Greece Wages, Prices, and Inflation
Sources: The Library of Congress Country Studies; CIA World Factbook
As Greece entered the 1990s and the requirements of EC membership grew stricter, inflation remained a central problem for economic policy makers. In 1990 the annual inflation rate was 20 percent; after four years of austerity policies, the rate had declined to 10.6 percent at the end of 1994. At that point, experts believed that private-sector confidence in the government's antiinflation policies had been boosted, making future reductions in the inflation rate likely.
The implementation of the EU's convergence program in the mid1990s will mean strong anti-inflationary efforts as well as harsh fiscal adjustment to reduce government deficits (see International Economic Policy in the 1990s , this ch.). Minimizing the differential of inflation rates between Greece and the other EU countries is crucial in establishing a stable nominal exchange rate for the drachma and participation for the drachma in the EU's Exchange Rate Mechanism (ERM), the currency stabilization mechanism in which all EU member countries except Greece participated in 1994. Greek foreign-exchange policy has involved moderate and gradual devaluations timed to dampen rather than accelerate inflation. Thus, on average the Greek currency has been devalued in the last few years by less than the differential inflation between Greece and its main trading partners. Another crucial factor in inflation policy has been balancing interest rates at a level high enough to restrict the flow of money but low enough to encourage borrowing and investment. In spite of government monetary restrictions, in late 1994 an official EU evaluation projected a 1995 inflation rate of 9.5 percent for Greece, which the EU described as an unsatisfactory reduction from the overall 1994 level of 11.1 percent.
The government traditionally had fixed prices and profit margins, especially under the influence of organized commercial lobbies. Between 1988 and 1992, the average prices of consumer goods rose by between 69 percent for durable goods and 118 percent for clothing (see table 7, Appendix). In the same period, total wholesale prices more than doubled. Beginning in 1990, however, EC requirements have gradually promoted free competition. In 1992 the government abolished controls on profit margins and price controls on most products, including imported petroleum and petroleum products. The result was an overall decrease in prices in 1992. Legislation in 1993 abolished some remaining restrictions.
Between 1985 and 1992, average wages of workers in manufacturing increased by 179 percent. Until 1990 the government played a direct role in establishing wages in private as well as state-owned enterprises. The nationwide Automatic Indexation Scheme and government norms for wage increases destroyed jobs by forcing artificial wage levels on enterprises in poor fiscal condition. Beginning in 1991, however, free collective bargaining has become the rule, and since that time the government has not interfered in wage settlements in private enterprises. Wage arbitration also moved noticeably from the national to the local and enterprise level in the 1990s, promoting labor market flexibility. Although the government did not raise public-sector wages or pensions in 1992-93, the overall rate of wage increases did not subside during that period. The 1995 plans for meeting EU convergence standards included a 6 percent limit on wage increases that year, together with tight hiring restrictions to constrict wage outlays in the public sector.
Data as of December 1994
NOTE: The information regarding Greece on this page is re-published from The Library of Congress Country Studies and the CIA World Factbook. No claims are made regarding the accuracy of Greece Wages, Prices, and Inflation information contained here. All suggestions for corrections of any errors about Greece Wages, Prices, and Inflation should be addressed to the Library of Congress and the CIA.