Republican Reference - Area (sq.km) 131,957 - Population 10,760,136 - Capital Athens - Currency Euro - President Karolos Papoulias - Private sector % of GDP over 60%

greece

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Key Economic Data 
 
  2009 2008 2007 Ranking(2009)
GDP
Millions of US $ 329,924 355,875 312,302 27
         
GNI per capita
 US $ 28,630 28,400 25,550 42
Ranking is given out of 213 nations - (data from the World Bank)

  

Background:
Greece, the mother of European democracy was for millenia, after its glory days, ruled by a succession of foreign powers. Independence from the Ottoman Empire came in 1829. During the second half of the 19th century and the first half of the 20th century, it gradually added neighboring islands and territories, most with Greek-speaking populations. Following the defeat of Communist rebels in 1949, Greece joined NATO in 1952. A military dictatorship, which in 1967 suspended many political liberties and forced the king to flee the country, lasted seven years. The 1974 democratic elections and a referendum created a parliamentary republic and abolished the monarchy; Greece joined the European Community or EC in 1981 (which became the EU in 1992).
Because of its international connections, and relative stability, Greece is to a large extent the dominant power on the Balkan peninsula, its influence largely the result of its investment in the industries of its neighbours. In 2004, Greece hosted very successfully, the Olympic Games, returned to their land of origin after more than 2000 years.

Update No: 130 - (26/08/12)

"Like Weimar combined with the Great Depression": the words of one British commentator on the situation in Greece, experiencing its worst economic crisis since World War Two. It has apparently now broken the world record for the longest recession in modern history. Whether or not this nation will remain within the euro zone remains uncertain; austerity measures have crippled the country and provoked mass popular unrest. The summer months have seen major developments in the form of a new government, which has vowed to accept austerity measures in order to maintain financial support from the troika of the EU, European Central Bank, and the IMF. The tectonic shift in the Greek political and economic landscape over the past 18 months continues to send ripple effects throughout the country and the euro zone as a whole.

Elections on May 6 broke the hegemony of the two ruling parties - the conservative New Democracy (ND) led by Antonis Samaras, and Socialist PASOK, led by Evangelos Venizelos which have dominated Greek politics since 1974. Now commonly referred to by disconsolate voters as "the thieves", they failed to secure a majority or form a coalition in the aftermath of the election. A caretaker government was sworn in on May 17, with the parliament convened for just two sessions, with the sole purpose of leading the country to fresh elections. In the elections of June 17, New Democracy, one of the dominant parties, led by Antonis Samaras, came in first with 29.7% of the vote, enabling it to control 129 seats in Athens's 300-seat House, but not enough for a majority. The anti-austerity, left wing Syriza coalition, led by the man of the moment, charismatic 37-year- old Alexis Tsipras, had been tipped to do very well, and came second with 26.89%. Syriza's speedy ascent has been impelled by the wave of unrest among disillusioned voters who have had their fill of the deep-rooted cronyism and corruption they see as the origins of the crisis. The election turnout of 40% demonstrated the disaffection of Greece's voters. To the relief of investors, New Democracy's leader Antonis Samaras managed to form a coalition with junior partners, the socialist part Pasok and the small Democratic Left party. The new 38-member cabinet was dominated by New Democrats after the two minority partners agreed that their MPs would support the government but not participate in it. Antonis Samaras thus became the country's 4th Prime Minister, unusually taking office before the cabinet had been convened. This was apparently his way of "sending a message" to the the markets. He also immediately instated a 30% pay cut for the cabinet members. The surprise was that Vassilis Rapanos, a well-respected economist well known for anti-junta activism in the past, was given the post of finance minister, a move which was also welcomed by most analysts. As a former head of the National Bank of Greece, he was believed to have a keen sense of the inner workings of the Greek financial machine.

Problems soon began to emerge, some of them by unhappy chance. Less than a week after being appointed, the new finance minister, who is 65 years old and has a history of poor health, decided to resign, having collapsed and been hospitalised. The incident prompted a wave of comments about how undesirable the post of Greece's finance minister is. Rapanos was replaced by pro-reform finance minister Yiannis Stournaras. Meanwhile, as he was recuperating in hospital, the Prime Minister was having surgery on his eyes. Aside from the health concerns, there are observers who have noted that the political agenda will have its own effects on the health of the coalition. Strong opposition from Syriza, who have pledged to foment protests if austerity continues, is particularly worrisome. Dimitris Keridis, a professor of political science at Athens' Panteion University, told Reuters: "There is widespread suspicion that to come a close second was Syriza's ultimate aim […] As a very strong and powerful opposition it will be able to bide time until new elections, when it could easily win an absolute majority. Tsipras is up and coming and he will use the time to mature." Pessimists have even suggested Greeks may be returning to the polls before the year is out.

As to the financial crisis, Germany, which has shored up most of the holes in Greece's economy, has not relented in its stance on austerity, retaining its tough rhetoric on the conditions of its aid programme. "The Greeks must stick to what they agreed to," Volker Kauder, the parliamentary leader of Merkel's conservative bloc, told the weekly Der Spiegel. "There is no more latitude, either on the time frame or the matter itself, because that would again be a breach of agreements. It is just that which led to this crisis." Berlin was keen to assert that Greece cannot hope for a third bailout. "It is not responsible to throw money into a bottomless pit," was the acerbic response of German finance minister, Wolfgang Schäuble, when asked if the debt-stricken nation could expect a third rescue package. Following talks on August 20 between Germany's foreign minister Guido Westerwelle and Greek counterpart Dimitris Avramopoulos, the former asserted that Germany had no plans to offer amendments to its agreements. The head of Germany's main industry group Hans-Peter Keitel of the BDI, told Germany's Wirtschaftswoche on Saturday that if Greece did not adhere to the conditions imposed upon it by the European Union and the International Monetary Fund, "there would no longer be a place for Greece in the euro zone".

Others have been slightly softer in their attitude towards the struggling nation. On August 15, finance minister Yiannis Stournaras met EU-IMF officials to discuss the country's progress and all emerged with cautious optimism. "Talks went well, we made good progress," the IMF's mission chief for Greece, Poul Thomsen, said after discussions with Stournaras. "We will take a break and come back in early September." "The country is committed to implementing a series of measures and reforms to revive the economy and permanently remove the threat of bankruptcy," he told the Ethnos newspaper. The euro zone chief Jean-Claude Juncker was also slightly more flexible in his rhetoric, suggesting that Greece would not be exiting the euro unless it "were to violate all requirements and not to stick to any agreement." Juncker has formerly asserted that a Greek exit from the eurozone would be manageable, but has qualified his statement. "Yes, I did say an exit would be manageable. What I meant is that it is technically manageable, but politically it is not manageable and it would be linked to unforeseeable risks." The effect of a grexit, would, many say, be more serious for the zone itself as a political entity than it would be for Greece. Juncker has also expressed hopes that Greece will redouble its efforts to stay on target in terms of reform. The IMF's chief Christine Lagarde has also pledged to stand by Greece. She told reporters in Washington: 'The IMF never leaves the negotiation table ... We are in Greece at the moment ... and we are engaged in dialogue with the Greek authorities'. The so-called troika of the EU, ECB and IMF will review whether it can give Greece a fresh tranche of aid in September.

It may be hard to define exactly what the notion of Greece 'staying on track' means. It is expected that in talks this weekend with Germany and France, Samaris will seek a two-year extension for the targets. This is not entirely insolent, given that there is a clause in Greece's €130 billion bailout deal that says the deficit adjustment period could be extended if its recession is worse than expected. Greece's economy contracted at an annual rate of 6.35% in the first half of this year, compared with an EU/IMF forecast for a 4.7% contraction for the full year, effectively qualifying it for this clause. Samaras said last month that the economy would shrink by more than 7% in 2012. Athens is also looking to cut only 1.5% from its budget deficit target each year rather than 2.5%. Apparently a document from the Greek government obtained by the Financial Times, states that a two-year delay to its current reform plan would cost €20 billion. That might be optimistic – there were reports last month that such a delay would actually require between €30billion and €40 billion of new funding (due to the deterioration in Greece's budgets in recent months). According to the document, Greece would need additional funding of €20 billion to support the budget as the annual deficit reduction in 2013-2014 would be smaller than planned. However, Athens envisages sourcing these funds without seeking help from eurozone partners. Financing instead would be drawn from an extant IMF loan, issues of treasury bills and, Greece hopes, a postponement to the start of repayments of its first EU-IMF loan from 2016 until 2020, when it is due to start repaying its second bailout loan.

Not to forget of course, that there are a base set of requirements to maintain their troika lifeline. Greece has no choice but to introduce a number of painful reforms. Firstly, 11.5 billion euros must be sought in cuts. The government has imposed a spending moratorium, which, some economists argue, could have a negative effect. Moreover, it looks like it will in fact need to make 14 billion euros in cuts rather than the initial 11.5 suggested. A plan to dismiss 40,000 public servants has been revived. This had previously fallen flat, as the Greek constitution interdicts the firing of civil servants and most politicians feared the wave of popular unrest this could unleash. Alongside this, the government will also fire tens of thousands of temporary contract workers in ministries and state organisations. In an attempt to demonstrate their commitment to these measures, no matter how unpalatable, on August 9 Athens sacked the head of its state nickel producer LARCO for refusing to cut workers' pay, the first state company chief to be dismissed in the wake of these reforms, considered vital in the fight to cut costs and stay hooked up to an international bailout. It will additionally have to reduce state salaries, pensions and benefits, as they make up two thirds of the government's 82 billion euros of annual spending, excluding interest payments, the officials said. Privatisations are another major aspect of the reform programme, in order to cover nearly 7 billion euros in state arrears. Among the priorities, the sale of betting firm OPAP, the old Athens airport and buildings in Athens and on the islands of Corfu and Rhodes. The government had initially hoped to make 50 billion euros by 2015 but slashed this target to 19 billion euros after a making slow start on the programme.

The immediate consequence of many of these reforms is, however, despair for a public which has endured a great deal of hardship. Thousands of businesses have shut, pensions and salaries have fallen to skeletal rates. People can no longer afford to pay for medicine. Medecins Sans Frontieres now has a Greece mission as hospitals are finding it difficult to treat patients. In May the unemployment rate reached a new record at 23.1%. Tales of penury and woe, of despair and even suicide, are frequent in media reports of the lives of ordinary citizens. The rise of the Golden Dawn party, a neo-Nazi organisation whose spokesman slapped a 60 year-old female MP in a recent television debate has gained immense popularity, a fact which reflects the increasing desperation and anger of citizens. The party won 6.92% in the June election meaning that around 400,000 people voted 'for fascists', in the words of one citizen. There has apparently been a spike in attacks on immigrants in Greece, which many see as directly linked to the openly violent methods of the party whose logo closely resembles a swastika. On August 12, a young Iraqi was stabbed to death in Athens. Apparently at least 500 migrants have been attacked in the last six months. In June, four Egyptians were the victims of a violent assault by a gang. The US-based Human Rights Watch said, in a report issued last week, that it had documented recent attacks on dozens of immigrants living in Greece, warning of a surge in xenophobic violence. The mood on the street continues to be one of desperation, which many say could also be readily exploited by Golden Dawn, or Syriza for that matter, though with an entirely different direction. It does not help that the country's political elite continue to make colossal faux pas. At the start of August, Conservative New Democracy MP Byron Polydoras was elected parliament speaker for a day and used the opportunity to make his daughter a permanent employee in his office - meaning she would be immune from dismissal. When news of this spread it prompted a huge swell of public outrage and a Facebook campaign demanding his resignation.

Nonetheless, MPs have pledged to turn their attention to the ruling class and one of the major sources of income they hope to gain is from untapped tax payments. Deputy Finance Minister George Mavragiannis said hopefully 'There is a lot of 'fat' in tax evasion'. Whether or not the government will actually manage to exact the sums it is owed due to evasion remains to be seen. And this certainly will not compensate for the numerous hardships Greece's citizens have had to suffer. The situation remains tense and highly unpredictable. Upcoming talks between Samaras, Angela Merkel and Francois Hollande will determine to some extent Greece's financial future, as will the troika's review in September. At what stage the Greek population will run out of patience remains to be seen. The role of Syriza, waiting in the wings for now, will also make for interesting viewing.
 

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