability and strong fiscal consolidation make Greece a much more attractive country for investment than in the past.”
Greece will soon be the poorest country in the EU
At the same time, of course, the FT notes that the recent recovery in Greece has only slightly raised living standards in the country relative to the EU average over the past two years – and not enough to move the country out of last place, with poorer residents in the Eurozone. The Financial Times goes on to emphasize that this situation is new for the Greeks, who until 2009 had a GDP per capita close to the EU average.
Since then, 10 countries have seen their living standards rise above that of Greece, leaving it the second poorest in the EU after Bulgaria, and the poorest country in the Eurozone, i.e. among the EU countries that have adopted the euro. “As the gap with Bulgaria narrows sharply, it is not unreasonable to expect that Greece will soon become the poorest country in the EU”, writes the article of the Financial Times referring to the latest data published by Eurostat on the purchasing power of countries members, a subject that has received detailed reports recently in the Greek press..
“How do these contrasting stories of strong recovery and poverty reconcile?” the article asks, explaining how the answer lies in the wake of the financial crisis and austerity that followed in 2010. Spending was cut and taxes were raised to secure the bailout from the IMF and the EU, squeezing businesses and households and demolishing the economy. The extent of the economic damage was unprecedented in peacetime. The Greek economy shrank by almost 30% from the top to the middle classes. In 2016, consumer spending fell 24% from 2007, government spending fell 20%, and investment plummeted 65%.
Over the same period, manufacturing activity fell by almost half, retail trade and business activity shrank by almost a third. Unemployment soared to an all-time high 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%.
Based on the FT report, the financial hit is almost unprecedented in modern times, comparable only to the US Great Depression in the 1930s, notes Giorgos Lagarias, chief economist at Mazars Wealth Management.
Real wages fell steadily through 2022, the most recent year for which data is available in the OECD database, and are 30% below pre-crisis levels, leaving the country with one of the lowest average wages among developed economies.
The manufacturing sector — a major driver of growth before the crisis — has all but disappeared. Housing investment, which accounted for more than 10% of GDP at the height of the 2008 bubble, has since sunk to 2% of GDP, the lowest share 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. Lagarias argues that growth with limited leverage (financial leverage) – as is the case in Greece – will remain sluggish and predicts that it will take many years of “persistent reforms” for Greece to return to where it was in 2007.
Climate risks and demographics
Low investment and sluggish productivity also continue to limit Greece’s economic potential, according to Derrien. In its latest country report, the IMF also cited climate change as a risk – with 90% of tourism infrastructure and 80% of industrial activity located in areas exposed to high climate risks – and the increasingly distressed demographics data.
According to the FT, births in Greece fell to a ninety-year low in 2022, exacerbating an aging and shrinking population as many young people leave the country each year.
Overall, the Financial Times article concludes, “Greece’s economic recovery should be celebrated, but it must be seen in the context of the significant economic crisis that has left the country in a hole that may take a whole generation”.
The MINISTRY
In the meantime, the Ministry of Economy and Finance stands by the issues of the recovery of incomes based on what ELSTAT points out in its corrected bulletin ELSTAT regarding disposable income. In the 4th quarter of 2023, the disposable income of the household sector and non-profit institutions serving households increased by 7.5% compared to the corresponding quarter of the previous year, from €33.75 billion to €36.27 billion . euros, ELSTAT reports, noting, of course, that in the 4th quarter of 2023, the final consumption expenditure of households and non-profit institutions that serve households, increased by 5.8% compared to the corresponding quarter of the previous year, from 37.3 billion euros to 39.5 billion euros (
Also, the MINISTRY, based on ELSTAT data on economic inequality and poverty for 2022, recently commented that an improved picture is recorded.
As stated in the relevant announcement, “2022, the reference year to which the ELSTAT figures refer, was a year of unexpected inflation explosion due to the major energy shock caused globally by the Russian invasion of Ukraine. In earlier periods, in similar circumstances we usually had an explosion of income inequality and poverty in our country. Because of the government’s policies – raising the minimum wage, income support for the most vulnerable sections of the population, development policies that led to a large reduction in unemployment – this was prevented.
According to ELSTAT data, between 2021 and 2022 inequality (Gini index from 31.4 to 31.8) and the percentage of the population at risk of poverty (from 18.8% to 18.9%) increased slightly while, on the contrary , a small improvement is observed in the percentage of the population at risk of poverty or social exclusion (from 26.3% to 26.1%). That the government’s policies protected the most vulnerable strata of the population is also proven by the fact that between these two years the income share of the poorest 25% of the population increased slightly (from 10.3% to 10.4%), while the so-called ‘poverty gap’ which shows how poor our poor fellow citizens are, has decreased significantly, from 23.8% to 22.5%.”
