Can Greece keep its head above water?
Despite a sea of red ink, by the end of this summer Athens will have exited its third bailout and will seek full control of its own finances
Boats bob gently in the azure waters of the harbour here, and the largest town on the island of Kefalonia shows little if any scars from the seismic events that have occurred in Greece these past most recent years. It was here, Kefalonians say, that Homer’s Odyssey was based, and not the neighbouring island of Ithaca, and there seems to be a body of evidence that supports their claim.
The island was made famous by the Nazis’ massacre of some 5,800 Italian troops during the Second World War, an event that is recalled in both the book and movie adaptation of Captain Corelli’s Mandolin.
And then there was the great earthquake of 1953 that destroyed most buildings, killed many and raised the entire island by some 60 centimetres out of the Mediterranean.
But perhaps the longest and most difficult chapter to the people of this island to overcome is the effects of the past six years of economic hardship and cutbacks, all necessary and mandated as terms for the very economy of the island – and that of Greece itself — to survive.
Finally, come August, if everything keeps going to plan, Greece will leave its third bailout and hopefully remain afloat. According to the latest figures from Eurostat, the European Union’s statistics and economics agency, Greek debt dropped slightly in 2017, down to 178.6 per cent of gross domestic product from 180.8 per cent in 2016. And while Athens still has the highest debt ratio across the 28 nations of the EU, it is slowly heading in the right direction. Debt levels across the 19-country Eurozone fell to 86.7 per cent of GDP last year from 89.0 per cent in 2016, Eurostat reported.
Last year, the Athens government recorded a budget surplus of 0.8 per cent of GDP, up from 0.6 per cent in 2016.
Since 2010, the Greek government has received three separate bailouts from a combination of the International Monetary Fund (IMF), the European Central Bank (ECB) and EU nations totalling some €240 billion (Dh1.05 trillion).
The third bailout was arranged in the summer of 2015 and was worth €85 billion. By August 20, Greece will be free to gain full access to international money and bond markets. What’s more, Athens hopes it will be free to set its own economic policy after eight years of tight supervision by the troika of the IMF, ECB and EU.
It’s a day that can’t come soon enough for Greek Prime Minister Alexis Tsipras, who has been talking up his government’s performance. He’s confident that come August 20, Greece will exit the bailout without needing any extra precautionary credit line.
And the statistics seem to back him up too, at least in two instances.
Firstly, last July Athens did return to the international bond market, floating €3 billion in debt which had a yield of 4.625 per cent. In layman’s language, the bigger the risk for lenders, the higher interest rate or ‘yield’ the borrower pays. German debt, for example, is low risk and so it costs Berlin 0.55 per cent or so in ‘yield’ or interest to borrow. For Greece, that 4.625 per cent yield was surprisingly good, considering Athens’ past record and poor credit rating. (It should be noted that those who bought the €3 billion were hedge funds, which might speak more to their willingness to speculate than to Athens’ actual credit worthiness.)
No going back to bad old debt
Secondly, although the third bailout was worth €85 billion, Athens survived without having to draw down some €25 billion of that facility — which leaves some Greeks wondering just why they had to endure so must austerity, so many cuts to services, so many reductions in social programmes, and so many sales of their public and semi-public bodies.
Not so fast, Tsipras says, saying that there’s no going back to the good old, bad old debt days when Green governments spent like drunken sailors.
The biggest stumbling block still seems to be the privatisation of state assets. Back in 2010, when the bailout saga started, it was hoped as much as €50 billion could be raised. Not a chance, given union opposition and Greek bureaucracy — and just €5 billion came in then. Under the terms of the 2015 bailout, Athens must raise another €3 billion by the end of this year through privatisations, but it has already reached €2 billion of that target. Athens must still divest portions of its gas, water and electricity companies and sell off leases to vast tracts of seaside property to raise the remaining €1 billion required. It certainly looks doable.
Come June, EU heads of government will meet in a summit and French President Emmanuel Macron and German Chancellor Angela Merkel hope to get the go-ahead on reforming the Eurozone and the ECB. That key goal is only worthwhile if the Greek debt issue is solved or most likely to be concluded. The long-running Greek drama could very well be a thing of the past, just like the broken ancient ruins dotting the landscape of Kefalonia.