The Idea of a Greek Economic Recovery Is a Greek Myth

Ever since the Great Recession, the European Union has dealt with much pessimism and economic stagnation. One country that has received more than its fair share of negative press is Greece. Greece is a country in southeastern Europe that racked up a large amount of government debt because of fiscal irresponsibility. Being part of the European Union, the fiscal disarray of Greece has always had the rest of the Eurozone worry about a contagion effect throughout Europe. Listening to some recent news about the Greek sovereign market debt and the improvement of other economic indicators, there are some, including the European Commission, that postulate the possibility of a Greek recovery. I have to say that the state of the Greek economy is in a better state than it was in 2008. It was truly a basket case of an economy back then. Even a couple of years ago, I thought that the Greek government should exit the Euro Zone and return to the drachma. However, I still have to wonder just how well the Greek economy is doing.

I took a look at some economic analyses to help me answer the question, including analyses from the International Monetary Fund, the Greek-based Foundation for Economic and Industrial Research, and Price Waterhouse Coopers. Although there is a lot I can cover, and there's no way I can realistically cover everything, let's start with the good news coming out of Greece. The unemployment rate is finally starting to decrease, as well as government bond yields, the latter of which were above 10 percent up until very recently. Not only has Greece reached the point of positive GDP growth once more, but it went from running current account deficit [in 2009] to running an account surplus (IMF, p. 5), which is impressive. Exports are also continued to grow, which is good for an economy that looked like it was only heading in a downward direction.

In spite of some of this good macroeconomic news, there are still a good number of issues going on in Greece that make me hesitate to use the word "recovery" to describe Greece. Greece is still not a good investment, partially because it is relying heavily on their tourist sector (FEIR, p. 15; IMF, p. 15). It has an exceptionally high number of non-performing loans. The bond yield in Greece, whether that of government or private-sector bonds, is roughly five percentage points higher than any other European country, which means any investment in Greece must promise an extra five percent in returns. This gap creates a major issue because foreign countries are hesitant to invest in the Greek economy. What's more is that the decrease in yields is not due to Greek reform, but a general trend towards a reduction in global rates. Even the OECD, which is by no means a free-market organization, is pointing out the issues of Greek bureaucracy and red tape. The OECD recently identified 555 problematic regulations that make it nigh impossible for Greece to be able to compete in the foreign marketplace. Another study by the OECD highlights administrative burdens in various sectors.

As economist Yanis Varoufakis illustrates in his recent economic brief on the topic, "Greece is a failed social economy." Greece is ignoring some of the most basic structural reforms required in order to truly pull itself out of this debacle. In spite of some improvements in the Greek economy, the idea of a Greek recovery is about as mythical as Zeus and Hera.