International Economic Environment

Faculty of International Business and Economics

GREECE
COUNTRY REVIEW

Catalin SOMER
Ioan BURTEA
Amelia MOROGAN
Table of Contents
I. Country Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Political and Administrative Context…………………………………………………….3

Demographics…………………………………………………………………………….4

Immigration………………………………………………………………………………5

Transport and Telecommunication……………………………………………………….5

II. Macroeconomic Environment and Economic Development. . . . . . . . .. . . . . . . . . . . . . . . 6

Index of Economic Freedom…………………………………………………………….8

Perceived Corruption Index…………………………………………………………….10

III. Inflation Rate. . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . . . . .12

IV. External Sector of the Country. . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . . .17

Current Account of the Balance of Payments...…………………………………………17

Greece Trade, Exports and Imports……………………………………………………..18

External Debt……………………………………………………………………………23

V. Annexes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25

VI. References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29

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Chapter I

Country Overview

Greece, also known as Hellas and officially the Hellenic Republic is a country in southeastern Europe, situated on
the southern end of the Balkan Peninsula. The country has land borders with Albania, the Republic of
Macedonia and Bulgaria to the north, and Turkey to the east. The Aegean Sea lies to the east of mainland Greece,
the Ionian Sea to the west, and the Mediterranean Sea to the south. Greece has the tenth longest coastline in the world
at 14,880 km (9,246.00 mi) in length, featuring a vast number of islands (approximately 1400, 227 of which are
inhabited), including Crete, the Dodecanese, the Cyclades, and theIonian Islands among others. Eighty percent of
Greece consists of mountains, of which Mount Olympus is the highest at 2,917 m.

Modern Greece traces its roots to the civilization of ancient Greece, generally considered to be the cradle of Western
civilization. As such, it is the birthplace of democracy, Western philosophy, the Olympic Games, Western
literature and historiography, political science, major scientific and mathematical principles, and
Western drama,including both tragedy and comedy. This legacy is partly reflected in the 17 UNESCO World Heritage
Sites that are located in Greece.

A developed country with a very high Human Development Index, Greece has been a member of what is now
the European Unionsince 1981 and its Economic and Monetary Union since 2001, NATO since 1952, and
the European Space Agency since 2005. It is also a founding member of the United Nations, the OECD, and the Black
Sea Economic Cooperation Organization. Athens is the capital; other major cities
include Thessaloniki, Patras, Heraklion and Larissa.

POLITICAL AND ADMINISTRATIVE CONTEXT

Greece is a parliamentary republic. The nominal head of state is the President of the Republic, who is elected by
the Parliament for a five-year term. The current Constitution was drawn up and adopted by the Fifth Revisionary
Parliament of the Hellenes and entered into force in 1975 after the fall of the military junta of 1967–1974. It has been
revised twice since, in 1986 and in 2001. The Constitution, which consists of 120 articles, provides for a separation of
powers into executive, legislative, and judicial branches, and grants extensive specific guarantees (further reinforced
in 2001) of civil liberties and social rights. Women's suffrage was guaranteed with a 1952 Constitutional amendment.

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Since the restoration of democracy, the Greek two-party system is dominated by the liberal conservative New
Democracy (ND) and the social-democratic Panhellenic Socialist Movement (PASOK). Other significant parties
include the Communist Party of Greece (KKE), the Coalition of the Radical Left (SYRIZA) and the Popular Orthodox
Rally (LAOS). The current prime minister is George Papandreou, president of the PASOK, who on October 4, 2009,
won with a majority in the Parliament of 160 out of 300 seats.

Administratively, Greece consists of thirteen peripheries subdivided into a total of fifty-one prefectures (nomoi,
singular Greek: nomos). There is also one autonomous area, Mount Athos (Greek: Agio Oros, "Holy Mountain"),
which borders the periphery of Central Macedonia.

DEMOGRAPHICS

Greece has a population of 11,243,142 as of 2009. That figure is divided into 5.6 million males and 5.6 million
females.

Throughout the 20th century, millions of Greeks migrated to the US, Australia, Canada, UK and Germany, creating a
thriving Greek diaspora. The migration trend however has now been reversed after the important improvements of the Greek
economy since the 80's.

Greece is comparatively less urbanized than other countries in the region: in 2009, 61% of its population live in urban
areas of over 10 000 people

As statistics show, the Greek population has been aging the past several decades. The age structure is as follows: 0-14
years: 14.3%; 15-64 years: 66.6%; 65 years and over: 19.2%.

Ethnic Greeks comprise approximately 98 percent of a total population of more than 11 million. Other ethnic groups
in Greece include small minorities of other West Europeans, East Europeans, and Turks.

In terms of religious affiliation, the vast majority (98 percent) is Greek Orthodox. Muslims comprise the only
numerically significant religious minority, although there is a small number of other minority religions in Greece.

Greeks have an average life expectancy at birth of 78.43 years (75.87 years for males, 81.18 years for females). The
infant mortality rate is 7.13 deaths per 1,000 live births. The population has an estimated average literacy rate of 95
percent. Approximately 98 percent of males and 93 percent of females, aged 15 and older, can read and write.

One notable measure used to determine a country's quality of life is the Human Development Index (HDI), which
has been compiled annually since 1990 by the United Nations Development Programme (UNDP). The HDI is a

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composite of several indicators, which measure a country's achievements in three main areas of human development:
longevity, knowledge and education, as well as economic standard of living. In a recent ranking of 177 countries, the
HDI placed Greece in the high human development category, at 24th place.

IMMIGRATION

Due to the complexity of Greek immigration policy, practices and data collection, truly reliable data on immigrant
populations in Greece is difficult to gather and therefore subject to much speculation. In 1986, legal and unauthorized
immigrants totaled approximately 90,000. A study from the Mediterranean Migration Observatory maintains that the
2001 Census from the NSSG recorded 762,191 persons residing in Greece without Greek citizenship, constituting
around 7% of total population and that, of these, 48,560 were EU or EFTA nationals and 17,426 Cypriots with
privileged status. People from the Balkan countries of Albania, Bulgaria, and Romania make up almost two-thirds of
the total foreign population. Migrants from the former Soviet Union (Georgia, Russia, Ukraine, Moldova, etc.)
comprise 10% of the total.

TRANSPORT AND TELECOMMUNICATIONS

Since the 1980s, the roads and rail network of Greece has been significantly modernized. Important works include
the Egnatia highway that connects north west Greece (Igoumenitsa) with northern and north east Greece. The Rio-
Antirio bridge (the longest suspension cable bridge in Europe) (2250 m or 7382 ft long) connects the
western Peloponnesus from Rio (7 km or 4 mi from Patras) with Antirion on the central Greek mainland. An
expansion of the Patras-Athens national motorway towards Pyrgos in the western Peloponnese is scheduled to be
completed by 2014. Most of the highway connection of Athens to Thessaloniki has also been upgraded.

The metropolitan area of the capital Athens had a new international airport (opened in 2001), a new privately run
suburban motorway Attiki Odos(opened 2001), and an expanded metro system (since 2000).

Most of the Greek islands and many main cities of Greece are connecting by air mainly from the two major airlines of
Greece, Olympic and Aegean air. Maritime connections have been improved with modern high-speed craft,
including hydrofoils and catamarans. Railway connections play a somewhat lesser role than in many other European
countries, but railways too have been expanded, with new suburban connections around Athens, a modern intercity
connection between Athens and Thessaloniki, and upgrading to double lines in many parts of the 2500 km network.
International railway lines connect Greek cities with the rest of Europe, the Balkans and Turkey.

In terms of telecommunications we should mention that OTE, the former state monopoly, is the main player in fixed-
line telephony, with a market share of around 75%. The other two players on the market are Vodafone and WIND. In

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2009, there were a number of 20 million active lines, meaning a 180% penetration. Internet penetration was at 46%
(2009). Greece also owns one Telecommunications Satellite, named Hellas-sat, which provides telecommunication
services in a major part of Eastern Europe and Western Asia.

Chapter II
Macroeconomic Environment and Economic Development

Greece has an open economy with the state continuing to play an important role despite an ongoing privatization
program. Greece successfully became a member of the European Community, now the EU, in 1981. It joined the EU's
Economic and Monetary Union in 2001 and adopted the euro as its new common currency in January 2002.

Greece is one of the smallest economies in the EU. Compared with other EU countries, its industrial sector is
relatively small, accounting for about 20 percent of GDP. The agricultural sector – although its contribution to GDP
has declined in recent years -- is still large compared to other EU countries, accounting for over 3 percent of GDP and
employing about 12 percent of the labor force. The services sector, including tourism and shipping, is the largest and
fastest growing sector of the Greek economy, accounting for more than 70 percent of GDP.

In the past decade Greece experienced strong economic growth led by robust domestic demand, which was further
underpinned by the liberalization of the financial sector and lower interest rates after euro adoption. Strong growth
had also been supported by solid gains in employment and substantial real wage increases, narrowing the gap in per-
capita income with the EU-15. At the same time, however, large fiscal and external imbalances persisted, while
inflation and labor-cost growth in Greece exceeded that of its trading partners and eroded competitiveness. These
imbalances have made the Greek economy vulnerable to the global economic downturn.

Economic growth slowed in 2008, as domestic demand eased with a drop in business and consumer confidence caused
by the global crisis. Given its high integration with the euro area, which is experiencing a sharp recession, the Greek
economy was expected to contract considerably in 2009 with lower investments, exports, and private consumption.
Moreover, political cooperation is low, which hampers policy making. Wage growth has remained high, outstripping
the euro average and further eroding competitiveness. Going forward, restoring competitiveness requires

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comprehensive structural reforms, including streamlining the costly public sector, reducing administrative burdens,
lowering unit labor costs, and increasing employment. Additionally, fiscal consolidation can no longer be postponed
in light of the widening fiscal deficit and high level of public debt, while social security reform should be expanded
given the high projected aging-related costs. Efforts are needed to implement income policies to help slow public
wage growth and reduce pension costs.

In later 2009, the new Greek head of government, Prime Minister George Papandreou, announced a series of harsh
spending cuts in order to address the country's economic woes. He warned that without action such as a hiring freeze
on public sector jobs, closure of overseas tourism offices, and decreased social security spending, Greece was at risk
of "sinking under its debts." He also said that his country had "lost every trace of credibility" on the economic front
would have to "move immediately to a new social deal."

Greece's economic growth was robust in recent years supported by solid gains in employment, substantial

real wage increases, low interest rates, and rapid credit expansion. In 2007, real GDP grew 4 percent, compared to 4.5
percent in 2006, driven by continued strong domestic demand. Reflecting the impact of the global economic crisis,
however, real GDP growth slowed to 2.9 percent in 2008 with easing domestic demand. With the deepening of the
crisis, real GDP was expected to record a negative growth of 1.7 percent in 2009 due to declining exports,
investments, and consumption. Inflation rose to 4.2 percent in 2008 from 3 percent in 2007, but was expected to
decline to 1.1 percent in 2009 due to rapidly falling world commodity prices. After falling to 7.6 percent in 2008 from
8.3 percent in 2007, unemployment will likely increase to an estimated 9.5 percent in 2010.

With an expansionary fiscal policy, the fiscal position deteriorated in the first few years of this decade. In 2004, the
fiscal deficit widened sharply to 7.3 percent of GDP from 5.6 percent of GDP in 2003, in part due to the funding of
the Olympics. As a result of the substantial fiscal consolidation, the fiscal deficit dropped to 5.1 percent of GDP in
2005, and fell sharply to 2.8 percent of GDP in 2006. But the fiscal deficit widened to 3.6 percent of GDP in 2007,
and widened further to 5 percent of GDP in 2008 due to a large increase in the wage bill and entitlements. Meanwhile,
public debt remained high, increasing to 97.6 percent of GDP in 2008 from 94.8 percent of GDP in 2007.

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Fears of a government debt default in Europe emerged in the first week of February 2010, with all eyes focused on
Greece. Of concern was the rising cost of insuring Greek debt against default, and fears were rising that a bailout by
the International Monetary Fund might be in the offing.

For its part, the Greek government has pledged to reduce its budget deficit by three percent of gross domestic product
by 2012. That move was welcomed by the European Commission but met with the threat of strikes by Greece's largest
union, which has railed against the prospect of austerity measures. By February 10, 2010, the strike by the country's
largest public sector union in Greece was going forward. Simultaneously, Prime Minister George Papandreou was
promising to "take any necessary measures" to reduce Greece's deficit including a freeze on public sector pay,
increased taxes and the implementation of changes to the pension system."

A day later, leaders of the European Union said that while Greece had not asked for assistance, they stood ready to
help ensure stability within the euro zone. A statement issued from a summit in Brussels read as follows: "We fully
support the efforts of the Greek government and their commitment to do whatever is necessary, including adopting
additional measures to ensure that the ambitious targets set in the stability programme for 2010 and the following
years are met." The statement, however, did not specify the nature of such support.

THE INDEX OF ECONOMIC FREEDOM

Greece’s economic freedom score is 62.7, making its economy the 73rd freest in the 2010 Index. Its overall score has
improved by 1.9 points from last year, reflecting better scores in five of the 10 economic freedoms. Greece is ranked
34th out of 43 countries in the Europe region, and its overall score is above the world average.

The Greek economy has been gradually transforming in ways that improve flexibility and openness, but progress has
been sluggish. Privatization has reduced the state’s dominant role in the economy, and the overall entrepreneurial
environment has been enhanced by implementation of a more competitive corporate tax rate and more efficient
regulation. Following mergers and privatizations, the financial sector has become more open and more efficient.

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Challenges to economic freedom remain in such areas as government spending and labor freedom. High government
spending chronically causes budget deficits and places upward pressure on an already high public debt. The rigidity of
the labor market impedes productivity and job growth, undermining long-term competitiveness.

The overall freedom to start, operate, and close a business is relatively well protected by Greece’s regulatory
environment. Starting a business takes about half of the world average of 35 days. Obtaining a business license
requires less than the world average of 18 procedures and 218 days. Closing a business is relatively easy.

Greece’s trade policy is the same as that of other members of the European Union. The common EU weighted average
tariff rate was 1.3 percent in 2008. However, the EU has high or escalating tariffs for agricultural and manufacturing
products, and its MFN tariff code is complex. Non-tariff barriers reflected in EU and Greek policy include agricultural
and manufacturing subsidies, quotas, import restrictions and bans for some goods and services, market access
restrictions in some services sectors, non-transparent and restrictive regulations and standards, and inconsistent
regulatory and customs administration among EU members. Subsidies, regulations, and services market access
restrictions exceed EU policy, and the enforcement of intellectual property rights is problematic. Fifteen points were
deducted from Greece’s trade freedom score to account for non-tariff barriers.

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Greece has a relatively high income tax rate and a moderate corporate tax rate. The top income tax rate is 40 percent,
and the top corporate tax rate is 25 percent. Other taxes include a value-added tax (VAT), an inheritance tax, and a tax
on interest. In the most recent year, overall tax revenue as a percentage of GDP was 34.4 percent.

Total government expenditures, including consumption and transfer payments, are high. In the most recent year,
government spending equaled 44.0 percent of GDP. Progress has been made in reforming and privatizing state-owned
enterprises.

Greece is a member of the euro zone. Between 2006 and 2008, Greece’s weighted average annual rate of inflation was
3.8 percent. As a participant in the EU’s Common Agricultural Policy, the government subsidizes agricultural
production, distorting the prices of agricultural products. It also can set a ceiling on retail prices and regulates prices
for pharmaceuticals, transportation, and energy while setting margins for wholesalers and retailers. Ten points were
deducted from Greece’s monetary freedom score to account for policies that distort domestic prices.

Greece officially welcomes foreign investment but restricts investment in some utilities, and non-EU investors in
banking, mining, broadcasting, maritime, and air transport must obtain licenses and other approvals that are not
required of Greek and EU investors. Bureaucracy is non-transparent and inefficient. The government caps private
investment in companies of “strategic importance” at 20 percent without special approval. Residents and non-
residents may hold foreign exchange accounts. There are no restrictions or controls on payments, real estate
transactions, transfers, or repatriation of profits. Restrictions exist on land purchases in border regions and on certain
islands due to national security considerations.

Privatization and mergers have considerably reduced the government’s influence in banking. Private banks account
for 70 percent of assets. There are more than 60 domestic and foreign banks along with other special credit
institutions. Foreign-owned banks are around 11 percent of the market. Five large commercial groups operate as
private universal banks. The state directly controls one bank, indirectly controls another, and holds an approximately
30 percent stake in the Postal Savings Bank. Capital markets provide a wide range of financial instruments. A
combination of state guarantees and participation in share capital has increased flows in financial markets.

The judiciary is nominally nonpartisan but tends to reflect government sensibilities. Expropriation is unlikely. The
lack of a land registry and the multiple layers of authority concerning land use and zoning permits are among the most
significant disincentives to Greenfield investments. Enforcement of intellectual property rights is not rigorous.

Corruption is perceived as significant. Greece ranks 57th out of 179 countries in Transparency International’s
Corruption Perceptions Index for 2008. Bribery is considered a criminal act, and the law provides severe penalties for
infractions, but implementation and enforcement remain problematic.

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Labor regulations are restrictive. The non-salary cost of employing a worker is high, and regulations on work hours
remain rigid, although employers have greater flexibility under a labor law passed in 2005.

PERCEIVED CORRUPTION INDEX

Greece is perceived as the most corrupt of EU countries, along with Bulgaria and Romania, an annual corruption
perception ranking released on Tuesday 17 November 2009 by Transparency International shows.

Carried out in 180 countries around the world, the 2009 Corruption Perceptions Index measures the degree to which
corruption is perceived to exist among public officials and politicians on a scale where 0 is the most corrupt and 10 is
graft-free.

As in previous years, Denmark is perceived as the least corrupt among EU countries, with a score of 9.3, followed by
Sweden, Finland and the Netherlands. At the lower end, Greece, Bulgaria and Romania share last place with 3.8. They
are followed by Italy, which also registered a major slide compared to last year, and now ranks below Poland and
Lithuania as well as EU candidate Turkey and Cuba in the corruption stakes.

"Greece's poor score shows that joining the EU does not automatically translate into a reduction in corruption.
Immediate and sustained efforts are required to ensure the country lives up to acceptable levels of transparency and
accountability," the anti-corruption watchdog concludes.

The newly elected left-wing government in Athens recently promised to clamp down on corruption and revealed that
the public deficit data kept by the previous cabinet were embellished.

This prompted the EU statistics office Eurostat to express "reservation" on the Greek data in its report on EU
government debt levels for 2008.

"Graft and corruption have always been an integral part of Greece's political culture, thanks to the existence of a
paternalistic state where kickbacks constitute routine practice for the provision of public services," writes Chronis
Polychroniou, a professor with the British university of Teesside.

A special report published in July 2009 by the Greek general inspector of public administration concluded that the
public sector is riddled with corruption. Urban planning offices, state hospitals and townhalls were identified as the
sectors where corruption is the most acute.

While Brussels has a special monitoring mechanism in place for Romania and Bulgaria, it lacks any real leverage on
Greece's poor performance in tackling corruption and speeding up lengthy trials.

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A proposal included in a list of EU priorities in the field of justice and home affairs - known as the Stockholm
programme - asks the EU commission to set up a similar auditing system for all member states and to develop a
"comprehensive anti-corruption policy."

The programme still needs the approval of EU leaders at a summit on 10-11 December. Greece, along with other
Mediterranean states, is said to be opposed to the monitoring proposal.

Big EU donors such as Germany and the Netherlands are growing increasingly irritated about the potential
mismanagement of EU funds in recipient countries, however.

Greece was the largest recipient of community money in 2008. Athens received roughly €6.3 billion, far ahead of
Warsaw, in second place, with €4.4 billion.

Out of the €5.9 billion agricultural aid recovered by the EU commission in the last ten years, €1.3 billion were clawed
back from Greece. On regional funds, the EU executive recovered €842 million from Athens in 2000-2006.

In 2005, the commission decided to reduce the by €518 million the aid given to Greece "due to serious weaknesses
found in the management and control systems", particularly relating to public procurement and contract modifications.
The same weaknesses in public procurement procedures were found last year, when regional aid was reduced by €26
million.

Chapter III

Inflation Rate
Greece is a developed country, with a high standard of living and "very high" Human Development Index, ranking
25th in the world in 2007, and 22nd on The Economist's 2005 worldwide quality-of-life index. According to Eurostat
data, GDP per inhabitant in purchasing power standards (PPS) stood at 95 per cent of the EU average in 2008.
Greece's main industries are tourism, shipping, industrial products, food and tobacco processing, textiles, chemicals,
metal products, mining and petroleum. Greece's GDP growth has also, as an average, since the early 1990s been
higher than the EU average. However, the Greek economy also faces significant problems, including rising
unemployment levels, inefficient bureaucracy, tax evasion and corruption.

In 2009, Greece had the EU's second lowest Index of Economic Freedom (after Poland), ranking 81st in the world.
The country suffers from high levels of political and economic corruption and low global competitiveness relative to
its EU partners.

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Although remaining above the euro area average, economic growth turned negative in 2009 for the first time since
1993. An indication of the trend of over-lending in recent years is the fact that the ratio of loans to savings exceeded
100% during the first half of the year. By the end of 2009, as a result of a combination of international (financial
crisis) and local (uncontrolled spending prior to the October 2009 national elections) factors, the Greek economy
faced its most severe crisis after 1993, with the highest budget deficit (although close to those of Ireland and the UK)
as well as the second highest debt to GDP ratio in the EU. The 2009 budget deficit stood at 12.7% of GDP (it was re-
calculated to 13.6% of GDP on April 2010). This, and rising debt levels (113% of GDP in 2009) lead to rising
borrowing costs, resulting in a severe economic crisis. Greece tried to cover up the extent of its massive budget deficit
in the wake of global financial crisis.

The specialists in this area define inflation as a general disequilibrium of economy, which can be identify through two
tendencies: the general rise of prices and the decrease of purchasing power of currency, and it is measured by
observing the change of price at a large number of goods and services in an economy. This process is present at the
most goods, although the prices don’t rise at all categories of them. The many effects of inflation, as also its possible
opportunities, would be understood if the content of this process will be unraveled. In many countries and periods,
inflation was and it still is the most important danger of increase and economic progress.

Framing the intensity of inflation in one form is a relative and different problem from one country to another.
According to the proportions of inflationary process in global practice and theory there are many types of inflation:

Being a complex phenomenon, inflation can be measured and illustrated using concomitantly many indicators, each of
them relieves a certain form of inflation. The most important of them are: consumer price index (CPI), producer price
index (PPI), commodity price index, wholesale price index, employment cost index, GDP deflator, cost of living
indices and purchasing power parity.

Inflation Rate for Greece.

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“The most widely watched measure is the consumer price index (CPI), published monthly by the Bureau of Labor
Statistics. Sub indexes are available for different cities and for many different classes of goods and services. One
problem with the CPI is that the weight attached to each class of goods and services is held constant for years at a
time. Therefore, when consumers lower their cost of living by buying more items whose relative price has fallen and
fewer items whose relative price has risen, the CPI will not show a decline in the cost of living. Moreover, the difficult
problem of allowing for changing quality has never been solved. Nor can the government inspectors who collect the
data from retailers track down all the sales and discounts of which consumers are so keenly aware. As a result of these
and other factors, the consumer price index reflects inflation trends only with a long delay and portrays an artificially
smooth path for the inflation rate. ”

IPC = ∑Pi1Qi0/∑Pi0Qi0, where P i1 represents the price of a good “I” in a t1 period, Qi0 the consumed quantity from a
good “I” in t0, and Pi0 the price of good “I” in t0.

I will give an example to determine this index: presuming that the basket of goods contains clothes, food, health
services, lighting; the balance of these goods and their prices:

Good Food (50%) Clothes (20%) Lighting (10%) Health services

(20%)
P0 100 500 200 600
P1 130 520 210 660

CPI=0.5(130/100)+0.2(520/500)+0.1(210/200)+0.2(660/600)= 1.183=118.3%

IR=CPI-100%=18.3%

Through this example, we can see the difficulties and the errors of measuring inflation. Therefore, if CPI is used,
other prices are passed over, including prices of output factors which have an important influence to macroeconomic

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stability. Also, the basket of goods which is chosen for determining inflation rate doesn’t include all the goods and it
supposes a certain grade of subjectiveness. Another error can result from the balance of different goods, because it is
calculated according to the dates supplied by a sample of houses considered representative.

Using GDP deflator as a measure of inflation, some possible errors can be eliminated, for example: it considers all
market goods made in that period and the balance of goods category is variable.

Greece Unemployment Rate

The unemployment rate in Greece was 10.20 percent in December of 2009. The labour force is defined as the number
of people employed plus the number unemployed but seeking work. The nonlabour force includes those who are not
looking for work, those who are institutionalised and those serving in the military.

Distribution of family income - GINI index: 33 (2008) 35.4 (2002)

Rank: 96

This index measures the degree of inequality in the distribution of family income in a country. The index is calculated
from the Lorenz curve, in which cumulative family income is plotted against the number of families arranged from the
poorest to the richest. The index is the ratio of (a) the area between a country's Lorenz curve and the 45 degree helping
line to (b) the entire triangular area under the 45 degree line. The more nearly equal a country's income distribution,
the closer its Lorenz curve to the 45 degree line and the lower its Gini index, e.g., a Scandinavian country with an
index of 25. The more unequal a country's income distribution, the farther its Lorenz curve from the 45 degree line
and the higher its Gini index, e.g., a Sub-Saharan country with an index of 50. If income were distributed with perfect
equality, the Lorenz curve would coincide with the 45 degree line and the index would be zero; if income were

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distributed with perfect inequality, the Lorenz curve would coincide with the horizontal axis and the right vertical axis
and the index would be 100.

“Other popular indicators of inflation include producer prices (formerly known as wholesale prices) and unit-value
indexes for imports and exports.”1. Producer price indices (PPI) which measure the price received by a producer. This
differs from the CPI in that price subsidization, profits, and taxes may cause the amount received by the producer to
differ from what the consumer paid. Producer price inflation measures the pressure being put on producers by the
costs of their raw materials.

“Still more difficult than measuring inflation is the problem of identifying its root causes. In spite of its long and rich
history, few subjects in the field of economics are more confused. Professional economists have still not reached
broad agreement as to the origins of the inflation process. Two camps dominate the debate. Some see inflation as a
malady of the currency (as was surely the case in the Roman Empire). In the words of Milton Friedman, "Inflation is
always and everywhere a monetary problem." Others see nonmonetary forces at work, such as monopolies, union
demands for higher wages, oil politics, or the "wage-price spiral."

The causes of inflation in specialty literature are analyzed one by one, each of them generating a form of inflation.
The economist M. Friedman explains that inflation is bounded to money supply. A major demand-pull theory centers
on money supply: inflation may be caused by an increase in the quantity of used money relating to the ability of
economy to supply its potential output. This has been seen when governments have financed spending in a crisis by
printing money excessively, often leading to hyperinflation where prices rise at extremely high rates. Samuelson
considered that there are also other causes of inflation: one of them related to the demand and the other to the supply.
“Cost-push inflation is when costs push up prices and wages; it is caused by unions demanding wages that employers
cannot afford. Demand-pull inflation is triggered by the aggregate demand which exceeds what a country can produce
at full employment, prices will also rise.”1.Through this two types of inflation we can explain the inflation scroll: the
income rise on one hand leads to a rise in production costs and to a decrease of supply. On the other hand the
additional incomes earned by workers lead to an increase in demand, and in the same time to the reduce of supply.
The result is a bigger rise of prices.

“Among those who attribute inflation to monetary causes, at least two quite different views exist. The monetarist view
is that increases in the quantity of money cause inflation. Critics of this view point out that the quantity of money is
difficult to define, especially when funds can be transferred electronically and credit cards can substitute for cash
balances. It can also be argued that people have freedom to choose the quantity of money they want to hold rather than
merely accept the quantity the government wishes to impose upon them. The other monetary view is that the quantity

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of money can take care of itself. What really is needed, according to this view, is a mechanism for keeping the price of
the currency stable, for providing an anchor, so to speak. “

Inflation is a complex phenomenon not only for its causes, but from the point of view of the effects that it produces
over economy. Two effects of inflation are known: the redistribution of wealth and the increase of uncertainty in
economy. These effects are depending mostly of the form and the intensity of inflation, the anticipation ability of
economical activities participators.

At first view, the antyinflation policy wants to dissolve it, but it isn’t possible. Government can only act on the causes
of inflation, trying to reduce its effects. For example, in Greece’s adherence to EU, government acts on framing the
inflation in some limits, which can allow the compatibility of the national economy with the european economies. For
increasing the success of a policy in this direction it is necessary to use a mix of policies with special application in
real economy, by controlling and coordinating aggregate demand and supply. The main antyinflation policies are:

- decreasing the interest rate. This means is efficient, but hardly to apply. First of all because everybody is
complaining of inflation, but in the same time would want to see prices standing or decreasing to goods they
consume, not those they sell. Second, reducing the increase of money supply means decreasing public
expenses which means for example in Greece closing some factories and reducing founds of different
ministries. Decreasing the expending manner of money supply determines recession and an increase in
unemployment rate.
- the control of prices and salaries. This measure doesn’t allow the best found assignment because prices are
being administrated and it may lead to inflation tensions.
- indexing of revenues and earnings is instead a measure of protection, and it may lead to inflation scroll.

Chapter IV

External Sector of the Country

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CURRENT ACCOUNT OF THE BALANCE OF PAYMENTS

In February 2010, the current account deficit more than doubled year-on-year (€3,253 million, compared with €1,237
million), mainly as a result of the evolution of current transfers to general government (chiefly from the EU), which
fell to €88 million, from €1,961 million in February 2009. This decrease is attributable to a delay in inflows from the
European Agricultural Guidance and Guarantee Fund (EAGGF) for the payment of direct aid under the CAP. These
inflows are unevenly distributed across the year. However, the relevant amounts, of €2.1 billion, were paid to farmers
in March by the Agency for Payments and Control of Community Guidance and Guarantee Aid (OPEKEPE), and the
corresponding inflow is expected to be recorded in the balance of payments statistics in May. If these current transfers
are not taken into account, the increase in the current account deficit in February 2010 over February 2009 is limited
to €142 million.

The overall trade deficit did not change considerably. The increases in the net oil import bill and net payments for
purchases of ships (of €167 million and €125 million, respectively) were offset by a €299 million decline in the trade
deficit excluding oil and ships, reflecting the fact that the relevant import bill dropped by €388 million or 15.2%, i.e.
more than the corresponding export receipts, which declined by €89 million or 10.1%.

The surplus of the services balance shrank by €57 million, mainly as a result of a €114 million decline in transport
receipts, as gross transport (mainly shipping) receipts remained virtually unchanged (-0.4%), while the corresponding
payments grew by 20.5%. By contrast, the travel services balance showed a small surplus, compared with a deficit in
February 2009, as travel spending in Greece by non-residents rose by 10.5%, while travel spending abroad by
residents dropped by 12.0%. Net payments for “other” services showed a small decrease.

The income account deficit did not show any remarkable change, as net interest, dividend and profit payments
remained stable (they fell by a mere €2 million).

Finally, the current transfers balance recorded a deficit of €376 million, compared with a surplus of €1,593 million in
February 2009, mainly owing to the aforementioned decline in net EU transfers to general government. (It should be
recalled that gross current transfers from the EU mainly include receipts from the European Agricultural Guidance
and Guarantee Fund (EAGGF), as well as receipts from the European Social Fund, while current transfers to the EU
include Greece’s contributions (payments) to the Community Budget.)

In January-February 2010, the current account deficit grew by €2.3 billion or 50.8% year-on-year and reached €7
billion, reflecting primarily the large decrease in current transfers to general government (mainly from the EU): if
these are not taken into account during the reviewed period, the rise in the current account deficit is limited to €0.5
billion or 7.1%.

The €167 million hike in the overall trade deficit is attributable to increases of €417 million and €76 million in the net
oil import bill and net payments for purchases of ships, respectively. The trade deficit excluding oil and ships
narrowed by €326 million, as the import bill fell by €597 million (11.6%), while export receipts declined by €271
million (14.8%).

The €129 million contraction in the surplus of the services balance reflects lower net transport receipts. Gross
transport receipts (chiefly from merchant shipping) did not show any remarkable change (-0.8%), while the
corresponding payments grew by 16.4%; as a result, net transport receipts decreased by €199 million. Moreover,
travel spending in Greece by non-residents remained virtually unchanged (+1.0%), while travel spending abroad by
residents declined by 8.6%; as a result, the travel services balance improved by €37 million. Finally, net payments for
“other” services fell by €33 million.

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The income account deficit narrowed by €50 million in comparison with the same period of 2009, because net
interest, dividend and profit payments decreased slightly (by 3.2%).

Finally, the current transfers balance showed a deficit of €628 million, compared with a surplus of €1,469 million in
the corresponding period of 2009, mainly owing to the aforementioned decline in EU transfers to general government.

GREECE TRADE, EXPORTS AND IMPORTS

Traditionally, the balance of Greece trade has been negative. However, ever since Greece joined the EU and gave up
restrictive trading measures, things have started to look up, albeit with still a negative balance. The US remains the
largest trade partner of the nation outside of EU members.

Greece trade imbalance has been managed with loans from the EU, remittances from expatriates, shipping and
tourism. Tourism has, in fact, helped the nation collect foreign exchange and contributes to the GDP on an increasing
trend.

Greece has been a traditional exporter of food, beverages and textiles. It has most of its trading partners located in the
EU with the only notable external trade partner being USA. In 2009, the economy suffered due to dip in exports, as
the figures dropped from $29.14 billion (2008) to $18.64 billion in 2009. The country, in terms of export volume,
ranked 65th in the world and thus was far below the EU rankings.

Greece mainly exports the following commodities:

• Food and beverages

• Manufactured goods
• Petroleum products
• Chemicals
• Textiles

Major export partners are:

• Italy
• Germany
• Bulgaria
• Cyprus
• US
• UK
• Romania

The excessive amount of imports has always been a cause of worry for Greece economy. Even though imports
decreased during recession, the volume remained a lot higher than exports. Thus, the economy had to rely on tourism,
loans as well as remittances from expatriates for filling the gap.

In 2009, the imports volume was $61.47 billion. At the same time previous year, the volume had been $93.91 billion.
In terms of imports volume, the country ranked 37th in the world.

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The following countries have been regular import partners of Greece:

• Germany 12.1%
• Italy 11.7%
• Russia 7.4%
• China 5.6%
• France 5.1%
• Netherlands 4.7%

The main imported commodities are machinery, transport equipment, fuels and chemicals.

One of the most impressive achievements of the recent significant reforms has been the
dynamic increase in Foreign Direct Investment. For instance, gross FDI inflows in 2006
totaled more than 6.29 billion Euro, a 100% increase over 2005. More significantly, net
inflows reached 4.27 billion Euro, up from 487 million Euro in 2005, a noteworthy 10-fold
increase.

Although net FDI inflows in 2007 show a certain decline, FDI gross inflows, which reflect the real performance of a
country’s FDI, have sustained high levels. During 2008, FDI flows increased, reaching 6.07 billion Euro (gross flows)
and 3.07 billion Euro (net flows). Especially important is the fact that for the 10-month period, Jan-Oct. 2009, net FDI
inflows reached 2.32 billion Euro, despite the economic crisis.

It is important to underline that a large share—about 60%—of the FDI total in 2008 was directed toward new business
establishment, mergers, and acquisitions, and in increased share capital. In addition, 294 million Euro of the total
gross FDI inflows, or about 5%, represent reinvested earnings, a sure sign of confidence among investors and a strong
message of their intent to remain in Greece for the long term.

Capital flows in the form of loans reached 31.5% of the total flows of FDI in the same year. This reflects foreign
investors’ confidence in Greece, and their intent to commit capital for future gains and development in the country.

During the period 2003-08, gross FDI inflows totaled 28.4 billion Euro, leaving an impressive 12.2 billion Euro net
inflow. Outflows of foreign capital from foreign investors established in Greece reached 16.2 billion Euro. A
significant percentage of these outflows was used by parent companies in Greece for capital expansion/movement in
Greek subsidiary companies in Southeast Europe, in which case Greece is fulfilling its important objective of a
"bridge function" role in the Balkans.

Investor confidence in Greece is demonstrated from the all-important markets of the EU and the U.S. Recent
initiatives by Greece in Russia and Eastern Europe, the Middle East, and Asia bode well for FDI in the near future
from these regions, which are showing a strong interest in energy, telecommunications, tourism, transportation and
manufacturing.

The significant increases in FDI over the last years clearly demonstrate that reforms have met with the approval of the
global investor community. And the role of Greece as a regional hub, in energy, commerce, and transit, is one of the
most positive features that investors recognize today.

FDI Inflows in Greece

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Graph I. FDI Inflows in Greece 2003-2008 and Jan.-Oct. 2009 (in million Euro)

Source: Bank of Greece 2009

The progression of FDI in Greece, as shown in graph 1, registers significant fluctuations, which do not allow a clear
charting of increasing or decreasing trends, yet it is clear that FDI volume demonstrates a substantial growth following
2005. A noteworthy characteristic in the trends is that gross capital inflows (which better show the country’s FDI
performance) have a much lower fluctuation than net inflows and have substantially increased in volume in the last
three years. Hence, foreign investors have a relatively more stable position regarding capital inflows in the country,
whereas, on the contrary, their capital outflows (for instance, the repayment of loans, investment abroad) have a much
more diverse character. Nevertheless, it is significant that the highest gross FDI inflows during the previous six years
took place in the last three years (2006-2008).

Noteworthy is the fact that, despite the global economic crisis, the FDI net inflows for Jan-Oct. 2009 were
satisfactory, and were at 2.32 billion Euro, maintaining the level for FDI compared with the previous year.

Graph II. Gross FDI Inflows for 2003-2008 according to country of origin (in million Euro)

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 Total value: 28,406 million Euro
Source: Bank of Greece 2009

The distribution of gross FDI inflows in Greece by country of origin in the last six years demonstrates the importance
of EU countries (especially ΕU-15) in Greece’s investment environment. In this group is found the “traditional”
capital exporting countries such as France, Germany, UK, Netherlands, Italy, Belgium and Luxemburg. Cyprus and
Switzerland show a notable presence during this period.

Graph III. Gross FDI inflows by domestic sector of economic activity 2003-2008

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Total value: 28,406 million Euro

Source: Bank of Greece 2009

During the last six years FDI in Greece has been directed to the services sector. This trend evolved primarily due to
the development of the financial system and trade. The secondary sector has a relatively small share compared with
the country’s capabilities. It is important to note that investment in energy (electricity, natural gas) amounted to 5% of
total investment in the secondary sector and exemplies a growth trend for this period.

Graph IV. Breakdown of Gross FDI inflows in manufacturing 2003-2008

Total Value: 6,924 million Euro

Source: Bank of Greece 2009

The manufacturing sectors in which foreign investors have focused their interest in Greece during the last three years
are chemicals (excluding the petrochemical industry), followed by machinery, food and beverage and metal products.

Greece has significant clusters in these sectors, which can substantially support foreign investment interest, in both
Greenfield and in the form of cooperation with Greek businesses, and with enterprises for the production of end
products directed to the domestic and international markets.

Graph V. Structure of Gross FDI inflows in services 2003-2008

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 Total Value: 20,059 million Euro

Source: Bank of Greece 2009

In the services sector foreign investor interest during the last six years focused on telecoms, credit institutions
(investment in the banking sector), trade and tourism, as depicted in Graph V.

There is also a significant interest in education and health. It is noteworthy that only approximately 7% of foreign
investment was invested in the least productive sector of real estate, while the majority of foreign capital inflows was
directed into productive economic activity of high added value.

EXTERNAL DEBT

Debt - external: $552.8 billion (30 June 2009)

$504.6 billion (31 December 2008)
Year Debt - external Rank Percent Change Date of Information
2003 $63,400,000,000 16 2002 est.
2004 $65,510,000,000 19 3.33 % 2003 est.
2005 $67,230,000,000 19 2.63 % 2004 est.
2006 $75,180,000,000 33 11.83 % 2005 est.
2007 $301,900,000,000 20 301.57 % 30 June 2006 est.
2008 $86,720,000,000 36 -71.28 % 31 December 2007
2009 $504,600,000,000 20 481.87 % 31 December 2008
2010 $552,800,000,000 17 9.55 % 30 June 2009

In the first weeks of 2010, there was renewed anxiety about excessive national debt. The CEE Council has argued that
the predicament some mainland EU countries find themselves in today is the result of a combination of factors,
including over-expansion of the eurozone, and a combination of the worst traits of Keynesian profligacy with rigid
monetarist policy, tax evasion, pursued by local policy makers and complacent EU central bankers.

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Some senior German policy makers went as far as to say that emergency bailouts should bring harsh penalties to EU
aid recipients such as Greece. However, such plans have been described as unacceptable infringements on the
sovereignty of eurozone member states and are opposed by key EU nations such as France.

There has also been criticism against speculators manipulating markets: Angela Merkel stated that "institutions bailed
out with public funds are exploiting the budget crisis in Greece and elsewhere".

On 23 April 2010, the Greek government requested that the EU/IMF bailout package be activated. The IMF has said it
was "prepared to move expeditiously on this request".The size of the bailout is expected to be €45 billion ($61 billion)
and it is expected to take three weeks to negotiate, with a payout within weeks of €8.5 billion of Greek bonds
becoming due for repayment. On 27 April 2010, the Greek debt rating was decreased to BB+ (a 'junk' status) by
Standard & Poor's amidst fears of default by the Greek government. The Greek government was offering borrowers
15.3% on two-year government bonds. Standard & Poor's estimates that in the event of default investors would lose
30–50% of their money. Stock markets worldwide and the Euro currency declined in response to this announcement.

On May 1, a series of austerity measures was proposed. The proposal helped persuade Germany, the last remaining
holdout, to sign on to a 110 billion euro bail-out package for Greece. On May 5, a national strike was held in
opposition to the planned spending cuts and tax increases. Protest on that date was widespread and turned violent in
Athens, killing three people.

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Key Data

Region: Europe

Population: 11,243,142 as of 2009

Total Area: 131,940 Sq. Km.

Total Land: 130,800 Sq. Km.

Coastline: 13,676 km

Climate:

Temperate; mild, wet winters; hot, dry summers

Average Daily Temperature:

Capital: Athens

January: 10.2C / 50.4

July: 27.9C / 82.2

Annual Rainfall: 371.4mm / 14.6

Languages:

Greek; some speakers of English, French, Turkish, Macedonian, Romanian, Romani, Bulgarian and Albanian

Currency: 1 Euro = 100 cents

National Holiday: Independence Day, 25 March (1821)

Capital City: Athens

Boundaries: Bulgaria: 494 km; Albania: 282 km; Macedonia (FYROM): 228 km; Turkey: 206 km

Largest Cities: 1. Athens: Population: 752,573

2. Thessaloniki:Population: 348,858

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References

www.countrywatch.com

www.wikipedia.com

www.indexmundi.com

www.euobserver.com

www.heritage.org

www.economist.com

www.eiu.com

http://info.worldbank.org/governance

http://www.transparency.org/documents/

http://www.guardian.co.uk/

http://www.europaworld.com/pub/

http://www.britannica.com/browse/year

www.investingreece.gov.gr

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