Premier Costas Simitis is given much of the credit for Greece's economic turnaround. Greek Government photo

Confounding critics, on January 1 this year Greece officially entered the Euro zone, the group of European Union countries which share a common currency, the Euro. The Greek drachma will soon be history, as will Greece's identity as a second-class member of the EU.

"Over the last decade, the macroeconomic fundamentals of the Greek economy have improved remarkably," says the 2001 report of the Organization of Economic Cooperation and Development.

"In the first half of the 1990s, growth had been among the lowest in the OECD and living standards fell relative to the OECD average," the report continues. "Activity was hampered by rampant inflation, fed by the largest government deficit in the OECD area and by serious structural problems in many sectors of the economy."

Sunset at the Temple of Poseidon at Sounion, located at the tip of Attica. Greece is one of the world's great tourist destinations. Thomas Cromwell photo

The report goes on: "With policy makers setting their sights on entering the monetary union, a substantial policy effort has been sustained over several years and the large macroeconomic imbalances have been brought under control." "This has boosted the overall performance of the economy and the goal of joining the European Economic and Monetary Union (EMU) as of January 2001 has been achieved."

Among the positive macroeconomic developments: inflation is down from double-digit levels to three percent, government deficits are down to 0.9 percent of GDP, with a surplus of 0.5 percent forecast for this year, and a GDP growth rate of 4.1 percent for 2000 with a rate of around five percent forecast for the next three years.

"Growth in Greece over the next few years will be very robust," says Vassilis Rapanos, chairman of the Council of Economic Advisors, which reports to the minister of national economy.

Continued strong growth, which is ahead of EU averages, is driven by public and private investment, a good bit of it now related to preparations for the Athens Olympics in 2004.

Among the structural changes underway in Greece, privatization of public sector companies, including banks, the telephone monopoly, OTE, and the national carrier Olympic Airways, have been important, as has the shift of workers from agriculture to the service sector.

But this has not taken place without a cost: unemployment has risen to 11.5 percent, but, Rapanos says, it is expected to decline to 7.5 percent by 2004 as the economy expands for the Games.

However, "We still have many weaknesses," Rapanos says, mentioning at the top of his list the still sluggish Greek bureaucracy that has made it a difficult place to conduct business. Efforts are being made to streamline company registration procedures, reducing the time needed to register a company from four or five months to one.

The other major weakness is government debt, which in 2000 was 104 percent of GDP, although it is coming down slowly. Greece also has been spending five percent of GDP on defense, with the threat of Turkey in mind. This is a huge burden when you compare it to the EU average of two percent. In March this year, encouraged by a major economic crisis in Turkey, Prime Minister Costas Simitis decided to trim defense spending to 4.3 percent of GDP, delaying a $1.7 billion purchase of fourth generation Eurofighters and trimming an additional $1 billion from defense spending.

The money thus saved is to be used to assure preparations for the 2004 Games and provide a security net to Greece's poorest. One seventh of the country's 11 million population lives below the poverty line.

Tax reform and social security reorganization are two major tasks the present government is preparing to tackle, although the social security changes have already raised an outcry from unions and prompted two massive general strikes this year. There will also be reform in government spending, to cut out redundancies and other types of waste and to ensure value for money. In the past investors were deterred by an overall instability in the Greek economy, exchange rate risks and extremely high interest rates (often over 20 percent). Now Greece is firmly part of the EU and EMU, with exchange rates and monetary policy set by the EU and interest rates on a par with the rest of the EU.

Much of the credit for Greece's remarkable economic success over the past five years belongs with the prime minister, a pragmatic economist who in 1996 set out to bring Greece up to EU speed as his primary goal for government. "Simitis deserves a lot of the credit. He showed determination," says Rapanos. "He was determined to stick to a pro-EMU policy despite the political costs." He has been swimming against the current of deeply ingrained practice in Greek administration, from stuffing government offices with political appointees after an election to postponing action on agreed programs, often for years, out of political expediency.

The chief economic advisor to the prime minister, Professor Gikas A. Hardouvelis, says Simitis is "well-informed" and a "hands-on" leader who follows up with ministers with written notes to make sure that they implement decisions promptly.

Vassilis Rapanos, chairman of the Council of Economic Advisors world's great tourist destinations. Thomas Cromwell photo

He tells of the premier insisting that deadlines be met well ahead of time. In a larger context, Simitis has introduced into Greek politics the notion that you have to explain choices to the people rather than promising everything, but then not being able to deliver anything.

This populist approach to leadership was typical of both the socialist Pasok party under Andreas Papandreou, and the conservative New Democracy party under Constantine Karamanlis and Constantine Mitsotakis as they vied for votes after the restoration of democracy in 1974.

Hardouvelis, who is an economist educated at Harvard and Berkeley who taught at Columbia and Rutgers before returning to Greece in 1994, says that the major parties in Greece have converged on policy issues and that the vast majority of the Greek electorate are now mature in their thinking, accepting Greece's modern identity as a member of the EU and recognizing that there have to be some sacrifices in particular areas for the national benefit to be harvested. "Greeks are now Europeans," he says, summing up the change in consciousness that has taken place in his country.

Explaining the pro-business policies of the socialist premier, he says Simitis "is a socialist who realizes that without a strong economy one cannot achieve an increase in welfare and a reduction in poverty or carry political weight in unified Europe."

Clearly, the standard of living has steadily risen in recent years and Greece hopes it will reach 80 percent of the EU average soon after 2004 and match the average after 2010.

Hardouvelis is confident that Greece will be ready for the Games in 2004. He says "we are at the same or a better level of preparations as Sydney was at this time."

He also points out that entry to the EMU has committed Greece and Greeks to expand and deepen their participation in Europe, contradicting critics who had said Greece was only going through the motions of economic reform to reap the benefits of the EMU.

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