Country profile: Greece

In recent years, Greece has enjoyed strong economic growth and low inflation. In 2005, however, Greece's economy experienced a modest slowdown, with 3.7 percent real GDP growth, down from 4.2 percent in 2004. The contraction occurred following four years of high investment expenditures for the 2004 Olympics as well as high employment and low interest rates. The economy is expected to slow further due to high oil prices and the decline of the Euro against the US dollar, with a projected growth rate of 3.5 percent in 2006.

One of the smallest economies in the European Union (EU), Greece became the twelfth member of the Eurozone in January 2001. The government is undergoing an EU-imposed “excessive-deficit” procedure for misreporting its public finances as far back as 1997. In fact, had the true extent of its fiscal deficit been known, Greece would not have been allowed to adopt the euro in 2002. With its deficit reaching 6.6 percent of GDP in 2004 and 4.6 percent for 2005, Greece remains well above the 3 percent limit for Eurozone members. Although much of the deficit can be attributed to one-time spending in preparation for the 2004 Olympics, the fiscal corrections needed are substantial.

Since the mid-1990s, Greece has undertaken macroeconomic and structural reforms, including measures to reduce the size of the bureaucracy, expand privatization, and attract foreign investment. Both the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development (OECD) have called for continued efforts in these areas. Although privatization of key utilities and industries has begun, these efforts are limited when compared to other Eurozone members.

Greatly improved relations between Greece and Turkey have allowed for more economic and energy cooperation. In March 2002, Greece and Turkey began discussions to resolve a decades-long disagreement over Aegean Sea boundaries. Greece has endorsed Turkey's bid for EU membership since 1999. Greece, which is a major investor in the former Yugoslavia, is working to integrate its energy infrastructure with the Balkan states. Improved relations with neighboring states could help Greece achieve its goal of becoming a major regional energy hub.