In 2015 Greece was on the brink of an economic disaster. In the aftermath of the financial crisis its debt ballooned and was downgraded to “junk” status. The so-called troika of institutions — the IMF, European Commission and European Central Bank — were desperately trying to keep it afloat, and speculation mounted over its withdrawal from the eurozone. Now, it is one of the fastest growing economies in the bloc, and its central bank governor expects it to regain its investment-grade credit rating this year. The turnround should be lauded, but with Greece heading to the polls on Sunday, it is vital that the next government builds on the hard-won progress.
The foundations for the economic revival were forged by successive governments enacting austerity measures, including tax rises, public sector wage controls and changes to pensions, to meet the conditions of rescue packages. In 2018, Greece left its third and final bailout programme, and last summer it exited post-bailout monitoring. Although the pandemic led to a surge in debt, last year Greece’s debt-to-GDP ratio fell by more than 20 percentage points and the government achieved a small primary budget surplus. Enhanced fiscal prudence means the spread of Greek debt over German Bunds has dropped sharply since the height of the eurozone debt crisis, to trade close to Italy’s now.
Since 2019, Prime Minister Kyriakos Mitsotakis, leader of the ruling New Democracy party, has overseen a pro-business and relatively orthodox management of the economy. Foreign direct investment and exports have grown strongly. The economy is now 6.4 per cent above its pre-pandemic level.
But success achieved to date should not blind the country to the reforms needed ahead. Greece still has the highest debt load in the eurozone, and the economy is still about a fifth smaller than in 2008. Much of the recent improvement in its debt metrics has been driven by high inflation. Today’s high cost of living has also compounded the suffering of Greeks following years of austerity: the share of people at risk of poverty or social exclusion is one of the highest in the EU.
A wiretapping scandal in which the security services, overseen by Mitsotakis’s nephew, spied on politicians and journalists, has tarnished the prime minister’s reputation and underscored Greece’s problems with the rule of law. The government has also been accused of illegal pushbacks of refugees at its borders and of presiding over a worrying decline in media pluralism. A fatal train crash has highlighted the parlous state of some public services and infrastructure.
The election on Sunday will also bring some political uncertainty. The conservative New Democracy party is not expected to get the majority of votes needed to form a government. Greece will probably go back to the polls in the summer, when ND may be forced into a coalition with the mainstream centre-left party, Pasok. Syriza, the radical left opposition party, is pushing for a more expansionary fiscal policy to address social issues; how far it would go is unclear.
Whoever comes to power will need to build on the gains of the past decade. Its relatively long average debt maturity and the €30.5bn it is set to receive from the EU’s Recovery and Resilience Facility by 2026 gives Greece a unique window to bolster its economy and cut debt further. Diversifying the economy beyond its reliance on tourism, driving long-term capital investment growth, and broader public service and justice reforms should be priorities.
Greece has suffered over the past decade. But its sacrifices mean it now has the opportunity to turn suffering into prosperity. It should not lose sight of that prize.
Source: Economy - ft.com
