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Greece Economic Outlook

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  • Greece Economic Outlook

    Now that Greeceā€™s bailout program has ended, what are the prospects for economic growth and development in Greece?
    Over the last two years, the [Foreign Direct Investment has] not exceed 2% of GDP.
    There may be three reasons for the low foreign investment:

    Greece has the fifth-highest corporate tax rate in Europe (29%). This reduces the profit margin of a potential investor.
    Another drawback is the public bureaucracy. It is a problem that governments have tried to solve in recent decades, but little has been done.
    And a lack of political stability (the author pointed to a graph using data based on criteria set by The World Bank).

    In addition to a lack of foreign investment, Greeks are saving less than they did before. Theoretically, increased savings would encourage banks to offer more money and better terms for loans and thus in turn help people develop more wealth. According to the author, consumption needs have strained the savings of the average Greek now living with a decreased income.

    Beyond capital constraints, the other problem is a lack of labor participation in the market. Fewer Greeks are seeking work. The unemployment rate hovers at about 20% (since the crisis began in 2008, there was a 12% increase). To make matters worse, a brain drain has seen nearly half a million Greeks (1/20th of the population) leave for better economic opportunities abroad. The majority of these people are university graduates. So the quantity and quality of labor is depressed.

    It seems the future course for Greece would be to set a more competitive tax rate, encourage further foreign investment in business development (something that may encourage Greeks to learn better practices from abroad and then adopt into their own ventures), establish better law and order, and continue the slow process of reducing bureaucracy (mainly as more and more retire with fewer replacements) while simultaneously reestablish confidence in the Greek labor market. Obviously there are further problems as they relate to funding social safety nets and not to mention security issues relating to illegal immigration and Turkey's emboldened foreign policy, but finding the right balance to address those issues will see steady improvements in Greek living standards and quality of life.

    Most of these measures need time to bear fruit, but at least we are now able to act with better independence than we could under the bailout program.