The Untold Truth About the Greek Economy Behind the Headlines
After almost seventeen years since the debt and financial crisis hit Greece, in a recent presentation about the state of the Greek economy by Dr. Kosmas Marinakis, Senior Lecturer of Economics at Singapore Management University, and his research partner Achilleas Mantes, Macroeconomic Modeller at Agence Française de Développement, people got an unexpected reality check.
They presented hard data without any political spin or feel-good stories. There were simply raw numbers about where Greece actually stands seventeen years after everything began spiraling downwards.
Marinakis noted that the average person remains largely unaware of the true state of the Greek economy. He attributed this not only to political narratives and the fact that the media simply reproduce those narratives but also to the lack of clear, unbiased, and accessible economic explanations in Greece over recent decades.
To address this gap, he conducted a scientific study aimed at presenting the real condition of the Greek economy in a way the average citizen can understand, using actual Eurostat data that just about anyone can confirm.
Greek economy always compared to EU average
For many decades, Greece has been comparing itself with either the most powerful nations of Europe or the EU average. However, this time, researchers tried something different. They compared the Greek economy to the ten poorest EU countries, namely to Romania, Croatia, Hungary, Estonia, Lithuania, Bulgaria, and the rest of the Eastern European block which joined the EU in the early 2000s.
What they found was not something most wanted to hear. While those countries are actually catching up to European standards, Greece is moving in the opposite direction. After all those years of economic turbulence, the country continues to diverge from rather than approach the EU average.
What is truly saddening and hard to swallow is the cruel realization that countries from Eastern Europe that were miles behind the Greek economy ten to twenty years ago are now catching up or even surpassing it in national income and purchasing power.
Reduction of Greece’s debt mainly from high inflation
Greece owes money—a lot of money. That’s nothing new. And despite the huge progress that’s taken place in the last five to ten years, the country still owes lots. We’re talking 153 percent of GDP, which sounds abstract until you realize that this means for every euro the country produces, it owes about one-and-a-half euros to someone else. Compare that to 76 percent for the EU average or under 50 percent for those ten poorest countries mentioned above, and you get the picture.
Additionally, the researchers found that the reduction in Greek debt from 2020 to 2024—amounting to 56 percentage points—is mainly due to the high inflation observed over the past four years, which cumulatively reached 18.6 percent of GDP. Therefore, out of the 56-point debt reduction, 32 points are attributed to inflation, while only 24 come from real GDP growth and debt repayments.
Greece’s investment trap: Why building homes isn’t building the economy
The share of GDP allocated to investment in the European Union ranges between 20 and 25 percent. However, the ten poorest countries invest more than the European average. Why is this you might wonder? Simply because they grow faster. In fact, that’s also why they grow—because they manage to channel investment into productive and internationally tradable sectors. Greece used to do the same until 2008. After that, however, investment in the country collapsed, and it’s only been since 2019 that Greece has seen a recovery—one that is not as positive as it is often presented.
The seven sectors that absorb most investment in Greece and in most European countries are construction, public investment, manufacturing, agriculture, transport, technology, and trade. However, what left the researchers speechless was the level of investment in construction—in real estate. For Greece, this is extremely problematic because it essentially shows that the Greek economy has never been much more than construction and some public spending. In essence, the Greek crisis was nothing more than the collapse of real estate investment and the freezing of public expenditure. All other sectors have remained mostly stagnant, Marinakis says.
This is why the much-hyped recent return of investment is not as positive as it seems. The country’s investment model has not been corrected. Capital has not shifted toward manufacturing, technology, transport, or trade. Instead, Greece has gone back to the same pattern that led the country into the crisis in the first place. Since 2019, Greece basically resumed building houses. Of course, real estate is necessary in any country—especially in Greece—and it’s good to invest in it. But truly productive investments in manufacturing, technology, transport, trade, and agriculture have not arrived. This is a very worrying sign for the country’s economic future.
Meanwhile, supposedly poorer European countries, such as Hungary, Slovenia, the Czech Republic, and Poland, are doing much better in those sectors, which is why all these countries have already surpassed Greece in purchasing power, and as time goes on, will continue to leave it further behind in every aspect.
Greece does not have economic complexity
This is probably the most depressing part of the whole study presented. Greece produces smart and very well-educated people: university graduates, engineers, economists, you name it. But because the economy of the country has suffered so much and is so simple and low-value, these people end up working jobs that have nothing to do with their skills. It is not uncommon for Greek software developers to wait tables, architects to drive taxis, and economists to sell souvenirs to tourists.
Greece today is a country with all this human capital rotting away because there aren’t enough complex, high-paying jobs to go around. The researchers say this is a direct result of the Greek economy ranking dead last in the EU for “economic complexity.”
Basically, the country doesn’t make anything sophisticated that commands high prices. On the other hand, you have Eastern European nations, such as Estonia, countries with a communist past and a population of less than two million, building digital infrastructure. And then there is Slovenia, which is advancing in manufacturing precision equipment.
The hidden economy and myths around it
Here is where more misconceptions are being spread. Whenever someone points out how bad Greece’s official economy looks, there’s always that person who says, “Yeah, but what about all the cash business and shadow economy (also know as informal economy)? It makes up for everything!”
Marinakis challenges the common narrative about Greece’s shadow economy, explaining that “black money” eventually cycles back into the formal economy through spending and that economists can reasonably estimate the size of the shadow economy.
According to the World Bank’s latest data (2020), Greece’s shadow economy is estimated to be between 26 and 30 percent of GDP—slightly higher than the 24 to 27 percent range in the poorest ten European countries.
However, this small difference of about 2.5 percent is nowhere near enough to explain Greece’s significantly lower purchasing power, which lags nearly 22 percent behind those countries. Thus, the idea that Greeks fared better economically due to the shadow economy is unfounded.
Wages frozen in time
Since 2010, labor costs in Greece have been flatlining, but let’s be honest—if your wages haven’t moved in over a decade, that doesn’t make you more competitive; it makes you poorer.
As for the average Greek, the cost of living crisis is still rampant. Wages, particularly the minimum wage, have risen in Greece in the last few years, but the problem is that prices of everyday goods, transportation, and housing have skyrocketed, making the purchasing power of the average citizen much lower. To be more precise, Greeks are only better off than the Bulgarians, with every other Eastern European having surpassed the country’s purchasing power.
What now for the Greek economy?
Greece has some real advantages. It is geostrategically important with a naturally beautiful location, well-educated population, and cultural assets that draw millions of visitors, but advantages only matter if you actually use them strategically. You can’t fix problems you won’t acknowledge, and based on this data, the Greek economy has some serious problems that decades of political fairy tales haven’t rectified. Perhaps it’s time to listen to the economists instead, as the numbers certainly suggest the politicians haven’t been getting it quite right lately.
Business Wire
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