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Greece as a member of the European Union

Greece as a member of the European Union

Greece joined the European Union in 1981 after a long period of accession, with mostly political arguments in support of this decision and arguably, totally unprepared to deal with the economic consequences of membership. This decision was taken by the «New Democracy», the conservative party that was in power in the period 1974-1981, despite the strong criticism and opposition of the other, mostly by Socialist and Communist parties of the Parliament.  However there is still a lot of skepticism about the implications of membership on the economy, as low growth rates, industrial decline and rising unemployment are considered as symptoms of the limited ability of the economy to compete in the single European market.
By aspects of economy although in the 1960s Greece was placed among the fastest growing economies, in the 1980s it was ranked last among the European Union economies. As a result of the sharp decline of the growth rate of output, the economy was unable in the 1980s to create sufficient numbers of new jobs, despite the expansion of the public sector. As the performance of the economy declined both in absolute and comparative terms in the 1980s and the 1 990s, the unemployment rate increased faster than the European Union average, in line with expectation.
Greece last held the rotating European Union presidency in the first half of 2003. Greek businesses continue to adjust to competition from European Union firms, and the government has liberalized its economic and commercial regulations and practices.
Greece has been a major net beneficiary of the European Union budget. From 1994-99, about $20 billion in European Union structural funds and Greek national financing were spent on projects to modernize Greece's transportation network in time for the Olympics in 2004. The centerpiece was the construction of the new international airport near Athens, which opened in March 2001 soon after the launch of the new Athens subway system. European Union transfers to Greece continued with approximately $24 billion in structural funds for the period 2000-2006. Bureaucratic obstacles have led to significant delays in Greece's absorbing these funds which means that Greece may forfeit a portion of that. The same level of European Union funding, $24 billion, has been allocated for Greece for 2007-2013. European Union funds will continue to finance major public works and economic development projects, upgrade competitiveness and human resources, improve living conditions, and address disparities between poorer and more developed regions of the country.
Also, the structure of the Greek Industry does not show any signs of convergence towards that of the EU. On the contrary, it tends over time to diverge considerably, concentrating in traditional sectors such as food, textiles and clothes that in general characterize earlier stages of development. This orientation of Greek industry towards traditional branches has intensified in the last 15 years. At the same time in the international markets, traditional industries tend to shift towards Developing countries that appear to have significant labor cost advantages and compete for a larger share of the market.
As a result, the process of integration and internationalization has generated a position where Greece has on the one hand, a disadvantage compared to other industrial EU countries, in competing in markets of high-tech, and differentiated products and on the other hand, a disadvantage compared to low cost countries in competing in traditional markets of labor-intensive and standardized products. This double pressure imposed by increasing international competition might have been an important factor related to the decline of industrial activity and its concentration in inwards looking sectors that often have a local character.
the competitiveness of the Greek economy in the EU markets is low and declining, while its competitiveness in the other markets is at higher levels and increasing. Higher competitiveness in these markets seems to be affected by the new economic environment that has been created in the post-1989 European space, that allowed economic relations with neighbouring and nearby countries, an option that was not available to Greece for many decades. It is also interesting to observe in these figures, that despite the existence of the single European market and the fact that the Greek products do not face anymore tariff or non-tariff barriers in the EU, their ability to penetrate the EU market is lower, compared to the World and the Rest of the World markets, where certain barriers to trade exist. This may be an indication of the difficulties of integration arnong basically unequal and distant partners.
An important factor responsible for the sluggish performance of the economy is the fast expansion of the public sector in the 1980s and its strong intervention in the economy. The expansion of the public sector, according to this argument, generates deficits that are inflationary and drive the real interest rates up, discouraging private investment and slowing down the growth rate of the economy. In addition, the public sector is by definition less productive than the private one, as the structure of incentives for public employees does not always promote efficiency and bureaucratic mechanisms and regulation interfere with market operation. The policy implications of this argument can be summed up in one sentence: if the policy goal is to promote higher growth rates in the economy, then the size of the public sector must be reduced.
Overall, it is claimed here that the performance of the Greek economy in the post-war and pre-1989 period has been affected by the restrictions imposed on the structure and level of the external economic relations of the country by the limitations of geography and the artificial division of Europe into two camps. Although there is no direct empirical evidence to this point to support this argument, we are confident that a simple spatial trade model would predict for Greece a very different level and structure of trade (in terms of its composition by product and origin-destination by country) than the existing one, should barriers to trade with the neighboring countries were not imposed. Since the abolition of the monarchy in 1974, Greece has been governed by a parliamentary democracy. Despite membership in the single European currency in 2001 and an increase in tourism and infrastructure upgrades as a result of the Athens Olympics in 2004, the Greek economy is still relatively weak, with an excessive fiscal deficit and high levels of debt. Unemployment is high, especially among the young, and Greece continues to rely heavily on aid from the European Union. Structural reform should be a priority for the government, especially in pensions, the privatizing of state enterprises, and the revamping of an inefficient bureaucracy that continues to deter foreign investment.
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