If one takes a look at modern Greek economic history, one will find that it is characterized by alternating periods of economic growth and stagnation. The Greek economy experienced an unprecedented economic crisis from 2008 to 2016 but has since recovered, starting slowly in 2017 and accelerating to reach a steady pace by 2026.If someone had gone back in time to 2015 and said that Greece—as well as other Southern European countries—would fare better than Northern European countries, such as Germany, during the period 2017–2026, two things might have happened. Either people would ignore him, or they would dispute his claims. And yet, that is exactly what happened, resulting in a narrowing of the North-South divide.
It is no coincidence that Germany’s economy has been stagnant in recent years, while the GDPs of Greece, Portugal, and Spain are more than 10% higher than they were before the Covid pandemic. Of course, Greece’s Gross Domestic Product (GDP) continues to lag behind. Per capita income stood at 63% of the EU average in 2024, compared to 93% in 2004, while real GDP is more than 10% lower than in 2007, which was the best year on record.
Furthermore, the 10-year yield spread between Greece and the other southern European countries compared to Germany, France, etc., has narrowed dramatically. It is no coincidence that Greece is borrowing at roughly the same or lower interest rates than Italy for 10-year bonds and at slightly higher rates than France. The yield spread reflects the significant improvement in Greece’s fiscal position, accompanied by a rapid reduction in debt.
Furthermore, the banking systems of Southern European countries have reduced their non-performing loans to 2% to 3% of the total, with Greece leading the way—a country that once had half of its loans in default. On the other hand, German and French banks are facing more acute asset quality problems today.
However, some of the driving forces that propelled the Greek and other Southern European economies to outperform are either running out of steam or nearing their limits. The Recovery Fund falls into the first category, having helped boost investment to 20% of Greek GDP. The second driver of growth in recent years has been rising employment. But there, too, there are signs of fatigue.
But if Greece and other countries cannot rely to the same extent on rising employment, the next driver is productivity—and it is the most difficult one. Sooner or later, it will become clear whether the investments made in recent years—linked to the Recovery Fund—have borne fruit, in the sense that they were not merely a flash in the pan that temporarily boosted domestic demand and growth but failed to make a difference in the medium termin the productivity and competitiveness of the Greek economy.
Unfortunately, Greece’s track record on productivity is not good. This is because it is not only investment that determines per capita output growth, but also other institutional factors, such as the judicial system. Furthermore, the structure of several sectors is characterized by a multitude of small and very small businesses that are not competitive.
And, of course, we cannot underestimate the political factor. Greece and other countries in Southern Europe will hold elections within the next 12 months. Any failure to form a stable, long-term government after the elections will have a negative impact on the economy.
Taking all this into account, we must conclude that achieving growth will be a more difficult task for Greece, in particular, but also for other countries in southern Europe in the coming years. At least, our country appears to have a sounder fiscal foundation thanks to the structural measures implemented in recent years and the new rules of the Stability Pact, which control net primary expenditures.