1. EC4024 Financial Economics
Project Title: A Macroeconomic Analysis of Greece and its Financial Position.
Student Name: Lonan O Cearbhaill
Student Number: 11135069

2. 1
Introduction
Greece is the classic case of a country with a long history of corruption and political
instability, a fact which can be seen to have proven costly from an economic
perspective. With a disillusioned public opting to increase support in radical extremist
parties such as the far-left Syriza and the neo-Nazi Golden Dawn party as an act of
protest, Policymic contributor Romain Champetier’s description of Greece as being
“the sick man of Europe” may well be accurate (Policymic 2012). Anxiety has risen
in the Eurozone as the member states are all acutely aware of the consequences of a
Greek default on its enormous debts and the chain reaction effect that could ultimately
lead to a break-up of the EMU (Financial Times 2012).
With its economy teetering on the brink of destruction, what does the future hold for
Greece? Is there any realistic hope of survival, or is it merely a case of the
Government postponing the inevitable? In this report, we will delve into Greece’s
history as a member of the Eurozone, find out where matters began to spiral out of
control and examine some key economic variables that tell us more about the Greek
economic situation including:
 GDP/Growth
 Labour-Unemployment and Structure
 National Debt and the Government Deficit
A Brief History
In order to find the root of the financial chaos that has engulfed Greece it is best to
venture back in time to 1991 and the production of the Maastricht Treaty by the
European council. It was this document that set in motion the creation of a common
currency amongst all the members of the Economic and Monetary Union of the
European Union (EMU)-the euro. Strict requirements, known as the convergence
criteria, were laid down for all prospective members (BBC 2001). Unfortunately,
Greece could not meet the Government deficit at 3% of GDP or the National debt at
60% of GDP stipulations and therefore could not be accepted into the EMU at that
time. In 2000, Greece was finally accepted into the EMU having presented their
accounts that showed them meeting the convergence criteria (BBC 2001).
It emerged in 2004, however, that some of the information provided by Greece was
fabricated and that the Government Deficit had never been as low as 3% since 1999
(The Guardian 2010). That same year, the Olympics returned to its birthplace, Athens,
and left financial shockwaves rippling through the Greek economy as the cost of
running the event amounted to twice what was expected at an enormous €7 billion,
the most expensive Olympics of all time (BBC 2004). There were some benefits to
hosting the Olympics as improved infrastructure has reaped financial benefits in the
intervening years and the high cost also prompted the government to implement
austerity measures, with VAT increased from 18% to 19% and big increases in tax on
cigarettes and alcohol (The Guardian 2005). This led to improvements in Greece’s
balance of payments but ultimately it was short-lived. Old failings such as corruption
and tax evasion continue to plague the state and can be seen as a large explanation of
why Greece consistently experiences periods of prolonged financial turmoil.
In spite of this, Greece has remained in the Eurozone and we are now seeing the
consequences as the country has reached a total national debt amounting to €356bn,

3. 2
an astounding 165% of GDP (IMF Data Mapper 2013). In 2009, Greece’s credit
rating was downgraded to its lowest level ever as Greek debt rose and fears about
their deteriorating circumstances led to widespread fear in the Eurozone. It was
further downgraded to “junk status” in 2010 as Greece received a €30 billion Euro
bailout from the Euro Area. In April 2010, Greece agreed a three year bailout package
valued at €110 billion with both the IMF and the EU (The Financial Times 2011). The
‘troika’ (the combination of the ECB, European Commission and the IMF) is
estimated to have pledge a total of €240 billion rescue loans since 2010 (The
Telegraph 2012).
GDP/Growth
(Data Source: International Monetary Fund Data Mapper 2012)
From the above graph we can see that Greece had an average growth rate of 1.2%
from the period 1981-2012 as shown. This a poor showing over a 30+ year time span,
but it is only when we look at the variance figure of 10.1 for the data that we really
get an indication of how the Greek economy is performing. The variance indicates
that growth fluctuates greatly in the period shown, detailing high levels of volatility
over these three decades.
More relevant to examining Greece’s financial crisis today would be to examine the
average growth from 2000-2012 as this was when Greece was finally accepted in to
the Eurozone. The calculated figure shows average growth at 1.02%, compared with
the growth of 1.92% between 1987-1999 shows that growth has significantly
decreased since Greece joined the Eurozone. Greece is not the only country struggling
with low growth at present within the Eurozone, so how does its growth figures
compare to those of the other member states? The table below will show us:
-8
-6
-4
-2
0
2
4
6
8
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
GDP/Growthin Greece 1980-2012

4. 3
(Data Source: International Monetary Fund Data Mapper 2012)
The graph gives a clear indication of the serious decline in growth experienced by
Greece in comparison to the rest of the Eurozone since 2010. Figures from 2012 show
the Euro average at -0.4%, which when compared to the -6% decrease in GDP In
Greece makes for grim reading for the Greek government but also for the chief policy
makers and leaders of the EU.
Having an annual decline in GDP creates a difficulty for Greece as it loses its capacity
to service its debts, or more accurately the interest on bonds issued to service its debts.
Despite the negativity surrounding GDP growth, the decline in GDP has reduced in
2012 from the 2011 figure of -6.9 % to -6%. Estimates for the IMF also suggest that
GDP will rise continuously and finally reach 3.5% annual growth in 2017 (IMF Data
Mapper 2013). These estimates are optimistic in the extreme of course, and indicate
the targets for economic prosperity in Greece rather than a determined, factual
conclusion that we can expect to occur.
GDP in Greece include three main sectors:
1. Services at 78.3% of GDP
2. Industry at 18% of GDP
3. Agriculture at 3.6% of GDP (Theodora 2013)
The services statistic is indicative of the large public sector in Greece. Meeting debt
obligations and cutting the Government deficit require a readjustment of the structure
of the labour force as the government cannot afford to continue to pay the wages it
currently pays. We will look into the labour market in Greece in more detail in the
next section.
Labour: Unemployment and Strucuture
The breakdown of the labour force is an area of serious concern for the government in
Greece. It has a high volume of public sector workers, and as a condition of the
support received from the EU and the IMF Greece must restructure its workforce.
This will mean a growth in unemployment figures as private sector jobs are not
broadly available, especially in times of financial strain as Greece cuts investment in
-10
-8
-6
-4
-2
0
2
4
6
2008 2009 2010 2011 2012
RealGDPGrowth 2008-2012
Euro area Germany Finland Italy Ireland Greece

5. 4
Enterprise in an attempt to reduce spending. The graph below shows unemployment
figures:
(Data Source: International Monetary Fund Data Mapper 2012)
The graph indicates that unemployment has reached its highest level in Greece since
they joined the Eurozone at 23.8%, over twice the level in the year of entry. The rise
correlates directly with the worldwide financial pressures experienced globally as the
credit crunch began in 2008. An increase in redundancies on account of austerity
measures being introduced in order to decrease public spending is the primary cause
of the rising unemployment rate. This is only likely to continue, as Greece looks to
reduce the size of the public sector further.
The EU and the IMF have set a mandate on Greece to cut 150,000 jobs by 2015 as
part of the deal made when Greece secured approximately €240 billion in total from
bailout deals, with 27,000 jobs to be moved to the “labour mobility scheme” by the
end of the year which is ultimately expected to conclude with more worker
redundancies (Reuters 2013)
Civil unrest is rampant in Greece at the moment as many workers look to vent their
anger at the government. This has ultimately culminated in a series of violent protests
sweeping the country as Greece is forced to propose further budget cuts on a regular
basis in order to secure deals with the IMF and EU to restructure debt and receive
financial aid. The government is unlikely to receive any respite as the country falls
deeper into debt.
The comparison below shows the Eurozone average unemployment rate as well as the
unemployment rate in selected countries including Greece:
0
5
10
15
20
25
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
% Unemployment in Greece 2000-2012

6. 5
(Data Source: International Monetary Fund Data Mapper 2012)
We can see from the chart above that Greece has the second highest unemployment
rate in the Euro area, and has had the fastest average rise in the unemployment rate
per year at 3.9% since 2008. These statistics do not bode well for the future,
especially when taking into account the imposed reductions in employment that
Greece is obligated to implement over the next three years.
As Greece reduces the size of the public sector, it will have to concentrate its efforts
on expanding in the private sector. At present, the labour structure looks like this:
(Data Source: World Bank Databank 2012)
0
5
10
15
20
25
30
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Unemployment Rate (%) in the Eurozone2000-
2012
Austria Germany Greece Ireland
Netherlands Portugal Spain Euro area
0
10
20
30
40
50
60
70
80
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Labour Structure (% of Employment)
Agriculture Industry Services

7. 6
In the past two decades, we can see that the services sector has grown in employment
figures by a huge 20% while agriculture and industry fell by 12% and 8% respectively.
The Greek government must look to shift employment in the opposite direction and
move away from the services sector. This will require investment in tourism and
shipping, two historical pillars of economic trade in Greece. Industry is need of a
major boost in Greece as it is currently running a trade deficit. These are the trade
figures from 2000 and 2011:
(Data Source: World Bank Databank 2012)
An increase in the value and quantity of exports is essential to the survival of Greece.
It cannot continue to let trade be a negative factor on its balance sheet if economic
prosperity is to be a realistic ambition. In 2010, Greece had trade deficit of $17 billion.
Compare that to Ireland, which has a population less than half that of the Greek
population and yet have a trade surplus of $39 billion (World Bank Databank 2012).
From this we can make the assumption that Greece is very inefficient in international
trade and need to rectify this badly.
National Debt (Borrowing/ Lending)
(Data Source: International Monetary Fund Data Mapper 2012)
-50
0
50
100
Exports Imports Net Exports
In Billions $ Balance of Trade in 2000 and 2011
2000 2011
0
20
40
60
80
100
120
140
160
180
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
National Debt 1981-2011 (% of GDP)

8. 7
Debt is the fundamental problem in Greece right now. Every loan agreement,
redundancy imposed, tax increase, budget cut are all measures being taken so that
Greece can service its debt. Debt began to reach severe levels in the early 1990’s, it
reached over 60% of GDP in 1990 for the first time and over 100% of GDP in 1996.
Since breaking 100% of GDP again in 2004 it has remained above that level, and
there has been a dramatic rise in Greece’s debt/GDP ratio since 2008. As the debt
keeps rising the main area of concern is whether Greece will default on that debt
which will lead to real problems for their creditors and quite likely set off a chain
reaction within the Eurozone where other countries such as Italy and Spain refuse to
pay their debts too (The Financial Times 2012).
The government deficit is a factor that contributes greatly to the rise in debt. When
expenditure rises above the level of national income, the country holds a deficit. It is
not uncommon that a nation will have a deficit, and for this reason the EU set down
its criteria in the Maastricht Treaty that a government deficit should not exceed 3%.
Here are the Greek figures since 2004:
(Data Source: OECD 2012)
Since joining the Euro area in 2000, Greece has never had a government deficit as
low as the required 3%. In spite of this, no sanctions have been imposed on the
country, and that is the real root of the problem. In an interview in May 2011, former
ECB Chief Economist Otmar Issing said:
“There should have been better monitoring, better scrutiny and more sanctioning. The
crisis wasn’t unavoidable.” (Bloomberg 2011)
The deficit has shown signs of reduction, but still exists at an unsustainable level, and
remains at three times the required level with no signs of sufficient annual reduction
to suggest that the 3% target is still an achievable goal.
-18 -16 -14 -12 -10 -8 -6 -4 -2 0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Government Deficit 2000-2011 (%of GDP)

9. 8
Conclusion
Understanding the macroeconomic indicators Growth, Unemployment, National Debt,
Government Deficit, Balance of Trade and the Labour Structure give us a clear
picture of the dire economic and financial straits Greece is in today.
Attempting to make Greece’s debts repayable is a tall order, even for the economic
elite in the EU and the IMF who are endeavouring to accomplish that goal.
Circumstances are not helped by corruption, particularly in relation to taxation in
Greece. Tax evasion amounted to close to half the budget deficit in 2008, and 31% in
2009 (The Guardian 2012). Greece has a long history of problems such as this, and
foregoing such a large portion of tax revenue ultimately only serves to make austerity
attempt and bailout deals redundant.
National income is proving to be a massive barrier to Greece servicing its debts, as
the country’s net export figures show that it runs a trade deficit. Combining these two
factors with a rising unemployment rate and a lack of domestic investment paints a
bleak picture for Greece. There is no hope of survival if Greece does not address these
issues and reduce the government deficit.
The monetary authorities in the EU are not portrayed in a good light when reviewing
the case of the Greek debt crisis either. Failure to implement appropriate penalties for
Greece’s dishonesty of its finances when joining the Euro area has led to a lack of real
change in Greece, and is one of the main contributing factors to the future of the
Eurozone being in jeopardy. It is difficult not to be skeptical also of the examination
procedures taken when assessing if Greece was fit to join the Euro area in 2000. How
did the EMU fail to recognize the fraudulent accounts presented to them, when
Eurostat were able to publish an audit four years later showing the figures presented
were false? (Eurostat 2004)
Regarding the future of Greece, it seems in the interest of the Euro Area (particularly
Germany and its banks) that Greece continues to repay its debts and survive within
the Eurozone. Due to the rise in debt to what may be insurmountable levels, however,
it may be a case that the Euro area can neither afford to keep Greece nor to let them
go.
They may not have to worry about that much longer as Greece is almost certainly
heading for a default and a lengthy period of economic recovery, it is really only a
matter of when.

10. 9
References
BBC (2001) A-Z of Europe: Convergence Criteria [online], available:
http://news.bbc.co.uk/2/hi/in_depth/europe/euro-glossary/1216651.stm [accessed 02
Mar 2013]
BBC (2001) Greece joins Eurozone [online], available:
http://news.bbc.co.uk/2/hi/business/1095783.stm [accessed 02 Mar 2013]
BBC (2004) Greece admits fudging euro entry [online], available:
http://news.bbc.co.uk/2/hi/business/4012869.stm [accessed 02 Mar 2013]
Bloomberg (2011) Greece ‘Cheated’ to Join Euro; Sanctions Since Were Too Soft,
Issing Says [online], available: http://www.bloomberg.com/news/2011-05-26/greece-
cheated-to-join-euro-sanctions-since-were-too-soft-issing-says.html [accessed 03 Mar
2013]
Eurostat (2004) Report by Eurostat on the Revision of the Greek Government Deficit
and Debt Figures [online], available:
http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/GREECE/EN/GREECE-
EN.PDF [accessed 03 Mar 2013]
IMF (2012), “Historical Public debt database”, IMF Data Mapper (database).
http://www.imf.org/external/datamapper/index.php (accessed on 03 March 2013)
IMF (2012), “World Economic Outlook (October 2012)”, IMF Data Mapper
(database). http://www.imf.org/external/datamapper/index.php (accessed on 02
March 2013)
OECD (2013), “Country Statistical Profile: Greece 2013”, OECD Statistics (database).
http://www.oecd-ilibrary.org/economics/country-statistical-profile-greece-2013_csp-
grc-table-2013-1-en (accessed on 03 March 2013)
Policymic (2012) Greece is the Sick Man of Europe and Should Never Have Been
Part of the EU [online], available: http://www.policymic.com/articles/8253/greece-is-
the-sick-man-of-europe-and-should-never-have-been-part-of-the-eu [accessed 01
Mar 2013]
Reuters (2013) Cash-strapped Greece dodges 1,900 public sector firings [online],
available: http://uk.reuters.com/article/2013/02/18/uk-greece-bailout-
idUKBRE91H0OQ20130218 [accessed 03 Mar 2013]
The Financial Times (2011) Interactive timeline: Greek debt crisis [online], available:
http://www.ft.com/intl/cms/s/0/003cbb92-4e2d-11df-b48d-
00144feab49a.html#axzz2MaJ2d8Jl [accessed 02 Mar 2013]
The Financial Times (2012) Consequences of a Greek Eurozone exit [online],
available: http://www.ft.com/intl/cms/s/2/0a35504a-0615-11e1-a079-
00144feabdc0.html#axzz2MaJ2d8Jl [accessed 02 Mar 2013]

11. 10
The Guardian (2005) Greece smokers to pay for Olympics [online], available:
http://www.guardian.co.uk/business/2005/mar/30/theeuro.europeanunion [accessed
01 Mar 2013]
The Guardian (2010) Greece debt crisis: timeline [online], available:
http://www.guardian.co.uk/business/2010/may/05/greece-debt-crisis-timeline
[accessed 01 Mar 2013]
The Guardian (2012) Primary Greek tax evaders are the professional classes [online],
available: http://www.guardian.co.uk/world/2012/sep/09/greece-tax-evasion-
professional-classes [accessed 03 Mar 2013]
Theodora (2012) Greece Economy 2012 [online], available:
http://www.theodora.com/wfbcurrent/greece/greece_economy.html [accessed 02 Mar
2013]
The Telegraph (2012) Eurozone reaches deal for third Greek bail-out [online],
available: http://www.telegraph.co.uk/finance/financialcrisis/9706961/Eurozone-
reaches-deal-for-third-Greek-bail-out.html [accessed 03 Mar 2013]
World Bank (2012) “World Development Indicators”, World Bank databank
(database). http://databank.worldbank.org/ddp/home.do?Step=1&id=4 [accessed on
02 Mar 2013]