An Evaluation of the Economic Crisis in Greece

Background

In 2014, Greece entered its sixth consecutive year of the recession that has financially crippled the country since 2008, according to EUROSTAT statistics. During this period Greece has experienced a decrease of 25% in its Gross Domestic Product (GDP) driving 1.5 million Greeks to unemployment. At its peak, unemployment was at 28% of the Greek population (October 2013) and up to 50% of people under the age of 25 years old were out of work.

However, statistics published by ELSTAT in November 2014 show GDP growth in the first three quarters of 2014 (See The Economist Chart, Top Right).

Financial and political analysts seem to agree that this upturn in the economy was mainly due to the efforts of the Tourism industry which experienced an increase in arrivals, bringing the total number of tourists that entered Greece in 2014 up to 23 million (15% increase from 2013), and the growth of internal consumption. They also agree that, although the Greek Crisis was not as deep as the USA's Great Depression, it has lasted longer and is likely to take Greece more years to recover from.

Threats

However, a number of serious internal and external threats to the Greek economy appear to be present.

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External threats can be mainly grouped into the prospects of the financial performance of the Eurozone which have deteriorated significantly in the last few months. The European Central Bank (ECB) has lowered its GDP growth projections in the Eurozone to 0.8% this year and 1.1% the next year, down from earlier forecasts of 1.3% and 1.5% respectively. This will greatly affect the economy of Greece.

Additionally, the situation in Russia and the Ukraine due to the Crimean Crisis and the depreciation of the Russian Rouble dim the prospects of Russian tourism and related investments in Greece, as well as exports of Greek agricultural products to these countries. However, the biggest risk to Greece's recovery is internal : the political instability of the country.

By March 2014 the Greek parliament must agree on a new President of the Hellenic Republic for which a majority of 180 out of 300 (60%) votes by Members of Parliament (MPs) is necessary according to the Greek Constitution (Syntagma). The Greek coalition Government of Nea Dimokratia and PASOK presently has 154 MPs and it seems unlikely that it will be able to find the necessary additional votes required to elect any candidate.

The main opposition parties, namely Syriza (Coalition of the Radical Left), KKE (Communist Party of Greece) and Anexartitoi Ellines (Independent Greeks), have stated that they intend to use this occasion to push the country into new Parliamentary elections by voting against any proposed candidate. New Parliamentary elections are thus likely to occur in March or April 2015. Recent Gallup polls show that the left wing opposition party of Syriza is ahead of the centre-right party of Nea Dimokratia and that votes for the remaining political parties are greatly fragmented. Therefore, it is likely that no party on its own will be able to achieve a majority of 151 MPs in the potential upcoming elections in order to form a government. Thus, there could be a repeat election mirroring the events of May and June 2012. If this were to occur, it is possible that a period of extensive financial instability will ensue.

This could result in another bank run situation during which the banks' customers would withdraw their deposits simultaneously due to concerns about the financial situation, resulting in a lack of funds for the banks and a possible inability to return the customers' money. In such a case, the Grexit scenario of 2012 (Exit of Greece from the Eurozone) may resurface, affecting foreign investments in the country, the stock market, and tourism bookings for 2015, and possibly driving the economy back into a recession. Therefore, it is imperative that the Greek political system finds a way to protect the country from such a development. However, petty politics at present dominate the political landscape of Greece and such an agreement is nowhere to be seen.

Conclusion

In conclusion, it is clear that political instability both in Greece and abroad may have a considerable negative impact on the country's road to recovery. Inter-party clarity and cooperation is required now that the Greek people need it the most.