In 2015, Greece was on the verge of an economic disaster. In the aftermath of the financial crisis its debt soared and it was downgraded to “junk” status. The so-called troika of institutions – the IMF, the European Commission and the European Central Bank – were desperately trying to keep it afloat, and speculation about its withdrawal from the eurozone was mounting. It is now 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 turnaround should be lauded, but with Greece heading to the polls on Sunday, it is crucial that the next government builds on hard-won progress.
The foundation for the economic recovery has been forged as successive governments enacted austerity measures, including tax hikes, public sector wage controls and pension changes, to meet the conditions of the bailout packages. In 2018, Greece exited its third and final bailout program and last summer exited post-rescue tracking. Although the pandemic has led to a surge in debt, Greece’s debt-to-GDP ratio fell by more than 20 percentage points last year and the government got a small primary budget surplus. Greater fiscal prudence means that Greek debt spreads over German Bunds have fallen 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% above its pre-pandemic level.
But the success achieved to date must not blind the country to the reforms needed for the future. Greece still has the highest debt load in the euro area and the economy is still about a fifth smaller than it was in 2008. Much of the recent improvement in debt metrics has been driven by high inflation. Today’s high cost of living has also exacerbated the suffering of Greeks after years of austerity: the percentage of people at risk of poverty or social exclusion is one of the highest in the EU.
A eavesdropping scandal in which the security services, overseen by Mitsotakis’ nephew, spying on politicians and journalists, tarnished the prime minister’s reputation and highlighted 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 highlighted the precarious state of some public services and infrastructure.
Sunday’s elections 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 is likely to return to the polls in the summer, when ND could be forced into a coalition with the main centre-left party, Pasok. Syriza, the radical left opposition party, is pushing for more expansionary fiscal policy to address social issues; how far it would go is unclear.
Whoever comes to power will have to build on the gains of the last decade. Its relatively long average debt maturity and the €30.5 billion it is expected to receive from the EU’s Recovery and Resilience Facility by 2026 offer Greece a unique window to strengthen its economy and further reduce its debt. Diversifying the economy beyond its reliance on tourism, promoting the growth of long-term capital investment, and broader public service and justice reforms should be priorities.
Greece has suffered over the past decade. But her sacrifices mean she now has the opportunity to turn suffering into prosperity. You shouldn’t lose sight of that award.
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