Greece's Economic Performance and Prospects (review)

This volume represents one of the best efforts to present the performance of Greece's economy in the last quarter of the twentieth century. The contributors are economists from Greek, European, and American universities and the Brookings Institution. The articles cover a variety of topics, such as economic growth, monetary policy, fiscal policy, balance of payments, pension system, European Union transfers, and the labor market.

In the opening article, written especially for this volume, the then-governor of the Bank of Greece Lucas D. Papademos states that

the Greek economy has made impressive progress over the past decade and particularly in recent years. It has attained a high degree of macroeconomic stability, which has enabled Greece to enter [the economic and monetary union, EMU] and has fostered fairly robust growth. The adoption of the euro will change in a fundamental and irreversible way the country's monetary and economic environment. The prospects for sustaining faster economic growth combined with price stability are generally favourable. . . . Real economic convergence can be realised over the next ten years, provided the appropriate economic policy and necessary structural reforms are implemented consistently and effectively as in the case of the fiscal and monetary policies that led to the economy's nominal convergence to stability.

In the past six years, the pace of economic development in Greece has been considerably faster than that of the EU as a whole, ranking second in 2001 among the fifteen EU partners. Per capita income in Greece, which stood in 1993 at 64 percent of the EU average, now exceeds 70 percent. Furthermore, from 1993 to 2001 Greece achieved the second highest increase, after Ireland, in productivity: from 74 percent of the EU average in 1993 to 84.5 percent in 2001.

This development has been accompanied by greater convergence of incomes. Since 1993, average wages in real terms have registered the second-highest increase in the EU, from 68 percent in 1993 to 80 percent of the EU average currently. At the same time, the rate of inflation has been reduced from double digits a decade ago to 3.4 percent in 2001, deficits have become surpluses, and the public debt is being reduced year by year—to 100 percent of gross domestic product (GDP) in 2001 and predicted to drop to 90 percent of GDP in 2004.

What is really fascinating is the fact that all these results have been achieved while Greece is spending 5 percent of its GDP on defense, proportionally higher than any of its European partners. Unfortunately, because of continuing Greek-Turkish tensions, the percentage of GDP going to national defense cannot be decreased. If Greece could devote some of that spending to health, education, and other social purposes, its convergence with its European partners would have been even more impressive.

Undoubtedly, this progress does not mean that there will be no problems for Greece in the future. Greece is still distant from other European countries in terms of economic prosperity and is currently undergoing a period of social adjustment that give rise to new issues, such as immigration. There is much work to be done, but Greece is moving in the right direction on all fronts in the beginning of the twenty-first century.

The decision of the Simitis government to join the European Rate Mechanism (ERM) was one of monumental importance for the Greek economy. By joining the ERM, Greece made a decisive step toward joining the EMU, a step that took place on 1 January 2001. This represents the greatest achievement of the present PASOK government. Participation in the ERM was combined with fiscal and structural measures aimed to neutralize side effects of the drachma adjustment and to give the economy an impetus for competitive growth. It should be noted that the economic stabilization...