Greece has a large tourist industry and a large shipping industry. Modern Greece has evolved at the periphery of Europe and along the main trade routes of the Mediterranean Sea. From the end of the Second World War until the financial collapse of 2008, Greece’s industrial growth was faster than other European Union countries. After the financial collapse of 2008, Greece fell into economic chaos as the government absorbed cumulative debt reaching over 170 percent of annual Gross Domestic Product.
Maybe, more than any other European country, Greece is a bellwether of international economic well-being. With tourism and shipping at the very center of their economy, any slowdown in global economic acitiviey is likely to show up in both of these industries. During the long economic expansion of the 1950s all the way to the early 1970s, Greece experienced high levels of economic growth. From the early 1970s until the mid-1990s Greece’s economic growth fell flat. Then in the 1990s when the global economy picked up again, Greece once again saw high levels of GDP growth – levels above the Eurozone average.
Tourism to Greece after 1950. flourished at far greater rates than ever before. Tourism represents over 18 percent of Greece’s GDP and employs close to 20 percent of the Greek labor force in various tourist related services. The average tourist expenditure while in Greece is over a thousand dollars and Greece hosts over 16 million tourists a year. Greece is the 16th most visited country in the world.
Since ancient times, shipping has been a key sector of the Greek economy due to it’s prime location in the eastern Mediterranean Sea where it serves as a major trade route to the Balkan states and all of northern Europe. In the nineteenth century as European industrial growth expanded so did the Greek merchant fleet, and part of that merchant fleet expansion was based on building new ships that switched from sail to steam. In the second half of the twentieth century Greek shipping businessmen consistently expanded the fleet. At first they expanded by purchasing surplus ships sold by the United States government after World War Two, but later in the 1960s the Greek fleet nearly doubled primarily due to investments by shipping magnates Onassis and Niarchos. Today the the Greek merchant fleet represents over 16 percent of the world’s total merchant fleet, making it the largest in the world, although shipbuilding which was part of Greek industry is now mostly done in Asia.
Other parts of the Geek industrial economy are construction (and production of construction materials like Portland cement and marble), a traditional garments industry, food and tobacco processing, textiles, chemicals, metal products, mining and petroleum. The Greek economic growth miracle after World War Two and the continued economic expansion from the late 1990s until 2008 were not a miracle per se; Greeks are hard working. Greeks average work hours per worker in 2011 were 2,032 hours, which is fourth highest among OECD countries: only slightly lagging behind South Korea, Mexico and Chile. Over the 11 year period from 1995 through 2005 Greeks worked on average 1,900 hours per year, the highest among European nations.
Structural Economic Problems
The industrial cycle is based on a shift in population away from the agricultural sector to manufacturing and other industrial activities. To make this shift workable, requires government participation in social services to a greater or lesser extent depending on the country’s particular path of development. As Greece experienced its economic miracle after World War II, it also became a country who’s government provided generous social services such as free health care, social security and government pensions. The government sector is a large part of the economy with a bloated public civil service sector.
When the debt crisis took hold after 2008, the previous social structure became an enormous encumbrance. Of course the industrial economy moved into recession and provided fewer jobs, which dramatically increased unemployment from an average 7 percent to over 38 percent. Yet Greece had deeper structural problems than just unemployment. The country has a history of tax evasion and corruption that works against economic recovery. Government revenue fell off, while government spending went up.
In order to hide some of that rising debt, Greece, Italy and other European countries attempted to hide their borrowing by turning to financial products developed by Goldman Sachs, JPMorgan Chase and other big banks. These banks sent Greece money disguised as “swaps,” which allowed that money to stay off Greece’s account books. It was a way of hiding borrowing and once it was discovered by Eurostat, only added to Greece’s debt crisis. German demands for conservative money policies were bolstered by these types of financial tricks.
Other structural features of the Greek economy also strongly played into the financial decline, such as, Greece is ranked 80th in the world on the Corruption Perception Index, which makes it the European country with the highest perceived level of corruption, although as a result of stiff European Union policy guidelines, that perception improved considerably in 2013. But Greece also has the EU’s lowest Index of Economic Freedom and Global Competitiveness, which discourages investment support to entrepreneurs and hurts industrial growth during a crisis.
Finally, the Greek tax system is progressive, which has encouraged very high levels of tax evasion. The Tax Justice Network (TJN) points out, there are over 10,000 Greek-owned off-shore companies, which is a way of avoiding paying domestic taxes. Greek individuals are also guilty of hiding their assets from the taxman by transferring their earnings to Swiss Bank accounts, where the TJN has traced over 20 billion euros in hidden assets. The former Greek Finance Minister, Evangelos Venizelos, said a few years ago, “Around 15,000 individuals and companies owe the taxman 37 billion eruos.
With an economy structured to siphon off profits and earnings in order to hide them from tax authorities, it’s not surprising that Greece’s foreign trade also fell off during the first years of the post 2008 economic downturn. With the application of stiff (conservative) economic policies demanded by the European Union (and Germany) the economy is improving and so is foreign trade. Greece’s industrial cycle is hampered by structural economic issues that due to the severity of current economic conditions are being confronted and repaired at the behest of the European Union and International Monetary Fund. It’s not clear that these will be long term repairs to an economy that has long practiced shady financial transactions. In order for Greece’s welfare social services to work, the Greeks will have to improve their financial practices permenantly or else they will lose out in reviving their industrial growth and face a chronic cycle of debt.