Here is the history of the Greek GDP. In 2004 year it was 239.7\$ billion, but in 2002 it was 157.7\$ billion. It grew by approximately 50%. How did it grow so fast?
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$\begingroup$ Note that your numbers are in US Dollars. The exchange rate may therefore have a massive impact on your numbers. Check the GDP growth in EUR for a more reliable number. $\endgroup$– HRSEFeb 15, 2016 at 3:41
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2 Answers
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You are using USD exchange rate GDPs, which are very volatile. The main effect is probably the fact that the Euro began to circulate in 2002, replacing the cheap domestic currency.
Here are some more general reasons why the peripheral countries did well before the recession:
- There was abundant oil supply and the developed countries were splurging on FDI and debt in the periphery
- Greece had just joined the Euro and was getting tons of transfer payments
- The Euro was still fairly high and hadn't fallen yet.
- Greece may have fudged its numbers a bit to get into the Euro.
Eur/usd since 2000:
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1$\begingroup$ Missing the most important reason: convergence of interest rates in the Euro area - Greece could borrow tons of money quite cheaply and dump it into inefficient investments, partly housing $\endgroup$– FooBarFeb 18, 2016 at 15:57
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Another thing to consider is that the Athens Olympic Games were held in 2004. The cost of the games alone, not including infrastructure projects, is estimated around \$10 billion. A lot of construction work was done during the previous two years. The increased government spending may also have benefited other sectors indirectly (multiplicator effects). This could explain another part of the 50% increase.
There is only one problem with the argument above. According to the suspiciously smooth data I have found, there was no sudden increase in Greek government expenditures during these two years. (Click on max to see the long term.)