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Greece, Economy

Greek economy, EU grants, underground economy, European partners, Greek government

Until the 1950s, agriculture dominated the Greek economy, with subsistence farming predominating in many areas. Throughout the first half of the 20th century, Greece drew most of its income from the export of a few agricultural products, principally tobacco and dried fruit; from its shipping industry; and from money sent home by Greeks living abroad. Greece became increasingly industrialized in the period following World War II, benefiting from government policies that encouraged growth, along with foreign aid and investment. Greece’s most striking economic development of the postwar period has been its emergence as a major tourist destination. Greece became a full member of the European Community (now the European Union, or EU) in 1981. The country engages in free trade with its European partners and also benefits from EU grants and subsidies. Still, Greece’s economy remains one of the least developed in the EU.

The Greek government has traditionally been a major employer, both directly, through the large public sector—which includes state-owned banks, public utilities, schools, and mass transit—and indirectly, through businesses controlled by state-owned banks. Economic activity is also conducted to a significant degree by the self-employed and by small family-run businesses. This characteristic has limited the growth of labor unions outside the public sector.

Greece’s gross domestic product (GDP) in 2000 was $113 billion, which amounted to $10,670 per capita. The GDP understates Greece’s prosperity, because an estimated 40 percent of all economic activity takes place in a black market outside the tax and social security systems. The size of this underground economy is an obstacle to economic modernization, as black-market merchants rarely make long-term improvements to their businesses or try to comply with new regulations. Another obstacle is the large size of the public sector. Public expenditure constitutes one-third of the GDP. In the 1990s attempts were made to reduce the size of the public sector through privatization. These efforts were only partially successful, however, and the government still controls important areas of the economy. The efforts to reduce the government sector have met with severe opposition from powerful public-sector trade unions.

In 1996 the government undertook efforts to qualify Greece to share a proposed single European currency, the euro, with other members of the EU. These efforts necessitated tough and unpopular measures to reduce Greece’s traditionally high rate of inflation and to increase its tax revenues. Greece’s inflation and deficits were still too high for the country to qualify in 1998 when the EU chose the participant countries, and so Greece could not adopt the euro when it was launched in January 1999. However, in 2000 Greece successfully met the qualifying criteria and was invited to join the single currency. Greece officially adopted the euro in January 2001.

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