Greece es­capes a fi­nan­cial tragedy

OECD’S praise for the cra­dle of Western civil­i­sa­tion is just the lat­est sign of its sur­pris­ing re­cov­ery from the eco­nomic calami­ties of the past, re­ports Tim Wal­lace

The Sunday Telegraph - Money & Business - - Business - “oxi”, The week ahead Eco­nom­ics: AGM: Eco­nom­ics: AGM: Eco­nom­ics: Top 100 shares “oxi” ex ante

‘Con­grat­u­la­tions prime min­is­ter, you have brought Greece back from the brink!” These are words that Alexis Tsipras must have feared he would never hear. Less than three years ago, Tsipras held a fierce, stub­born ref­er­en­dum to re­ject re­form pack­ages set out by the north­ern Euro­pean na­tions who were tak­ing po­lit­i­cal risks to fi­nance the bank­rupt state.

He won the vote: 61pc of Greeks voted no, and the de­fi­ant word be­came a ral­ly­ing cry on the streets of Athens. But a week later he had to sign up to the deal any­way. Tsipras’s own po­si­tion looked in doubt, as did that of his coun­try.

Eight years of re­ces­sion left the econ­omy 25pc smaller than it was be­fore the twin blows of the credit crunch and Greece’s debt cri­sis.

Yet now Tsipras is pre­par­ing to exit the bailout pro­grammes com­pletely, the coun­try’s eco­nomic prospects ap­par­ently ut­terly trans­formed.

The gush­ing praise in the quote came from An­gel Gur­ria, head of the OECD, last week – the leader of a pro-cap­i­tal­ist group, cheer­ing the work of the leader of Greece’s rad­i­cal left­ists. “I would like to con­grat­u­late you, your ad­min­is­tra­tion and the whole of Greece for an im­pres­sive sta­bil­i­sa­tion ef­fort and one of the most am­bi­tious re­form pack­ages we have seen at the OECD in re­cent times,” said Gur­ria. “This is start­ing to bear fruit.”

Tsipras smiled, hugged Gur­ria and promised to keep re­form­ing the econ­omy – and de­manded debt re­lief. The rea­son for the cheer is clear. Greek GDP is set to grow by 2pc this year and 2.3pc next year, the OECD es­ti­mates. If the fore­casts come true it will grow more quickly than the eu­ro­zone av­er­age in 2019.

Un­em­ploy­ment is down from al­most 28pc in 2014 to just over 21pc. The trend gives more work­ers money in their pock­ets and leaves fewer in need of ben­e­fits. Econ­o­mists across Europe are im­pressed. “For the first time in years, the clouds over Athens seem to be just start­ing to clear,” says Sh­weta Singh, at TS Lom­bard. “Al­beit from a very low base, things are start­ing to look up.”

Growth is broad-based too. Ex­ports are up, in part be­cause the long squeeze on wages has made Greece a more com­pet­i­tive econ­omy. Tra­di­tional hotspots of ship­ping and tourism are ris­ing – in­bound vis­i­tor num­bers rose 17pc on the year in 2017.

But so are other in­dus­tries. The Athens stock mar­ket has al­most dou­bled in two years. Long-trou­bled banks are lead­ing the charge. In the last six months, Eurobank Er­gasias’s shares have jumped 38pc. Pi­raeus Bank’s are up 37pc and Al­pha Bank’s 20pc. Lenders are suc­cess­fully flog­ging pack­ages of bad loans to in­vestors, clean­ing up their own books af­ter years of do­ing bat­tle with piles of non-per­form­ing loans. Shares in sec­tors from health­care to plastics have jumped, with do­mes­tic and ex­port growth boost­ing dif­fer­ent parts of the econ­omy. Man­u­fac­tur­ing Eco­nom­ics: Con­sumer credit (US), re­tail PMI (EU), Sen­tix in­vestor con­fi­dence (EU)


Trad­ing state­ment: His­cox, Wil­liam Hill

AGM: An­glo Amer­i­can, Rand­gold Re­sources, Wil­liam Hill

Hal­i­fax house price in­dex (UK)

In­terim re­sults: Compass, Im­pe­rial Brands, TUI Trad­ing state­ment: Coca-cola HBC, G4S, JD Wether­spoon, One­sav­ings Bank, Prov­i­dent Fi­nan­cial

Greggs, Ren­tokil, Prov­i­dent Fi­nan­cial, Stan­dard Char­tered, Vir­gin Money

BRC sales (UK), PPI (US), whole­sale in­ven­to­ries (US)


Full-year re­sults: BT, Sto­bart

In­terim re­sults: On The Beach

Trad­ing state­ment: Bar­ratt De­vel­op­ments, Bea­z­ley, ITV, Mor­risons, Next, Rand­gold Re­sources, Rath­bones, RSA, Su­perdry, TP ICAP sur­veys show growth run­ning at lev­els not seen since be­fore the crash.

Stronger growth can be seen in gov­ern­ment fi­nances too. Greece ran a bud­get sur­plus of 0.8pc last year. Ex­clud­ing debt in­ter­est pay­ments it hit 4pc – well above the level the In­ter­na­tional Mon­e­tary Fund thought the bat­tered econ­omy could sus­tain.

Credit rat­ings agency Fitch up­graded Greece in Fe­bru­ary and praised it again last month, hav­ing an­tic­i­pated a pri­mary sur­plus of half that level.

In­vestors have no­ticed too. Greece’s 10-year bor­row­ing costs are be­low 4pc, less than half their level two years ago and a frac­tion of the more than 30pc at the height of the cri­sis in 2011 and 2012. The gov­ern­ment re­turned to debt mar­kets last sum­mer.

But Tsipras’s com­ments about debt re­lief were made for a rea­son. “The Greek econ­omy does not need any ad­di­tional bur­den­ing mea­sures,” he said. That al­ludes to the stil­las­tro­nom­i­cal prob­lem of Greece’s na­tional debt. This re­mains close to 180pc of GDP on Euro­stat’s mea­sure, more than dou­ble the eu­ro­zone av­er­age of 86.7pc.

Un­der cur­rent plans, the OECD es­ti­mates Greek na­tional debt will fall to around 120pc of GDP in 20 years’ time – still a sub­stan­tial bur­den – be­fore ris­ing once more to al­most 140pc by 2060. That raises the hor­ri­fy­ing prospect that Greece may not be on a sus­tain­able path at all.

“Pub­lic debt is still high and this is a source of con­stant vul­ner­a­bil­ity,” Gur­ria warned, in a change of tone. “In­vest­ment has dropped by 60pc since the on­set of the cri­sis.”

There are ex­ter­nal risks too. Ex­port growth aided the re­cov­ery. But eu­ro­zone growth has peaked, so the de­mand from abroad, suck­ing in Greek prod­ucts, could weaken. Com­pet­i­tive­ness has been re­gained only through a bru­tal squeeze on pay. Av­er­age an­nual in­comes are down from a peak of more than €18,500 (£16,300)

in 2010 to just

Aviva, BAE Sys­tems, Clark­son, Con­va­tec, Di­rect Line, ITV, Melrose In­dus­tries, One­sav­ings Bank, Rath­bones, Serco, SIG, TP ICAP, Ve­su­vius

Trade bal­ance (UK), in­dus­trial pro­duc­tion (UK), con­struc­tion out­put (UK), Bank of Eng­land MPC de­ci­sion (UK), NIESR GDP growth es­ti­mate (UK), CPI (US), ECB eco­nomic bul­letin (EU)


Trad­ing state­ment: BBA Avi­a­tion, 3i In­fra­struc­ture AGM: BBA Avi­a­tion, Man Group, RSA, Wood Group SOURCE: BLOOMBERG over €12,000 now. Large num­bers of new jobs be­ing cre­ated are part-time or tem­po­rary. Rates of se­vere de­pri­va­tion have dou­bled.

Yet pay growth is weak in much of the eu­ro­zone, so Greece can­not eas­ily in­crease wage lev­els with­out re­mov­ing its vi­tal com­pet­i­tive edge. More en­cour­ag­ingly, there are some so­lu­tions. The most im­por­tant of these could help man­age the debt bur­den. The coun­tries that bailed Greece out are ex­pected to agree to more debt re­duc­tion be­fore Athens ex­its the res­cue scheme in Au­gust. Last week, Mario Cen­teno, the Eurogroup boss, said: “The fi­nal de­ci­sion on the im­ple­men­ta­tion of the debt mea­sures will be con­di­tional on full im­ple­men­ta­tion of the pro­gramme. We will now con­tinue dis­cus­sions on these is­sues in the weeks ahead, also on the debt strat­egy. On the ba­sis of a suc­cess­ful re­view, the Eurogroup will decide in June all the el­e­ments that can help fa­cil­i­tate the exit of Greece from the pro­gramme by Au­gust.”

De­spite the cau­tious tone, there is lit­tle doubt Greece is on the way out. “It is a given they will exit the pro­gramme in Au­gust,” says Erik Nielsen, chief econ­o­mist at Uni­credit. “Tsipras wants to go down as the guy who got them out of this bailout.”

The rea­son for the Eurogroup’s mild tetch­i­ness is his­toric. In the past Greece has had to show progress to un­lock each chunk of cash. It needs no more funds, so that ap­proach no longer works, leav­ing cred­i­tors pon­der­ing how to en­force re­forms.

The OECD pro­poses a long list of re­forms to help the econ­omy, from cut­ting red tape on ac­cess­ing the pro­fes­sions to boost­ing tax col­lec­tion and hugely scal­ing up vo­ca­tional train­ing. Its an­a­lysts be­lieve these mea­sures, even with­out debt re­lief, could bring Greek debt down to 100pc of GDP by the 2050s, a much health­ier path. Tsipras sounds com­mit­ted to

‘For the first time in years, the clouds over Athens seem to be just start­ing to clear’

‘Tsipras wants to go down as the guy who got Greece out of this bailout’

con­tin­u­ous im­prove­ment, but voices in Brussels and Ber­lin fear that pas­sion could fade in time. A gen­eral elec­tion is due next year so a new gov­ern­ment may have ideas of its own. None the less, a deal is likely with some form of agree­ment from Greece to keep on re­form­ing, with­out un­bear­ably in­ten­sive scrutiny.

The debt re­lief it­self will not be a free pass – no­body ex­pects any loans to be writ­ten off. Op­tions in­clude ex­tend­ing the terms of bonds, giv­ing more grace pe­ri­ods on re­pay­ments, and re­turn­ing to Greece the prof­its made on its bonds, which are held by the ECB, among oth­ers. “Per­haps the most sig­nif­i­cant mea­sure un­der dis­cus­sion is a French­backed plan to en­sure long-run sus­tain­abil­ity by link­ing Greece’s debt ser­vic­ing re­quire­ments to its eco­nomic per­for­mance and po­ten­tially also its in­ter­est bur­den,” says Singh. “This is one of the thorni­est is­sues to be ironed out: while Ber­lin is in­sist­ing na­tional cap­i­tals be given an an­nual say on the mech­a­nism, and that it be con­di­tional on strict com­pli­ance, Paris and [the IMF in] Wash­ing­ton think it will only be cred­i­ble if it is au­to­matic and are par­tic­u­larly wary of na­tional par­lia­men­tary over­sight.” A com­bi­na­tion of deep re­forms and debt restruc­tur­ing could put Greece’s fi­nances on a very im­pres­sive path to sta­bil­ity.

The OECD es­ti­mates this would bring debt down to 60pc of GDP by 2060 – less than half the level on the cur­rent tra­jec­tory.

That is a very long-term project and the re­forms will not all be pop­u­lar – but the prospect is cer­tainly not one you would say to in a hurry.

The un­em­ploy­ment rate in Greece, down from al­most 28pc in 2014 as it strug­gled to deal with an en­forced aus­ter­ity plan The bud­get sur­plus achieved by Greece last year, which rises to 4pc once debt in­ter­est is stripped out of the fig­ures

Alexis Tsipras, the prime min­is­ter of Greece, left, has steered the econ­omy away from cri­sis

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.