Op-ed on Greece

What is currently going on

The Eurogroup meeting of 12 March 2018 had good news to report on Greece.
A political agreement had been reached on the third review of the ESM programme. Greece
has completed all 110 prior actions as required under the third review of its economic
adjustment programme. Now, the disbursement of the fourth tranche of €6.7 billion can be
made available. The third international rescue programme will end on 20 August 2018. Will
Greece be able to stand on its own feet again?

Greece’s economy has gone through a tour de force in the past decade. Thanks to the
continuous implementation of reforms, the economy has been able to recover slowly.
Greek real GDP growth has developed from -8.9% in 2011 to 1.6% in 2017 and is forecasted
to reach 2.5% in 2018 and 2019, growing stronger than euro area GDP on average (2-2.3%).
The general government balance has improved from -10.1% in 2011 to
-1% in 2017 and is expected to reach a surplus of 0.9% and 0.8% in 2018 and 2019,
respectively.
Inflation is increasing slowly to levels above 1%. Unemployment continues to fall to an
expected 18.7% of labour force in 2019.
Government debt is still at worryingly high levels of 179% of GDP but projected to decrease
to 170% of GDP in 2019.

Why is Greece where it is now?

In October 2009, as a consequence of the global financial crisis, Greece announced that it
had been understating deficit figures for years. By the spring of 2010, the country was close
to bankruptcy, threatening to set off a new financial crisis. In the face of massive external
and internal imbalances, which resulted in the loss of market access, in April 2010 Greece
requested financial assistance from its European and international partners. The
International Monetary Fund, the European Central Bank and the European Commission
issued the first international bailout for Greece, which amounted to EUR 80 billion from its
European partners as well as EUR 30 billion from the IMF. Other disbursements in the
amount of EUR 73 billion followed.

This and the subsequent bailouts came with conditions, requesting Greece to implement a
series of reforms, such as budget cuts, tax increases, streamlining the government, ending
tax evasion and making Greece an easier place to do business.

Due to limited progress in tackling imbalances and implementing reforms, Greece signed a
second financial assistance programme in March 2012. The tranche of this package
amounted to EUR 145 billion provided by the European partners and EUR 20 billion by the
IMF and was disbursed under the condition that Greece took measures to restructure its
private sector debt.

In August 2015, the Greek government signed a Memorandum of Understanding with the
European Commission for a loan from the European Stability Mechanism (ESM) for further
stability support. The loan amounted to EUR 86 billion, to be disbursed in several tranches
under the condition that structural reforms were implemented. The aim of the programme
was to allow Greece to regain access to market-based financing again at sustainable interest
rates. The needed structural reforms for this process were to restore fiscal sustainability,
safeguard financial stability, enhance growth, competitiveness and investment as well as to
foster a more streamlined public administration.

The economic developments during these years were particularly harsh on ordinary Greek
citizens. They had to bear the costs of years of false actions or inactions of incompetent
governments.

During this time, the Greek government underwent considerable turmoil: call for early
elections, the rise of extremist parties that gained votes through populist slogans, aiming at
the hardship Greek citizens had to go through at this time.

What has happened in the meantime

After primarily rejecting the need to implement certain reforms imposed by the European
Commission, the European Central Bank and the IMF, the Greek government understood it
was only able to regain sovereignty and thus taking decisions on its own again, by
implementing the necessary reforms for economic recovery. After implementing essential
structural reforms in areas such as tax administration, business environment, energy,
privatization and public administration, the economy grew more resilient again. Since then,
fiscal targets have been outperformed and major economic imbalances have been
corrected.
However, efforts have to continue to address underlying structural weaknesses in the Greek
economy. Public debt is still at levels close to 200% of Greek GDP.

Prospects for the future

The aim of the stability support programmes was for Greece to return to stability and
growth in a financially and socially sustainable way.

On 20 August 2018, the third international rescue package will expire. Can Greece exit the
programme in a clean manner and return to a sustainable economic growth or will the EU
have to provide some kind of economic safety net?

An effective safety net can be built by continuing the effort of implementing structural
reforms to boost economic growth, foster investment to create jobs as well as
improve the stability of public finances, all of which are crucial for Greece’s recovery.

Greece needs to build on the massive efforts undertaken so far to establish full policy
credibility, strengthen confidence and support a positive investment climate. This will be
critical to put the economy back on its feet again and emerge from the need for financial
assistance after eight years, laying the basis for a return to sustainable growth and market
access.