IMF Executive Board Concludes 2009 Article IV Consultation with Greece

Public Information Notice (PIN) No. 09/100
August 6, 2009

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case. The staff report (use the free Adobe Acrobat Reader to view this pdf file) for the 2009 Article IV Consultation with Greece is also available.

On July 24, 2009, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV Consultation with Greece.1


After a decade of strong growth led by a domestic demand boom, Greece has started to feel the effects of the global downturn, although with some delay. Despite initial resilience partly explained by high wage growth and accelerated government spending, growth slowed substantially in early-2009. The main driving forces were lower investment and exports, destocking, and a decline in private consumption, as confidence and employment softened. With slower domestic demand and contracting imports, the external current account deficit started to narrow from a deficit of 14.4 percent in 2008.

The general government balance remains under pressure with revenue shortfalls and some additional expenditure, which the government is attempting to offset in part with consolidation measures and tax administration efforts. Despite spreads soaring in early 2009, the government quickly completed funding for the year and spreads are now easing again. However, the debt ratio is increasing quickly from already high levels.

Banks, which have retail-oriented business models and a large deposit base, have weathered well the first impact of the global crisis. The authorities were early to implement a valuable bank assistance package with capital injections, liquidity assistance, and funding guarantees, which bolstered confidence. However, banks’ operating environment remains difficult. Profitability is falling with higher funding costs, slower activity, and asset quality erosion in Greece and in Southeastern Europe. Bank capital is declining but has remained adequate. Reflecting higher risks and the difficult economic environment, rating agencies have downgraded several Greek banks.

High wage growth through 2009 reflects the implementation of previous wage agreements. With wage growth and inflation outpacing the euro average, competitiveness is further suffering and firms have turned to reducing overtime or cutting informal deals to lower costs. External competitiveness is also hindered by insufficient domestic competition in several sectors, high administrative costs, and inefficiencies.

Executive Board Assessment

Executive Directors welcomed the extended period of strong growth through 2008, which had significantly narrowed the gap in real per-capita income with the EU-15. At the same time, they noted that Greece’s large fiscal and external imbalances have made the economy vulnerable during the global downturn. They underscored the need to address the loss in competitiveness, which could lead the economy to face extended slow growth, especially if the external environment and global financial conditions were to remain weak. Directors emphasized the need to implement a comprehensive plan for fiscal consolidation and structural reform.

Directors observed that the banking system has weathered the global crisis well, even as it has felt the effects through higher funding costs, deleveraging, and asset-quality erosion. They welcomed the authorities’ timely bank assistance package and their intensified domestic and cross-border monitoring. They commended the recent stress tests, which suggest that the banking system has enough buffers to weather the expected slowdown. Nonetheless, as near-term operating conditions for banks remain challenging, Directors advised continued vigilance. The authorities should continue to strengthen their relationship with central banks and supervisory colleagues in Southeastern Europe countries, including by conducting joint crisis-management exercises. Directors supported the authorities’ intention, in case of systemic pressures, to seek market solutions first, and include clear exit strategies should public support for individual banks be required. Directors emphasized the need for banks to prepare for the unwinding of liquidity assistance from the ECB.

Directors emphasized that fiscal consolidation can no longer be postponed. The deficit-reducing measures of 2009 were in the right direction, and Directors called for further durable efforts to place the public debt on a sustainable downward path. They welcomed the measures to protect vulnerable groups, while encouraging the authorities to continue their income policies to help slow public wage and pension costs. Directors called for renewed efforts in social security reform, in light of the very high projected aging costs. They encouraged the authorities to discuss a clear fiscal strategy with the public and provide monitorable objectives to anchor confidence.

Directors noted the staff’s finding that the real exchange rate has appreciated, resulting in significantly reduced competitiveness. While observing that the estimate should be interpreted carefully, Directors underscored the urgency of structural reform, in particular in public administration, public enterprises, and product and labor markets. They called for streamlining the public sector, further reducing administrative burdens, liberalizing network industries, and implementing the EU Services Directive. Labor reforms aimed at lowering unit labor costs and increasing employment—supported by agreements among employers, unions, and the public sector—will also be critical. Directors encouraged the authorities to strengthen their relationship with social partners to forge buy-in and stronger ownership of the structural agenda. They encouraged the authorities to strengthen official statistics and to publish more high-quality data to facilitate monitoring, analysis, and policy making.

Greece: Selected Economic Indicators, 2005–0

  2005 2006 2007 2008 2009 1/

Real economy (change in percent)


Real GDP

2.9 4.5 4.0 2.9 -1.7

Domestic demand

2.1 4.7 5.1 0.7 -2.5

HICP (average)

3.5 3.3 3.0 4.2 1.1

Unemployment rate (in percent)

9.9 8.9 8.3 7.6 9.5

Public finance (general government; in percent of GDP) 2/


Overall balance

-5.1 -2.8 -3.6 -5.0 -5.9

Primary balance

-0.7 1.3 0.5 -0.7 -1.2

Gross debt

98.8 95.9 94.8 97.6 108.5

Interest rates 3/


Long-term lending interest rate

5.8 6.3 7.2 7.2 6.4

Government bond yield

3.6 4.1 4.5 4.8 5.2

Balance of payments (in percent of GDP)


Trade balance

-6.2 -9.4 -10.9 -11.1 -7.8

Current account

-7.5 -11.1 -14.1 -14.4 -10.9

Fund position (as of May 31, 2009)


Holdings of currency (in percent of quota)


Holdings of SDRs (in percent of allocation)


Quota (in millions of SDR)


Exchange rate 4/


Exchange rate regime

Euro Area Member

Present rate (July 9, 2009)

US$ 1.4026 per euro

Nominal effective rate (2000 = 100)

109.4 111.4 113.9 115.7 115.3

Real effective rate (2000 = 100)

113.1 115.8 118.7 120.4



Sources: National Statistical Service; Ministry of Economy and Finance; Bank of Greece; and IMF staff estimates.
1/ Data for 2009 are projections.
2/ Includes measures announced by the Minister on June 25, 2009, subsequently to the mission.
3/ Data for 2009 are as of April.
4/ Data for 2009 are as of May.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities.


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