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Greece Country Report

Essay by   •  April 17, 2018  •  Research Paper  •  1,523 Words (7 Pages)  •  773 Views

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Greece Country Report

Greece is well known for being one of the most popular destinations in the world with various beautiful attractions and a lot of history. With a population of around 10,775,873, Greece is located in Southern Europe on the south end of the Balkan Peninsula of approximately 2,000 islands. “Greece, which used to be called the Hellenic Republic, was a monarchy until 1974” (Sud de France). It is now a parliamentary republic with the chief of state being the president, and the prime minister being the head of government. Recently though, Greece found itself at the center of Europe’s debt crisis because of its large debt deficit, which put it in a bad situation economically and affected its relations with other European countries. This paper will discuss Greece’s economy, mainly its financial crisis, the advantages and disadvantages of the Eurozone, its source of income, and whether or not it would be wise to invest there today.

Greece has a high-income economy, specifically a capitalist economy with a public sector accounting for around 40% of GDP. Tourism is the dominant sector as it provides about 18% of GDP. Another 3.3% of annual GDP comes from EU aid, which Greece highly depends on. After joining the Eurozone, the government started borrowing at low interests to get rid of old debts and spending more money than it had, and not really paying for it. The Greek banks started getting loans from Germany, and lent them to the government which allowed them to continue spending. When the global financial crisis in 2008 happened, German banks could not lend to the Greek government; with no way to borrow more money to pay their debts and a high level of corruption going on, it was discovered that the deficit was more than was believed, meaning Greece was misreporting statistics. Hence, in 2009, “the economy went into recession as a result of the world financial crisis, tightening credit conditions, and Greece’s failure to address a growing budget deficit” (The CIA Factbook). It was then shut out from borrowing in the financial markets, which in turn, caused it to almost go bankrupt. The International Monetary Fund, the European Central Bank and the European Commission, issued bailouts for Greece, which included more than 240 billion euros. However, they came with harsh austerity terms that led to violent riots and protests. Even though the money seems like a lot, Greece’s economy is still not doing well. According to the New York Times, “the bailout money mainly goes toward paying off Greece’s international loans, rather than making its way into the economy. The government still has a staggering debt load that it cannot begin to pay down unless a recovery takes hold.” (The NY Times). Economic reforms will need to be implemented as required by the bailout deal, and will hopefully, change the economy for the better. Since Greece wants to propose a new bailout deal and an extension, which means more money, and less austerity measures, the Eurozone must decide if it will be willing to work with those terms and if Greece should stay in the Eurozone or not.

Greece joined the European Union in 1981 and adopted the euro in 2002. There are many advantages of the euro adoption just as there are a few disadvantages as well. Some of the advantages are: reduction of transaction costs, lower interest rates, increased trade, which will bring more jobs, no exchange rate fluctuations between member countries, price transparency, and easier travel facilitated by documents such as the Schengen visa set by the European Union. A few disadvantages are transition costs, asymmetric shocks, loss of national sovereignty, where economically stable countries would have to cooperate with weak economies such as Greece, that are struggling. Because of the recent financial crisis, there is a possibility Greece might leave the Eurozone. There are some advantages and disadvantages if it did end up leaving. Some of the advantages would be economic freedom, no pressure of debt, no austerity and the possibility to devalue its new currency to become competitive, which would in turn, raise employment and exports. However, there are many disadvantages as well. A Greek exit would bring a lot of economic uncertainty; the drachma, which was the Greek currency, would be worth very little. A severe shock might occur because of the new currency which could cause many companies to go bankrupt. There would also be financial losses for the countries that lent Greece money, which might hurt trade and make relations between the countries worse. Greece would also lose all the advantages of being in the EU, which it had become dependent on. Europe could also face financial problems, which might affect other struggling Eurozone countries too. Overall, at the moment, the Eurozone and the Greek government do not want to see Greece leave, but it could be possibility if they cannot come to an agreement.

The leading sources of income in Greece are industry and tourism, as mentioned earlier. Agriculture used to be the leading source, but not anymore, as it only accounts for 5% of GDP today. The principal industries are tourism, agricultural processing, mining, petroleum refining, the manufacture of textiles, chemicals, and metal products. There is also a big fishing industry in coastal areas. The main exports are food and beverages, manufactured goods, petroleum products, chemicals, and textiles. Some of the top export partners are Turkey, Italy, and Germany. The main imports are machinery, transportation equipment, fuels, and chemicals. Some of the top import trade partners are Russia, Germany, Iraq, and Italy. A big source of revenue has been tourism, which has boosted the economy a little bit since last year.  

Understandably, there is a high risk in Greece; public debt exceeds the size of the economy, protection of property rights is not strongly imposed, unemployment rate is over 25%, high levels of corruption, little trust in the government, Greek banks are under a lot of pressure, high default probability, the future in the Eurozone is uncertain and so on. Personally, I would not invest in Greece because of the high risk, and the economic uncertainty that is involved. However, for some people, the best time to invest is when things are looking bad, which might mean low prices, because eventually, the economy will have to go up at some point.  Investors, who love taking risks and with low expectations, might hope it will do better than what they are expecting in the long term and and in turn, might get good returns even with the high risk involved.

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