Greek economy: The struggle to stay afloat continues

Greece and its international lenders may have reached a deal in mid June on a much awaited EUR 8.5 bln loan installment, but this will provide only temporary reprieve for the country’s financial problems.

“Greece’s economic malaise is far from over with actual and projected economic growth at anaemic levels and many structural reforms not yet implemented”, note economic commentators in Athens on the wake of the latest agreement between the Greek government and its international creditors sealed during the Eurozone finance ministers meeting in Luxembourg on June 15.

The above installment, part of a EUR 86 bln bailout package agreed in July 2015, has certainly removed the risk of a default on more than EUR 7 bln in debt repayments due this month. As European Commission sources in Brussels observe, “the deal ends months of uncertainty that have weighed on Greece’s recovery and rattled investors, allowing the country to obtain much needed funds, while postponing discussions on debt relief”.

Jeroen Dijsselbloem, the Dutch finance minister who chaired the meeting, said the outcome was “a major step forward” that would help put Greece’s economy on a sounder footing.

In addition, this latest deal resolves a stand-off between the Washington-based IMF and the EU over the conditions for the fund to take part in Greece’s bailout — a step Berlin says is essential if Greece is to receive any more aid. It should be noted that the International Monetary Fund has consistently argued that Germany and other eurozone countries need to offer Athens major debt relief to make its repayments sustainable, while the European Commission and EU capitals have accused the IMF of being overly pessimistic in its assessments. Under the compromise deal, the IMF is set to formally join the rescue programme, but delays in providing any money (ie. some EUR 2 bln) to Athens until the eurozone gives more clarity on what form of debt relief it is prepared to offer.

As reported by the Financial Times, IMF chief Christine Lagarde said she would swiftly make a proposal to the fund’s board for a “precautionary standby arrangement for Greece”, saying she hoped the process could be completed by July 27.

With funding to meet debt repayments secured and debt relief talks deferred for 2018, Greece’s government has earned valuable breathing space in order to try and resuscitate the economy and attract much needed direct foreign investment, but also accelerate its problematic privatisation programme.

According to the latest data provided by the country’s privatisation agency TAIPED (see www.hradft.gr) some EUR 5.5 bln are expected from the sale of state controlled corporations and real estate until the end of 2018. This is part of a EUR 17 bln target of state disposals by 2060, which is a far cry from the EUR 50 bln goal that had been agreed with the country’s creditors back in 2011. TAIPED’s new management (the fifth since the agency was set up six years ago) appears bullish in achieving its short terms goals, given a good start this year with the actual lease-sale to the Fraportled consortium of 14 regional airports for EUR 1.23 bln. TAIPED’s chairwoman Lila Tsitsopoulou appears confident of reaching the target of EUR 2.0 bln by year’s end as the sale of majority shareholding of the Thessaloniki harbour and TRAINOSE, the state rail company, are at an advanced stage of completion.

spite of progress on the privatisation front, there is widespread concern among foreign investors and the local business community, of the government’s commitment in pursuing steady economic growth strategy as there appears to be strong resistance within the radical left wing of the SYRIZA governing party. Dissent is already emanating from SYRIZA MPs that had agreed to vote through a batch of tough legislation last month with the understanding that, in exchange, Greece would be granted debt relief and access to the European Central Bank’s programme.

However, contrary Eurogroup, debt relief Greece’s inclusion in unlikely before that.

Although analysts believe that dissenters may not raise the ante during the summer – due to the tourist season and relief provided by the release of a bailout tranche – the government is expected to come under strong pressure in the Fall when Alexis Tsipras drafts the 2018 budget, which must stipulate a primary surplus of 3.5%. Given the huge difficulties in achieving this target, political analysts say that Athens may find it hard to convince representatives of the country’s creditors that it will be able to achieve such a large surplus without the need for further measures.

The Greek PM will also struggle in the Fall to clear the hurdles leading to the completion of the country’s third bailout review, which will also involve the IMF. The review’s focus will be on streamlining the Greek public sector, from which SYRIZA has drawn a large chunk of votes in the past and would not wish to rock the boat.

With fresh bailout funding now secure – the ESM actually disbursed EUR 7.7 bln last Monday – the government wants

quantitative

easing

(QE) to the government’s aims at the talks were deferred to 2018, while the QE programme seems highly to shift the narrative to one of growth.

“Getting the economy back on a growth track appears to be Tsipras’ big bet over the next few months”, note market sources in Athens.

However, Greece’s leading economic think tank IOBE (the Foundation of Economic and International Research), in its latest assessment report of the country’s economy predicts anaemic growth of 1.5% for 2017, while OECD forecasts even less at 1.08%.

Whatever the outcome, Prime Minister Tsipras, shedding aside internal opposition, has already briefed his cabinet and top aides of the need to focus on rebooting the economy, attracting new investments and nailing down existing ones, including the real estate project at the old Athens airport in Elliniko and the Kastelli airport in Crete, as well as several road construction projects. Managing to boost GDP will be a pivotal achievement for Tsipras’s administration, as it will confirm the economy’s emergence from the crisis and pave the way for Greece’s return to the markets.

However, for recovery to take shape and form, argue economic analysts in Athens, Greece’s perennial unemployment problem will have to be addressed. More than 1 million jobs have been lost since the beginning of the crisis eight years ago and have yet to reappear. Youth unemployment stands at a record level of 45.5%, while among almost 11 million inhabitants, only 3.76 million are actually employed. Until the balance entailed in such data changes, it will be difficult for anyone in Greece to feel that an economic turnaround is happening.

According to figures released by the Hellenic Statistical Authority (ELSTAT) last week, there appears to be a drop in unemployment of 4.1 points from a high of 25.8% in January 2015 to 21.7% in April this year.

“This is certainly a positive and welcome sign but way above average EU unemployment which currently stands at 9.3%”, note the above analysts.

The same analysts add that “as yet, the positive employment figures published by the Labor Ministry last week, which showed 100,000 net hirings, have failed to register in the economy in any meaningful way, as the great volume of new jobs are seasonal, ie. temporary, with only half of them being full time”. In spite of the above misgivings, the labour market as a whole shows signs of mild recovery, but as economists point out, one should be aware that more job quality and quantity will be needed before the country can start to feel any sense of relief.