Panagiotis Lafazanis commented on Germany’s 60 billion euro budget shortfall, suggesting it sell North Sea islands, echoing past Greek debt crisis advice. While Germany struggles with a prolonged recession, Greece’s economy is thriving, with a projected growth of 3.7% and a falling unemployment rate. Improvements in tax collection and financial reforms have restored Greece’s investment grade status. However, concerns remain about reliance on tourism and structural issues, exacerbated by climate change threats.
Panagiotis Lafazanis must have felt a sense of satisfaction when he witnessed Germany facing a budgetary shortfall of 60 billion euros at the end of 2023. This financial setback arose after the Constitutional Court blocked the reallocation of Corona funds for climate initiatives. In response, the former Greek energy minister suggested that Germany consider selling off North Sea islands, a tongue-in-cheek remark reminiscent of the advice Greece once received during its debt crisis, which included proposals to sell Greek islands to address financial woes.
This biting commentary reflects a newfound confidence among Greece’s political leaders. While Germany grapples with a recession that has lasted two years, Greece is enjoying remarkable economic growth. From October 2023 to September 2024, the Greek economy is expected to expand by 3.7 percent, with a forecast of 2.1 percent growth for the current year.
Other economic indicators are equally promising. The unemployment rate has dipped below 10 percent for the first time in over a decade, and the debt-to-GDP ratio has decreased from more than 200 percent to below 160 percent within just three years.
Although these figures remain high, the trend is encouraging. The “Economist” recognized Greece as the third most successful economy in the OECD at the end of last year. A nation once plagued by crises has now transformed into a model of economic resilience. In stark contrast, the “FAZ” has recently suggested that Germany may require external oversight from a troika, akin to what Greece experienced during its reform period.
Stabile Finanzpolitik
What lies behind Greece’s impressive turnaround, and what does the current situation look like? The answer lies primarily in substantial reforms. Greece, which once manipulated statistics to gain entry into the Eurozone, now stands as an example of sound financial governance.
The country consistently generates a primary surplus, reaching 8.63 billion euros in 2024, excluding debt repayments. Following severe spending cuts and tax hikes primarily initiated in the early crisis years, the government is now focused on broadening its tax base.
The establishment of a robust agency to combat tax evasion, alongside a significant push towards digitizing payment systems, has contributed to this success. For instance, electronically processed taxi payments surged by nearly 200 percent last year, and childcare services saw an astounding increase of 433 percent. These advancements boost revenues from value-added tax and corporate income tax.
Anerkennung durch Rating-Agenturen
This solid financial strategy has facilitated Greece’s re-entry into capital markets. Since 2024, all major rating agencies have classified Greek government bonds as investment grade, leading to reduced borrowing costs. “Today, Greece can secure loans at lower rates than Italy,” notes Athens economics professor Antonis Bartzokas. “The nation has regained trust.”
Much of this revival can be attributed to conservative Prime Minister Kyriakos Mitsotakis. While his left-leaning predecessor Alexis Tsipras implemented austerity measures mandated by the troika, Mitsotakis, a former McKinsey consultant, is now emphasizing growth initiatives, including digitizing the notoriously inefficient bureaucracy and lowering corporate taxes.
Moreover, Greek banks have regained functionality following a thorough balance sheet cleanup, enabling them to fulfill their crucial role of lending. This improved economic environment is attracting renewed interest from investors, with tech giant Microsoft establishing data centers and pharmaceutical leader Pfizer launching a research facility in Thessaloniki. Though the overall economic impact of these developments may be modest, the government celebrates them as significant achievements.
The thriving economy is also evident in the labor market. Due to a shortage of available workers, the government has initiated plans for a six-day workweek and has implemented programs to integrate undocumented migrants into the workforce.
Niedrige Produktivität
Despite the favorable statistics and the accolades Greece is receiving from international observers, more cautious analysts express a tempered perspective. Political observer and commentator Nick Malkoutzis points out that cyclical factors, which may not be sustainable, contribute to the positive economic performance.
Greece has significantly benefitted from the EU’s recovery and resilience fund, receiving above-average financial aid relative to its economic size. However, this funding is set to expire in 2026, along with the associated growth stimulation. “Structurally, little has changed to date,” Malkoutzis warns.
According to economics professor Bartzokas, Greece remains heavily reliant on consumption, with private spending constituting 69 percent of GDP, the highest in the Eurozone. To enhance productivity and overall competitiveness, a greater influx of investment is essential. The EU crisis fund presents a unique opportunity, but it must be effectively utilized.
Tourismus und Bauwirtschaft
In fact, the primary engines of Greece’s economic growth in recent years have been the traditional sectors of tourism and construction, which are still experiencing recovery after the pandemic.
In the first half of 2024, real estate purchases by foreign investors accounted for over 50 percent of direct investments. By October, tourism revenues had already surpassed last year’s figures, with projections estimating around 22 billion euros for 2024. However, the sustainability of these growth rates remains a topic of debate.
Jens Bastian identifies the heavy reliance on tourism as a potential risk. Having worked as a financial analyst for a Greek bank in Athens, he notes, “An event such as the recent earthquakes near Santorini could jeopardize the entire tourism season, leading to considerable macroeconomic consequences.”
While macroeconomic indicators for Greece are indeed positive, Bastian emphasizes that structural challenges and deficiencies persist that are not immediately apparent. “These issues are essential for a comprehensive evaluation of the country’s reform capabilities.”
Keine Antwort auf langfristige Herausforderungen
German Greece expert highlights ongoing dysfunctions in administration and state-owned enterprises, which still exist despite numerous reforms. These deficiencies were tragically underscored by the serious train accident in Tempi two years ago, the repercussions of which the government continues to address.
Additionally, climate change poses a significant threat to Greece, particularly from an economic standpoint. The annual wildfires are increasingly endangering the tourism sector, while devastating floods in Thessaly a year and a half ago inflicted severe damage on agriculture.