Greece

   

Economic Policies

#41
Key Findings
Still struggling with the effects of crisis, Greece remains the lowest-ranked country (rank 41) in the SGI 2020 with regard to economic policies. Its score on this measure has improved by 1.3 points relative to its 2014 level.

While the country has exited its three-year economic adjustment program, economic conditions remain difficult. Its external public debt exceeds 180% of GDP, and non-performing bank loans constitute about 45% of all loans. Growth has been positive but moderate, at about 1.9%.

Despite significant declines, unemployment rates remain excruciatingly high at around 17%, with long-term joblessness undermining workers’ skills. Shifting policies on income and property taxes have kept investment levels low. Labor-market advances have thus been driven largely by lower wages, tourism and worker emigration.

Tax evasion remains problematic. Primary surpluses have been substantial, thanks in part to high taxes, with revenues used to distribute benefits to the government’s electoral clientele before the 2019 elections. The new government is lowering corporate and property taxes, but has shown little interest in combatting tax evasion. A post-crisis brain drain has depleted the country’s R&D capabilities.

Economy

#39

How successful has economic policy been in providing a reliable economic framework and in fostering international competitiveness?

10
 9

Economic policy fully succeeds in providing a coherent set-up of different institutional spheres and regimes, thus stabilizing the economic environment. It largely contributes to the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
 8
 7
 6


Economic policy largely provides a reliable economic environment and supports the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
 5
 4
 3


Economic policy somewhat contributes to providing a reliable economic environment and helps to a certain degree in fostering a country’s competitive capabilities and attractiveness as an economic location.
 2
 1

Economic policy mainly acts in discretionary ways essentially destabilizing the economic environment. There is little coordination in the set-up of economic policy institutions. Economic policy generally fails in fostering a country’s competitive capabilities and attractiveness as an economic location.
Economic Policy
5
Compared to previous time periods, Greek economic policy during the period under review was relatively less restrained by externally imposed conditionalities. The three-year Third Economic Adjustment Program (supported by a €86 billion bailout) officially ended in August 2018. However, in view of the facts that 2019 was an election year, that – according to opinion polls – a government change was in sight, and that impediments to domestic and foreign improvement (excess and unpredictable taxation, government ambivalence regarding large-scale private investment) had not been overcome, economic policy did not substantively foster economic growth. As illustration, Greece’s gross fixed capital formation in 2018 was 13% of GDP (the lowest such rate among the 41 OECD countries), while the country also ranked lowest among the OECD member countries with regard to potential output (IMF data).

However, there were signs of recovery. The Greek economy showed positive growth for a second year in a row (1.9% in 2018 and to 1.5% in 2017), and has caught up with the euro area’s average rate (1.9%). Nevertheless, this remains a relatively low rate given the catch-up needs following the long economic crisis. Tourism was once again the main contributor to this growth. In 2018, Greece’s tourism sector grew at 7% (almost three times the global average), and accounted for 21% of the country’s GDP (global average: 10%).

The unemployment rate is slowly falling, though it remains close to 20% (it dropped from 25% in 2017 to 19.3% in 2018). The youth-unemployment rate is twice that. The labor supply has shrunk by nearly a half a million people, most of these being skilled workers who have left the country since 2010.

The government achieved a primary surplus in the 2018 budget, mainly by raising taxes and extending the lease of the Athens International Airport. In the period under review, economic policy remained constrained by the capital controls imposed by the Syriza-ANEL government in July 2015 with the aim of avoiding a bank run after the austerity-package referendum. However, the capital controls were finally lifted in September 2019. This development should boost economic activity, although the economy remains frail. In particular, there has been little progress in managing non-performing bank loans, which still constitute about 48% of all bank loans.

The Syriza-ANEL government continued its policy of imposing high taxes on income and assets while changing the details almost every year, creating an unstable tax environment. Increased taxation has helped achieve a state budget surplus, but has also acted as a disincentive to investment, thus contributing to the meager levels of economic growth in 2018 – 2019.

Prospects for future economic growth are better due to the government turnover of July 2019, which brought a more investment-friendly, single-party majority government to power, led by the New Democracy (ND) party. By late summer of 2019, the Eldorado Company, which had invested in a gold mine in Halkidiki (in northern Greece), and the Lamda Development Company, which had bought land in the former Hellenikon International Airport (to the south of Athens), witnessed progress in their cooperation with the newly elected government.

Substantial challenges remain, however. The banks’ gross non-performing loans (NPLs) have fallen by a quarter since 2016, but still total €80 billion, or 45% of exposures. The country’s external public debt remains at forbiddingly high levels (181% of GDP in 2018, by far the highest such levels in the EU). Almost 70% of this is owed to official European creditors, with some 70% of that owed to the European Financial Stability Facility. The IMF, along with most international observers, believes that this mountain of debt is unsustainable, and has called for deep relief. The country’s creditors need to devise a plan for large-scale debt restructuring that may entail substantial losses for them. Finally, economic policy may become more fruitful if less pressure is exerted on private business and households to contribute to very high government-budget primary surpluses, like those achieved in the last several years. Although EU authorities refused to discuss such a prospect in the autumn of 2019, it is an issue that will probably surface again if Greece’s creditors want to see the country attain much higher growth rates, and thus become better able to service its public debt.

Citations:
Data on Gross Fixed Capital Formation and potential output are drawn on IMF’s world economic outlook for 2019 and is available on this SGI platform. GDP growth, unemployment and public debt are available from Eurostat.
On GDP: https://ec.europa.eu/eurostat/web/products-datasets/-/tec00115&lang=en
On unemployment: https://ec.europa.eu/eurostat/databrowser/view/tipsun20/default/table?lang=en
On public debt: https://ec.europa.eu/eurostat/web/products-datasets/-/teina230
Data on tourism is drawn on the World Travel and Tourism Council (WTTC), available at https://news.gtp.gr/2019/03/13/wttc-impressed-by-greek-tourism-sector-growth-rate/

Labor Markets

#41

How effectively does labor market policy address unemployment?

10
 9

Successful strategies ensure unemployment is not a serious threat.
 8
 7
 6


Labor market policies have been more or less successful.
 5
 4
 3


Strategies against unemployment have shown little or no significant success.
 2
 1

Labor market policies have been unsuccessful and rather effected a rise in unemployment.
Labor Market Policy
4
In August 2019, the main unemployment rate fell to 17.0% (EU average: 6.2%). Though the rate remains the highest in the EU, Greece has made substantive progress, given that the unemployment rate stood at 28% in 2013 and at 25% in 2015.

There are clear signs of broad-based recovery. The so-called tradeable sector, which brings revenues to Greece from abroad, as well as tourism, industry, professional services, and information and communication services recorded substantial job gains. Some of these gains should be considered with caution, however, as they reflect partially successful efforts by authorities to combat undeclared work.

The recorded progress in tackling unemployment is owed to several factors, including low wages, a rise in part-time jobs, growth in the tourism sector (where jobs are available over the long Greek summer, lasting from April to October), and an increase in emigration (among both skilled and unskilled workers).

Meanwhile, the number of unemployed is probably inflated since many employees in the tourism industry do not seek employment in the winter months. Unemployment allowances are capped at one year over an entire working lifetime and – what is worse – the take-up of unemployment allowance has consistently been very low (between 10% and 20%). For several years, the Greek government, with the agreement of the EU, has used money from the European Social Fund (ESF) to offer short-term employment opportunities to unemployed people in municipal and other state-owned organizations. Many unemployed people, who receive no unemployment allowance, depend on support from their kin or rely on a social safety net called Social Solidarity Allowance (introduced in early 2017; see also “Social Inclusion”).

Greece continues to show the OECD’s highest long-term unemployment and youth-unemployment rates. Most long-term unemployed people lose their skills and are unable to find new jobs. They are thus driven into poverty and social exclusion, or leave the country. Young people have been hit particularly hard by the economic crisis.

In the meantime, the primary causes of the continuing closure of businesses are the continuing fallout from the lengthy economic crisis, the depletion of private deposits of households and the unstable prospects of the banking system. Many small and very small enterprises have failed, while former entrepreneurs and dismissed workers are often unable to find new jobs, as many lack advanced skills. Unemployed people in the middle- to old-age groups face considerable impediments in reintegrating into the labor market.

The country clearly needs, among other specialties, more technicians, sales assistants, skilled and semi-skilled tourism workers, and computer scientists. Yet, the university system annually produces a very large number of graduates in the humanities, including hundreds of theologians, philologists and social scientists every year. There are also large numbers of physicians who cannot find employment in Greek hospitals nor can they find the financial resources to start their own medical practices. The total number of doctors in Greece (specialized and general practitioners) is approximately 69,000. Among OECD member countries, Greece has the highest ratio of doctors to population (Greece has 6.3 doctors per 1,000 inhabitants while the OECD average is 3.3 doctors per 1,000 inhabitants). As a result, hundreds of Greek physicians, who have been trained for free in respectable Greek state medical schools, emigrate to northern and western European countries, where they practice medicine. The same applies to architects and civil engineers, with engineering schools educating large numbers of students despite an over-abundance of such professionals in Greece. The distribution of openings for first-year students in university departments is decided by the Ministry of Education. This allows the government to raise the number of students allowed into popular departments, a practice steadily followed by the last government, which lost the elections of July 2019. As a result of this practice, university graduates’ job prospects have become very dim. Bank of Greece data show that in 2008 – 2015, approximately 427,000 young university graduates and professionals left Greece to seek work in Germany, the United Kingdom or other countries.

The pre-crisis division of insiders and outsiders in the labor market has remained acute. Public sector employees, most of whom enjoy job security, have more or less successfully adapted to lower living standards. In contrast, private sector employees are faced with the recurring problem of unemployment. Moreover, as in the previous period under review, there has been a rise in part-time and short-term labor contracts.

In summary, the slight improvement in the overall unemployment rate in the period under review is a sign of progress. This progress, however, is endangered by a combination of rise in precarious work, continued brain drain and degradation among the long-term unemployed.

Citations:
Information on unemployment is drawn on Eurostat: https://ec.europa.eu/eurostat/statistics-explained/index.php/Unemployment_statistics#targetText=Recent%20developments,-Unemployment%20in%20the&targetText=Eurostat%20estimates%20that%2015.432%20million,were%20unemployed%20in%20August%202019.&targetText=The%20EU%2D28%20unemployment%20rate,from%206.7%20%25%20in%20August%202018.

Information on brain drain is based on Bank of Greece estimations, reported in https://www.dw.com/en/greece-central-bank-reports-brain-drain-of-427000-young-educated-greeks-since-2008/a-19373527

Taxes

#39

How effective is a country’s tax policy in realizing goals of revenue generation, equity, growth promotion and ecological sustainability?

10
 9

Taxation policy fully achieves the objectives.
 8
 7
 6


Taxation policy largely achieves the objectives.
 5
 4
 3


Taxation policy partially achieves the objectives.
 2
 1

Taxation policy does not achieve the objectives at all.
Tax Policy
4
Greece’s taxation policy only partially achieves its objectives, though there has been some progress in recent years. Since January 2017, the Independent Public Revenue Authority has become organizationally and functionally independent vis-à-vis the Ministry of Finance. In addition, Greek authorities have repeatedly passed primary and secondary legislation to combat tax evasion. As a consequence, the tax-to-GDP ratio in Greece increased from 36.6% in 2015 to 39.4% in 2017. The redistribution effect achieved through taxation is reasonably good, with Greece ranking in the middle of OECD countries. However, Greece is among the OECD’s worst performers regarding the time needed to prepare and pay for taxes, as well as the tax burden for businesses.

The structure of Greece’s tax revenues is different from the OECD average. The country receives a relatively higher revenue share from social security contributions, value-added tax, property taxes, and taxes on goods and services, and a lower-than-average revenue share from personal-income tax, capital gains and profits, and corporate gains and profits.

Although income and value-added tax are higher than the EU average as a share of GDP, the total amount of revenue collected is much lower, thanks to widespread tax evasion and a narrow tax base. The gap between the expected revenue from value-added taxes and the actual sum raised was around 30% in 2018. The tax-free threshold for income tax is set at 60% of the average pay, nearly three times the EU average.

Measures to increase taxes are easier to announce than implement. During the tourist season, income earned by small and very small businesses remains largely undeclared, while throughout the year, an unknown share of income in the liberal professions also evades tax authorities’ eyes. Thus, engineers, lawyers, medical doctors and dentists, as well as craftsmen, plumbers, electricians and computer technicians typically declare an amount of personal income below the threshold at which personal-income tax would be imposed. For income earned in 2018 (and taxed in 2019), this threshold was €8,366 per year for a single taxpayer without dependents.

Regulations on income and property taxes are altered almost every year. As long as tax regulations are constantly under revision, private investment will not be forthcoming, and the business environment will remain unstable; nor will progress will be achieved in improving horizontal and vertical equity.

Taxation measures and arrears to suppliers of goods and services to the public sector (a practice pursued by various governments since at least the beginning of the economic crisis) have contributed to the country’s achievement of a primary budget surplus of 1.1% in 2018 (EU average: -0.6%).

The government is bound to maintain a budget surplus in order to avoid elevating its already very high levels of public debt (182% of GDP in 2018). In 2018, the government kept taxes at relatively high levels so as to be able to distribute revenues to its electoral clientele as the European parliamentary and national elections of 2019 were approaching. These ad hoc state transfers to selected groups have been common among a succession of governments. During the period under review, mechanisms included recruiting government-coalition supporters for public sector jobs, and the distribution of one-off allowances to select groups.

The New Democracy government has announced that Greece will cut its corporate-tax rate from 28% to 24% for fiscal 2019 (the country’s corporate-tax rate was previously much higher than rates maintained by its immediate competitors). However, the new government has shown little interest in widening the tax base or combating tax evasion. Instead, like all predecessors, it has set up a tax-amnesty scheme in order to boost revenue.

Greece’s revenues from environment-related taxes are high in cross-EU comparison. Environmental taxes accounted for 3.97% of GDP in 2017 (EU-28 average 2.4%) and energy taxes for 3.18% of GDP (EU average 1.84%). However, there are implementation gaps. For example, although the landfill tax has been in place since January 2014, it had not been implemented as of the end of the review period.

To sum up, Greek taxation policy has improved over time, but is still subject to unpredictable shifts and an unwillingness by politicians to widen the tax base.

Citations:
Comments on tax system complexity, the tax burden for businesses and the redistribution effects of Greek taxes are based on the comparative data on OECD countries, available on this SGI platform. Data on the ratio of taxes to GDP an the sources of tax revenue is based on OECD information, https://www.oecd.org/tax/tax-policy/revenue-statistics-highlights-brochure.pdf
Information on Greece’s structure of tax revenue is drawn on OECD, https://www.oecd.org/tax/revenue-statistics-greece.pdf
Data on the size of the state budget surplus is drawn on Eurostat, https://ec.europa.eu/eurostat/statistics-explained/index.php/Government_finance_statistics

Budgets

#34

To what extent does budgetary policy realize the goal of fiscal sustainability?

10
 9

Budgetary policy is fiscally sustainable.
 8
 7
 6


Budgetary policy achieves most standards of fiscal sustainability.
 5
 4
 3


Budgetary policy achieves some standards of fiscal sustainability.
 2
 1

Budgetary policy is fiscally unsustainable.
Budgetary Policy
6
Greece has made progress in the area of fiscal sustainability. Budget surpluses have been attained for three consecutive years: 0.5% in 2016, 0.8% in 2017 and 1.1% in 2018 (excluding debt repayments). Nevertheless, the country’s public debt levels have remained at prohibitive levels (182% of GDP in the first quarter of 2019, compared to a euro area average of 86%).

Transforming a large budget deficit into a surplus over a short time span resulted from two government actions. First, in 2016 and 2017, tax laws were changed in order to impose historically high taxes on middle- and high-income individuals and companies. Second, the post-2015 government continued a practice commonly adopted by previous governments: it grossly delayed payments and refrained from paying private suppliers who had already delivered goods and services to Greek ministries and state agencies. Increased taxation and delays in state payments nearly made some private businesses collapse (outside the thriving tourist sector; problems were particularly acute in the industrial and commercial sectors). Moreover, public consumption and social security transfers declined in 2018.

This was an expected reaction to the chronic spiraling of pension expenditures. Greece dedicates 55% of all social-protection expenditures to pensions (EU average: 39%, latest data available from 2015). Facing periodic military threats from Turkey, Greece’s budget also must dedicate large funds to defense expenditure. In 2017 this constituted 2.5% of Greece’s GDP (EU average: 1.3%). Greece is among NATO’s highest defense spenders.

In the period under review, the government distributed a one-off cash allowance to low-income households in order to appease its electoral clientele. This policy measure was taken against the policy advice of the country’s lenders, who would have preferred that the government revive the private economy by paying arrears owed to private suppliers. The government change in July 2019 led to an initial reduction in land-property tax rates (the ENFIA tax), a government initiative to alleviate the tax burden faced by of small and medium-size property owners.

Through the summer of 2019, the government followed the fiscal-policy guidelines contained in Greece’s Third Economic Adjustment Program (2015 – 2018), raising taxes, cutting public spending and achieving a spectacular 4.4% primary surplus in the 2018 state budget (versus an already high 3.9% in 2017). The real cost for this achievement was paid by the middle classes, while economic growth was anemic, at just 1.4% compared to a target of 2.7%.

A primary surplus of 3.5% in 2019 appears to be attainable. However, the new government hopes to negotiate a lower target with the country’s creditors for 2020, so that it has fiscal space to cut taxes. The IMF also seems to support lower fiscal targets, pointing to the damage austerity has inflicted on public investment and social spending.

Citations:
The general government primary balance utilizes a differing methodology for calculating categories of revenue and spending from those outlined in the bailout program.
Information on the Greek state budget and public debt is drawn on Eurostat statistical tables available at https://ec.europa.eu/eurostat/statistics-explained/index.php/Government_finance_statistics
Information on defense spending is also drawn on Eurostat data and on the primary surplus on the Bank of Greece.

IMF, Greece, IMF Country Report, No 19/73, March 2019 (https://www.imf.org/en/Publications/CR/Issues/2019/03/08/Greece-First-Post-Program-Monitoring-Discussions-Press-Release-Staff-Report-and-Statement-by-46654)

Research, Innovation and Infrastructure

#30

To what extent does research and innovation policy support technological innovations that foster the creation and introduction of new products?

10
 9

Research and innovation policy effectively supports innovations that foster the creation of new products and enhance productivity.
 8
 7
 6


Research and innovation policy largely supports innovations that foster the creation of new products and enhance productivity.
 5
 4
 3


Research and innovation policy partly supports innovations that foster the creation of new products and enhance productivity.
 2
 1

Research and innovation policy has largely failed to support innovations that foster the creation of new products and enhance productivity.
R&I Policy
5
Greece continues to rank below the EU average for public and private expenditure on research and innovation. As usual, the main funding came from public money.

The European Innovation Scoreboard (EIS), published in June 2019, noted an improvement in Greece’s innovation performance in 2018. Greece was ranked 20th among the 28 EU countries (up from 22nd place in 2017). Generally, over the 2011 – 2018 period, Greece exhibited an upward trend on the EIS Summary Innovation Index, increasing from 61st in 2011 to 82nd in 2018. During that timeframe, Greece showed the second-best performance in the EU with regard to improvements in the area of innovation.

However, despite progress in research spending, a serious brain drain remains underway, depleting Greece’s human resources for research and innovation. In 2008 – 2015, about 427,000 skilled employees or professionals holding at least one university degree left the country to seek employment abroad, mostly in northern and western Europe or the United States. The Greek government has sought since 2016 to counter this outflow of skilled labor. For example, it has provided government funds for research through the newly established National Foundation for Research and Innovation (NFRI-ELIDEK).

Meanwhile, Greece continues to lack large corporate R&D investors. Links between academia and the private sector are weak, reflecting institutional weaknesses and cultural resistance to public-private collaboration. There is little private demand for R&D and innovation, and the corresponding supply from universities and public research institutions is small. Nevertheless, despite economic adversity, there are clear “islands” of excellence at universities in areas such as biology, IT and computer science, economics, engineering, archaeology, and history. Moreover, a number of private start-up companies are using injections of private capital to concentrate on the production of software and technological innovations.

Nonetheless, Greek researchers, the number of which is disproportionately high compared to the levels of public and private expenditure on research, actively participate in international research consortia. For instance, the National Technical University of Athens actively participates in international projects, as does the Heraklion-based Institute for Technology and Research. Individual researchers from Greece frequently participate in international forums.

Citations:
Data on expenditure on research is drawn on Eurostat, https://ec.europa.eu/eurostat/databrowser/view/tsc00001/default/table?lang=en
Information on Greece’s brain drain in English is found in https://www.dw.com/en/greece-central-bank-reports-brain-drain-of-427000-young-educated-greeks-since-2008/a-19373527
Information in English on the Greek research and innovation policy and particularly on brain drain is available from the EU, https://rio.jrc.ec.europa.eu/en/country-analysis/Greece/country-report

European Innovation Scoreboard 2019 (https://ec.europa.eu/growth/industry/innovation/facts-figures/scoreboards_en)

Global Financial System

#40

To what extent does the government actively contribute to the effective regulation and supervision of the international financial architecture?

10
 9

The government (pro-)actively promotes the regulation and supervision of financial markets. It demonstrates initiative and responsibility in such endeavors and often acts as an international agenda-setter.
 8
 7
 6


The government contributes to improving the regulation and supervision of financial markets. In some cases, it demonstrates initiative and responsibility in such endeavors.
 5
 4
 3


The government rarely contributes to improving the regulation and supervision of financial markets. It seldom demonstrates initiative or responsibility in such endeavors.
 2
 1

The government does not contribute to improving the regulation and supervision of financial markets.
Stabilizing Global Financial System
4
Greece, a rather small European economy, is not in a position to take initiatives to monitor the global economic environment. For example, regarding non-performing bank loans, Greece is the worst among all OECD countries. All lending by banks primarily concerns the domestic market rather than international financial markets. Non-performing loans, rising steeply after the crisis hit Greece, remain a major impediment to economic recovery. In March 2019, 45.2% of all loans were non-performing. However, in absolute terms, non-performing loans were down by around €27.2 billion from their March 2016 peak. The banks plan to reduce this burden further by 2020.

In its capacity as an EU member state, Greece has participated in EU-driven efforts to regulate the global economic environment. Greece has also argued in European forums in favor of a more regulated system for financial markets.

Citations:
Data on non-performing loans is provided by an official press release of the Bank of Greece, available at https://www.bankofgreece.gr/en/news-and-media/press-office/news-list/news?announcement=ba4e1b6b-410d-4976-a5ec-8ca224c13950
Back to Top