Greece

Greece achieved independence from the Ottoman Empire in 1829. During the second half of the 19th century and the first half of the 20th century, it gradually added neighboring islands and territories, most with Greek-speaking populations. In World War II, Greece was first invaded by Italy (1940) and subsequently occupied by Germany (1941-44); fighting endured in a protracted civil war between supporters of the king and Communist rebels. Following the latter's defeat in 1949, Greece joined NATO in 1952. In 1967, a group of military officers seized power, establishing a military dictatorship that suspended many political liberties and forced the king to flee the country. In 1974, democratic elections and a referendum created a parliamentary republic and abolished the monarchy. In 1981, Greece joined the EC (now the EU); it became the 12th member of the European Economic and Monetary Union in 2001. In 2010, the prospect of a Greek default on its euro-denominated debt created severe strains within the EMU and raised the question of whether a member country might voluntarily leave the common currency or be removed.
==Ancient Greece==
In Athens, the constant shortages of grain and a need to import it from overseas caused its price to rise and fall according to supply. An army of grain inspectors, called Sitophylakes, was appointed to set the price of grain. "...to see to it first that the grain was sold in the market at a just price, that the millers sold meal in proportion to the price of barley, that the bakers sold bread in proportion to the price of wheat, that the bread had the weight they had fixed." When this and other legislative measures failed, the state appointed officials called sitonai, corn-buyers, who sought supplies wherever they could find them, raised public subscriptions for the necessary funds, introduced price reductions arid rationing. Despite the often used penalty of death for merchants and bureaucrats alike, the price of grain continued to rise when supplies were short and continued to fall when supply was plentiful.Robert L. Schuettinger and Eamonn F. Butler. "Forty Centuries of Wage and Price Controls", Chapter 1 - The Ancient World, p. 15-17, referenced 2010-09-25.
Solon, on taking office in Athens in 594 BC, instituted a partial debasement of the currency (there is some disagreement on this matter). For the next four centuries the drachma had an almost constant silver content (67 grains of fine silver until Alexander, 65 grains after) and became the standard coin of trade in Greece and in much of Asia and Europe. Even after the Roman conquest of Greece in roughly the 2nd century BC, the drachma continued to be minted and widely used.Encyclopedia Britannica. "Money", referenced 2010-09-25.
The Greek city-states were largely independent, though there was an awareness of Hellenic identity. Each city-state had its own coinage. There was an active trade in these currencies, and probably few laws limiting citizens of a given city-state to the use of their own money.James Rolph Edwards. "Monopoly and Competition in Money" (pdf), The Journal of Libertarian Studies Vol.IV, No.1, Winter 1980. Referenced 2010-06-26. Debasement of the currency either for state profit or for the accommodation of changes in the ratio was rare in Greek history (with the notable exception of Dionysius of SyracuseFrank Chodorov. "Tyranny and Finance", from Mises Daily, December 30, 2009; excerpted from chapter 9 of The Rise and Fall of Society. Referenced 2010-09-19.Jesse Bullock Charles. "Economic Essays (1936)", p. 502-519. "Having borrowed money from citizens of Syracuse and being pressed for repayment, he ordered all the coin in the city to be brought to him, under penalty of death. After taking up the collection, he restamped the coins, giving to each drachma the value of two drachmae, so that he was enabled to pay back both the original loan and the money he had ordered brought to the mint." Referenced 2010-09-19.). On the contrary, there are cases of actually raising the standard of the coinage for the greater prestige which a coinage of high intrinsic value seemed to offer. In the sixth century B.C., the Euboean unit was increased in a number of cities by about five grains, in emulation of an increase introduced by Pisistratus in Athens.Elgin Groseclose. "Money And Man - A Survey of Monetary Experience" (pdf), Bimetallism and the Rise of the Gold Standard, p.146-147. Referenced 2010-06-25.
Banking, bank fraud and even banking crises were very well known. After the revolt against Mithridates, a serious banking crisis in Ephesus followed. The banking industry received here its first express, historically-documented privilege, which established a ten-year deferment on the return of deposits.Jesús Huerta de Soto. "Money, Bank Credit, and Economic Cycles" (pdf). 2. Historical Violations of the Legal Principles Governing the Monetary Irregular-Deposit Contract, p. 41-51, referenced 2009-10-29.
==Modern Greece==
===Corruption===
Greece is notorious for its high corruption. It is one of the most problematic OECD countries.Stavros Katsios, Ionian University. "The Shadow Economy and Corruption in Greece" (pdf), South-Eastern Europe Journal of Economics 1 (2006). "According to these estimates two southern European countries, Greece and Italy, have an underground economy almost one third as large as the officially measured GNP, followed by Spain, Portugal and Belgium, with a shadow economy between 20-24 % of official GNP. The Scandinavian countries also have an unofficial economy between 18-20% of GNP, which is attributed mainly to the high fiscal burden. "Central" European countries like Ireland, the Netherlands, France, Germany and Great Britain have a smaller underground economy (between 13-16% of GNP) probably due to a lower fiscal burden and moderate regulatory restrictions. The lower underground economies are estimated to exist in countries with relatively low public sectors (Japan, the United States and Switzerland), and comparatively high tax morale (United States, Switzerland)." Referenced 2010-09-24.
According to Transparency International, in 2008, more than 13% of Greeks resorted to giving "fakelakia" (or little envelopes), paying an estimated €750 million in bribes to public and private officials, €110 million more than the previous year. The amount equated to an average of 1,450 euros [US $1,850] in bribes per family. The majority of bribes, 60 percent of the total, are "related to doctor's fees, tax evasion and building permits."Lydie Gerboin, Transparency International. "Bribes in Greece", Transparency Watch, February 2009. Referenced 2010-09-24.
===Financial crisis===
For years, the Greek government has demonstrated rather thriftless spending behavior. This was exacerbated when Greece started to pay lower interest rates on government bonds by virtue of having entered the European Economic and Monetary Union.
Greece's interest rates were subsidized due to an implicit guarantee from the strong members of the eurozone, who were expected to support weaker members in times of trouble. During the first years of the euro, interest rates on Greek bonds were thus reduced; they approached German bond yields. Greece spent wildly but paid interest rates like a much more conservative country. Meanwhile, the Greek economy and voting public adapted to government spending subsidized by low interest rates.
When the global financial crisis broke out, deficits of both strong and weak eurozone countries widened. Stronger countries had their own problems and people started to doubt that they would support the weaker countries in an emergency. Furthermore, the difference between the interest rate that Greece had to pay on its bonds and the rate Germany had to pay increased.Philipp Bagus. "The Bailout of Greece and the End of the Euro", Mises Daily, February 11, 2010. Referenced 2010-09-26.
In October 2009, the Greek government deficit for 2008 was revised from 5.0% of GDP (the ratio reported by Greece, and published and validated by Eurostat in April 2009) to 7.7% of GDP. At the same time, the Greek authorities also revised the planned deficit ratio for 2009 from 3.7% of GDP (the figure reported in spring) to 12.5% of GDP, reflecting a number of factors (the impact of the economic crisis, budgetary slippages in an electoral year and accounting decisions).European Comission. Report on Greek Government Deficit and Debt Statistics (pdf), European Comission, January 2010. Referenced 2010-09-24. The deficit was later revised to 13.6%, with a possible revision of up to 14%.Eurostat Press Office. "Euro area and EU27 government deficit at 6.3% and 6.8% of GDP respectively" (pdf), Provision of deficit and debt data for 2009 - first notification, 55/2010 - 22 April 2010. Referenced 2010-09-26.
By the beginning of 2010, a discussion about the bailout of Greece has begun. However, Greece was already being bailed out by the rest of the union. The European Central Bank (ECB) accepted Greek government bonds as collateral for their lending operations. European banks could buy Greek government bonds (paying a premium in comparison to German bonds of more than 3%) and use these bonds to get a loan from the ECB at 1% interest — a highly profitable deal.
The banks would buy the Greek bonds because they knew that the ECB would accept these bonds as collateral for new loans (which depended on their assessment by rating agencies). As the interest rate paid to the ECB was lower than the interest received from Greece, there was a demand for these Greek bonds. Without the acceptance of Greek bonds by the ECB as collateral for its loans, Greece would have to pay much higher interest rates. Greece was, therefore, already being bailed out. The other countries of the eurozone would pay the bill. New euros were, effectively, created by the ECB accepting Greek government bonds as collateral. Greek debts were monetized, and the Greek government would spend the money it received from the bonds to secure support among its population.
Prices started to rise in Greece, and the money would flow to other countries, bidding up prices throughout the eurozone. Abroad, people would see their buying costs rising faster than their incomes - a redistribution in favor of Greece. The Greek government was being bailed out by a constant transfer of purchasing power from the rest of Europe.
In the Eurosystem, each government has an incentive to accumulate higher deficits than the rest of the eurozone, because its costs can be externalized. Consequently, there is an inbuilt tendency toward continual losses in purchasing power. This overexploitation may finally result in the collapse of the euro.
To avoid this, the European Monetary Union is regulated with the Stability and Growth Pact, and it requires that each country's annual budget deficit is below 3% and its gross public debt not higher than 60% of its GDP. Sanctions were defined to enforce these rules.
Yet the sanctions have never been enacted and the pact is generally ignored. For 2010, all but one member state is expected to have a budget deficit higher than 3%; the general European debt ratio is 88%. Germany, the main country that urged these requirements, was among the first to refuse to fulfill them.
European Central Bank President Jean-Claude Trichet pledged in January, 2010, that it would not loosen lending requirements "for the sake of any particular country." However, credit-rating downgrades threatened to render Greek government bonds ineligible as collateral and exacerbate the crisis.Simon Kennedy. "Trichet May Need to Rewrite ECB Rules to Tame Greek Threat", Bloomberg, May 2010. Referenced 2010-09-24.
Already in March 2010, ECB lowered its threshold for accepting debt as collateral.Krista Hughes, Marc Jones and Sakari Suoninen, editing by Mike Peacock. "ANALYSIS - ECB collateral rule major boon for Greece", Reuters, March 25, 2010. Referenced 2010-09-26. At the end of April, 2010, Standard & Poor’s cut Greece’s sovereign rating to junk status, below the minimum BBB- required by the ECB from at least one major rating company.
On May 3rd 2010, the European Central Bank has suspended the minimum credit rating threshold in the requirements for the Eurosystem’s credit operations in the case of marketable debt instruments issued or guaranteed by the Greek government.European Central Bank. "3 May 2010 - ECB announces change in eligibility of debt instruments issued or guaranteed by the Greek government" , Press Release, 3 May 2010. Referenced 2010-09-24. That was a day after euro-zone countries and the International Monetary Fund agreed to extend an unprecedented €110 billion ($147 billion) rescue package to the debt-laden country.Geoffrey T. Smith. "ECB Suspends Rating Limits on Greek Debt", The Wall Street Journal, May 3, 2010. Referenced 2010-09-24.
==Economical characteristics==
* Currency: Euro (ISO code: EUR)
* Central bank discount rate: 3% (31 December 2008)
* Commercial banks lending rate: 8.65% (31 December 2008)
* is part of the Eurozone
===Statistics===
Statistic / Year 	1999 	2000 	2001 	2002 	2003 	2004 	2005 	2006 	2007 	2008
GDP (million USD)World Bank. "Greece: GDP", from World Bank Data. Referenced 2010-09-21. 	134 408	125 558	131 032	147 388	193 465	230 757	245 797	267 479	312 302	355 876
Govt. debt (% of GDP)World Bank. "Greece: government debt", from World Bank Data. Referenced 2010-09-21. 	108.473	123.547	126.354	127.172	123.441	126.201	125.440	117.994	114.100	
Govt. revenue (% of GDP)World Bank. "Greece: government revenue", from World Bank Data. Referenced 2010-09-21. 	39.660 	41.549 	39.478 	39.058 	38.007 	36.773 	36.885 	37.981 	39.048 	
Govt. expenses (% of GDP)World Bank. "Greece: government expenses", from World Bank Data. Referenced 2010-09-21.	40.532 	44.196 	43.537 	42.821 	42.215 	42.566 	41.382 	40.272 	41.808 	
Debt to revenue (years) 	2.735 	2.973 	3.201 	3.256 	3.248 	3.432 	3.401 	3.107 	2.922 	
==References==
Note: statistical data was rounded. Different sources may use different methodologies for their estimates. Debt to revenue is calculated by dividing the two variables from their original ('unrounded') values. It represents how long it would a government take to repay its entire debt if it used its whole revenue for this purpose.
==External links==
* Greece on Wikipedia
* Central bank of Greece
* BBC country profile
* Europe's Web of Debt by Bill Marsh, May 2010
* Economic Thought in Ancient Greece by Jesus Huerta de Soto, September 2010
* Greece defies Europe as EMU crisis turns deadly serious by Ambrose Evans-Pritchard, December 2009
* STEYN: Our own Greek tragedy by Mark Steyn, February 2010, comparing the economic situation in the US and Greece
* In Greece’s Crisis, Fed Studies Wall St.’s Activities by Nelson D. Schwartz and Sewell Chan, February 2010
* Can Corruption Adversely Affect Public Finances in Industrialized Countries? by Daniel Kaufmann, April 2010
* Panicky Greeks Paying Over $1,700 Per Ounce For Physical Gold by Patrick A. Heller, May 2010
* I predict a riot by Anita Acavalos, May 2010
* Greece starts putting island land up for sale to save economy by Elena Moya, June 2010
* Beware of Greeks Bearing Bonds by Michael Lewis, October 2010
Category:Countries