Greece: On the Road to Recovery?



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Introduction

On April 10, 2014, the Financial Times reported that after six years of recession, during which the economy shrank to one fourth of its previous size and unemployment rose to 27%, Greece had shown some signs of recovery in the first quarter of 2014 . Greece issued bonds of €3 billion in April 2014. On June 12, 2014, the Bank of Greece came out with its monetary policy report where it stated that positive signals of recovery had been visible in the past one year.

Economic indicators such as consumption and industrial production had shown growth. The initial signs of recovery were hailed by European leaders but analysts believed Greece had a long way to go before it could come out of the woods. Greece joined the Eurozone in 2001 and attracted huge funds. The easy access to funds encouraged the government to spend on unproductive activities like an increase in the salaries of public servants, high pension payments, reduction of tax, etc.

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In 2005, the European Commission placed Greece under fiscal monitoring. Greece was forced to initiate austerity measures like wage cuts, reduction in basic wages, increase in working hours, higher taxes, etc. Between 2001 and 2007, Greece posted a healthy GDP growth. But the situation deteriorated in the next two years and Greece entered recession. In 2009, The new Prime Minister George Papandreou (Papandreou) claimed that the previous government had under-reported the budget deficit. Investors lost confidence in Greece and several multinational companies left the country. Credit rating agencies downgraded the country’s long term debt.....

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