Greece has been rocked by the crisis more than any country in the Eurozone. Almost every important bit of socio-economic data is worse than for any other member of the group of 17 Euro-member states. Greek GDP has fallen 17.4% since the beginning of the crisis. In 2013 the outlook is expected to result in a further decline of approximately 4%, and even in the best case scenario growth will surely not return before 2014.
The main actor in the slump is domestic consumption, which has decreased by 17.3% between 2007 and 2012. Apart from that, investment has fallen by 25 billion Euros, from 25.9% to 14.9% of GDP between 2007 and 2011. Its recovery is not probable in the near future. Unemployment has grown threefold during this time. In June 2012, 1.2 million people or 24.4% did not have a paying job. Youth are experiencing an even more severe situation. Their unemployment rate was 54.4% during the past summer.
The budget deficit equalled 6.7% in 2012 and will reach more than 4% in the coming year. Total public debt is over 160% of GDP, even after the partial write-off by private debtors in the first half of 2012.
The external equilibrium began to deteriorate as soon as the country joined the Eurozone. But the downward trend has speeded up since 2005. The increase in the balance of payments deficit results from the rapid rise in the balance of income deficit (wages and investments) after 2000. Between January 2000 and June 2012, 115.7 billion Euros have left the country and only 42.3 billion Euros have come in. Income on portfolio and ‘other investments’ resulted in the biggest part of the outflow. The net some of these items was close to 73 billion Euros in this period.
Greek foreign trade is turning away from the EU because of the devaluation of the Euro over the past one and a half years. The weaker Euro increases Greece’s competitiveness vis-a-vis third countries, but does not have any direct effect on trade within the Eurozone.
In order to avoid open bankruptcy, Greece has received two rescue packages from the EU and the IMF totalling 238 billion Euros. The government, however, has been delaying fulfilment of the promised austerity measures aimed at balancing the budget because of the severe social price attached to the measures. Moreover there has been almost no progress in the field of tax evasion, boosting entrepreneurship or privatization. The latter should help raise 50 billion Euros in revenues by 2014.
Although salaries, minimum wages, pensions and social benefits have already been cut back considerably, an additional 13.5 billion Euros correction will be necessary in 2013-2014. From this, 3 billion will result from increasing taxes and 6.7 billion from further reducing pensions and wages. The rest will come from cutting back healthcare, education and defence expenditures.
Although the Greek elite, the global crisis and Eurozone imbalances share responsibility for the crisis, the bulk of the burden will fall on the shoulders of the Greek people. The possibility of a Greek exit from the Eurozone is still on the agenda. As this, however, would jeopardize the whole currency union, the EU the leaders of Europe will surely do their best to avoid it. Thus Greece will more than likely receive the next 31.5 billion Euro instalment from the rescue package in November. But this will only delay a real solution to the problem. The Greek crisis rolls on...
(A longer version of this article will appear in the Institute of World Economics’ Report on World Economics)