Financial Crisis in Greece

Bad days for the Greek economy

The largest "nightmare" is currently in debt and its servicing costs. The Government has already made initial contacts with major foreign banks, to explore the interest of foreign investors for Greek bonds. At the moment, information indicates that there is interest and Greece will succeed even difficult to borrow the funds needed for 2009


By OVIDIU PALCU
from Athens, GREECE


Greek economy is more affected by the painful effects of new international crisis. This means trouble for Greek economic growth moving forward, especially since there may be no help for the gross domestic product from net exports. Greece maybe has to forgot for a while the long precedent favourable European and international economic environment, which began in Greece after 1990 and appears to end in 2007. It was a very good period for the Greek economy, when the country developed a lot. Because of the crisis as well, Greece has been hit by a series of strikes in recent months that have affected trade and other sectors.

Unfortunately for the moment it looks that Greece will have stagnation for the next maybe two or three years. The Greek economy grew by 3.0 % in 2008, down from 4.0 % in 2007. The statistics service, in a report, said the economic growth rate in the fourth quarter of 2008 was 2.6%, down from 2.9 % in the previous quarter, while on a quarterly base, economic growth rate in the October-December period was 0.3 %, slightly from 0.5 % in the third quarter.

Greek economy will be affected by the global crisis and will grow by just 0.5% this year after growth rates of 3.0% in 2008, according to central bank data, which asked the government recently for fiscal tightening and reforms to overcome the crisis. Deep budget deficits and debt rising let a government action reduced the margin in terms of fiscal stimulant in the context in which the main areas of the economy such as tourism, are affected by international financial crisis.

It is possible this summer less tourist to come to visit Greece, which means the country could have big economical problems before the ending of 2009. If this industry will be this year in decline the situation may be very difficult if we think that tourism is 40% of the economy in Greece.

However, a combination of fiscal discipline and reforms extended to the public sector could limit the public debt and allow a series of government expenses, to encourage economic activity. This situation brings measures, which will involve the strengthening of revenue and especially drastically cutting costs. The Economy Ministry has asked public bodies to make the economy even in electricity, water and telephone, and consider all possibilities of the public domain.

The largest "nightmare" of Greek economy is currently in debt and its servicing costs. The Government has already made initial contacts with major foreign banks, to explore the interest of foreign investors for Greek bonds. At the moment, information indicates that there is interest and Greece will succeed even difficult to borrow the funds needed for 2009.

The EU invited the Greek government to introduce measures this year to cut costs regardless of the growth. The measures include freezing salaries and new insurance reform. EU urges the country to take measures for fiscal consolidation of the economy in 2009. The measures required primarily concern the reduction of current expenses, including wage policy in public. The ministry already announced a new package which includes "freeze" wages, taxes and cut benefits, which could help for reducing the deficit below 3% this year.

Greece is confronted with an urgent need for implementation of policy measures in the long term, to cure internal imbalances and chronic structural problems and expanding external debt. Several measures would help, such as opening markets to competition, tax exemptions to encourage investment, retraining of unemployed and the establishment of a social cohesion fund.

Central Bank of Greece has estimated that inflation will moderate to 1.8% in 2009, from 4.2% last year. Growth of gross domestic product (GDP) will moderate significantly, but will remain positive, better than in the euro area. Central Bank of Greece estimates that the rate of growth of GDP, which slowed to 3% last year, will be 0.5% in 2009, according to a bank's report. Central bank estimates are above those of the European Commission (EC), which anticipated a growth of 0.2% for Greece in 2009, but under the government of 1.1%.

Greek Government should take quick action against the global economic crisis; contrary situation in the country will get in recession for the first time in 16 years. If Greece remains half-measures and progressive policies, society and economy will face serious danger of recession and high unemployment. Greece has very low possibilities of adopting a package of tax incentives, because the debt is very high and growing budget deficit. High budget deficits, close to the European Union limit of three per cent, resulted in financial evaluation agency Standard & Poor's country rating to decline in 2009.

Greece has become an extremely polarized society. Apart from Spain and Portugal, it has the lowest minimum wage in the "old 15 European Union". Salaries increased by only 2% last year, while inflation was 3.5 percent. A study by the Greek Statistical Service showed that, after household expenses have been deducted, the proportion of those classed as poor is 27%. As the government struggles to balance the budget, policies aimed at raising more money for its coffers have played a key part in prompting hundreds of thousands to march strikes in Athens.

The two main umbrella unions - the Greek General Confederation of Workers and the Civil Servants Supreme Administrative Council - are demanding increased social spending in light of the global financial crisis, as well as higher wages and pensions. The unions say that privatisations, tax rises and pension reform have worsened living conditions, with the estimated 20% of Greeks living in poverty worst affected. Removing a tax exemption for some of the poorest self-employed, more expensive vehicle licences and a capital gains tax on shares has done little to please. And with youth unemployment at about 19% and overall joblessness at 7.2%, there is plenty of anger on the streets. The Greeks expressed with increasing intensity the fear about the future and the disappointment of the current situation.


(Published: 10.04.2009.)