The end of the period of growth became obvious after the reestablishment of democracy in Greece in 1974. For both internal and external reasons, the democratic governments that followed the junta were unable to restore growth. Thus, for example, the average annual growth rates of the GDP, which had been 7.6 percent in 1961- 70, dropped to 4.7 percent in 1971-80 and then to 1.4 percent in 1981-90. Clearly the "Greek economic miracle" had come to an end.

Greece's return to its association with the EC after ties had been severed during the dictatorship was a major institutional event in the restoration of democracy. In 1981 Greece became a full member of the organization. It was the tenth member in the economic alliance of European nations and the first of the Mediterranean "new democracies" to join the community (Spain and Portugal followed in 1985). Upon achieving membership, Greece began a gradual adjustment of its legislation and elimination of its protectionist policies, leading eventually to full liberalization of trade and the movement of capital and labor. Greek trade became greatly reoriented as a result. In 1980, about 48 percent of Greek exports and 40 percent of imports were destined to, or originated from, EC countries. By 1991 these percentages had risen to 64 and 62 percent, respectively.

The democratic governments of the 1970s and 1980s faced the accumulated internal problems of economic institutions and the social modernization that had been either neglected or suppressed by the junta. On the agenda of social modernization were labor legislation, social insurance, education reform, and the provision of health care--elements without which the growth of a modern economy would be impossible. On the economic front, postdictatorship governments had to tackle the deficit-ridden balance of payments, the damaged competitiveness of Greek industry caused by high energy costs and escalating pressures for higher wages, and a rising inflation rate. The policy requirements for the social and economic problems were frequently contradictory. Modernization of social protection required new public spending and generally expansionary policies, but economic adjustment required income and spending restraints. The internationalization of the Greek economy after 1981 made economic adjustment more urgent.

In response to this situation, the governments of the 1970s and 1980s generally vacillated between emphasizing social modernization and economic adjustment. In the 1970s, the vacillation took the form of a variety of measures for supportive troubled firms in the private sector, taken simultaneously with attempts to stabilize the economy.

The economic crisis of the 1970s had been felt initially by the private sector, where many manufacturing firms joined the ranks of the so-called problematic enterprises that faced failing markets, financial default, and bankruptcy in the decades that followed. Entry into the EC made conditions for Greek industry even harder because the most immediate effect of Greek accession was a removal of protection for domestic industry and a large increase in import penetration, mainly by foreign manufactured goods. For example, throughout the period between 1983 and 1991, about 25 percent of Greece's manufactured goods were exported, while the share of imports in domestic consumption of manufactured products increased from 30 percent to 57 percent.

The crisis conditions of the 1970s eventually penetrated the public sector under both conservative and socialist governments. In the 1980s, the socialist administrations of Papandreou sought to bolster areas of the economy that lagged farthest behind Greece's EC partners by extending welfare protection in a variety of forms. But this policy was not supported by tax reforms that would generate new revenue for public spending, so the deficits and public borrowing that had begun in the late 1970s intensified in the 1980s. A "roller coaster" cycle of preelection largesse and postelection stringency in public spending has been apparent under both conservative and socialist governments in the 1980s and 1990s. As a proportion of total public expenditure, the budget deficit went from 32 percent in 1981 to 44 percent in 1990.

The crisis in the public sector, with high budget deficits, public borrowing, and an erosion of tax compliance in combination with continuing economic stagnation, created serious economic imbalances that persist in the mid-1990s. Price inflation remained at the high average annual rate of 18 percent throughout the 1980s and the early 1990s, declining to 12 percent by the end of 1993 and to 10.6 percent by the end of 1994. Stabilization policies, briefly implemented in 1986-87 under socialist minister of national economy Konstantinos Simitis, initially reduced inflation and public deficits, but the Panhellenic Socialist Movement (Panhellinion Socialistiko Kinima--PASOK) government continued its pattern of reversals by changing back the policies in 1988 in preparation for a national election.

In 1990-93 the conservative government of Konstantinos Mitsotakis and his National Democracy (Nea Demokratia--ND) party undertook harsher, more persistent stabilization efforts accompanied by a privatization program for state-owned firms and a tax reduction program. Conservative policies were only partially successful, however, because they had the side effect of depressing the economy. Thus, tax revenues failed to increase at the expected rate, pressures for increased public spending remained high as unemployment and social problems worsened, and business prospects did not brighten enough to boost private demand for the state-owned enterprises put on sale in the privatization program.

The PASOK government of Andreas Papandreou, back in power in late 1993, continued to implement stabilization policies, reorienting them by directing its tax reform policy to enforce compliance by undertaxed strata of society, by following a more pragmatic course on privatization to maximize revenue from sales, and avoiding new indirect taxes that would rekindle inflation. The initial impact of this approach on inflation was positive, dropping the annual rate to a twenty-year low of 10.6 percent. However, the problems of unemployment and industrial decline clearly persist in the mid-1990s.

Despite the problems of the public sector, the Greek economy contains elements of dynamism. Firms in foods, textiles, telecommunications equipment, banking, and business services have made impressive progress in the early 1990s. Greek financial markets have gained volume and liquidity. Private economic initiatives in neighboring Balkan countries in transition to market economies have flourished, and Greek investments rank among the largest in Bulgaria, Romania, and Albania.

Data as of December 1994

NOTE: The information regarding Greece on this page is re-published from The Library of Congress Country Studies and the CIA World Factbook. No claims are made regarding the accuracy of Greece Economic Policy after 1974 information contained here. All suggestions for corrections of any errors about Greece Economic Policy after 1974 should be addressed to the Library of Congress and the CIA.