Greece: On the Road to Recovery?

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Excerpts

After World War II, the Greek economy experienced rapid growth mainly due to foreign investments, development of industries like chemicals, tourism, infrastructure, etc. In the 1990s, in Greece, the government controlled 75% of the business assets and the other sectors of the economy were also under the regulation of the government. (Refer to Exhibit I for more about Greece’s Economy). The state reduced its stake to 50% by 2008. . However, as per the Organization for Economic Co-operation and Development (OECD) reports, much of the private sector continued to suffer from weighty complex regulations. From 2001 to 2008, 75% of the government expenditure was allocated to the public sector wages and social benefits. However, there was no concrete evidence about any improvement in the quality of the services . Political analysts opined that the Greek politicians used public money for vote bank politics, thereby pushing the economy toward a crisis. The complex tax codes created by the government only helped the corrupt to evade taxes, according to observers..

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Amid allegations of misuse of power by the Conservative New Democracy Party, in October 2009, elections were held, and the Panhellenic Socialist Movement party came to power. By then, the national debt had soared to € 262 billion from € 168 billion in 2004. During the year, Greece entered recession, with the GDP contracting by 2.3% in the first quarter and by 3.5% in the second quarter (year on year basis). In the year 2009, the Greek economy shrank by 2.3%. Economists said that unrestrained spending and failure to implement austerity measures were the main reasons for the country’s problems. ...

The European leaders, the IMF, and the ECB agreed that an uncontrolled disorderly default on Greek debt would be extremely risky as it would have a ripple effect on the other countries which had invested in Greece and thus should be avoided at any cost. They feared that such a default could spark a major sell off of bonds of other Eurozone members with high debts. European bankers exposed to Greece and other Eurozone government would not be able to bear the losses on those investments, they opined....

The bailout packages received by Greece did not come free. The IMF and EU laid down the conditions of reforms and austerity programs. The austerity programs included more taxes, public sector pay cuts, pension reductions, new taxes on company profits, increase in luxury and sin taxes, and increase in value added taxes. Greece enjoyed a honeymoon period after it entered the Eurozone as the government spent heavily on public sector wages and other facilities. When austerity measures were included in the budget of 2010, people in Greece revolted in the streets for months.....

A referendum held in Greece in October 2011, showed that 60% of Greeks were against the austerity measures adopted as a condition for the bailout packages from the EU. Of the total population, 70% were in favor of being a member of the Eurozone ....

Samaras came to power in 2012. After that, the budget deficit had narrowed down, tax administration had improved, spending inefficiencies had reduced, and transparency and accountability of government operations had increased. Experts said that 2013 would be crucial for Greece, as it would determine if the country could continue to remain in the Eurozone or not...

Exhibit I:Brief Economic History of Greece
Exhibit II: Annual GDP Growth Rate Comparison - Greece and Euro Area
Exhibit III:Greece Government Debt to GDP Ratio
Exhibit IV:Unemployment Rate in Greece