Greece, PIGS and the Economic Crisis

GREECE AND THE ECONOMIC CRISIS

The economic crisis is certainly affecting Greece, and the country is lumped in with Portugal, Italy and Spain as one of the Eurozone’s PIGS. Certainly, things are looking bleak as the seemingly endless economic crisis hits this corner of the Mediterranean. As 2009 unfolds, and the monsters hidden under Wall Street’s bed come out to feed, economists and analysts are unable to build a coherent picture of the sorry financial morass.

Greece is not immune from the downturn, but the country’s finances are not quite as bad as portrayed by the media, and the country seems to be treading water. There are some serious problems, but the outlook is no worse than the rest of the world.

THE BURDEN OF THE EURO

Certainly, the transition into the Eurozone did not go completely as planned. The Greek people, over the past few years, have seen a steady rise in the cost of living, whilst incomes have not increased. Combined with a bloated and inefficient civil service, and excessive public spending, the short-term pain seems set to continue. Standard and Poor’s have downgraded the creditworthiness of Greece’s debts. In the medium to long term, there are a few glimpses of hope, although this largely depends upon the reaction of the government and the wider economic outlook.

Despite the bad press, the Greek economy is not a complete basket case and, according to EU Commissioner Joaquin Almunia, is not in any immediate danger. Whilst the budget deficit is an area of concern and needs to be controlled, the economy is not yet in recession, unlike the rest of the Eurozone. In fact, according to the UK Office of National Statistics, the UK is in far worse financial straits than Greece and carries a much higher debt burden, mainly caused by propping up major financial institutions. Although Greece’s economic growth has slowed, it is predicted to remain positive, at around 0.5%, down from 3.1% in 2008.

On the plus side, Greece never had an over-inflated property market, and Greek banks were always conservative in giving out mortgages and loans. The banks were sheltered from the very worst toxic mortgages, and Government support has been minimal compared to the US and UK. The only questionable investment made by Greek banks was in Eastern Europe, so they have suffered from some fallout.

WAIT AND SEE

As far as the average Greek is concerned, the pace of life had slowed a little, as people keep hold onto their money in the face of an uncertain future. Unsurprisingly, the country worries about the possible negative impact upon tourism, so the country is on standby. Greeks watch the outcome of the various bailout packages closely, because a large proportion of the tourism money hails from the US. On a positive note, the weakening Euro may help in that respect, enticing Americans and the Diaspora to visit in the summer.

For investors, as with most places in the world, the future of the economy is difficult to predict. The horror stories of Greece leaving the Eurozone are almost certainly scaremongering, and a period of belt-tightening, for individuals and for government, is underway. At the moment, if you are one of the fortunate people to have a little spare money for a holiday or retirement home, there is no reason to deviate from the plan.