How Greece’s political crisis may impact your investments in the Euro area (Part 2 of 7)
Subdued economic momentum in Greece
Economic momentum in Greece (GREK) has always been subdued, especially in comparison to other European countries and its peers like Italy, Ireland, Spain, and Portugal. Gross domestic product (or GDP) in Greece has grown at an average rate of around -6% since 2010, when Italy, Ireland, Spain, and Portugal have grown at around -0.5%, 0.6%, -1%, and -1%, respectively.
Popular exchange-traded funds that track equities in these countries include the iShares MSCI Italy Capped ETF (EWI), the iShares MSCI Ireland Capped (EIRL), and the iShares MSCI Spain Capped (EWP), and the Global X FTSE Portugal 20 ETF (PGAL), respectively. To learn more about these economies, jointly known as PIIGS (Portugal, Ireland, Italy, Greece, and Spain), and the investment climate in them, read our series Overview: A guide to investing in the PIIGS nations.
Economic conditions in Greece have worsened
Economic conditions existing in 2008 show that Greece was a laggard even before the crisis hit its economy:
Only one in three households had access to the Internet, the lowest in Europe.
Government debt was very high at 113% of GDP, the highest in the European continent.
Youth unemployment was at its peak at around 20%.
Despite continual efforts by its government since 2008, the economy of Greece is still faced with many issues, including:
A rising unemployment rate (from around 7.7% in 2008 to 26% currently).
Household incomes have fallen.
One in three Greeks is considered to be at the risk of poverty.
Greece’s old-age dependency ratio (30%) has ballooned to one of the highest in the world.
The bailout extended to Greece.
The subdued economic momentum in Greece has had a direct—and negative—impact on its ability to honor its foreign obligations, specifically its bailout loan. We discussed the two bailout packages extended to Greece, when we covered the economy of Greece.
On December 8, Eurozone ministers came out with a decision regarding the Greek bailout program, a decision with political and financial implications.
Browse this series on Market Realist: