Greece's economy is 57.6 percent free, according to our 2007 assessment, which makes it the world's 94th freest economy. Its overall score is 0.5 percentage point lower than last year, partially reflecting new methodological detail. Greece is ranked 36th out of 41 countries in the European region, and its overall score is much lower than the regional average.As a developed nation, Greece scores highly in surprisingly few areas. Trade freedom and monetary freedom are the best parts of the economy, and fiscal freedom also scores well. The average tariff rate is low, but trade suffers from numerous non-tariff barriers. As a member of the European Union, Greece has a standardized monetary policy that yields relatively low inflation, but government distortions in the agricultural sector persist. Greece has a high top income tax rate but is moving to reduce its relatively low corporate tax rate to 25 percent.
Freedom from government, financial freedom, and labor freedom could be improved. As in many other European welfare states, government spending is exceptionally high. A highly restrictive labor market is another problem, as firing employees is difficult and keeping them on the payroll is costly.
Background:
Since the abolition of the monarchy in 1974, Greece has been governed by a parliamentary democracy. The modernization of infrastructure and increased tourism associated with the 2004 Olympic Games led to strong economic growth in recent years, but the sharp decline in financial assistance from the EU that is scheduled for 2007 makes implementation of the economic reforms promised by Prime Minister Costas Karamanlis and his New Democracy Party a matter of some urgency. Corruption within state enterprises and the country's inefficient bureaucracy continues to deter foreign investors. Although exports of textiles and foodstuffs have increased, Greece still relies heavily on its services sector, particularly tourism.
Business Freedom - 70.2%
Starting a business takes an average of 38 days, compared to the world average of 48 days. Entrepreneurship should be easier for maximum job creation. Obtaining a business license and closing a business are relatively simple. Bureaucratic obstacles and slowness are still obstacles to business. The overall freedom to start, operate, and close a business is relatively well protected by the national regulatory environment.
Trade Freedom - 76.6%
Greece's trade policy is the same as those of other members of the European Union. The common EU weighted average tariff rate was 1.7 percent in 2005. Various non-tariff barriers are reflected in EU and Greek government policy, including agricultural and manufacturing subsidies, regulatory and licensing restrictions, and other market access restrictions. Regulations and bureaucratic procedures can be difficult, and corruption raises the cost of trade. Consequently, an additional 20 percent is deducted from Greece's trade freedom score.
Fiscal Freedom - 74.5%
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 29 percent effective January 2006. The corporate tax rate will be lowered to 25 percent within the next three years. Other taxes include a value-added tax (VAT) and a tax on interest. In the most recent year, overall tax revenue as a percentage of GDP was 37.3 percent.
Freedom from Government - 45.3%
Total government expenditures in Greece, including consumption and transfer payments, are very high. In the most recent year, government spending equaled 48.3 percent of GDP, and the government received 0.8 percent of its total revenues from state-owned enterprises and government ownership of property.
Monetary Freedom - 78.3%
Greece is a member of the euro zone. Between 2003 and 2005, Greece's weighted average annual rate of inflation was 3.4 percent. Relatively moderate prices explain most of the monetary freedom score. As a participant in the EU's Common Agricultural Policy, the government subsidizes agricultural production, distorting the prices of agricultural products. The government also regulates prices for pharmaceuticals and transportation and retains the right to set a ceiling on retail petroleum prices. Consequently, an additional 10 percent is deducted from Greece's monetary freedom score to account for these policies.
Investment Freedom - 50.0%
Greece officially welcomes foreign investment, but the government restricts both foreign and domestic investment in utilities, and non-EU investors receive less advantageous treatment than other investors in the banking, mining, broadcasting, maritime, and air transport sectors. An inefficient bureaucracy is one of the strongest impediments to foreign investment. Both 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. Investments in border regions are restricted to EU residents.
Financial Freedom - 40.0%
Greece has a relatively efficient and well-developed financial system. At the end of 2004, there were 62 domestic and foreign banks and special credit institutions. The state dominated the banking system in the 1990s, but privatization and mergers have reduced the level of state influence. Six large commercial groups that operate as private universal banks now dominate the system, although the state still directly controls one bank and indirectly controls two other large banks that account for a large percentage of banking assets. State-controlled banks are highly exposed to state-owned enterprises that are financially unhealthy. The insurance sector is small, and capital markets are well established.
Property Rights - 50.0%
Enforcing property and contractual rights through the court system is time-consuming and often problematic. The judiciary is supposed to be nonpartisan but tends to reflect the political sensibilities of the government in power. Seeking legal advice and assistance before entering into a lawsuit is critical. Expropriation of property is unlikely.
Freedom from Corruption - 43.0%
Corruption is perceived as significant. Greece ranks 47th out of 158 countries in Transparency International's Corruption Perceptions Index for 2005.
Labor Freedom - 48.5%
The labor market operates under highly restrictive employment regulations that hinder employment and productivity growth. The non-salary cost of employing a worker is high, and dismissing a redundant employee can be difficult. Penalizing overtime, labor codes limit working hours and part-time employment. A new labor law passed in 2005 aims at providing greater flexibilities to employers.
