“FT”: Greece on a growth trajectory, but the second poorest in the EU

ATHENA. Despite the positive economic performance of Greece, the inhabitants of the country appear as the second poorest in the EU, notes a publication of the “Financial Times”.

New data released by Eurostat on Monday showed that Greece’s public debt-to-GDP ratio fell by 10.8 percentage points to 162 percent in 2023.a

The Greek economy grew by 2% in 2023, while Germany recorded a contraction of 0.3%. As of 2019, before the pandemic, the country had growth rates almost twice that of the Eurozone.

Last week, the IMF said the Greek economy would grow by 2% this year and continue to outpace the average growth rate of the Eurozone for the next two years.

The strong performance of tourism helps 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 BNP Paribas economist Guillaume Derrien told the Financial Times, “renewed political stability and intense fiscal consolidation make Greece a much more attractive country for investment than in the past.”

However, as the author of the text, Valentina Romei, notes, the economic recovery in Greece slightly raised the standard of living in the country, but not enough to remove the country from the last place, with the poorest residents in the Eurozone.

As he mentions, this situation is not 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.

According to the Financial Times, as the gap with Bulgaria narrows 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 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 a bailout from the IMF and the EU, squeezing businesses and households and wrecking the economy.

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 currently 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 financial hit is almost unprecedented in modern times, comparable only to the Great Depression in the US in the 1930s, notes George Lagarias, chief economist at Mazars Wealth Management.

Real wages have fallen steadily through 2022, the latest available in the OECD database, and are down 30 percent from pre-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 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.

In its latest country report, the IMF also cited climate change as a risk – as 90% of tourism infrastructure and 80% of industrial activity are located in areas exposed to high climate risks – and the increasingly distressed demographics data.

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.

“Greece’s economic recovery should be celebrated, but it must be viewed in the context of the major economic crisis that has left the country in a hole that may take a generation to climb out of,” concludes the article in “Financial Times”.