Greece's economy

Greece adopted the euro as its currency in January 2002. The adoption of the euro provided Greece (formerly a high inflation risk country under the drachma) with access to competitive loan rates and also to low rates of the Eurobond market. This led to a dramatic increase in consumer spending, which gave a significant boost to economic growth.

Between 1997-2007, Greece averaged 4% GDP growth, almost twice the European Union (EU) average. As with other European countries, the financial crisis and resulting slowdown of the real economy have taken their toll on Greece’s rate of growth, which slowed to 2.0% in 2008. The economy went into recession in 2009 and contracted by 2.0% as a result of the world financial crisis and its impact on access to credit, world trade, and domestic consumption--the engine of growth in Greece. Key economic challenges with which the government is currently contending include a burgeoning government deficit (13.6% of GDP in 2009), escalating public debt (115.1% of GDP in 2009), and a decline in competitiveness. The EU placed Greece under its Excessive Deficit Procedure in 2009 and has asked Greece to bring its deficit back to the 3% EU ceiling by 2012. In late 2009, eroding public finances, misreported statistics, and inadequate follow-through on reforms prompted major credit rating agencies to downgrade Greece’s international debt rating, which has led to increased financial instability and a debt crisis. Under intense pressure by the EU and international lenders, the Greek Government has adopted a three-year reform program that includes cutting government spending, reducing the size of the public sector, tackling tax evasion, reforming the health care and pension systems, and improving competitiveness through structural reforms to the labor and product markets. The Greek Government projects that its reform program will achieve a reduction of Greece’s deficit by 4% of GDP in 2010 and allow Greece to decrease the deficit to below 3% by 2012. In April 2010, Greece requested activation of a joint European Union-International Monetary Fund support mechanism designed to assist Greece in financing its public debt.

The financial crisis and the consecutive recession caused an increase in unemployment to 9% in 2009 (from 7.5% in 2008). Unfortunately, foreign direct investment (FDI) inflows to Greece have dropped, and efforts to revive them have been only partially successful as a result of declining competitiveness and a high level of red tape and bureaucracy. At the same time, Greek investment in Southeast Europe has increased, leading to a net FDI outflow in some years.