Many British feel dismissive toward the economies of “sun holiday” countries like Greece. There, food and wine are cheap and siestas hamper productivity. It is true that Greece has had a chequered financial past. This included periods of right-wing military dictatorship (1967 1974) and experimental socialism, when the Panhellenic Socialist Movement (PASOK)won a landslide victory in 1981.

We all know about the serious Greek debt crisis originating from heavy government spending. This escalated over the years, due to a slowdown in global economic growth. However, when Greece became the 10th member of the European Union (EU) in 1981, the country’s economy and finances were still in good shape.

Prior to 1999, the country continued to have a respectable debt-to-GDP ratio of less than 60%, plus a budget deficit below 3% of GDP. In 2001, Greece forsook the drachma and joined the Eurozone, adopting the € (Euro) as its common currency.  

Their policies took advantage of Greek membership of the Eurozone, calculating that they could increase government expenditure on benefits and early pensions without worrying about devaluation of the currency, as the larger Eurozone members would sustain its value. This fiscal profligacy, was seen as wasteful and excessive expenditure, as it caused deficits and debt levels to explode.

The fiscal jig was up for Greece shortly after the financial crisis of 2007-2008, as investors and creditors focused on the colossal sovereign debt loads. With default a real possibility, investors began demanding much higher yields for sovereign debt issued by Portugal, Ireland, Italy, Greece, and Spain (the so-called “PIIGS”) to counter this added risk.

The final nail in the coffin came in 2009, when a new Greek government led by Papandreou’s son George came into power and revealed that the fiscal deficit was 12.7%, more than twice the previously disclosed figure, throwing the Greek the debt crisis into a higher gear.

Up until then, the sovereign debt risk for those countries had been camouflaged by their wealthy neighbours in the north, such as Germany. By January 2012, however, the yield spread between 10-year Greek and German sovereign bonds widened by a whopping 3,300 basis points. As Greece’s economy contracted in the aftermath of the crisis, the debt-to-GDP ratio skyrocketed, peaking at 180% in 2011.

Alexis Tsipras, a self-identified democratic socialist, had become leader of the restyled Syriza socialist party in 2008. On his promise to ease the stringent conditions placed on Greece by the EU to deal with its debt, Syriza went on to win both the 2015 and 2019 elections.

A decade later Greece’s economy still had not fully recovered, due to disruption caused by the COVID-19 pandemic. While the last official round of financial bailout support had been made to Greece in 2018.

Nonetheless, the austerity measures imposed worked. In 2023, Greece’s debt-to-GDP ratio was down to 160.2%, and it still had until the year 2060 to fully pay off those debts. And, despite this burden, Greece has achieved a high standard of living, ranking 32 out of all countries, according to the World Bank.

As of 2024, Greece now has a GDP-per-capita around $24,500,.

Greece is expected to enjoy economic growth once again in 2024. Strong tourism activity, against a backdrop of high inflation, is boosting tax revenue. The sharp drop in the unemployment rate below 10%, the drastic improvement in public finances and the decline in public and private debt testify to Greece experiencing solid recovery. This is confirmed by the rise in equity and bond markets, and by the sharp tightening of spreads between Greek sovereign debt and the German Bund. 

The rebound in post-COVID activity has enabled the Greek government to combine economic growth and fiscal consolidation. As a result, the country has weathered the successive shocks in Europe in recent years very well. In the third quarter of 2023, real GDP was more than 6% above 2019, which is double the figure for the Eurozone (3.0%). 

In 2024, economic activity is expected to benefit from the recent labour market recovery and the fall in inflation, which, after peaking at 12% in summer 2022, fell back to 3.5% in December 2023. Short- and medium-term trends thus remain encouraging and growth is expected to stay above 2% in 2024, according to the European Commission’s forecast.

The improvement in public accounts is one of the most noteworthy underlying dynamics in Greece. After posting a primary deficit of 10% of GDP at the height of the Eurozone crisis, Greece recorded a primary budget surplus of 0.1% in 2022. This surplus widened in 2023—from €3.7 billion to €6.3 billion. Despite rising interest rates, the turnaround in the government accounts will reduce public debt. The Greek government also intends to use some of its cash reserves to repay in advance nearly €16 billion of its debt to the European Stability Mechanism (ESM), which will help accelerate debt reduction.

After retaining an absolute majority in the Greek Parliament, Kyriákos Mitsotákis and his New Democracy party emerged strengthened from the 2023 elections. He intends to continue the privatisation programme aiming to reduce government debt. Despite falling sharply over the past two years, Greece’s debt ratio is still the highest in Europe. His measures, aimed at rebalancing the public accounts and liberalising the economy, have reassured markets and reduced the risk premium on Greek sovereign bonds. The spread between Greek and German rates has narrowed to just 100 basis points.

For comparison, the UK (pop. 66.96 million) has a GDP of £3,089 billion, a sovereign debt of £2,654 billion, growing at a rate of £156 billion each year. This contrast with Greece (pop. 10,46 million), with a GDP of £174.1 billion has sovereign debt of £312.8 billion, being reduced at a rate of £5.4 billion each year.

Put another way, every Brit’s debt of £40,212 is rising by £2,364 each year, while every Greek’s debt is a quarter less at £29,882, and falling by £516 each year.

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