Greece is one of the most important economies in the world, and that's not because of its size,
where it's just middle of the pack, even within Europe, but rather how it has influenced the
modern global economic landscape in more ways than even the country itself probably realizes.
Global trade, which has become one of the defining characteristics of our modern world,
is overwhelmingly handled by ships from just one country, Greece.
Greece is also at the center of tensions between the most powerful military alliance in history,
and this otherwise unassuming country has contributed, and perhaps challenged,
a lot more than that as well. Of course, today, Greece is as well known for its economic challenges
as it is for its beautiful islands and historic landmarks. The country has been the poster child
of national mismanagement over the past two decades. From its peak in 2008, it was the
epicenter of the Eurozone crisis, as badly thought out plans in this country rippled
across the entire region, causing a decade of stagnation in the world's second largest economic
entity. Now, while Greece is not exclusively responsible for Europe's economic troubles in
the 2010s, it did play a big part, and it certainly felt the brunt of the slowdown.
Before 2008, Greece was one of the fastest growing major economies in the world,
with a GDP per capita that tripled in just 8 years. The country was capitalizing on the
new Eurozone to take advantage of its highly desirable tourist destinations,
natural resources, and shipping infrastructure. It was also building at a rapid rate as money
flowed from the government as well as local and foreign investors who all wanted to carve
out their part of what was predicted to be an ongoing economic miracle.
But of course, it wasn't, and the debt that the country and its people had incurred to grow at
such a rapid rate came back to bite them when the cash dried up after the global financial crisis.
The country was one of the worst hit by this global economic shock, and a lot of the economic
factors that had allowed it to grow so quickly also contributed to its rapid decline, with
economic output halving in the country over just 5 years. Beyond headline economic metrics,
unemployment hit almost 25%, contributing to significant political and social turmoil.
But that might now, after 15 long years, be starting to turn around.
Growing any economy in a sustainable manner is incredibly difficult,
but regrowing an economy that has already been rich is in many ways much harder still.
Despite this, in the first time in over a decade, things are starting to look good for Greece thanks
to a combination of assistance from its peers, stable economic management, and other global
shocks that have strangely worked in its favor. If Greece can regain stable economic growth,
then it will also serve as a great template for other economies suffering from prolonged
economic difficulties. So, what caused the Greek economy's massive boom and bust?
What caused its economic stagnation to last for so long?
And finally, what are the factors that are starting to turn these challenges around?
Once we have done all of that, we can put Greece on the Economics Explained national leaderboard.
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The economy of Greece wouldn't get as much attention as it does if it wasn't for the
rapid growth it experienced in the early 2000s. There are lots of countries in the world that are
doing far worse than Greece by almost every economic metric, but the tragedy and subsequent
intrigue about this particular economy is because for a while it looked like an unlikely success
story. Unfortunately, the development of the Greek economy in the early 2000s was mainly centered
around all of the right industries for all of the wrong reasons. Shipping is one of the core
industries of Greece, since ancient times this region has spread its influence over the oceans
and that has carried through to the modern day. Greece has the largest merchant marine fleet in
the world and only one other country, Japan, even really comes close. Almost a quarter of all global
freight capacity is based in Greece. The country built this lead in the aftermath of the second
world war. At this time Greece had been devastated by occupation and most of its infrastructure lay
in total ruin. To make matters worse, a power vacuum formed after the German forces evacuated
from the country and fighting broke out between greek power blocks. Now of course this period is
incredibly complex and the details are best left to the actual geopolitical experts on our sister
channel context matters, but from a purely economic point of view developing industries within the
country at this time was going to be incredibly difficult because most of the country's resources
were being dedicated to just rebuilding what existed before the war. There was an opportunity
however to develop a national industry that wasn't strictly within the nation itself,
one that wouldn't be at the mercy of crippled infrastructure and political unrest.
An industry that would actually benefit from the conditions of the post-war period and that was of
course shipping. After the war there were thousands of ships that were used to ferry supplies for
military efforts that no longer had any use by the world's navies. These surplus vessels were
purchased by emerging shipping families who had mostly fled the country during the war and had
become established in the USA. Having US dollars made it easier for these families to purchase US
ships, mainly a class of vessel called liberty ships which were the basic cargo ships used by
the allies during the war to ferry supplies across the pacific. To this day liberty ships remain the
most mass-produced ship of all time. At the height of the war US shipyards were building three of
these massive vessels every single day. After the war was over the allied navies no longer needed
these vessels so they were practically given away to surplus buyers based in the USA and even though
the Greek families that had moved to the US during the war were going to use these ships for Greek
shipping companies that was good enough for the US navy so long as they reserved the right to
commandeer them if war broke out again. The details were fascinating but what it all meant
was that Greece was in a perfect position to capitalize on the global trade boom right as
it was getting started at the end of the second world war. The only problem was this industry
kind of sucked. Maritime taxes for ships registered in Greece was very high as were the salaries
demanded by Greek sailors. The liberty ships were also made with a quantity over quality mindset
and they were prone to snapping in half after too many rough crossings of the Atlantic. Of course
with the benefit of hindsight it's clear that Greek shipping companies did figure out a way
around these problems but it's how they did it that says a lot about the nature of the Greek economy
even to this day. Their first step was to phase out the liberty ships for custom-built cargo
transports made by the shipyards in the UK that were desperate for work after the end of the war.
The next step was to ditch the Greek flag registration and sail their ships under the
flag of a country with no taxes on maritime activities. These are known as flags of
convenience because since ships aren't tied to one place it really doesn't matter where they are
registered. For the same reasons they also ditched the Greek crews in favor of whoever would work for
the lowest cost. Another business practice that Greek shipping companies became infamous for
was not being too concerned about what was being shipped or to whom. Even today while
Greece accounts for a massive share of the global shipping fleet it's really a Greek operation in
name only. Most of the ships trade foreign goods under foreign flags between foreign countries
with foreign crews all to make the most profit possible for foreign investors. A lot of Greek
shipping isn't even managed from Greece anymore as operations have moved to countries like the UK,
Singapore and even Norway. Greece's presence in the EU is really the only thing keeping these
ships in any way related to Greece. The industry has massive influence in the country and they've
used that to push favorable trade conditions and considerations for their ships while only
contributing about one percent of economic outputs. Now the story of Greek shipping and how it evolved
with global trade over the past half century is fascinating in its own right, but the way it grew
so large while providing so little real value to the Greek economy is something that is common
amongst not just shipping but most of Greece's major industries. The growth boom of the early
2000s was mostly driven by construction. The adoption of the euro also helped to develop
other industries like tourism and manufacturing. The Greek drachma which the euro replaced was a
highly unstable currency which made planning long-term business deals or even a holiday
surprisingly difficult. The real benefit of the new currency though was that it made borrowing
money from abroad far easier. The economic boom of the early 2000s did about as much real good
for the Greek economy as its shipping industry. On paper it looked very impressive but in reality
most of the benefit was not going to the country itself. Most of the debt taken on was put into
developing infrastructure which could be a good investment only most of this infrastructure was
not going to support long-term sustainable industries like manufacturing services or
even tourism. They were going to support the development of houses for local and foreign
investors to speculate on. In the years between 2000 and 2008 net inflows of foreign direct
investment accounted for as much as two percent of all GDP which means in a sense every year
two percent of the country's total output was being sold to foreign investors. Now again
foreign investment can be a great thing for an economy if it's used to build out industries
that will contribute to employment and value creation in the future. Unfortunately in Greece
most of this money was going straight into buying homes on the coast.
Building a home will increase economic output quite significantly on paper because a home is
a major good being produced. It's also great for employment because building even a basic house
will keep a lot of workers busy for a long time and that's before considering the extra production
that comes from building roads and plumbing systems and electrical connections to service
this new home. The problem with economic growth achieved this way is that once it's built whoever
lives in that home probably won't need a new home for a long time. That home also doesn't
produce anything that can be traded to pay off the ever-expanding debt that Greece was taking
on to fuel this economic bubble. And to make matters worse just like the shipping magnates
people working in these industries were not too keen on paying any taxes. This whole scheme
probably could have kept on going longer than it did but the global financial crisis meant that
the new homes that Greece was busy building and selling to anybody who would buy them were worth
a lot less than they were in the years before and the country found it much harder to keep on
borrowing because most major economies around the world at this time wanted as much money as they
could get on their hands to support their own economies so giving loans to a country like
Greece was low on their priority list. These challenges combined to kick off the eurozone
crisis. The millions of workers that have been employed in the country's building industry were
mostly out of work, the country had to impose austerity to manage its debts and since it had
adopted the euro it couldn't even devalue its own currency to try and make things like tourism
affordable. The euro gave Greece a great opportunity for development but it was just
a tool and like any tool it could be used to do a lot of good or a lot of damage if not managed
correctly. Tragically the country shouldn't have even really been allowed to adopt the euro in the
first place. When the currency was being rolled out new members had strict requirements about
how much foreign debt they were allowed to hold. Last month we explored how this caused Italy to
spend almost half a decade cleaning up their act to get into this club. Greece again took the same
approach as its shipping magnates and just tried to cheat its way around entry requirements into
the euro. If it wasn't for a bit of creative accounting it may not have had the opportunity
to ditch its own currency for another decade. This also meant that the debt problem in Greece
in the lead up to the crisis was a lot worse than the headline figures would suggest.
Either way the decade that followed the initial crash was incredibly rough,
the heightened unemployment caused more drain on overly generous welfare systems which in turn
worsened the government's budget problems. When the country made the obvious decision to lower
spending on these programs and chase up on tax dodges more diligently it caused major social
issues with demonstrations in greek cities making headlines around the world. This also hurt
industries like tourism which remained fairly stagnant in the country over this time despite
the general growth of tourism worldwide. Now raising taxes and lowering spending is normally
the last thing an economy wants to do during bad times because it means that there is less money
circulating around the economy for the few businesses that are left to employ people and
produce value. But in the case of Greece it was a necessary step towards regaining creditworthiness
and as bad as it sounds to say get their people to move into industries that may pay less
but will be more sustainable long term. People working in the construction industry before the
collapse in particular were making incredibly good money by building the houses and infrastructure
fueling the unsustainable boom. It takes time and some fiscal motivation to get workers used
to making a lot of money in an unsustainable way to take up work in a more sustainable industry
where they will be earning less money. But that has now happened. Unemployment in Greece
is still high but it's far lower than it was half a decade ago and it's improving.
The debt burden of the country has been managed and thanks to a series of bailout measures from
international organizations and some debt write downs by private banks combined with
more careful government budgeting the country is now considered creditworthy again. The global
pandemic has also been in many ways a blessing in disguise for Greece. Sure it hurt the economy
from losing tourist revenues and the general slowdown in trade and industry but other countries
in the EU were hurt more and the low interest rates rolled out to combat the impact of the
slowdown also helped Greece get its other problems in order. Greece may take a long time to get back
to the level of economic prosperity it was enjoying in 2007 but that's kind of the point.
Slow and stable economic development is exactly what the country needs and if it can recover with
this more measured approach then its economic success is likely to last a lot longer than it
did in the past. Okay now it's time to put Greece, one of the most infamous economies of the last
decade on the economics explained national leaderboard. Starting as always with size,
Greece currently has a GDP of 219 billion US dollars making it the 54th largest economy in
the world just behind Kazakhstan. That is again predicted to grow quite significantly over the
next few years so hopefully we can give it a better score when we explore this economy in
the future but for now it gets a 6 out of 10. That GDP is spread out over a declining population
of 10.4 million people which means it has a GDP per capita of 20,732 US dollars per year.
That is a significant drop from its all-time high of over 32,000 US dollars in 2008 especially when
accounting for inflation. Even though it's still roughly double the global average it's really
stretching what would typically be considered an advanced economy so Greece gets a 6 out of 10.
Stability and confidence is obviously terrible but it's also all relative.
By European standards the country has been plagued by reckless borrowing,
political instability and general economic mismanagement which has got a lot of global
attention because it's caused a lot of harm to its eurozone peers. Even still by global standards
there are countries that inspire far less confidence because they are far less stable.
Greece gets a 5 out of 10 which is not great but is fair considering that it's still a democracy
still using the world's second most recognized currency and has even made progress towards
resolving major issues that caused this instability in the first place.
Growth is simply a 0 out of 10 because the country has gone backwards over the last decade for
all of the reasons that we've explored in this video.
Industry might be the most interesting component here.
Greece does technically have the world lead in one of the most important global industries,
but given the nature of this industry and the influence that it's had over the country,
not much of the benefits flow back into the domestic economy.
Even still with the addition of tourism, high-end agriculture and a healthy supply
of natural resources it still gets a very strong 7 out of 10.
Altogether that gives Greece an average score of 4.8 out of 10 which is obviously
not great but might still be higher than most people would expect which
is a fantastic demonstration of all economic challenges being relative.
Now there were a lot of similarities between the Greek and Italian economy
that we didn't want to repeat here since we made an entire video about Italy's economic
challenges just last month which you should be able to click to on your screen now.
Thanks for watching mate, bye.