Let us pose a now heretical question, how much did the euro benefit Greece.
This is easy to answer if we consider the triumph of an economy that became a model while retaining its local currency, the economic miracle of Poland.
The economy of Poland surpassed 1 trillion dollars last year, sealing decades of dynamic growth, which stands in stark contrast to the vulnerable economies of its much larger European neighbors, such as Germany or France, while highlighting how the adoption of the euro for countries such as Greece proved disastrous with regard to the Greek productive model.
Our economy remains an economy based on consumption.
And this is because it trapped it in a low productivity economic paradigm.
This milestone, confirmed by data published on Friday (30 January) by the country’s statistical service, most likely elevated Poland into the top 20 economies of the world for 2025.
The preservation of the local currency, the zloty, served as the vehicle for the economic miracle, the surge in direct or indirect foreign investment, mainly from Germany, the maintenance of trade surpluses, and the increase in productivity in an economy with a battered workforce, we all remember the specter of the “Polish plumber”, the cheap labor that was expected to flood developed economies from the end of the 1990s.
It is expected to surpass Switzerland, which has not yet published its data for the end of the year.
Poland now stands just behind the 19th largest economy in the world, Saudi Arabia, with a GDP of 1.3 trillion dollars.
Gross Domestic Product (GDP) increased by 3.6% last year, compared with 3.0% in 2024, according to data published on Friday (30/1) by the domestic statistical service.
Since the early 1990s, economic output has been growing at an average rate of approximately 4% annually, making Poland one of the fastest growing economies in Europe.
How the Polish miracle happened
The driving force of this transformation is the combination of strong private consumption and steady public investment.
Incomes are rising steadily, supported by a strong labor market.
At the same time, public spending, partly financed by the European Union, as in the case of Greece, has helped modernize Polish industry and develop an increasingly digitized services sector.
The structure of the Polish economy
The Greek counter example and the “cafes economy”
As regards Greece, without a direct comparison of the two economies being possible for reasons of structure and scale, the reforms imposed by the three memoranda in 2010, 2012, and 2015 not only failed to modernize the Greek economy, but trapped it in a low productivity model associated with what is called the “cafes economy”, as noted in a study by economists Michalis Nikiforos, Vlasis Missos, Christos Pierros, and Nikolaos Rodousakis, within the framework of LSE working papers.
This “cafes economy” constitutes the visible part of a broader shift of the Greek economy during the same period toward “Accommodation and Food Service Activities” (AFSA, entertainment and hospitality services), as the sector is officially named, which also includes restaurants, bars, hotels, and other tourism related activities.
After 2009, a sharp increase is recorded in the share of this sector in value added and especially in employment.
This structural change is problematic because these activities constitute a low productivity sector.
In Greece, its productivity was among the lowest across different sectors of the economy before the crisis, but it has also declined by approximately 40% since 2009, allowing the sector to absorb a large share of employment.
In 2024, labor productivity in Greece was 16% lower than its 2009 levels, lower compared with the level at the depth of the crisis in 2015.
The decline in labor productivity in Greece reflects the contraction of output caused by austerity measures, as well as the collapse of real wages due to the surge in unemployment and the liberalization of labor markets.
Greece thus constitutes an interesting case study of how a blind horizontal application of structural reforms, without sufficient attention to the institutional framework, implementation capacity, and sectoral dynamics, can lead to counterproductive outcomes.
Changes in employment, provision of services
The failure of the memoranda
The “twin deficits” and the presence of numerous structural rigidities were identified as the main culprits of the crisis.
As a result, all three programs had two main dimensions.
On the one hand, there would be intense fiscal adjustment, which would reduce the central government deficit and, consequently, the external deficit as well.
On the other hand, a series of structural reforms intended to resolve structural rigidities, improve resource allocation, increase competitiveness, and promote production and productivity growth over the medium term.
The decline in productivity destroys the development orientation
How did this experiment fail. One issue that has not received sufficient attention in the literature analyzing the impacts of the adjustment programs is productivity, the economists point out.
Output declined much more than employment during the crisis, while employment has recovered much faster than output after 2016.
This divergence led to a significant drop in labor productivity during the crisis, approximately 20% below pre crisis levels.
In contrast to output, which has shown some albeit slow recovery in recent years, productivity has remained stagnant, undermining development prospects.
In 2023, labor productivity remains at the same level as seven years earlier, at the beginning of the recovery.
Productivity growth, that which Poland achieved, constitutes the cornerstone of long term growth for every economy and for this reason, as noted above, it was the main objective of the ambitious reform agenda adopted in the three adjustment programs.
The dual economy and de-development
Over the past fifteen years, the Greek economy has experienced a process of “de development” and dualization according to the frameworks of a conventional dual economy model. When the economy grows, the modern capitalist sector expands and draws labor reserves from the traditional sector. When the economy contracts, the capitalist sector shrinks and surplus labor is absorbed by the traditional sector.
Importantly, output in the traditional sector is quasi fixed, meaning that changes in employment are primarily addressed through changes in productivity.
The parallels with the Greek experience are clear.
The crisis led to a sharp decline in economic activity and employment.
The AFSA sector functioned as the traditional sector in a dual economy model, absorbing a large share of surplus labor through significant adjustments in productivity.
This process was also accompanied by wage reductions, an increase in part time employment, and greater job insecurity.
After 2010, the onset of the crisis and the implementation of austerity measures within the adjustment programs exerted significant downward pressure on both public and private spending.
Despite the fact that net exports improved during this period, this was mainly due to the drastic contraction of imports caused by the domestic recession, with export growth playing a more limited role.
The vulnerable tourism product
The entertainment and leisure sector was one of the few sectors that largely escaped the broad collapse of demand during the crisis period. This resilience can be attributed to structural characteristics of both the Greek and the global economy.
Greece remained a major international tourist destination, benefiting from the continued global expansion of the tourism sector. In addition, domestic demand for services such as coffee remained relatively inelastic, reflecting its deep cultural significance.
The development of an economy, as has become evident in Greece and other popular tourist destinations in recent years, is accompanied by certain challenges. First, an expansion of tourism will inevitably encounter, sooner or later, significant diminishing returns to scale. In most cases, the natural and cultural “capital” on which tourism is based is almost fixed and cannot be expanded.
We see that the deterioration of the current account balance before the crisis was due to an increase in the deficit in goods trade as well as a deterioration of the income deficit. During the same period, the services balance remained stable, while the travel balance, a subcategory of the services balance, declined slightly as the economy grew faster than international tourism.
The Greek economy faces this fundamental dilemma.
On the one hand, these activities are characterized by low and declining productivity and cannot function as a long term growth engine, while at the same time they generate a range of other problems, cultural and environmental degradation, worsening of the cost of living crisis, and more.
On the other hand, the economy depends heavily on them as a source of aggregate demand creation and external income.
The challenges for Poland
“This is a story of unspeakable economic success,” said Marcin Piatkowski, Professor of Economics at Kozminski University in Warsaw. “Poland should be the model of the European convergence engine,” he added, referring to EU efforts to help developing economies catch up with wealthier countries.
After the fall of communism, the country rapidly developed a dynamic private sector, as well as a highly diversified industrial and export sector, he noted.
This made Poland particularly resilient to economic shocks. With the exception of the Covid 19 pandemic, Poland is the only economy in the EU to have avoided recession since the early 1990s.
“This is not really about EU funds. It is about open markets, about institutions, about the rules of the game that Poland has absorbed and transformed into sustainable growth,” said Piatkowski.
This message comes at a critical moment for EU officials.
Amid the fragmentation of the global economic order and stagnating growth across the bloc, European politicians are calling for deeper integration and increased investment, policies promoted in a report by Mario Draghi, former president of the European Central Bank. The rise of Poland, which now imports more goods from Germany than from China, provides evidence for this model.
However, after decades of “training” growth, Poland must now adapt to life in the “big leagues”. In the coming years, its economy will need to contend with higher labor costs, lower investment returns, and reduced EU funding, according to Matthias Schupeta, economist at DZ Bank.
Poland must also address rising public debt.
At approximately 6.8% of GDP in 2025, the country’s fiscal deficit is significantly higher than the 3% limit for EU member states.
According to the Organisation for Economic Co operation and Development (OECD), the Polish government will need to curb spending and raise taxes to reduce debt in the coming years.
In addition to reduced EU funding, which is expected to peak in 2026, such measures will likely slow growth in the medium term, according to the OECD.
Nevertheless, private sector debt in Poland remains low by European standards, limiting balance sheet risks and vulnerability to economic shocks, while increasing the scope for private investment, Piatkowski noted.
“When you combine public and private debt, Poland is relatively unleveraged,” he said.
The European Commission forecasts that Poland’s fiscal deficit will decline to 6.3% of GDP in 2026.
Poland also faces profound demographic changes. Like the rest of Europe, it has a rapidly aging population, burdened by long term brain drain, as many working age citizens have moved abroad for employment opportunities.
“The high quality and cheap labor force of Poland is gradually being depleted,” said Adam Antoniak, senior economist for Poland at ING.
Addressing these challenges will be crucial to achieving Poland’s next major goal, joining the G20 group. The country has been invited as a guest to a future G20 summit in December, but permanent membership would give it a stronger voice internationally.
The challenges for Greece, growth without depth
According to an analysis published by analyst Mathias Gnevoch at the European Stability Mechanism (ESM) on Thursday 29 January, Europe’s sovereign bond markets have largely reintegrated since 2019, after years of fragmentation following the eurozone debt crisis.
For Greece, this translates into a clear improvement in financing conditions.
What is striking about these analyses, which “feed” the government narrative of a strong economy, is that they ignore the issue of labor productivity.
This development reflects the dynamic recovery of the Greek economy in recent years, with strong growth rates, sustainable fiscal surpluses, and a steady reduction in the debt to GDP ratio since 2021.
In May 2025, the spread of the Greek 10 year government bond against the German Bund fell below 80 basis points for the first time since 2007. These levels recall the pre crisis period, when eurozone government bonds were considered by markets to be almost equivalent.
Alongside lower borrowing costs, Greece faces a second significant development, its inclusion in the category of Developed Markets.
A dependent productive model - Balance of payments
New risks in a more “integrated” environment, what normality
However, both the ESM analyst and other institutions point out that reintegration into the European economic “core” does not entail only benefits. More integrated markets also mean stronger cross border spillovers between countries.
In practice, this means that Greek bond yields are now much more affected by developments in the large eurozone economies.
For example, a significant fiscal expansion announced in Germany in March 2025 led to an increase of approximately 35 basis points in the yield of the German 10 year bond, with Greek yields following almost the same path.
While this correlation is an indication of a return to European normality, it simultaneously increases Greece’s exposure to external risks that are not directly related to domestic economic performance.
Consequently, this means that in reality the Greek economy remains unshielded.
The ESM analyst warns that despite the significant compression of spreads, the risk of renewed widening remains, especially if economic conditions in the eurozone deteriorate or unforeseen international developments arise. Trade tensions or unexpected fiscal decisions in large economies can directly affect Greece’s borrowing costs.
In this environment, the progress achieved is significant, but it is not guaranteed. Maintaining prudent fiscal policy, further reducing debt, and strengthening economic resilience remain critical prerequisites for ensuring that the benefits of returning to European “normality” endure.
Low productivity, however, does not bode well for the Greek economy amid geopolitical turbulence.
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