Introduction to the Greek Economy

Summary of the evolution of the Greek economic crisis and its potential spill-over into other southern Mediterranean countries

Discussion of whether the Eurozone matches the criteria of an optimal currency area and specifically the implications of the fact that no single government backing the currency for the viability of the euro.

Evaluation of the analysis in the context of the suggestion that the very existence of a common currency forces participants to move closer to the criteria for a common currency area e.g. the Greek crisis has forced the participating countries to set up a common fund to bail out governments in crisis over fiscal policy

Conclusion

Reference

Introduction to the Greek Economy

One of the most important element of a nation’s economy that can help a reader to understand how good the economy of a particular nation is being managed is the type of the economy, for instance, Greece has a capitalist economy where the public sector contributes 40% of GDP, before its current economic crisis, Greece’s GDP per capita GDP was 2/3 that of the leading euro-zone economies. Tourism provides 15% of GDP. Immigrants make up nearly one-fifth of the work force, mainly in agricultural and unskilled jobs. Greece is a major beneficiary of EU aid, equal to about 3.3% of annual GDP. The years between 2003 and 2007, show that the Greek economy grew by nearly 4.0% per year. But in 2008the growth of Greek economy dropped to 2% . as if this was not enough, in 2009, the Greek economy went into recession and contracted by 2%, as a result of the world financial crisis.

Summary of the evolution of the Greek economic crisis and its potential spill-over into other southern Mediterranean countries

To most economists, the current Greek economic crisis has come as a shock to all. This is because as far as the last good record of Geek economy is known. Greece had one of the best economies amongst the 27 EU countries. Greece was the 27th largest economy in the world by nominal gross domestic product GDP and the 33rd largest by purchasing power parity (PPP). According to same IMF data before the crisis, the GDP per capita of Greece was the 25th highest in the world before this crisis. The strength of Greek economy can further be justified by its trading memberships with, the World Trade Organisation (WTO), the European Union (EU) and Eurozone , the Black Sea Economic Corporation and the Organisation for Economic Corporation and Development (OECD). The evolution of the Greek economic crisis can be traced to few years back, the crisis particularly started with the tightening of credit conditions, and Athens’ failure to address a growing budget deficit, which was triggered by falling state revenues, and increased government expenditures. Greece violated the EU’s Growth and Stability Pact budget deficit criterion of no more than 3% of GDP from 2001 to 2006, but finally met that criterion in 2007-08, before exceeding it again in 2009, with the deficit reaching 12.7% of GDP. Public debt, inflation, and unemployment are above the euro-zone average while per capita income is the lowest of the pre-2005 EU countries; debt and unemployment rose in 2009, while inflation subsided. Eroding public finances, a credibility gap stemming from inaccurate and misreported statistics, and consistent underperformance on following through with reforms prompted major credit rating agencies in late 2009 to downgrade Greece’s international debt rating, which has led to increased financial instability. This precisely was the origin of the Greek economic crisis and how it evolved.