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Greece - Economy (Notes)

Greece adopted the euro as its new common currency in January 2002. The adoption of the euro provided Greece (formerly a high inflation risk country under the drachma) with access to competitive loan rates and also to low rates of the Eurobond market. This led to a dramatic increase in consumer spending which gave a significant boost to economic growth. This credit also led to a more relaxed fiscal policy starting in 2002, which, combined with expenditures associated with the preparation of the Athens 2004 Olympics, resulted in excessive deficits and debt in 2003 and 2004. The government deficit in 2004 is now estimated by the Greek government to have reached 6.6% of GDP. As a result of lower post-Olympic spending, the government deficit in 2005 is estimated to have been lowered to 4.3% of GDP, with a debt to GDP ratio of 107.9%. The administration pledged to reduce the government debt to 2.6% of GDP in 2006 and to tighten fiscal finances, under an EC excessive deficit surveillance program.

The Greek economy is estimated to have grown by 3.6% in 2005 and similar growth rates are projected through 2007. These growth rates resulted in a drop in unemployment (to 9.8% in the second quarter of 2005 from 10.4% in the same period in 2004), although it is still significantly higher among women and people under 27. Unfortunately, foreign direct investment inflow has also dropped, and efforts to revive it have been only partially successful. At the same time, Greek investment in Southeast Europe has increased, leading to a net FDI outflow in some years.

Services make up the largest and fastest-growing sector of the Greek economy. About 14 million tourists were estimated to have visited Greece in 2005, with net revenues of about 10 billion euros. Remittances from transport (mainly shipping) are growing, and actually exceeded tourism receipts in 2004 and 2005. Receipts from tourism and transport have covered a significant portion of Greece's large trade deficit. Industrial activity has shown a mixed performance, with certain sectors such as the food industry and high-tech/telecommunications showing healthy increases, while textiles have declined. Agriculture employs about 12% of the work force and is still characterized by small farms and low capital investment, despite significant support from the EU in structural funds and subsidies. Traditionally a seafaring nation, the Greek-owned merchant fleet totaled 3,338 ships in March 2005, 8.7% of the world merchant fleet and 16.5% of world tonnage.

European Union (EU) Membership
Greece has realigned its economy as part of its transition to full EU membership that began in 1981. Greece last held the rotating EU presidency in the first half of 2003. Greek businesses continue to adjust to competition from EU firms, and the government has liberalized its economic and commercial regulations and practices.

Greece has been a major net beneficiary of the EU budget; in 2004, EU transfers accounted for 3.6% of GDP and are estimated to have been approximately 3.2% of GDP in 2005. From 1994-99, about $20 billion in EU structural funds and Greek national financing were spent on projects to modernize and develop Greece's transportation network in time for the Olympics in 2004. The centerpiece was the construction of the new international airport near Athens, which opened in March 2001 soon after the launch of the new Athens subway system.

EU transfers to Greece continued with approximately $24 billion in structural funds for the period 2000-2006. Unfortunately, bureaucratic obstacles have led to significant delays in Greece's absorbing these funds, leading to the real possibility that Greece may have to return a significant portion of them to the EU. The same level of EU funding, $24 billion, has been allocated for Greece for 2007-2013. These funds contribute significantly to Greece's current accounts balance and further reduce the state budget deficit. EU funds will continue to finance major public works and economic development projects, upgrade competitiveness and human resources, improve living conditions, and address disparities between poorer and more developed regions of the country.

U.S.-Greece Trade
In 2004, the U.S. trade surplus with Greece was about $1.5 billion. There are no significant non-tariff barriers to American exports. The United States accounted for 4.4% of Greece's imports in 2004, which reached $52.6 billion. The top U.S. exports remain defense articles, although American business activity is expected to grow in the tourism development, medical, construction, food processing, and packaging and franchising sectors. U.S. companies are involved in Greece's ongoing privatization efforts; further deregulation of Greece's energy sector and the country's central location as a transportation hub for Europe may offer additional opportunities in electricity, gas, refinery, and related sectors.

Facts at a Glance: Geography - People - Government - Economy - Communications - Transportation - Military - Climate - Current Time - Ranking Positions - Euro Exchange Rates
Notes and Commentary: People - Economy - Government and Political Conditions - Historical Highlights - Foreign Relations - Relations with U.S.

Facts at a Glance
Current Time
Ranking Positions
Euro Exchange Rates

Notes and Commentary
Government and Political Conditions
Historical Highlights
Foreign Relations
Relations with U.S.

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