Greece hopes it can wave goodbye to austerity era

Four years after the country became the first in the euro zone to seek an EU-IMF bailout, its economy might just be turning a corner

Protesters  on the streets of Athens during the meeting of the Finance Ministers of the European Union in the city this week. Photograph: Orestis Panagiotou/EPA

Protesters on the streets of Athens during the meeting of the Finance Ministers of the European Union in the city this week. Photograph: Orestis Panagiotou/EPA


They arrived in small groups as the sun went down, gradually filling the open space of Syntagma Square outside the Greek Parliament in central Athens.

Nearby lines of police in riot gear stood at a distance, observing silently.

By 8pm, the square was packed with thousands of protesters, an incongruous mix of workers, Communist activists and supporters of the main Greek opposition party Syriza, thrown together to protest at the latest round of austerity measures being voted through in the building behind them.

The scene was not Greece 2008, but central Athens last Sunday evening, as the Greek government voted on what many believe may be the last major round of austerity cuts prescribed by the troika.

Greek prime minister Antonis Samaras hailed the vote as “a big step towards a new Greece”, but the difficulties that beset the process to the very last moment encapsulated the huge challenges the country has faced in implementing bailout conditions.

The opposition party walked out of the parliament late on Sunday after a vote of no confidence in the finance minister. Samaras accused his rivals of political opportunism, but to many Greeks the opposition is one of the only ways of holding to account a system that allows legislation, encompassing hundreds of far-reaching measures, to be rushed through in late-night sessions, with scant debate.

Repayment cliff
Almost four years exactly since Greece became the first euro zone country to seek an EU-IMF bailout, there is nonetheless a tentative sense that its economy might just be turning a corner.

Last Sunday’s vote – which covered everything from the liberalisation of the dairy industry to anti-corruption clauses – unlocked the final major tranche of bailout loans under the second Greek bailout after six months of negotiation between the troika and the government. Some €6.3 billion of the €8.3 billion tranche will be released before May in time for a €9.3 billion debt repayment cliff, with a further set of smaller tranches scheduled in the summer.

The government has said it hopes to avoid a third bailout when the EU’s portion of the money comes to an end in December, though euro group head Jeroen Dijsselbloem was cautious on Tuesday, saying a decision would not be made until later in the year.

The Greek government confirmed this week the country plans to return to the markets this year, pushing 10-year Greek debt – which has been benefiting from the overall rally in peripheral euro zone debt – to new lows.

Recent economic indicators have given grounds for optimism. The country returned a current account surplus for the first time (though critics have queried whether this can be sustained in the coming years), while Greek banks have successfully tapped the markets in recent months, after the result of internal stress tests surprised on the upside, with shares in the three main banks up more than 80 per cent this year.

Dimitris Kourkoulas, Greece’s minister for European affairs, is predictably upbeat on the state of the Greek economy when chatting with The Irish Times in Athens. The country’s deficit has fallen from 15 per cent in 2009 to less than 3 per cent, he points out, Greek competitiveness has improved by 80 per cent since joining the euro, while the economy attained a current account surplus one year ahead of schedule.

He also says that Greece’s debt profile is in better shape than in many other euro zone countries, thanks to the restructuring of Greek debt both through private sector involvement (PSI) and the lengthening of maturities and lowering of interest rates granted by the troika.

Financial stability
“This does not mean we don’t want to discuss with our partners if there are possibilities of further improvement in the sustainability, not through a haircut,” he adds.

While he supports the government’s conviction that Greece will tap the markets by year-end, he is relatively cautious.

“Personally I’m not in a hurry. I think we need to be well-prepared, but it is now obvious that we are in the last phase now. The exact timing of going to the markets will depend on financial stability, political developments, but I think the country is ready now.”

Despite his optimism, Kourkoulas underlines the huge economic impact the bailout has had on the fabric of Greek society and the economy.

“The depth and the results and consequences of the crisis were by far much more dramatic here than in Ireland, Portugal or Spain.

“We have lost 25 per cent of our GDP since 2008 . . . we have been in seven consecutive years of recession. This has never happened in modern history. Even in the Great Depression of ’29, the American economy was in recession for three consecutive years.”

Kourkoulas, a former eurocrat who worked for 30 years in the European Commission, is also quick to apportion some responsibility to Europe. He says it is simply “not true” that Greece lied about its figures before joining the euro.

“There is a myth that at the time we manipulated the figures. I hear it all the time. But one might also ask if the rules were the right ones.

“My personal view is that I think the criteria [to join the euro] were not the relevant ones. For example, there was no criteria about the trade deficit or the current account deficit, the indicator of competitiveness for the economy. The current account deficit was extremely negative for Greece.

“We all know there was a huge national responsibility for the mistakes, but also, I think everybody agrees there were shortcomings in the construction of the euro zone.”

Balancing the demands of the troika with the reality of domestic politics has been a constant feature of the Greece bailout. Unlike in Ireland where the fiscal measures in the Memorandum of Understanding were broadly adhered to and implemented with minimal political dissent, implementation of the terms of the Greek bailout has been a constant challenge, evidenced most radically by the six-month stalemate over the fourth review mission, which was finally resolved this month, paving the way for this week’s sign-off of an €8.3 billion disbursement outstanding since September.

High unemployment
Social and political analysts have noted the shattering impact the scale of austerity cuts has had on Greece’s social fabric and society. Salaries – already among the lowest in the European Union – have been slashed by around a third.

One indicator came in a recent European Commission report which showed that teachers in Greece saw the steepest cuts to their salary than in any other country in Europe, experiencing a 40 per cent drop between 2009 and 2013.

This winter, Athens saw its skies once more filled with the smog that was a familiar sight in the 1980s as people burned firewood because many were unable to afford other fuels. With unemployment standing at 27. 5 per cent – the highest in the EU – and youth unemployment of about 60 per cent, domestic consumption is anaemic, while the country’s low rate of exports is seen as one of the major impediments to Greek’s long-term economic recovery.

Kourkoulas admits that exports relative to GDP were “ridiculously low” before the bailout, but insists things are improving, with the agrifood, chemical, construction materials, and an emerging ICT industry holding the greatest potential.

The admission by the IMF last year that it had underestimated the impact of austerity measures on the Greek economy was an important milestone in the backlash against the euro zone’s policy of austerity, and concerns remain about whether the Greek government will be prepared to implement further reforms that may be required by the troika over the next few months.

Speaking in Athens on Tuesday, ECB president Mario Draghi warned that more structural reforms needed to be undertaken, despite the country’s “remarkable progress”.

Gaining political and public support for further austerity measures will be difficult. The government’s majority has dropped to two, following the approval of the contentious reform package earlier this week.

One protester outside the parliament said on Sunday that the Greek people remain defiant even if an attitude of resignation has set in. A 31-year-old pharmacist who trained in Rome, he was protesting against the government’s new laws that aim to liberalise the pharmacy market, which involves the deregulation of the licence system.

“My income has fallen by 40 per cent. This legislation will close me,” he says, adding that the new laws will lead to the creation of chains of international pharmacies.

Supporters of the reform, however, argue that the system, which saw the state effectively support a minimum price for drugs, was highly protectionist, an example of one of the outdated work practices that has held back the Greek economy.

Still, the signs of optimism continue to emerge in Athens. Orange Grove is a start-up business hub set up by the Dutch embassy. Funded by private sponsors, the embassy developed an unused office space into a modern working office for more than 30 young entrepreneurs, who are given business advice, one-to-one mentoring and networking opportunities as they try to develop their businesses.

International investors
Michael D Synodinos has been running his start-up company from Orange Grove since September. A former investment banker, his company, Poseadon – a play on Poseidon, the Greek god of the sea – is developing a smartphone mapping system for boats using augmented reality (AR) technology.

Building on Greece’s strong roots in the shipping industry, the business employs five people, and has recently met Turkish and other international investors (the lack of seed capital and early-stage investment funds remains a problem in Greece). “We have a couple of letters of interest and hope to secure our first round of funding by the end of April,” he explains.

For him, projects such as Orange Grove are important, not only for opening doors, but for providing a positive space where young Greek entrepreneurs can meet and discuss ideas. “For me, it was either leave the country or do something positive. This is an opportunity to do something new.”

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