In December 2016, Greek Prime Minister Alexis Tsipras wanted to give impoverished pensioners, who on average have less than 800 euros a month to live on, a Christmas present. He earmarked around 600 million euros of additional budget revenues from the previous year to distribute among needy pensioners. What could have been interpreted not just as a gesture of goodwill but also as a sign that Greece was doing a little better soon backfired, however. The international donor organizations, with which this move had not been discussed in advance, criticised Greece for violating the conditions of the latest rescue package.
The Christmas bonus debacle is a good illustration of where Greece stands almost a decade after plunging into a deep economic crisis: no longer on the edge of the abyss but still far from safety. Compared with 2008, economic output has shrunk by more than a quarter. With GDP per capita of 16,300 euros, Greece is now more or less on a par with the Czech Republic or Estonia, even though in the mid-2000s it had still had an eye on catching up with other Mediterranean states like Spain or Italy.
The good news is that after years of recession and stagnation in Greece, the European Commission is predicting significant economic growth of 2.7 percent in 2017. According to newspaper reports, the government is anticipating a higher budget surplus before interest payments than the year before and a decrease in the public debt and unemployment. Privatisations are expected to raise around two billion euros for the state coffers. And since 2016, the inflation rate has been above zero again; the creeping decline in prices that dominated the previous years and made the mountain of debt seem even higher may now have stopped.
Despite these encouraging signs, the country still faces enormous challenges: the public debt was at a dizzying 179 percent of GDP in 2016. Almost one person in four was looking in vain for a job – among those under the age of 25, the figure was almost one in two. And in 2015, well over a third of the population was threatened by poverty or social exclusion.
Growth on borrowed money
But how did Greece – a country whose economy grew on average 3.7 percent annually between 1995 and 2007 – get into such a mess?
One of the main reasons is that for decades, Greece imported more than it exported and thus consumed more goods than it produced. This trade deficit was financed largely through foreign loans.
When Greece joined the eurozone in 2001, the interest rates on these loans fell further, making them more affordable. But even without consumption financed by borrowed money, the structural problems of the Greek economy made it much more vulnerable when the subsequent crisis struck. Thus, to this day, the country has few innovative industries producing goods for export that would bring money into the country. This situation is exacerbated by the corruption and nepotism in which the country is mired, not to mention the ever-vaster bureaucracy and inefficient state apparatus. All of this deters foreign investors. The fact that there are numerous small companies but hardly any major concerns, combined with the existence of a significant shadow economy, only makes matters worse.
In the wake of the financial crisis in 2008, foreign capital increasingly stayed away and the economy took a dive. This led to an explosion in both the public debt and the yields on Greek government bonds. In spring 2010, the country acknowledged that is was on the brink of insolvency. The members of the eurozone and the International Monetary Fund came to the rescue with three packages worth billions and in return demanded far-reaching reforms. The Greek government responded by embarking on reforms of the GREECE Population size in million (2016) 10.8 Projected population size in million (2030) 9.9 Projected population size in million (2050) 8.9 Total fertility rate (2015) 1.33 Annual net migration per 1,000 inhabitants (2011-2015) -4.5 Median age (2016) 43.9 Life expectancy (2015) 81.1 GDP per capita in euros (2016) 16,300 GDP per capita at PPP (2016) 19,500 Unemployment rate (2016) 23.6 Glimmer of Hope after a Deep Crisis Berlin Institute 133 pensions and taxation systems and revising its labour market policy. It privatised state enterprises and cut expenditure. It also set about dismantling the bureaucracy and tried to create a better climate for business. Since these measures involved major cuts in wages, salaries and pensions, disposable private income – and hence consumption – took a further plunge, prompting many demonstrations and unrest. The tense social atmosphere had a negative effect on tourism, too. The first signs of a turnaround came only several years later, when new jobs emerged in precisely this sector. But to what extent this will lead to a sustained improvement in living conditions remains to be seen.
Mass arrival of refugees exposes weaknesses of the asylum system
Alongside its economic problems, Greece has had to cope with another major challenge for some years now – the arrival of hundreds of thousands of people from the Middle East seeking refuge. Around 850,000 of them landed on the Greek islands in 2015 alone. The Greek state found itself completely unable to cope with this huge number – among other reasons because the asylum system was revealed to have serious weaknesses. Greece was criticised, in particular, for detaining some asylum seekers under inhuman conditions. Other causes for complaint were that the refugees received hardly any information about their case and that the processing of asylum applications was entrusted to people not trained for this purpose. Because of these shortcomings, some EU states refrained from sending any more refugees back to Greece until recently, even though according to the Dublin system, they should have submitted their applications there. Both the economic crisis and the precarious conditions under which refugees in Greece live have led the majority of them to regard Greece merely as a transit country. This explains why only one percent of all asylum applications in the EU were filed in Greece in 2015.
In fact, the Greek government has been trying to bring the asylum system up to European standards for some years now. Assistance comes mainly from the EU, which since 2015 has been setting up central registration centres, so-called hotspots in Greece – as it has been doing in Italy. These are supposed to make the initial registration of refugees more efficient. Since they offer only 7,450 places, however, they cannot solve the problems of overcrowding. According to official figures, at the end of 2016, there were 11,500 persons at these centres, which exceeded the number for which they were intended by more than 50 percent – despite the fact that there were significantly fewer refugees arriving in 2016. Overall, in September 2016, there were almost twice as many refugees on the Aegean Islands as beds to accommodate them.
One of the reasons for the fall in the number of new arrivals is likely to be the so-called EU-Turkey Agreement. Concluded in March 2016, it was designed to stop irregular migration to the EU by allowing Greece to send irregular migrants back to Turkey; in return, the EU promised to take one Syrian refugee from Turkey for every refugee sent back to Turkey from Greece. In practice, however, only a very small number of refugees have been “exchanged” between Turkey and Greece. Like the now numerous border controls and fences in Europe, the real effect of the agreement has been to deter asylum seekers from crossing over to Greece.
Economic crisis increases demographic pressure
It is not only refugees who want to leave Greece as quickly as possible and head northwest. Greek citizens, too, are increasingly leaving their country for other parts of the EU to escape the continuing woes on the labour market. As a result, in 2010, the net migration balance was negative for the first time in 35 years. From the end of the war until the mid-1970s, Greece had been one of Europe’s countries of emigration. But thereafter, Greeks returning home and migrants – some of them ethnic Greeks – from neighbouring countries like Albania, Bulgaria and the former Soviet Union ensured migration surpluses.
Through the new wave of emigration, Greece is losing not only inhabitants but also knowledge and skills. For unlike in the era of the so-called guest workers, it is now, above all, highly qualified young people who are going west. And unlike in the 1970s, today Greece can no longer make up the losses with high fertility rates. At 1.33 children per woman, the fertility rate in Greece is lower than in almost any other state in the EU. The slight upward trend of the 2000s came to an abrupt end with the economic crisis. Owing to the combination of lower fertility rates and emigration, Greece has been shedding inhabitants year after year: between 2011 and 2016, it lost just under three percent of its population; and it is estimated that by 2050, the population could decline by another 18 percent from the current 10.9 million to 8.9 million.
The pensions system as a major issue
Because of the small number of children born, among other factors, Greece now has one of the oldest populations in Europe. More than 21 percent of inhabitants are at least 65 years old. Only in Italy is the percentage higher. According to current projections, Greece is likely to have the worst ratio of people of working age to pensioners in the whole of Europe by 2050.26 This is one reason why the Greek pensions system – one of the most expensive in the world – has repeatedly been the focus of discussions between Greece and the international donor organizations. Greece currently spends an annual 17 percent of GDP on payments to pensioners, invalids and surviving dependents – more than any other EU country.
Although since 2010 the government has launched various reforms that prolong working life, reduce pension payments and link them to prices, the system is still far from healthy. The state is continually having to prop up what is, in fact, a pay-as-you-go system with injections of large sums from tax revenues; this is made more difficult by the fact that tax evasion has been a problem in Greece for decades. Whether the pensions system will succeed in future in providing an effective safety net against poverty in old age depends entirely on how many potential contributors can be got back into work./IBNA