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Books on Greece
REPUBLICAN REFERENCE
Area (sq km)
131,940
Population
10,647,529
Capital
Athens
Currency
Euro
President
Costas
Stephanopoulos
Private sector
% of GDP
over 60%
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Update No: 103 - (28/11/05)
Greece has long been the key player in the Balkans. A
long-time member of both NATO and the EU it is the natural leader, patron even,
of those neighbours aspiring to join either or both - and sees itself as such.
With the signing of "The Energy Community South East Europe Treaty" in
Athens, Greece, recently, the European continent took a historic step forward
for energy market liberalisation, expanding the EU Energy single market to the
Balkans. This is the first time in history that all of these states and
territories have signed a legally binding treaty and is a milestone in
reconciliation after the wars of the 1990s.
The agreement is a culmination of the efforts launched with the signing of the
Athens Memoranda in 2002 and followed up in 2003. With that the idea had got the
taproot of political backing and governmental obligations to create electricity
regulators and transmission system operators and to open up the energy markets
for commercial consumers.
In addition to the EU, Albania, Bosnia and Herzegovina, Bulgaria, Croatia,
Macedonia, Romania, Serbia and Montenegro and environmental chapters with the EU,
could be Turkey. "We want more time to implement the treaty and we will
continue with negotiations," sources close to Turkish Energy Minister,
Hilmi Guleri, said.
The Energy Community's regulatory and electricity board will be based in Athens,
while its technical and information centre will be based in Sofia, Bulgaria. Its
secretariat will be headquartered in Vienna, Austria.
Greece expects economy to grow 3.8 per cent in 2006
Greece's economy is doing well, helping to explain the rising popularity of
Premier Costas Karamanlis and the new government.
It will grow by 3.8 per cent next year, while the budget deficit will fall to
2.8 per cent of GDP, according to the draft budget plan the Greek government
presented recently. Economy and Finance Minister George Alogoskoufis said growth
of GDP for 2005 was expected to reach 3.6 per cent - missing its target of 4 per
cent, but still the highest in the 12-state euro zone - while the budget deficit
will be just over the 3 per cent limit dictated by EU rules, at 3.6 per cent.
Next year, the deficit will be at 2.8 per cent of GDP, Alogoskoufis said.
Alogoskoufis said economic policy priorities for 2006 would be to restore fiscal
balance, ensuring long-term sustainability of fiscal condition, improving
productivity through solving structural problems, improving business environment
and competitiveness and boosting employment. He explained that the deficit would
be reduced through containing public spending and combating tax evasion.
Bloated by greatly overrun spending on the Athens Olympics, the 2004 deficit
soared to more than double the ceiling allowed by the EU, at 6.6 per cent, a
figure announced by eurostat and confirmed by Alogoskoufis. The minister said
the final bill for the most expensive Games in history - preliminarily set at 13
billion euros (US$15.5 billion) - would be announced when the final 2006 budget
is tabled later this year.
The draft 2006 budget allows for unemployment falling to 9.8 per cent, from an
estimated 10.4 per cent in 2005, and inflation standing at 3.2 per cent compared
to an estimated 3.5 per cent for 2005.
Premier outlines Greek economic achievements
Prime Minister Costas Karamanlis hosted a dinner for the President of the
European Central Bank (ECB) Jean-Claude Trichet and the members of the bank's
executive board, in the Ancient Agora under the Acropolis. The ECB's executives
held a meeting in Athens for the first time earlier in the day.
In an address, the prime minister said that the economic and monetary union
constituted the "most advanced pylon of the common European edifice."
"The introduction of the euro and the establishment of the European Central
Bank is one of the most important landmarks in the course towards European
integration," he added.
"It was the initial move in a comprehensive plan, a plan which had been
worked out and is now being implemented with the aim of making European economy
capable of meeting the global changes and challenges...The globalisation of
markets and the ever increasing international competition proved that the plan
was, and is, not only feasible but also absolutely necessary, in all its extent,
regarding both monetary stability and fiscal reform as well as structural
changes," Karamanlis said.
Karamanlis said that the EU's monetary unification, the creation of a large
common market and the establishment of a single currency entailed substantial
benefits for the member countries of the Euro-zone. "The economies of our
countries were relieved of the cost entailed by the 12 different currencies.
Cross-border trade, commercial transactions and tourism movement were
facilitated to a large degree. The medium-term and long-term interest rates were
reduced and have been maintained at low levels, which significantly contributed
to investments, growth, reduction of the cost of servicing the public debt.
Significant stability was achieved in prices, as inflation in the Euro-zone,
despite the unprecedented skyrocketing of international oil prices, is at a
historic low. A more stable and efficient economic environment was
created," he said.
The prime minister also referred at length to the impact of the EU's economic
and monetary union (EMU) on Greece and the achievements of the Greek government
in the sector of economy in the past 18 months.
"The monetary stability, but also the low interest rates of the euro, gave
a substantial boost to private consumption and facilitated the servicing of the
public debt," Karamanlis said, stressing, however, that the postponements
and particularly the lack of reforms in the past had left intense marks on the
operation of the State and the economy, but adding that the new government, that
of his ruling New Democracy party (ND), with a sense of responsibility and
respect to the Stability and Growth Pact, immediately pinpointed the chronic
problems of the past and was developing effective policies to tackle them.
He noted that his government was applying a policy of mild fiscal adjustment so
as to reduce the deficit to below the 3 percentage point mark by end-2006, was
formulating a new developmental model based on encouraging healthy
entrepreneurship, cooperation between the public and private sectors, constant
improvement of quality, productivity and competitiveness, exploitation of the
new advancements, technology, research and innovation, and economic outwardness.
The government was also proceeding, with determination and a sense of social
responsibility, in reforms that have been necessary for many years, in order to
render the Greek economy more productive, more competitive, and more
out-reaching, he said.
It had further reduced the corporate tax brackets and simplified taxation
procedures, introduced increased investment incentives and a uniform legal
framework for collaboration between the public and private sectors, advanced
reforms in the banking sector to make it more efficient and more competitive,
reinforced flexibility in the labour market, and was continuing to reduce
bureaucracy with respect to the establishment of new enterprises, was proceeding
with new denationalisations and liberalisation of the energy market, and was
applying policies for the gradual reduction of the country's oil dependence, for
conservation of energy and for exploitation of renewable energy sources, the
prime minister explained.
Karamanlis stressed that the investment environment in Greece had improved over
the past 18 months and continued to improve consistently; that Greece had
achieved a substantial fiscal adjustment in an environment of high domestic
growth, which was expected to accelerate further in the immediate future; the
public debt was de-escalating at a faster rate; exports and tourism traffic to
Greece were increasing; and unemployment was presenting encouraging signs of
reduction.
The country, the premier said, was moving decisively towards more efficient and
speedier exploitation of its participation in the EMU. It was creating a new
developmental environment that was more attractive for investments and friendly
to business concerns. It was also playing a decisive role in the developmental
efforts in SE Europe, and utilising its geopolitical position and its membership
in all the major international financial and political organizations with the
aim of strengthening cooperation, growth and progress throughout the wider
region.
Making a major play, consistent with his Balkan leadership ambitions, he claimed
that Greece today was the most appropriate location for the headquarters and
research centres of major European enterprises penetrating the neighbouring
countries. It was the gateway to Europe for Asia, the Middle East, and the
eastern Mediterranean. It was the only EU and EMU member country in a region of
substantial developmental prospects. Greece was gradually developing into an
international energy hub, which reinforced not only the developmental prospects
but also cooperation, stability and peace in the entire region, Karamanlis
added.
The legacy of the Athens Olympics
In a programme to exploit what he called the "intangible legacy"
of the 2004 Athens Olympics, Prime Minister Costas Karamanlis has underlined the
social benefits to be derived from the use of facilities built for the Games,
with the majority of them remaining under state ownership.
While the extent of that legacy, Mr. Karamanlis said, is difficult to assess, it
certainly had a "multiplying effect" by upgrading the country's image
abroad and by helping to attract productive investments and tourism. "We
are determined," Mr. Karamanlis said in a joint press conference with
Alternate Culture Minister Fani Palli-Petralia, "to capitalize on this
added value for the good of the social whole," using developmental rather
than strictly financial criteria in the use of the Olympic facilities.
Ms. Palli-Petralia then spoke of the post-Olympic plans in greater detail,
noting that the government has earmarked 85 million Euro for the maintenance of
the Olympic facilities in 2005. Several of them will be developed as parks,
sports and recreational areas. The Olympic Shooting Centre will be available for
the training of Greek security forces. And other facilities will become art
centres housing academies for dance, drama, theatre and music. The International
Broadcasting Centre will house the Olympic Games Museum, and the Main Press
Centre will be occupied by the Environment, Town Planning and Public Works
ministry.
Most important of all the main Olympic complex, designed to become a key
post-Olympics attraction, will not only host sports activities but also provide
an attraction for both Greeks and foreign tourists interested to see the
Calatrava Dome, the Agora and Wall of Nations in a unique "Olympic
Walk."
Much of this information was also contained in an address by Ms. Palli-Petralia
on December 8 at New York's Columbia University. "The Olympic Games,"
she said, "proved that we have both the capabilities and the human
resources to place Greece among the group of the planet's developed
countries."
Ms. Palli-Petralia said that the Athens Olympics, covered by more than 200 TV
networks and watched by some 4 billion viewers during 3,800 hours of live
coverage, were praised in opinion polls conducted in the US and in several
European countries. The image of Athens has "drastically improved" and
it will be the chosen destination of more travellers, especially high-income
visitors, in the years ahead. Analysts predict that tourist arrivals may
increase, by the end of the decade, from the current 13 million annually to
18-20 million. A major Greek bank, she added, estimates that for the period of
2000-2008 the Greek economy will grow by 25 billion Euro, and may be expected to
grow further as Greek businesses take advantage of the positive Olympic
publicity and of the improved infrastructure assisting exports.
"The Olympic facilities," Ms. Palli-Petralia concluded,
"represent a significant state asset . . . The aim is to attract important
foreign investors and make Athens a unique tourist destination and especially a
place where international conferences and fairs can be held as well as a place
for worldwide cultural, entertainment and sports events."
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CREDIT RATINGS
Greece gets A/A-1 LT/ST ratings affirmed
Standard & Poor's Ratings Services announced recently that it affirmed its A
long-term and A-1 short-term sovereign credit ratings on the Hellenic Republic
(Greece), as slow progress on fiscal consolidation coincides with Standard &
Poor's expectations. The outlook is stable, it added. "The Greek economy
continues to expand at a fast pace, fuelled by strong private consumption growth
as a result of rising real wages and buoyant credit growth," said Standard
& Poor's credit analyst Trevor Cullinan. "However, strong nominal GDP
growth in the past has been accompanied by lacklustre efforts to implement
public sector reform and by general government deficits averaging about six
percent of GDP over the past four years," New Europe reported.
Commenting on the one-off measures of the government, Standard & Poor's said
it expected the deficit to remain above 3 per cent out to 2008. "The
pressure on Greek public finances is balanced against our assessment that the
public debt ratio will post marginal declines in the medium term," said
Cullinan. "The government intends to reduce its deficit to less than 3 per
cent of GDP by 2006, but this is unattainable without additional measures or
recourse to one-off transactions."
The ratings could be raised if structural budgetary improvements were to lead to
a clearly discernible trend toward the primary surpluses of the late-1990s
(about 5 per cent of GDP) and if the public debt ratio was to embark on a speedy
and sustainable decline. Conversely, an increase in the general government debt
ratio would bring the ratings on the Republic under renewed pressure.
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ENERGY
Greece and Italy sign agreement for gas pipeline
Italy and Greece signed an accord for a 950 million Euro gas pipeline
construction deal which will bring gas from Turkey through Greece to Puglia, on
the south eastern coast of Italy. Italy's Industry Minister, Claudio Scajola,
and Greece's Development Minister, Dimitris Sioufas, signed the accord for the
Igi pipeline, New Europe reported.
The 200 km pipeline between the coasts of Italy and Greece will be built by
Poseidon, a joint venture between Edison and Greek gas firm Depa, with an
investment of 350 million Euro. Turkish firm Botas could join the venture later.
The remaining 600 km in Greece will be built by Depa, costing 600 million Euro.
Work should start in 2007 and finish in 2010. Italy should import between 8 and
10 billion cubic metres of natural gas from the Caspian Sea and the Middle East
through the pipeline when it is finished. Italy wants to cut its heavy
dependence on fuel oil for electricity sharply by 2010, Scajola said, replacing
it with a mix of gas, clean coal and renewable energy, to cut electricity prices
which are currently the highest in Europe. Edison, which is now controlled by
France's Electricite de France and Milan utility AEM, has favoured gas as a
replacement source of energy while the country's biggest utility, Enel, has bet
on coal.
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FOREIGN RELATIONS
Karamanlis, Koizumi discuss Balkans, investments and trade
Bilateral relations, the Balkans, investments and trade were at the centre of
talks held in Tokyo recently, between Greek Prime Minister, Costas Karamanlis,
and Japanese Premier, Junichiro Koizumi. Karamanlis, who was in Japan on a
four-day official visit, said he and Koizumi had discussed prospects for greater
cooperation by the two countries in international fora. He also noted that the
two countries were currently both non-permanent members of the UN Security
Council, stressing that this offered "a first-class opportunity to make
cooperation closer in the future." The Greek premier pointed to Japan's
"extremely positive presence in the western Balkans," saying that the
political and economic interests of the two countries provided margins for
greater cooperation. He also stressed that bilateral economic cooperation was
currently below its potential for both countries, particularly for Greek
agricultural products, shipping and tourism, New Europe reported.
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GREEK ECONOMY
The Greek economy in 2005 and its future
How prepared is the Greek economy to face the main challenges of the 21st
century and the globalisation era? Is the Greek economy able to be reformed?
The debate over the speed of economic reform often becomes an angry exchange of
analogies. One side claims that you cannot cross a chasm in two laps. The other
side retorts that you cannot cross it in one leap either, unless you are Indiana
Jones, so you should instead drop a bridge, writes Athanassios Papandropoulos,
Senior Writer, New Europe.
Then again, shock therapists argue, if you want to cut a dog's tail, you do it
in one slash of the knife, not bit by bit. The gradualists reply that you train
a dog by setting incrementally escalating heights for him to jump. Or yet again,
when shock therapists say that you have to kick a door open, the gradualists
retort that if you do, the door is likely to rebound shut, whereas a gentle
pressure on the door is certain to succeed in opening it wide. Under these
circumstances, let's have a look at the real performances of the Greek economy.
According to the latest OECD's report, in terms of real GDP growth, the Greek
economy has performed very well in recent years and has weathered the
international slowdown in activity better than most OEDC countries. However, in
part this has been achieved at the cost of a sharply widening fiscal deficit to
very high levels and high and rising public indebtedness.
Hence, a major challenge of economic policy will be to rein in government
deficits to meet European obligations and to prepare for the spending pressures
that will start emerging after 2015 arising from an ageing population and an
actuarially unsound and largely unreformed public pension system. The growing
cost of the public health system will also add to the pressures on the
government budget. Further policy challenges arise from the government` s
objective to narrow the gap in living standards between Greece and the EU, which
had widened from the late 1970s to the mid-1990s, but has narrowed since.
Eliminating the remaining substantial gap in per-capita incomes requires: i)
mobilising the existing large reserves of labour inputs through comprehensive
labour market reforms, including the education and training system; ii) keeping
productivity growth at high level over a long period, mainly through the removal
of the still widespread government control in the economic process and the
establishment of a competition culture in product markets; iii) and preserving
macroeconomic stability while improving international competitiveness through
eliminating the persisting inflation differential with the Euro area.
A recent fiscal audit revealed that the true public debt and deficit positions
were considerably worse than previously thought. The latest Stability and Growth
Program envisages a major reduction of the general government deficit from six
percent in 2004 to below three percent of GDP in 2006. The public debt remains
high, at around 110 percent of GDP. The objective is to constrain primary
expenditure - through spending prioritisation- and limit tax evasion, making
room for lower taxes and enhanced spending in growth-promoting areas. There is
also a need to enhance administrative efficiency and reform the health care
system. Tax reform should aim at further simplification, reducing distortions,
augmenting equity and reducing administrative and compliance costs.
Another challenge facing Greece as from the next decade is a large and steady
increase in spending on old-age pensions. This will require a major overhaul of
the public pension system to make it financially sustainable without
compromising the income adequacy of the elderly or reducing the production
capacity of the economy.
Further policy challenges arise from the government's objective to eliminate the
gap in per capita incomes with the EU 15, which widened from the late 1970s to
the mid-1990s, but has narrowed since. A decomposition exercise shows that most
of the income gap reflects low labour productivity rather than low labour
inputs. There is substantial scope for catching up with best practice in leading
countries in a number of policy areas, including competition policy;
liberalisation of product markets, especially telecommunications and energy;
policies to foster entrepreneurship; and the implementation of a better
corporate governance regime.
Convergence with EU member countries could also be accelerated by getting more
people into work through higher flexibility in the wage bargaining system; lower
non-wage labour costs, especially for the lower-skilled; less stringent
employment protection provisions; enhanced labour mobility; and more effective
active labour market policies. In addition, training and education could be
upgraded to improve educational outcomes, ensure that school-leavers have useful
skills and to support life-long learning. This would make workers more
productive and raise their employability at both ends of the age spectrum
The inflow of immigrants during the 1990s was large, raising the share of
foreigners in the population to over 10 percent and increasing the labour force
by between five percent and 10 percent. Given the rigidities of the formal
labour market in Greece, the existence of a substantial informal sector with
latent demand for low-paid labour allowed illegal immigrants to find jobs in
large numbers, even while structural unemployment among the Greek population
remained stubbornly high. While highlighting the effect that the relatively high
ratio of minimum to average wages can have in reducing employment opportunities
for the low-skilled, immigration has reduced the economic cost of these
restrictions by allowing at least some Greeks to move to higher level jobs and
by increasing output and profitability in a number of sectors. In conclusion,
the main challenge for the Greek economy is to find the courage for real reforms
in all sectors of the everyday life.
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