The accession of Greece to the Economic and Monetary Union of Europe (EMU) was one of the main milestones in his prime ministership Kostas Simitis.

In the first period of his prime ministership (1996-2000), the main objective of the economic policy was to ensure the country’s participation in the EMU.

Beyond achieving his criteria Maastrichtthe aim was also to mobilize the productive forces of the country, to ensure a stable economic and political environment with a wider climate of trust in businesses and society, and through this the strengthening of investments (through the utilization of community funds as well), productivity and the convergence of the standard of living with the European average. In this context, the monetary and exchange rate policy had as their primary purpose the stability and support of the anti-inflationary policy.

Joining the euro was considered a political and economic necessity.

EMU would ensure permanent conditions of political and economic stability and development, which any future government, however ineffective, could hardly erode. Greece had to participate in the hard core of the EU. where the important decisions would be made. From an economic point of view, the path towards EMU was the means for the country to face the challenge of globalization, increase its competitiveness to achieve its self-sustaining growth and continuously improve its standard of living. Greece’s failure to join the EMU: “… will directly lead the weaker countries to formations of second and third cycles of degradation. If we hesitate and waver, cowering in front of the needs of adaptation, we will be faced before the end of the century with a multiple cost of adaptation to our standard of living and with serious consequences for our national issues.”

According to the economic data of 1996, Greece was considered impossible to succeed in being in the first circle of countries, which would be selected to proceed to the third phase of the Economic and Monetary Union.

In order to become part of the EMU under formation, Greece had to make great progress and under pressing time limits. According to her conclusions May 2000 Convocation Report on the basis of which the adoption of the Euro by Greece was approved: “…. Greece has made impressive progress towards convergence and the assessment of this report is positive.”

Fiscal consolidation proceeded at an impressive pace. The deficit and debt were reduced significantly. According to revised Eurostat figures in this period the general government deficit decreased from 9.1% of GDP in 1995 to 3.1% in 1999. Public debt decreased from 97% of GDP in 1995 to 94% in 1999 .Greece significantly increased its tax revenues during this period and restrained primary expenditures, managing to have primary surplus. The primary surplus increased from 2.2% of GDP in 1995 to 4.3% in 1999. Thus and in combination with the reduction in the cost of servicing the public debt, from 11.2% of GDP in 1995 to 7.4% in 1999, managed to significantly reduce deficits and debt.

This great fiscal consolidation was actually achieved without undermining the country’s development perspective. The Greek economy grew at an average annual rate of 3.5% in the period 1996-2000, considerably higher than in 2000. of the eurozone, 2.4%. Total investment increased from 17.7% of GDP in 1995 to 21.6% of GDP in 2000. Expenditure on public investment, largely co-financed by EU structural fund resources, moved at high levels.

The Greek drachma entered the Exchange Rate Mechanism (ERM) on March 16, 1998. From January 1, 1999, the drachma participated in the new Exchange Rate Mechanism (ERM II). When the drachma entered the IMF, its central exchange rate against the DEM was set at a level 12.4% lower than the average market price during the previous ten days. This devaluation only temporarily increased inflationary pressures. On 14 January 2000, and while the market exchange rate was still 6% higher than the central rate, the Greek authorities requested a revaluation of the central rate. The new GRD/EUR exchange rate was set at 340.75, which means a 3.6% appreciation of the central rate. The exchange rate of the drachma (against the DEM until 31.12.1998 and against the euro thereafter) showed generally low and decreasing volatility during this period, with the exception of the period of financial market turmoil in the last months of 1998 due to the crisis in Russia.

The interest rates during this period were initially much higher than the corresponding m.o. and from those of Germany. However, as the credibility of the deflationary trajectory increased and progress was made in the fiscal consolidation effort, long-term interest rates began to decline towards the levels of the euro area countries. In Greece the average long-term interest rate in 1995 was 17% (EU-11: 8.7%, Germany: 6.9%) and decreased to 6.3% in 1999 (EU-11: 4.6%, Germany: 4 .5%).

On June 19, 2000 at European Council of Santa Maria da Feirathe adoption of the European currency Euro by Greece was decided.

2000-2003: The first years in the euro

Costas Simitis, in the second period of his prime ministership (2000-2003), was also the first years of Greece in the euro. On 1 January 2002, euro banknotes and coins went into circulation at the same time as the other 11 countries.

The benefits of joining the euro were felt in those first years. Investments for the preparation of the 2004 Olympic Games in Athens also played an important role. Joining the euro brought, together with the new currency, increased credibility but also significant restrictions on the country’s macroeconomic policy. Monetary policy is now the sole responsibility of the ECB. Fiscal policy had to respect the commitments of the Stability Pact for low fiscal deficits and decreasing public debt.

Uncertainty from exchange rate fluctuations between current Eurozone countries was reduced and cross-border transactions were facilitated. At the same time, however, Greece’s accession to the Eurozone limited the traditional tools of macroeconomic policy and highlighted structural reforms as a policy priority. At the same time, it removed from the market mechanism the role of “punisher” for imbalances in the economy or for the inadequacy of economic policy and, thus, turned the economic crises of the past into imbalances of a different type, which accumulate without being immediately perceived.

Having the cover of the strong single currency and in a low interest rate environment there was time to gradually progress the necessary reforms taking advantage of the available Community resources. The reforms, despite the efforts, did not progress to a satisfactory extent due to the reactions. A typical example is the effort to reform the insurance system – “Giannitsi reform”.

The economic figures for the period 2000-2003 after continuous revisions of both fiscal and national accounting figures show that growth rates continued to be high. On average the economy grew at a constant rate of 4.5% per year, driven mainly by investment (8.5% average annual real growth). Consumption, private and government, also increased (3.8% average annual real growth) also fueled by high rates of credit expansion. Credit expansion was high due to the liberalization of the banking market through the privatization of banks in the previous decade and easier access to international financial markets.

Inflation continued to be higher than the European average fueled by high demand, low interest rates and of course oligopolistic conditions in many product and service markets (3.4% average annual inflation) although of course much lower than in the past. The liberalization of the telecommunications market as well as the establishment of Cosmote in the previous decade, unlike the rest of the markets, helped to keep telecommunications prices under pressure.

The general government deficit in this period increased from 3.7% in 2000 to 5.6% in 2003, although in 2000-2002 there was a primary surplus (from 3.6% in 2000 to -0.7% in 2003 ). The revision of the fiscal data in 2004 by the Karamanlis government led to the decision by the European Commission to put Greece under surveillance. This surveillance ended in 2007, as it was later shown to be using false data again.

Various practices were followed during the prime ministership of Simitis in the field of Public Finance. Financial techniques were used extensively, essentially transferring resources from the future to the present. techniques not unknown in the other member states in order to reduce the debt. In 2002, Eurostat obliged the Greek government to include in the public debt the amounts of the shareholders, which means that instead of the end of 2001 the public debt was 99.7, it was revised to 104.7. After further checks, for 2001 the debt was closed at 105.1%. After other checks the deficit rose to 107.3. That is, from 100% that the government had published, it went up to 107.3%, 3.5 trillion drachmas, more than what the government of Mr. Simitis. Also accounting profits (for 2001) of 160 billion Dra from the conversion of Dra to Euro, Eurostat obliged us to delete[46]. For the “virtual” reduction of the public debt, the government borrowed 400 billion. for 5 days. The final public debt figures for this period after several revisions (including the 2000-2009 GDP revision) show an increase in debt as a percentage of GDP to 103.4% in 2000 and a decrease in 97.5% in 2003. Thanks to lower interest rates and high growth rates, the cost of servicing public debt fell from 7.3% of GDP in 2000 to 4.9% in 2003.

The standard of living improved spectacularly in the period 1996-2003. Per capita income in Purchasing Power Parities as a percentage of m.o. of the EU-15 countries (comprising the old EU 12 economies plus Finland, Sweden and Austria) rose from 71.7 in 1995 to 72.3 in 2000 and 80.7 in 2003.

The contribution of community resources was important. The 2nd CSF 1994 – 1999 amounting to €14 billion. (community participation in 1994 prices) was completed during this period. At the Berlin European Council in 1999, €22.7 billion was secured for the 3rd CSF. (community participation at 2000 prices).

Due to the irregularities and the inability of the control mechanisms to supervise the agricultural subsidies in the period 1999-2004, a fine of 250 million was imposed on Greece in 2006. euro.

For the period 1996-2001, 5.2 trillion drachmas were spent on equipment. It is estimated that the expenses of the 2nd EMPAE (2001-2006) reached 6 to 7 trillion drachmas. After the arrest and conviction of G. Kanda, there are suspicions of his involvement in the scandal with kickbacks from German companies in the armaments, which is being investigated by the Public Prosecutor’s Office in Bremen.

Source: wikipedia