Greece rid of budget surveillance but inflation and energy problems bite
Nevertheless, Greece – like other bailed-out EU members Spain, Portugal, Cyprus and Ireland – will still be watched by its creditors while paying off its debts. In the case of Greece, it will take another two generations, with the last loans to be repaid in 2070.
Wolfango Piccoli, co-chairman and research director at consultancy Teneo which has covered Greece’s financial crisis for years, said ending enhanced surveillance is unlikely to have a significant impact.
“This is mostly a technical question that most investors are supposed to ignore,” he said.
While Mitsotakis’ government may try to score domestic political points with the exit from enhanced surveillance, “it will be an exercise in futility,” Piccoli said.
“The vast majority of the public is focused on the cost of living crisis,” he said.
Such is the case of Efthymia Paidi, a 23-year-old florist from central Athens who grew up during Greece’s financial crisis and doesn’t feel like much has changed since then.
“I think the crisis is basically continuing, it never ended,” she said. “What I see is constant repetition. … Unemployment is still high and wages are low, while the cost of living is high.”
Saturday’s stage marks exactly four years after the end of the international loan program which left the Greeks dejected but still members of the European Union and its common currency, the euro. The Greek crisis has shaken global markets and pushed EU unity to its limits.
Investors stopped lending money to Greece in 2010 after Athens admitted misreporting key fiscal data. To keep the country afloat, its European partners and the International Monetary Fund have approved three bailout loan programs lasting from 2010 to 2018 worth a total of 290 billion euros ($293 billion).
In exchange, the creditors demanded what many Greeks still see as a pound of flesh: deep cuts in state spending and wages, tax hikes, privatizations and other sweeping reforms aimed at redressing public finances. The economy shrank by more than a quarter, unemployment soared to almost 28% and skilled professionals emigrated in droves.
The programs have resulted in balanced budgets and a successful return of government borrowing to international markets. Last year, the economy recovered most of the 9% contraction induced by the 2020 pandemic and is expected to grow 3.5% this year amid a bumper tourist season.
The slowdown and COVID-19 relief measures pushed Greece’s public debt to a dizzying 206% of economic output in 2020, but it fell in 2021 and is expected to hit 185% this year.
In a tweet welcoming the end of the enhanced economic surveillance, the President of the European Commission, Ursula von der Leyen, on Saturday hailed “the determination and resilience of Greece and its people”.
And Mitsotakis from Greece said it was a “historic day for Greece”.
“August. 20 … closes a 12-year cycle that has hurt citizens, stagnated the economy and divided society,” he said in a statement. “(There must be) no going back to the mistakes that brought about the painful adventure of the rescue.”
But challenges remain, many of which are beyond Athens’ control. Inflation hit 11.6% in July, down slightly from a three-decade high, but still above 8.9% in the 19-country eurozone. While state subsidies protect households and businesses from rising energy bills for now, gas, fuel and electricity prices are expected to rise further in winter, as elsewhere. from Europe. Moreover, unemployment in Greece was nearly 15% last year and is only expected to drop to single digits in 2024.
In a lingering reminder of the crisis years, Greece’s credit rating remains below investment grade, raising the cost of borrowing in international markets. However, most of the country’s debt is held by its European partners on benign terms, and Athens hopes to return to investment grade next year.
“The achievement of the next major goal, restoring the country’s investment-grade credit rating, is now closer,” Finance Minister Christos Staikouras said on Saturday.
But Teneo’s Piccoli doubts that exiting enhanced watch will “make a big difference to a potential credit rating upgrade in 2023”.
The country needs to move forward quickly with some basic reforms – including speeding up the creaky judiciary, eliminating bureaucracy and tackling lingering corruption – that fell through the cracks during the years of rescue, said Greek public administration expert Panagiotis Karkatsoulis.
“The end of the surveillance period can mean – and I hope it means – a new era linked to reforms,” he said. “Without the reforms, (it would be) more of a symbolic (movement).”