Europe, Middle East

The Other Greek Economy

Four months ago, Greek politics dominated the news. Even the Chinese stock market downturn, in which the Shanghai index dropped by over 30 percent in the month leading up to the Greek referendum, took a far backseat to Athens on every broadcast. Greece’s own stock market fell nearly to 26-year lows at the time, was shut down for five weeks in July, and then, immediately upon reopening, set a modern record by losing more value in a day than even Wall Street had on Black Monday in 1987. Even today the Athens index remains 11 percent lower than it was during its midsummer hiatus.

(All graphs compiled by author unless otherwise stated)

The media’s focus has completely flipped since then: it is now China’s economy and its impact on commodity prices that has the world’s attention. Even the re-election of Greek Prime Minister Alexis Tsipras and his political party Syriza a month ago barely made a blip in American news coverage; it fell well behind other stories like the visits of Pope Francis and Xi Jinping to the United States, the ongoing migrant and refugee flows into Europe, and the Volkswagen emissions-hiding scandal. One wonders if the Greek economy will soon grab the global spotlight once more as it has periodically been doing for almost a decade now, or if new media and economic patterns are emerging instead.

This article is not just about Greece, however. It is also about the world’s only other Greek-speaking state, Cyprus. The Greeks and Greek Cypriots have a lot in common with one another, financially speaking. Both use the euro as their currency, both have been struggling with severe bailout-related crises, and both depend quite heavily on imported oil. (See the two graphs below; also, notice in the graph above how the Athens stock market index responded to the two US invasions of Iraq, which many investors worried would cause the price of oil to spike in the short-term).

This dependence on imported energy, like that of other struggling European countries such as Spain and Portugal – and in stark contrast to Scandinavia, Britain, the Netherlands, and most of Eastern and Central Europe, which produce a lot more of their own fossil fuels or else have less energy-intensive economies- has generally been overlooked in the popular narrative of the Eurozone crisis, which has instead tended to emphasize cultural differences that exist between northern and southern European countries. Yet while it has been much more common to explain Europe in terms of thrifty, efficient Germans and nifty (or shifty) tax-dodging Greeks, the cost of importing energy was perhaps even more significant a factor in weighing down Europe’s Mediterranean economies relative to northern Europe when crude oil was still at well above $100 per barrel.

[Even Italy, which unlike other southern European economies is a mid-sized oil producer in its own right, with a slightly higher oil production than Germany or than the combined oil production of France, Spain, Turkey, and Greece, has still been hurt by energy economics: it is the world’s third largest natural gas importer, and was a leading customer of Libya before Gaddafi was overthrown. Still, Italy’s unemployment rate has not been nearly as high as Spain’s or Greece’s in the past decade (though notably, when oil prices were low around the turn of the millennium their unemployment rates were roughly the same), and indeed, Italy’s unemployment rate has even been lower than that of southern France].

This year, in contrast, when oil and gas prices have plunged, Spain has been the fastest-growing economy in Western Europe, experiencing a bigger GDP gain than it has in any year since 2007. Portugal and France are also thought have grown by a relatively decent amount, and Italy to have avoided recession. The two Greek economies are looking at Spain and hoping for a similar much-needed bounce.

Cyprus – or, more accurately, the 63 percent of Cyprus’s territory and 76 percent of Cyprus’s population that is governed by Greeks rather than by Turks – retains close ties to mainland Greece. Cyprus and Greece tried to unite formally in 1974 under the control of a Greek military junta, prompting a Turkish invasion of the island, and today Cyprus remains dependent on Greece for an estimated 20 percent of its trade as well as  for much of its foreign investment. Had the Eurozone Grexit actually occurred as many expected it would, it could probably have triggered a “Cyprexit” as well, which doesn’t have quite the same ring to it.

Cyprus’s relations with Turkey remain poor, meanwhile, and Turkish-inhabited Northern Cyprus continues to go diplomatically unrecognized by every country in the world outside of Turkey. That said, in 2008 the wall between Greek Cyprus and Turkish Cyprus that ran through the largest city on the island, Nicosia, was taken down, and in 2014, a decade after a failed reunification referendum in 2004, reunification talks were renewed between the two sides.

Now could be a good time to think about investing in Cyprus, not only because of how un-repeatably poorly it has done in recent years or because of the “White Swan” possibility that it could surprise the world by signing a deal that would finally reunify its two estranged halves, but also because its economy could perhaps benefit more than any other in Europe from today’s lower oil prices.

Indeed, Greece too, as well as other nearby countries like Serbia, Bulgaria, Croatia and to a lesser extent Turkey, could similarly benefit from the mix of relatively low oil prices and extremely low expectations. Growth in these countries could also benefit Cyprus, particularly if technology increasingly allows Cyprus to become even closer with its fellow Greeks in Greece and Turks in Turkey.

(Cyprus is located about 900 km from Athens, where around a third of Greece’s 11 million people live, and 750 km from Istanbul, which is the world’s fifth largest city by some measures. Cyprus is, in fact, located closer even to Moscow, Lahore, or Addis Ababa than it is to its fellow Eurozone members in Dublin or Lisbon).

Cyprus’s general stock market index has already fallen by 24 percent in the past year and by over 90 percent since 2011, so it might now be possible to pick up some valuable Cypriot assets for a cheap price.

Here are ten other things about Cyprus and Greece to consider:

1. Cyprus speaks English better than most other European states (with the exception of Scandinavia, the Netherlands, Switzerland, and Austria, which are also excellent at English) because it was controlled by Britain from 1878 until 1960, maintains a British air force base today where over 8,000 Brits continue to live along with their families and thousands of Cypriot employees, and has a large international tourism sector. Cyprus’s neighbors, namely Greece, Israel, and Lebanon, are also great at English. Egypt, another former British-ruled neighbor that attracts lots of tourists, is not too bad at English either, and is getting better because its population is still extremely young.

english %

Note: Second-language statistics are difficult to be certain of, so you should take this graph with a large grain of salt.

2. Cyprus and Greece are both not too dependent on exports of goods and services, compared to other European countries. In fact, as the graph below shows, Greece is the only small economy not to be dependent on exports; the other six countries closest to the top of this list are Europe’s six largest economies. Not being too dependent on exports is probably a good thing for Greece and Cyprus right now, considering that economic growth in Europe and the world has not been strong this year.

(You will notice, for example, that Ireland is by far the most dependent on exports, which may be part of the reason it was hit especially hard during the global financial crisis and recession around 2008. In contrast, Turkey, which may be the least export dependent, bounced back strongly from the global recession, notching an estimated nine percent GDP growth in both 2010 and 2011).

3. Cyprus, even more than Greece, is economically dependent on tourism. Going forward, both hope to attract aging northern Europeans – including Russians, who like Greeks are Christian Orthodox – fleeing the winter and now being able to vacation abroad more easily because of technologies like the Internet. With Russia having frigid winters, a population of 144 million (by far the largest in Europe), and a Baby Boomer cohort that is now almost 60 years old on average and mostly cannot afford to travel to more distant and more expensive summer vacations in places like Spain, Italy or France, both Cyprus and Greece are hoping for a big tourist increase in the years ahead.


One area to look to here is Turkish-Russian relations. Turkey has become the biggest destination for Russian tourists in recent years, but if the relationship between the two regional powers deteriorates again as historically it has on many occasions (in fact they have already begun to deteriorate in the past week), more Russians could be steered toward Greece, Cyprus, and the Balkans instead, as well as toward countries like Egypt which has been Russia’s second most popular tourist destination in recent years.

Another place to look is the Caucasus, both within Russia and without: any renewed militancy in that region could threaten Russia’s tourist infrastructure build-up around Sochi along the coast of the Black Sea. The same is true for the Balkans, where dormant conflicts in tourist havens like Croatia could, if they were to turn violent once again, make Cyprus and Greece more appealing alternatives.

4. It is difficult, and in a certain sense effectively impossible, to find good statistics on the length of countries’ coastlines, as a result of the coastline paradox. That being said, I have given it a rough shot, and come up with the following stats:


It shows that, along with the remote New Zealand-Australia-Papua New Guinea region in the southern Pacific, the Greece-Cyprus-Croatia region has by far the world’s longest warm-climate coastline per capita. In fact, even Turkey, with a population of 74 million, does not do too badly in this respect since it has lengthy coasts along the Mediterranean, Aegean, and Black Sea. Considering how much people like owning seaside land, this could be a good characteristic to have. Nearby Italy also does somewhat decently, because of its long peninsular shape and its islands of Sicily and Sardinia, which are the only two Mediterranean islands with a larger population than Cyprus.

5. According to the World Bank, Cyprus has one of the lowest “total age dependency ratios” in the world and, with the exception of Slovakia, the lowest total age dependency ratio in all of Europe. The total age dependency ratio measures the number of people in a country aged 15 and under or 65 and older relative to those aged 15-65. Cyprus has very few children or seniors relative to the size of its working-age population, which is arguably a very good thing to have. Greece, on the other hand, does not have this, as you will notice on the graph below.

Total Age Dependency Ratio

Cyprus also has the lowest share of its population aged 80 years old or older in Europe with the exceptions of Slovakia and Ireland. Cyprus’s neighbors – Israel, Lebanon, Turkey, and Egypt – have even smaller shares of their population aged 80 years or older. Greece, in contrast, has the highest share above 80 in Europe with the exception of Italy, which is likely part of the reason its public finances are so strained. Other troubled economies like Spain, Portugal, and France are at the very bottom of this 80-and-up list, along, interestingly, with Germany.

80+ ratio

The same is true of the “Old Age Dependency Ratio”, which is the number of people a country has aged 65 years and older relative to those it has aged 15-64.

old age ratio

6. Outside of Scandinavia or the former Soviet Union, both Greece and Cyprus have some of the most land per capita in Europe, as can be seen in the graph below. So too do some of their neighbors, like Turkey and other Southeast European countries. This relative wealth of land could be good for Greece and Cyprus, but there is also a catch: Greece, and especially Cyprus, are lacking in freshwater. Indeed as the second graph below shows, Cyprus is the most water-strained country in Europe.

pop density
Graph Source: European Environment Agency

And of course, many of Cyprus’s Middle Eastern neighbors are in very poor shape on this front as well, though some, like Israel, are trying to come up with technological solutions for their freshwater shortages – and both seawater desalination and wastewater treatment are significantly cheaper to do when energy prices are low as they have become in the past year.

Two months ago, by the way, Turkey finished constructing a freshwater pipeline to Northern Cyprus which, at 80 km in length, is the longest underwater water pipeline in the world. It is supposed to have a significant effect upon Northern Cyprus’s agricultural production. Greek Cypriots are wary of becoming dependent on this pipeline, however, and Turkey is far from being rich in freshwater itself.

7. This graph below shows that Cyprus’ economy performed abysmally in 2014 and especially in 2013, yet is expected to finally start growing again in 2016. Greece, meanwhile, already started growing again in 2014 and is forecast to do so even more in 2016 while Cyprus’s closest neighbors, Lebanon, Israel, Turkey, and Egypt, are expected to grow quite quickly in 2015 and 2016.

gdp growth europe

Other Mediterranean economies, particularly Spain, are also expected to recover from their poor performances in recent years, and Russia is expected to start growing again in 2016 after the sharp contraction it has been experiencing in 2015. Three other countries in Cyprus’s general neighborhood, Syria, Ukraine, and Libya, have of course also been doing horribly in recent years, and will hopefully recover as well.

8. Britain has had very strong economic growth this year compared to many other countries in Europe or the developed world. This could help Cyprus since the two countries retain ties in a number of different ways, even beyond the tourist or banking sectors. Britain is in fact home to a large Greek Cypriot diaspora, most of (the first generation of) whom left the island when the Turks invaded in the mid-1970s. Today the Cypriot population in Britain is about 20-25 percent as large as that of Greek Cyprus itself. With London and Cyprus over 3,000 km apart from another, British economic growth as well as distance-shrinking technologies like the modern Internet could help the Cypriots benefit from their British connections.

Another country with potentially close ties to Cyprus, as we have already discussed, is Russia. Russia’s economy had a bad year as oil and other commodity prices fell, but it is nevertheless expected to start growing again at a fairly decent pace in the years ahead, at least relative to more developed Western European economies.

Moreover, it is not impossible that Russia’s slowdown could actually benefit Cyprus, if wealthy Russians worried about their domestic situation decide to start parking more of their assets abroad in these countries. That said, Russians may be less likely to do so than they used to be, because in 2013 the Cypriot government used the excuse “it’s just the money of shady Russians” in order to help justify its seizure of cash from Cypriot bank deposits in accounts with over 100,000 euros in order to pay off Cypriot debts.

9. Cyprus has resources it can use to play a role in the global battle against coal production. As of 2011, it generated more solar power per capita to heat space or water than any other European country: 611 W per capita, compared, for example, to 385 W for Austria and 253 W for Greece, and 120 W for Germany, which were some of the other top solar producers in the region. Cyprus and Greece also potentially have wind power because of their long coastlines per capita and because of their many windy cliffs and hilltops.

Cyprus, and perhaps Greece as well, may also have large reserves of offshore natural gas. The Eastern Mediterranean around Cyprus has been the site of some of the world’s largest discoveries of late, not only in Cyprus, but also in neighbouring waters off the coast of countries like Israel. Less than a month ago, in fact, the Italian energy company ENI may have found the Mediterranean’s largest discovery ever in Egyptian waters not too far from Cyprus’s. The Egypt gas find could put Cyprus’s gas production dreams at risk, though in theory it could also help justify the construction of an underwater pipeline to Europe that both countries could feed their gas into.


At present, Cyprus faces logistical challenges in exporting its gas to Europe, particularly if it does not want to be dependent on exporting via a yet unbuilt pipeline that would run underwater to Turkey, which has an estimated construction cost of 3 billion dollars, in comparison to the estimated 10 billion dollar gas liquefaction and export terminal that it has been considering building instead.

Still, its gas could ultimately prove valuable if, for example, Western Europe’s relationship with Russia continues to deteriorate, if gas production in fields in the North Sea continues to drop, if its gas supplier Algeria undergoes any political instability like it faced in the 1990s as its leader Abdelaziz Bouteflika (who has ruled since 1999 and is now thought to be 78 years old) continues to age or passes away, or if government pricing of carbon emissions rise a lot and thus make gas ever more desirable when compared to coal.

10. Cyprus’s position next to the Suez Canal, which was expanded this year, puts it in a position astride some of the world’s major shipping lanes. By sea, Cyprus is halfway between Mumbai and London, and halfway between New York and Kuala Lumpur. Cyprus’s ability to leverage its central shipping position to become a significant manufacturing economy has thus far been limited by its lack of a sizeable labour force, as its population is barely more than a million. Going forward, however, as machines become used more and more in industry in place of human labour, Cyprus’s manufacturing output could perhaps take off, if – a very big if – it can produce a skilled workforce to run its industries and cheap energy to power them.

Greece, similarly, has an enviable position near Suez and at the point where the Black, Adriatic, and Mediterranean seas converge, and has more natural harbours and sheltered seas than perhaps any other country in the world. It is in fact these protected coasts which allowed its city-states and kingdoms to dominate regional commerce throughout most of antiquity, and to have more registered merchant vessels in the present day than any other country in the world apart from China.

In theory, Greece could save ships traveling between Asia and Europe from taking their usual lengthy detour through the western Mediterranean and northern Atlantic. The Greek port of Piraeus next to Athens already handles more containers ever year than all but three other ports among Mediterranean EU countries and eight other ports in the EU as a whole. By 2016 it may become the Mediterranean’s largest port. As of 2013, according to Eurostat, Greece handled approximately 5 percent of the European Union’s “gross weight of seaborne goods handled”, which is a lot considering that Greece only accounts for an estimated 1.3 percent of the EU’s overall GDP.


Similarly, Russia could be likely to look to Greek ports as a way of carrying out trade that bypasses the Turkish Straits that separate the Black and Mediterranean seas and the Skagerrak Strait that separates the Atlantic from the Baltic Sea. Given Russia’s escalating involvement in the Syrian civil war, which is hurting Russia’s relationship with Turkey while at the same time making it need to send supplies into the Mediterranean through Turkish waters, Russian access to Greek ports could become especially important.

In order to do this, however, Greece would need to overcome the political and geographical challenges of transporting goods overland between Greek ports and European (or Russian) markets via Southeastern Europe. In addition to logistical challenges, doing so would also represent a direct challenge to the established megaports of the Netherlands and Belgium, as well as to the hopes of Italy which would like to achieve a similar goal for the coast along its own southern heel.

That said, there may actually be some reasons for Greece to be hopeful in this area. Greece’s ports are roughly 20-40 percent closer the Suez Canal by ship than southern Italy is, and Greece has far more and better sheltered harbours than southern Italy does. What Greece really needs, however, is a much cheaper way of transporting goods via its rugged mountain roads, as well as a cheaper way of transporting goods intermodally so that it would not be too expensive to unload goods at Greek ports, take them by land to the Danube River (which is 400 km from Thessaloniki and 850 km from Athens), and then load them back on to barges or trains in order to get them to their final destinations in Europe. (The Danube-Main-Rhine canal was completed in 1992, and can handle barges up to 190 metres long and 11.5 metres wide, with a depth of 2.7 metres).

I don’t want to dig in to this topic here, but I suspect there are technological reasons to think that both of these challenges might actually be overcome in the not-too-distant future. In fact it may wind up being the political factors, rather than the purely logistical ones, that are more difficult for Greece to get past. In particular, Bulgaria, Romania, or Hungary could put up formal or informal trade barriers that make it difficult for such a trade corridor to become prominent, and the former Yugoslavian countries in the Balkans could be too unreliable to provide alternative overland routes.




3 thoughts on “The Other Greek Economy

  1. Pingback: Future Economics

  2. andrew says:

    Well written and informative. On the question of re-unification of Cyprus, I do not see this happening at all in the short to medium term. If anything, the opposite. I know from talking to people on the island that there is still to this day deep resentments on both sides. Efforts by third parties to broker a deal are not going to work because the parties do not want it. Even the younger generation are often “inheriting” the views of their parents on this question.

    Geo-politically you now also have a new factor in the area: namely the arrival of the Russian navy in the eastern mediterranean and their airforce in western Syria. They will not be leaving any time soon.

  3. An interesting and wide-ranging analysis. Just a few observations:
    ‘Cyprus and Greece tried to unite formally in 1974, prompting a Turkish invasion of the island’ – rather glosses over the fact that it was Greece’s military dictatorship which attempted to annex the island in opposition to international agreements, and toppled as a result.
    It may be that Germany, Japan and China have low energy imports in relation to GDP – but they still import huge amounts of fossil fuels, and there is a question of how they got their GDPs to the high levels they reached.
    Some of us had high hopes for the Tsipras government, which have largely been dashed. In the absence of an independent economic solution, Greece will continue to be enslaved by the Great Powers of the EU. As evidence, Tsipras in now joining Germany etc in blaming Turkey for the refugee crisis, and saying Turkey should keep those millions where they are.

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