Document Type: 
Document Number (FOIA) /ESDN (CREST): 
Release Decision: 
Original Classification: 
Document Page Count: 
Document Creation Date: 
December 9, 2016
Document Release Date: 
July 7, 2000
Sequence Number: 
Case Number: 
Publication Date: 
October 1, 1965
Content Type: 
PDF icon CIA-RDP79T01003A002400080001-6.pdf628.01 KB
Approved For Release 2000/08/29 : CIJC-9jCBlb. S~ii b.0080001-6, RECENT STRAINS IN THE GREEK ECONOMY AND THE SHORT-TERM OUTLOOK DIRECTORATE OF INTELLIGENCE Office of Research and Reports pproved For Release 2000/08/29 : CIA-} 7970 D3014Jd0080001-6 Approved For Release 2000/08/29 : CIA-RDP79TO1003AO02400080001-6 This material contains information affecting the National Defense of the United States within the meaning of the espionage laws, Title 18, USC, Secs. 793 and 794, the trans- mission or revelation of which in any manner to an unauthorized person is prohibited by law. Approved For Release 2000/08/29 : CIA-RDP79TO1003AO02400080001-6 Approved For Release 2000/QB/29=ICI RDR79MINA93ACI4249GO80001-6 RECENT STRAINS IN THE GREEK ECONOMY AND THE SHORT-TERM OUTLOOK Soon after becoming Premier, George Papandreou. began to fulfill his promise, often repeated during the election campaign, to bring about a more equitable distribution of the nation's income. He used receipts from taxes on middle and upper income groups to subsidize farmers and other rural groups. Because expenditures exceeded tax receipts, it became necessary for the government to increase its rate of borrowing. These fiscal policies resulted in increases in both con- sumer demand and the supply of money. That prices did not respond upward. was due largely to the safety valve provided by increased imports. The increased pressure was reflected, however, through the balance-of-payments accounts in a serious outflow of foreign reserves -- an outflow which probably was aggravated by the summer political crisis. The drop in foreign reserves, although serious, is not yet dangerous; the current level of reserves still provides a buffer against a balance-of-payments crisis. Officials in the Stephanopoulos government have expressed willingness to restore balance to government fiscal policies, and, if the new government is able to bring about some measure of political stability, a gradual improvement in the Greek economy may take place. 1. Government Budgets Receipts and expenditures of the government of Greece are pro- jected and recorded in two budgets: a. regular budget, which contains current items, and an investment budget. Prior to Papandreou's taking power in 1964, the regular budget was kept always in a substan- tial surplus. The surplus funds were transferred to the investment budget, where they were combined with revenues collected specifically for investment spending and with receipts from government borrowing. Since 1963, regular budget expenditures have grown more rapidly than regular budget revenues, thereby causing a significant decline in the annual surplus, as shown in the following tabulation: Approved For Release 2000/0gt297l b bM9 ]6@SA1 6dO80001-6 Approved For ReI?'+a -26AWG8h ?, ChNRIZtPT9 1i003A002400080001-6 Million US$ January - January - 1963 1964 1965 May 1964 May 1965 Actual Actual Budgeted Actual Actual Regular budget Revenues 730 825 940 302 335 Expenditures 67o 798 924 264 306 Regular budget surplus 60 26 16 38 29 The increase in expenditures during 1964 was caused to some extent by new defense outlays associated with the Cyprus crisis. Far more important, however, were direct subsidies paid by the Papandreou government to farmers, cancellations of rural debt, and improvements in agricultural services which together accounted for roughly half ($55 million) of new regular civil expenditures. An additional $39 mil- lion went for increases in educational and -social welfare programs, predominantly in rural areas. Farmers also benefited from government purchases of $75 million of surplus crops, chiefly wheat and tobacco, bought at double their normal market price. These increased benefits to rural areas were financed mainly out of increased tax receipts from the cities, primarily receipts from luxury taxes, and constituted a deliberate redistribution of income. Such trends continued under the 1965 budget. The budget calls for agricultural subsidies to increase by $13 million and allocations for social welfare and education to be up $10Z million above those of 1964. Larger government purchases of surplus crops also are forecast. Furthermore, civil servants are to receive an increase of 7 percent in both salary and pension, costing $30 million. 2. Government Borrowing Declining regular budget surpluses have made it necessary for the government to borrow increasingly to cover expenditures in the invest- ment budget, as can be seen in the following tabulation of the total out- standing end-of-year debt of the central government: Approved For Relel O) 81 .1 AkD'76T,6-r O3AO02400080001-6 Approved For Release 2000/088/28;,qQM91-0-1lqQ3pJ"09 980001-6 Domestic debt Prewar Postwar Foreign debt Prewar Postwar Total 1963 1964 1965 (Estimated) 377 438 473 . 25 25 25 352 413 448 451 478 524 264 263 262 187 215 262 828 916 997 Although these increases in government debt are large ($88 million during. 1964 and an estimated $81 million during 1965), the overall size of the debt is no cause for alarm. The total debt at the end of 1964 amounted to less than 25 percent of national income, a relatively low percentage compared with levels that governments in many indus- trial countries consider sound. The onerous aspect of the new borrow- ing is the rising proportion that is coming from abroad, 57 percent of the total in 1965 compared with 31 percent in 1964. This places an increasing burden on the government's foreign exchange reserves to make the payments of principal and interest. 3. Effects on the Economy of Government Fiscal Policies Several symptoms of impending difficulty appeared in the Greek economy during 1964. Most serious was the rapid increase in the level of consumer spending and the drain on foreign exchange reserves. These trends arose largely as a result of the government's fiscal policies. During 1964, consumer spending rose 13 percent while the total gross national product (GNP) of the economy increased by only 8. 5 percent. The government's transfer of income from high-income groups, who save a relatively large share of their income, to low- income rural groups, who save little, probably was the primary cause of this unequal rate of increase. If the growth in consumer demand continues to outstrip the growth in output of the economy, the result is likely to be price inflation. Such an outcome would be inten- sified by the increases in the money supply caused by government Approved For Release 2000/08/29- E R 9F41M4 ?Q080001-6 Approved For Rel 21QQ( /22:.@LDjRI)P_79A0.V03A002400080001-6 spending. The level of prices has not yet reflected the increases in consumer demand and the supply of money, but, if inflationary pres- sures continue to grow, stability will become increasingly difficult to maintain. One reason that prices have not increased is that much of the new consumer spending has gone for imports. These have risen rapidly, at a time when exports and other items earning foreign exchange have been relatively -stagnant. A serious depletion of the country's hold- ings of foreign exchange and foreign assets has resulted. Exacerbating this drain of reserves have been the large-scale private purchases of gold coin from the government, a speculative reaction that occurs dur- ing most political or economic crises in Greece. Such purchases probably amounted to between $70 million and $80 million during 1964, primarily because of the Cyprus crisis. The severity of the drain on foreign reserves during 1964 does not show up in official statistics of foreign exchange holdings. The real decline was largely hidden as the result of drawings on reserves from surpluses in previous years that had been deposited abroad through commercial banks. Because these funds now have been nearly exhausted, the large drop in reserves likely to occur during 1965 will be reflected as a drop in official reserves and a drawdown of the central bank's special gold fund. At the beginning of 1965, official reserves were $277 million. With a likely deficit in the balance of payments during 1965 of at least $65 million, officially reported reserves can be ex- pected to fall to below $235 million by the end of the year and assets in special funds to fall by about $30 million. 4. Effects on the Economy of the Summer Political Crisis During the interim between the Papandreou and Stephanopoulos governments this year, economic conditions in Greece deteriorated further. A decline in tax collections led the government to cut back its investment expenditures. At the same time, the Bank of Greece tightened bank credits because depositors were withdrawing their drachmas and converting them to gold sovereigns. Similarly, transac- tions on the Athens Stock Exchange virtually ground to a halt as in- vestors preferred to put their money into gold sovereigns. With regard to the balance of payments, the political crisis probably accelerated the drain on Greece's reserves of foreign exchange. While imports remained at a high level, emigrant remittances, tourist receipts, and the inflow of foreign capital declined. Approved For Relees))200OL08L22Y.-GIAMOP7BTAtOD3A002400080001-6 Approved For Release 2000/Oal2?rQA PI-~9-TiOl L*Op2AOAjQ8000l-6 Although the Greek economy is ailing, the situation is not beyond remedy. Factories, shops, and transportation continue to function smoothly in spite of the political, turbulence, with economic repercus- sions being limited mainly to the financial sphere. Even there, the drop in foreign reserves, although serious, is not yet dangerous. The current level of reserves still provides a fairly sizable buffer against: a balance-of-payments crisis. If the Stephanopoulos government succeeds in laying the ground- work for political stability, the outlook for the next several months is for gradual economic improvement. Officials in the new government already have expressed willingness to reduce agricultural subsidy pay- ments as well as to adopt other measures that will. enlarge the surplus in the regular budget. This official shift toward economic conservatism is likely to renew confidence among businessmen and foreigners and thereby bring about an improvement in investment and the balance of payments. If the new policies cut too deeply into the incomes of the working class and farmers, however, agitation for a resumption of Papandreou's more liberal economic policies is certain to break out. Analyst: Coord: OCI Approved For Release 2000f0aR9 E = 7WM6 00-24DD080001-6 Approved For Release 2000/08/29 : CIA-RDP79T01003A002400080001-6 CONFIDENTIAL Approved For Release 2000/08/29 : ~I W-~TrI f0AJ400080001-6 Analyst: I/WE Approved For Release 2000/08/29 : CIA-RDP79T01003A00246VG&dGtF1t.&4. 5280) CONTROL RECORD FOR SUPPLEMENTAL DISTRIBUTION 25X1A SERIES NUMBER CIA/RR CB 65-58 CLASSIFICATION OF REPORT CONFIDENTIAL DISTRIBUTION TO RC 50 DATE OF DOCUMENT October 1965 NUMBER OF COPIES 290 NUMBER IN RC COPY RECIPIENT DATE NO. (S) SENT RETURNED 7 D ORR 13 Oct 65 llk 8 & 176 DD/ORR 9 SA/RR II /,5~~~`~05 72 I/WE 14 Oct 65 177 5X1A 111111 O/DDI 15 Oct 65 178 CGS /HR/O s 1G81 H q. II 179 5X1A St /p II 180 OCR " 181 2 X1C II 182-240 Filed in St/P/C / a T s 6, 1~5= au- 0, 5 c / C1 e cc 9 ~s rr~ .as 7 i o 2 A roved For Release 2000/08/29 CIA-RDP79TO1003AO0240 080001-6 FOR M 2353 (13) 2. 65 co94ppr ni n /c 1 ~ved For Release 2000/0p/? ,EtlP-RDP79T01003AO024 00 C ON' IDE ' L Approved For Release 2000/08/29 : CIA-RDP79TO1003AO02400080001-6 St/A/DS Distribution of Current Support Brief No. 65-58, Recent S n the Greek Economy and the Short-Term Outlook --- October 196 Copy No. Recipient 1 - 5 6 sa 10 11 - 13 14 - 19 20 21 - 27 28 - 34 35 36 - 40 41 - 46 47 48 - 53 54 - 58 59 - 60 61 - 62 63 64 - 69 70 71 *a O/DDI, Room 7E32, Hq. O / DDI:, 3Cb1 25X1A k Ch/E D/ONE St/CS St/PR D/T (1 each branch) D/R (1 each branch) MRA D/P (1 each branch) D/F (.1 each branch) St/PS D/.I (1 each branch) D/A (1 each branch) GD/OBI C.D/OBI CD/X/OBI RID/SS/DS, Unit 4, Room 1B4004, Hq. St/P/A St/FM M*A%M2;5%x*Rxxxwbt 73 GR/CR 74 BR/CR 75 FIB/SR/CR, Room 1G27, Hq. 76 Library/CR 77 IPI/CR 78 Archival,- File - Records Center 79 Chief, OCR/FDD 80 DCS/SD 81 OCI/SA/R, Room 5G19, Hq. 82 DD.I/CGS, Room 7G00, Hq. 83 - 84 DDI/CGS/HR, Room 7G00, Hq. 85 DDI/RS, Room 4G39, Hq. Approved For Release 2000 GROUP 1 At9T IWd :? ' decleetlflctlai `" ln'n Approved For Release 2000/08/29 : &Q= A002400080001-6 Copy No. Recipient 86 - 88 D/OSI 89 D/OBI 90 DD/S&T/SpINT 91 - 92 OTR/IS/IP, Room 532, 1000 Glebe (1 - OTR/SIC) 25X1A 93 NPIC/CSD/REF, Room 15518, 94 NSAL, Room 3W136, Ft. Meade (via GB31, Hq.) 95 - 103 OCI Internal (via SDS/DD/OCR) 25X1A 104 - 112 NSA (via GB31, Hq. ) 113 - 114 National Indications Center, Room 1E821, Pentagon 115 - 126 State, INR Communications Center, Room 6527, State 25X1A Dept. Bldg. 127 - 130 USIA, IRS/A, Room 1002, 1750 - Pennsylvania Avenue, N. W., Attn: Warren Phelps 131 - 175 Defense Intelligence Agency, DIAAQ-3, A Building, Arlington Hall Station 176 - 240 St/P/C/RR, Room 4F41, Hq. (held in St/P/C, 15 Oct 65)'. 241 - 290 Records Center 'CONFIDENTIAL Approved For Release 2000/08/29 : CIA-RDP79T01003A002400080001-6 Approved For Release 2000/08/29 : GlA fitD~7tT01b0?A002400080001-6 21 October 1965 MEMORANDUM FOR: Chief, Dissemination Control Branch, DD/CR FROM Acting Chief, Publications Staff, ORR SUBJECT Transmittal of Material It is requested that the attached copies of CIA/RR CB 65.58, Eeeent Strains in the Greek Economy and the Short-Term outlookOctober 195;, Coii 'ider,tial, be forwarded as follows: State, INR Communications Center, Room 6527, State Dept. Bldg. Suggested distribution for Embassies in Moscow, London, Ankara, Athens, and dicosia ACTI T E D MA C The dissemination requested by this memorandum has been completed; pate: 'Pe-'4. t'J Attachments: Copies #191 #195 o CB 65-58 acs CGS/RB Approved For Release 2000/08/29 : C -fPP7 010&3A0024(I0080001-6 ;i~ " a T LE ML woor I r ; TIAL p roved For Release 2000/08/29 : - R 4, 9 003AO02400080001-6 Project No. 44. 5280 Title: Recent Strains in the Report Series CIA/RR CB 65-58 (CONFIDENTIAL) Responsible Analyst and Branch I/WE 25X1A RECOMMENDED DISTRIBUTION TO STATE POSTS Bloc Berlin, Germany Bucharest, Romania Budapest, Hungary VMoscow, USSR Prague, Czechoslovakia Sofia, Bulgaria Warsaw, Poland Europe Belgrade, Yugoslavia Bern, Switzerland Bonn, Germany Brussels, Belgium Copenhagen, Denmark Geneva, Switzerland Helsinki, Finland The Hague, Netherlands Lisbon, Portugal /.London, England Luxembourg, Luxembourg Madrid, Spain Oslo, Norway Paris, France Rome, Italy Stockholm, Sweden Vienna, Austria Wellington, New Zealand Manila, Philippines Canberra, Australia Melbourne, Australia Bangkok, Thailand Djakarta, Indonesia Hong Kong Rangoon, Burma Kuala Lumpur, Malaya Saigon, Vietnam Seoul, Korea Singapore, British Malaya Taipei, Formosa Tokyo, Japan Vientiane, Laos Colombo, Ceylon Near East & South Asia /Ankara, /Athens, Turkey Greece and the Short-Term Outlook o, Egypt Damascus, Syria Kabul, Afghanistan Karachi, Pakistan New Delhi, India /Nicosia, Cyprus Tehran, Iran Baghdad, Iraq Tel Aviv, Israel Beirut, Lebanon Amman, Jordon Jidda, Saudi Arabia Ottawa, Canada Approved For Release 2000/08/' IF, IN 10 F)WARS' - declas?lficaflon Mexico Guatemala Panama Brazilli.a, Brazil Buenos Aires, Argentina Bogota, Colombia Santigao, Chile La Paz, Bolivia Montevideo, Uruguay Caracas, Venezuela Yaounde, Cameroun Leopoldville, Congo Addis Ababa, Ethopia Accra, Ghana Abidjan, Ivory Coast Nairobi, Kenya Monrovia, Liberia Tripoli, Libya Rabat, Morocco Lagos, Nigeria Mogadiscio, Somal Khartoum, Sudan Tunis, Tunisia Pretoria, South Africa Algiers, Algeria Cotonou, Dahomey Dakar, Senegal Bamako, Mali SECRET Approved For Release 2000/08/29 m c RECORD OF REVIEW OF ORR PUBLICATIONS FOR SECURITY/SANITIZATION APPROVAL SUBJECT C,,,6 A 8R M EXTENS I,OgN SECURITY REVIEW SANITIZING INSTRUCTIONS ITEM DATE INITIALS REMOVE UNEDITED DRAFT 25X1A EDITED DRAFT DELETE RELEASABLE TO 25X1 C SUBSTITUTE REMARKS FORM 1 2. 64 2358 GROUP I Excluded from automatic Approved For Release 2000/08/29 : CIA-RDP79TO1003AO02400080001-6 Sources used in preparing Project 44.5280; Air P-r- MR A b?assy Athens, A-566, January 19, 1965, Central Government Budget(Lim.0f.Use) A-942, May 26, 1965, Greece's Public Debt (Unclassified) A-38,, July 15, 1965, Greek State Budget, CY 1965(Unclassified) Approved For Release 2000/08/29 : CIA-RDP79TO1003AO02400080001-6