Is Greece finally out of the economic doldrums?

8 mins read


For the visitor walking down the streets of Athens or Thessaloniki, or indeed in any one of the popular Aegean islands, it is hard to imagine that Greece is a country still gripped in the folds of an enduring economic crisis.

Appearances can be deceptive as most shops seem full of swarming tourist crowds, car traffic is bursting at times up to congestion point and airports and seaports are extraordinarily busy with thousands of arriving and departing passengers.

But this is summer, and Greece is a prime tourist destination with some 27 million people or so visiting the country every year. 

However, tourism is not the only economic activity in the country, although it is one of the main wealth contributors.

For the inquisitive visitor, the scars of an unprecedented economic crisis that lasted almost eight years (2010-2018) are still evident in several dilapidated quarters in most cities, the extended use of graffiti almost everywhere, the uncollected rubbish, which is constantly littering city streets and country roads, not to mention the inadequate and malfunctioning public services.

Even worse is the breakdown of law and order as gangs of so-called anarchists and assorted thugs roam freely through the streets of central Athens, but also of other cities with increased regularity, affecting extensive damage to shops, banks and public buildings supposedly demonstrating in protest for the civil rights of condemned terrorists held in jail.

Only the other day a group of them raided the parliament building and defaced a large part of its facade.

If you are not the carefree type of visitor you can easily discern that this country is in a trajectory of deep decline, although most of its citizens appear to behave as if things are normal having apparently compromised with their unpleasant reality.

Their complacency is fueled to a large extent by the government's own narrative according to which Greece exited from its bailout programme last year and has since been witnessing a miraculous economic recovery with billions of dollars of direct investments flowing in from all over the world.

And although it is true that the bailout programme, run by its lenders (the European Commission, the European Central Bank and the International Monetary Fund) officially terminated in August 2018 and the country is in a far better shape than anybody could have thought three or four years ago, the economy is still far from a state of full recovery.

One only has to look to the poor performance of the economy over the last two years with an anaemic growth of 1.5% in 2017, an estimated 2.1% in 2018 and an IMF forecast of 2.4% in 2019.

But these are paltry numbers and in no way can suggest a return to normalcy in view of the fact that Greece's GDP fell 27% between 2007 and 2014.

In 2019 this will still be more than 20% smaller than 12 years ago! 

And as Martin Wolf noted in a recent analysis in the Financial Times, "even if the economy grows at 2% a year, it will not return to its pre-crisis size until the early 2030s. This would amount to a lost quarter of a century. A lost decade has already happened."

It is important to realise that before the crisis, Greek real GDP per head was about 80% of Germany's GDP (at purchasing power parity) and last year it was down to 55% of those levels.

Looking at unemployment figures, the magnitude of Greece's economic woes become painfully more apparent.

Unemployment peaked at 28% in 2013 and has since declined, but last year it was still quite high at 18%, despite the country experiencing mass emigration of its educated classes.

Some economists observe that in the severity of its depression and the weakness of its present and anticipated recovery, Greece has been far worse than Argentina in 2000 or the US after 1929.

On the strength of current data, it is hard to assess how far Greece is on the way to economic and social recovery.

If we are to believe the numbers, the situation looks rather gloomy as the IMF believes that growth will register 2.2% in 2020 but will then fall to 1.6% in 2021 and further retreat to 1.2% thereafter "in line with long term potential".

Several business leaders argue that if the economy is to truly recover then growth rates should be substantially higher and well above 3.0%.

However, in order to aim for such ambitious goals, Greece must be able to deal with a number of so-called 'legacy' issues such as the impaired state of the banking sector, which remains highly vulnerable as a result of a massive number of private sector non-performing loans.

Another real danger is the government's proclivity to backslide on reforms as it heads to national elections next autumn and is tempted to disburse allowances and all forms of stipends to lower-income groups.

Not only that, since the IMF is seriously concerned about the already decided 11% increase in the statutory minimum wage for your young workers and the reversal of reforms to collective bargaining agreements.

Even worse is the government's decision to cancel the pre-legislated 2019 pension reform.

Yet another legacy issue is the country's weak external competitiveness in spite of a huge improvement in its current account deficit which last year registered 3.4%, a vast improvement from 15% it had reached in 2008.

But to narrow further the deficit and improve competitiveness, Greece will need to maintain for years to come the agreed primary fiscal surplus of 3.5%.

However, this policy measure is now under serious threat by both the present left-wing SYRIZA government and the opposition conservative New Democracy as their leaders have both vowed to reverse this if elected to power next October.

Given the contradictions inherent in the present government's positions and anticipated flaws in the opposition's promises for expansive economic policies, it is hard to find optimism for a sustained economic recovery.

The chances are that the country will soon backslide on hard-won reforms under pressure from populist politicians and their hard-to-fulfil promises.

The government of Alexis Tsipras, Greece's firebrand prime minister, proudly pronounces at every opportunity that its main achievement is the return of the country to economic normalcy.

However, this is all but illusory for the average citizen that has to deal with the vagaries of daily existence.