2009 Index of Economic Freedom

Quick Facts

Population:

• 11.1 million

GDP (PPP):

• $349.8 billion
• 4.2% growth
• 4.3% 5-year compound annual growth
• $31382 per capita

Unemployment:

• 8.3%

Inflation (CPI):

• 3.0%

FDI Inflow:

• $5.4 billion

Greece's economic freedom score is 60.8, making its economy the 81st freest in the 2009 Index. Its overall score is about the same as last year, increasing slightly by 0.2 point. Greece is ranked 34th out of 43 countries in the Europe region, and its overall score is just above the world average.

Greece scores above the world average in seven of the 10 components of economic freedom. Its trade freedom lags behind that of other members of the European Union because of numerous non-tariff barriers. Greece adheres to standardized EU monetary policy that yields relatively low inflation but permits government distortions in the agricultural sector.

Challenges to enhancing overall economic freedom remain in areas such as government size, fiscal freedom, and labor freedom. As in many other European welfare states, government spending is high. The public sector accounts for about 40 percent of GDP. Tax reforms to be implemented in coming years include the addition of a broad-based property tax and another round of income tax cuts. A restrictive labor market creates a disincentive for hiring, since getting rid of redundant employees is difficult.

Background Back to the top

Though the idea of democracy itself is of Greek origin, Greece has enjoyed uninterrupted democratic rule only since 1974. Political disputes with neighboring Macedonia and Albania simmer in political channels, while a more deep-rooted rivalry with Turkey, focused on Cyprus but dating back to the Ottoman Empire or earlier, has come close to armed conflict, though not in the past decade. Greece became the 10th member of the European Union in 1981 and adopted the euro in 2002. The economy depends heavily on tourism and other services.

Business Freedom 78.7 Back to the top

The overall freedom to start, operate, and close a business is relatively well protected under Greece's regulatory environment. Starting a business takes only half of the world average of 38 days. Obtaining a business license requires less than the world average of 18 procedures and 225 days. Closing a business is relatively easy.

Trade Freedom 80.8 Back to the top

Greece's trade policy is the same as that of other members of the European Union. The common EU weighted average tariff rate was 2.1 percent in 2005. Non-tariff barriers reflected in EU policy include agricultural and manufacturing subsidies, import restrictions for some goods and services, market access restrictions in some services sectors, non-transparent and restrictive regulations and standards, and inconsistent customs administration across EU members. The burden of subsidies, regulations, and standards exceeds EU policy, and the enforcement of intellectual property rights is problematic. Consequently, 15 points were deducted from Greece's trade freedom score.

Fiscal Freedom 66.5 Back to the top

Greece has a high income tax rate and a moderate corporate tax rate. The top income tax rate is 40 percent, and the top corporate tax rate is 25 percent. Other taxes include a value-added tax (VAT), an inheritance tax, and a tax on interest. In the most recent year, overall tax revenue as a percentage of GDP was 33.5 percent.

Government Size 46.3 Back to the top

Total government expenditures, including consumption and transfer payments, are very high. In the most recent year, government spending equaled 42.3 percent of GDP. Progress has been made in reforming and privatizing state-owned enterprises.

Monetary Freedom78.8 Back to the top

Greece is a member of the euro zone. Between 2005 and 2007, Greece's weighted average annual rate of inflation was 3.1 percent. As a participant in the EU's Common Agricultural Policy, the government subsidizes agricultural production, distorting the prices of agricultural products. It also can set a ceiling on retail prices if it determines that increases might adversely affect the economy, and regulates prices for pharmaceuticals, transportation, and energy while setting margins for wholesalers and retailers. Ten points were deducted from Greece's monetary freedom score to account for policies that distort domestic prices.

Investment Freedom50.0 Back to the top

While Greece officially welcomes foreign investment, it restricts investment in utilities, and non-EU investors receive less advantageous treatment in banking, mining, broadcasting, maritime, and air transport. Bureaucracy is inefficient, and commercial laws are confusing, but infrastructure has been improved, and energy and telecommunications have been liberalized. Investment is screened when the relevant party wants to claim an incentive bonus. Residents and non-residents may hold foreign exchange accounts. There are no restrictions or controls on payments, real estate transactions, transfers, or repatriation of profits. Only EU residents may invest in border regions.

Financial Freedom50.0 Back to the top

Greece's financial system has undergone restructuring and transformation. Privatization and mergers have reduced the government's influence in banking. Total bank lending has grown rapidly. There are more than 60 domestic and foreign banks along with other special credit institutions. Foreign-owned banks make up around 11 percent of the banking market. Five large commercial groups that operate as private universal banks now dominate the system, accounting for more than 60 percent of total assets. The state still directly controls one bank and indirectly controls another. The government has sought a foreign bank investor for the Postal Savings Bank, in which the state has about a 30 percent ownership stake. The insurance sector is small, but capital markets are well established, with more than 300 listings in 2007 and several tiers of capitalization.

Property Rights50.0 Back to the top

Court enforcement of property and contractual rights is time-consuming and often problematic. The judiciary is nominally nonpartisan but tends to reflect the government's political sensibilities. Expropriation of property is unlikely. The enforcement of intellectual property rights remains lax.

Freedom From Corruption46.0 Back to the top

Corruption is perceived as significant. Greece ranks 56th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. Ties to long-time suppliers and subtle political pressures are widely believed to play a significant role in official evaluations of procurement tenders.

Labor Freedom61.2 Back to the top

Greece's restrictive labor regulations hinder employment opportunities and productivity growth. The non-salary cost of employing a worker is high, and regulations on the number of work hours remain rigid, although employers have greater flexibility under a labor law passed in 2005.