Greece and Germany: From anger to economic potential

Berlin: Germany is the official guest country at the 2024 Thessaloniki International Fair this weekend. It’s a major change from a few years back when the two countries were at loggerheads during Greece’s sovereign debt crisis.

Germany is the “honored country” at this year’s Thessaloniki International Fair, which kicks off this Saturday in Greece’s second city. Not so long ago, this would have been unthinkable.

At the peak of Greece’s sovereign debt crisis in 2014 and 2015, Greece teetered on the brink of leaving the eurozone currency union.

It was a time when “Grexit” — the term used to describe Greece’s hypothetical withdrawal from the eurozone — was widely discussed across the continent.

Banks were nationalized, companies folded and people in Greece lost up to 40% of their income. Many Greeks blamed the austerity measures, which they felt had been dictated by Berlin.

A decade later and much has changed in the economic relations between these two EU members.

In 2024, Greece has one of the strongest growth outlooks in Europe. Once seen as the “problem child” of the eurozone, Greece has turned things around and now expects real gross domestic product (GDP) to grow by 2% this year.

Thanks to rising income in the tourism sector, Greece has also posted a high primary budget surplus in recent years. Put simply, this means it has been earning more than it has been spending. What’s more, it’s able to refinance its debt at historically low interest rates.

This is no cause for complacency, however, because a debt-to-GDP ratio of just under 159% is forecast for the country in 2024.

This is higher than it was before the start of the sovereign debt crisis, simply because economic performance shrank by a quarter as a result of the crisis.

But nominal debt is not the key issue here, said Panagiotis Petrakis, professor emeritus of economics at the University of Athens. “It is much more important that the Greeks continue to post a primary budget surplus and meet the EU’s requirements,” he told DW.

If that happens, said Petrakis, the country will also be in a position to reduce its debt ratio in the coming years.

According to a report on the business website Capital.gr, Finance Minister Kostis Hatzidakis even wants to “positively surprise” the markets and has set himself the goal of reducing the debt-to-GDP ratio to below 120% by 2027.

Not least in response to pressure from its creditors, Greece has implemented important reforms and privatized state-owned enterprises.

In February 2024, Deutsche Bank reported that Greece had made an “astonishing economic comeback” and had an “intact macroeconomic environment.”

The modernization of 14 regional airports by Fraport Greece, a subsidiary of the German airport operator Fraport AG, is seen as one of the country’s model investment projects.

In 2017, the government in Athens awarded concessions for these airports, the potential of which had until then been largely underestimated.

Fraport paid €1.24 billion for the concessions and invested more than €400 million ($444 million) in the modernization of the run-down airports, which included the airports in Thessaloniki and on the popular holiday islands of Mykonos and Rhodes.

Even though the resulting economic success surpassed expectations, not everyone was happy.

There was opposition, criticism and accusations of an alleged “sellout of public property” to foreign investors, from left-wing circles in particular.

Economic expert Petrakis doesn’t understand this attitude. “The accusation of a sellout when it comes to investments within the EU is senseless,” he said.

Petrakis pointed to the fact that the Fraport investment was a success, specifically because the Germans invested in smaller airports, thereby attracting even more visitors to Greece.

He emphasized that it wasn’t just the German investors who had benefited from the project, but also the local economies in all of the regions where Fraport is active.

Despite all the tension between the two countries during the Greek sovereign debt crisis, Germany is now Greece’s most important economic partner and a major market for Greek exports.

And it works both ways: Products that are “Made in Germany” are in great demand in Greece. Indeed, when it comes to imports, Germany is still right at the top of Greece’s list.

What Greece now needs to return to a path of sustainable growth and new prosperity, according to experts, is more investment — including from Germany.

Such investment is getting ever more urgent because of the need to cushion the blow of inflation in recent years and cut energy costs.

According to Petrakis, Greece has already received about 40% of the money earmarked for the country from the EU’s COVID-19 recovery fund. But, he said, that’s not enough.

“It’s important that German investors and other foreign investors get even more involved, for example in the energy or transport sector,” he said.

He gave the example of the little-known port of Alexandroupoli in northeastern Greece. Strategically located at the junction of many energy pipelines and set to become even more important in the context of geopolitical tensions in Eastern Europe, Petrakis said it would be very attractive for foreign investors.