Economic Background – Greece
Greece has a mixed capitalistic economy with a large public sector that accounts about half of GDP. Besides, Greece is a major beneficiary of European Union aid, which equal to about 3. 3% of annual GDP. In addition, Greece is an agricultural country and one of the poorest countries of the European Union with the second to lowest average income, after Portugal. In January 2002, Greece adopted the euro as its currency.
The adoption provided Greece, formerly a high inflation risk country under drachma, with access to competitive loan rates and also to low rates of the Eurobond market which led to a dramatic increase in consumer spending and gave a momentous boost to economic growth. Between 2003 and 2007, Greece economy grew by nearly 4. 0% per year. The preparation for the Athens Olympic Games during 2004 gave an impulse to the Greece economy. However, the financial crisis had slowed down the Greece’s economic growth to 2.0 % in 2008.
As a result of the world financial crisis and its impact on access to credit, world trade and domestic consumption, the economy went into recession in 2009 and contracted by 2. 0%. 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.
Greek government has approved a three-year reform program that includes cutting government spending, reducing the size of public sector, tackling tax evasion, reforming the health care and pension systems, and improving competitiveness through structural reforms to the labour and product market under the intense pressure by the EU and international lenders.
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. Greece requested activation of a joint European Union-International Monetary Fund support mechanism designed to assist Greece in financing its public debt in April 2010.