Economic Survey of Greece 2005

 

Published on 7 July 2005

Executive summary

An Economic Survey is published every 1½-2 years for each OECD country. Read more about how Surveys are prepared

The OECD assessment and recommendations on the main economic challenges faced by Italy are available by clicking on each chapter heading below. Chapter 1 identifies the challenges for which the subsequent chapters provide in-depth analysis and policy recommendations.

Chapter 1. Key challenges in the short and medium term
In terms of real GDP growth, the Greek economy has performed very well in recent years and has weathered the international slowdown in activity better than most OECD countries. However, in part this has been achieved at the cost of a sharply widening fiscal deficit to very high levels and high and rising public indebtedness. Hence, a major challenge of economic policy will be to rein in government deficits to meet European obligations and to prepare for the spending pressures that will start emerging after 2015  arising from an ageing population and an actuarially unsound and largely unreformed public pension system. The growing cost of the public health system will also add to the pressures on the government budget. Further policy challenges arise from the government's objective to narrow the gap in living standards between Greece and the European Union, which had widened from the late 1970s to the mid-1990s, but has narrowed since. Eliminating the remaining substantial gap in per-capita incomes requires: i) mobilising the existing large reserves of labour inputs through comprehensive labour market reforms, including the education and training system; ii) keeping productivity growth at a high level over a long period, mainly  through the removal of the still widespread government control in the economic process and the establishment of a competition culture in product markets; iii) and preserving macroeconomic stability while improving international competitiveness through eliminating the persisting inflation differential with the euro area.

Chapter 2. The fiscal challenges
A recent fiscal audit revealed that the true public debt and deficit positions were considerably worse than previously thought.  The latest Stability and Growth Programme envisages a major reduction of the general government deficit from 6% in 2004 to below 3% of GDP in 2006. The public debt remains high, at around 110% of GDP. The objective is to constrain primary expenditure -- through spending prioritisation -- and limit tax evasion, making room for lower taxes and enhanced spending in growth-promoting areas. There is also a need to enhance administrative efficiency and reform the health care system. Tax reform should aim at further simplification, reducing distortions, augmenting equity and reducing administrative and compliance costs. Another challenge facing Greece as from the next decade is a large and steady increase in spending on old-age pensions. This will require a major overhaul of the public pension system to make it  financially sustainable without compromising the income adequacy of the elderly or reducing the production capacity of the economy.

Chapter 3Raising productivity
This chapter looks at structural policies which would improve Greece's long term productivity performance and help speed economic and social convergence with European Union member countries. It focuses on a number of key areas which are particularly important for rapid productivity growth as they offer substantial scope for catching up with international best practice. These areas are: competition policy reform; fostering a knowledge-based economy; the liberalisation of product markets, in particular the energy, telecommunication and transport sectors; policies to foster entrepreneurship; and the implementation of a better corporate governance regime.

Coming soon ECO Working Paper 452 Raising Greece's potential output growth

Chapter 4. Raising labour force participation and employment rates
This chapter discusses policies for raising labour force participation and employment rates. These target: the flexibility of the wage system; non-wage labour costs; employment protection provisions; labour mobility; active labour market policies; and the stock of human capital.

Chapter 5. The economic impact of migration
Migration has changed from large outflows for several decades after the Second World War to large inflows since 1990. Outflows reflected both Greece's adjustment from a rural economy to an urban one, and also significant political influences. Many emigrants returned later. The inflow of immigrants, mostly illegal,  during the 1990s was large, possibly raising the share of foreigners in the population to over 10% and increasing the labour force by between 5 and 10%. The combination of a substantial informal sector and rigidities in the formal labour market allowed illegal immigrants to find jobs in large numbers despite high levels of  structural unemployment.  Illegal immigration may have allowed some Greeks to move to higher level jobs, and increased output and profitability in a number of sectors. These economic benefits are greater the less the authorities enforce penalties on employers of illegal immigrants, penalties which in principle are quite severe but which in practice seem largely ignored.

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A printer-friendly Policy Brief (pdf format) can also be downloaded. It contains the OECD assessment and recommendations, but not all of the charts included on the above pages.

To access the full version of the OECD Economic Survey of Greece 2005:

  • Readers at subscribing institutions can go to SourceOECD, our online library.
  • Non-subscribers can purchase the PDF e-book and/or printed book at our Online Bookshop.
  • Government officials can go to  OLISnet's Publication Locator.
  • Accredited journalists can go to their password-protected website .

For further information please contact the Greece Desk at the OECD Economics Department at webmaster@oecd.org. The OECD Secretariat’s report was prepared for the Committee by Helmut Ziegelschmidt, Vassiliki Koutsogeorgopoulou, Paul O’Brien and Boris Cournede under the supervision of Nick Vanston.

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