Greece not out of the woods
Greece exits the last of its three bailouts on Monday and hopes to be able to borrow again in international markets after a nearly nine-year debt crisis that shrank the economy by a quarter and forced it to implement painful austerity measures.
The crisis has proven traumatic for Greeks who had enthusiastically swapped drachmas for euro in 2001.
Adoption of the single currency ushered in an era of cheap credit that funded a splurge in private consumption and public spending that sent Greece’s budget and current deficits ballooning.
Since the debt crisis exploded in 2010, four governments have fought to keep bankruptcy at bay, relying on the biggest bailout in economic history, more than €260bn lent by eurozone partners and the IMF.
As Athens eyes a return to normality and reclaiming its economic sovereignty, the scars remain — banks are saddled with huge bad loan portfolios and Greece’s public debt load is still the highest in the eurozone, at 180% of national output.
However, sunshine is breaking through. The economy, which shrank by 26% in the crisis years, has started to grow, tourism is booming and unemployment is slowly coming down — to 19.5% from a peak of almost 28%.
“If there is a lesson that we learned from the crisis it is that, under any circumstances, you must try to protect macroeconomic stability,” said Panos Tsakloglou, chief economist of the previous coalition government.
“Populist policies that may win some votes today and have disastrous effects some years down the road must be avoided at all costs. Otherwise, sooner or later we will end up in the situation we are in now,” he said.
Greece’s economy grew for a fifth straight quarter in the first three months of this year, the expansion picking up pace to a yearly 2.3%, a sign the recovery is gaining traction, helped by net exports. The European Commission sees 1.9% growth this year.
However, scepticism remains, including at the IMF, which sees the recovery picking up and growth reaching 2% this year and 2.4% in 2019, but says “external and domestic risks are tilted to the downside”.
However, the IMF says long-term sustainability remains uncertain and a realistic rethink is needed on assumptions for primary balance targets and economic growth.
