After nine years, the curtain falls on Greek bailout drama – but hardship isn’t over yet
Greece reclaims its economic sovereignty next week. But the US$327 billion rescue, the biggest bailout in global financial history, has reduced the nation to a shadow of its former self
After nine crisis-filled years, relentless austerity and four governments, Greece will this week exit its third bailout programme – in a contrast to the economic crisis enveloping Turkey.
On August 20, at midnight, Athens will reclaims its sovereignty, in what the prime minister, Alex Tsipras, has called a transcendent moment for the nation.
“Greece has managed to stand on her feet again,” his office said last week describing receipt of a final €15 billion (US$17 billion) bailout loan as the “last act in the drama”, adding: “Now a new page of progress, justice and growth can be turned.”
The scars of the Hellenic crisis remain deep – weak banks, huge government arrears, almost no space for public spending and, at 180 per cent of GDP, the highest debt load in the EU. But light has begun to emerge.
Growth is slowly returning, tourism is booming and once-record levels of joblessness are on the wane. The Greek economy is poised to expand 2 per cent and 2.4 per cent this year and next, respectively, enough for Brussels to hail the halting recovery a success story.
“Without European aid, Greece would have collapsed and been in deep political and economic chaos for decades,” the EU’s economics chief, Pierre Moscovici, opined in a recent opinion column for the German media.
But scepticism remains, not least at the International Monetary Fund. While Athens had made significant progress in slashing its fiscal deficit, it still faces “substantial external and domestic risks”. A recent debt relief deal offered some measure of hope but was unpinned by “very ambitious assumptions about GDP growth and Greece’s ability to run large primary fiscal surpluses”.
Last year, 135,000 people filed court papers handing over real estate to the state, rather than pay crippling inheritance taxes.
Punishing budget cuts and structural reforms – the price of a €288 billion (US$327 billion) rescue, the biggest bailout in global financial history – has reduced the nation to a shadow of its former self.
The economy that has contracted by 26 per cent has left a fifth of the working population – two-fifths among youth – unemployed while some 500,000 of the brightest and best have fled, mostly to EU member states in Europe’s wealthier north.
And the hardship isn’t over. The leftist-led government has signed up to a staggering array of ambitious targets. Post-bailout Greece has committed to produce primary surpluses of 3.5 per cent of GDP until 2022, a feat achieved by only a handful of countries since the 1970s, and 2.2 per cent until 2060.
Professor Kevin Featherstone, of the Hellenic Observatory at the London School of Economics, said such obligations amount to perpetual purgatory.
“No other government in Europe would choose to follow this path,” he said. “Greece has been saved in the sense of avoiding the Armageddon of euro exit but how it has been saved is so disadvantageous that one can’t talk of a rescue or exit from crisis.”
Although Tsipras is at pains to play down outside supervision, Greece will still be subject to a regime of enhanced surveillance initially. Further pension cuts are in store.
In May, Tsipras unveiled a 106-page post-bailout growth plan, but no amount of preparation can conceal that the country remains acutely vulnerable to turbulence beyond its borders. Only days before the programme’s end, global market jitters saw yields on Greek bonds soar. It is accepted that Greece has enough to meet funding needs for the next two years, but the IMF is far from persuaded that Athens will be able to sustain market access “over the longer run without further debt relief”.
If so, the IMF Fund is likely to clamour ever more loudly that the landmark deal, reached in June, easing Greek debt repayments – extending maturities on some loans and improving interest rates on others – just doesn’t go far enough.
The crisis has lasted so long that, in the mists of time, many Greeks can no longer recall their country being “normal” or their pockets being full. The middle class has been hardest hit with taxes as high as 70 per cent of income earned. Controversial property levies have added to the toll.
“In reality this exit will be a formality because in truth it isn’t going to change a thing,” sighed Stratos Paradias, who heads the Hellenic Property Federation.
Every day the federation’s fourth floor offices are deluged by citizens seeking advice. “Taxes are so high that the younger generation are refusing to inherit family homes because of the burden,” he said.
“It’s disastrous. Last year, 135,000 people filed court papers handing over real estate to the state. That’s four times more than five years ago and, in a figure, tells the story of Greece.”