Greece plots bailout exit – via medical cannabis and golden visas

Greece on cusp of exiting Troika bailout, but passions still high after years of harsh austerity

As darkness descended over Syntagma Square in Athens on an early February evening, there were no signs of how this popular gathering place in front of the Greek parliament, flanked by elegant hotels, became ground zero for European austerity protests.

Busy locals file out of the metro station and through the tree-peppered square for evening shopping as a man plays Zorba's Dance for the few German and American tourists around. Nearby, two little girls hop on and off recessed spotlights in the grass, while elderly men and courting couples chat on benches dotted around.

In another corner, a group of North African youths huddle around a loudspeaker playing music, while Jehovah’s Witnesses have set up a stall with books and pamphlets beside the central fountain.

Only three weeks ago, a very different – and all too familiar scene was playing out, as 20,000 people swarmed the square to demonstrate against the latest set of fiscal and economic reforms demanded by the country’s bailout masters, who have been running the show for almost eight years.


As police used tear gas and stun grenades against a small group of hooded protestors throwing petrol bombs, the 300-seat Hellenic Parliament passed the measures, including a new electronic process to foreclose on loans in default, the opening up of closed professions and making it more difficult for unions to call a strike.


Still, Prime Minister Alexis Tsipras, the once-Marxist firebrand, is thankful that mass demonstrations against austerity are much less frequent now than when he brought Greece to the brink of crashing out of the euro zone within months of sweeping to power in 2015 on a populist platform.

These days, the premier has fixed his sights on a “Grexit” of another kind – leaving the country’s third bailout programme and returning to full market funding in August.

“We had a very difficult adventure from 2010 – difficult days, difficult years for the Greek people,” Tsipras told a group of journalists from across the euro zone in his neo-classical office building, Maximos Mansion, in central Athens. “But now we’re proud that we managed to recover. We are very close to concluding successfully the third programme, and our economy is coming back.”

While a quarter of Greece’s economy was wiped during the debt crisis, it returned to growth last year, expanding by an estimated 1.6 per cent, buoyed by public consumption, net exports, record tourist numbers – and an improving European outlook.

The country’s EU chart-topping unemployment rate eased to 20.7 per cent last October from a record high of almost 28 per cent in 2013.

The government in Athens expects to record a primary budget surplus, excluding debt servicing costs, of 3.57 per cent this year – beating targets set by the bailout troika, comprising the International Monetary Fund, the European Commission and the European Central Bank, for a third straight year.

There aren't many jobs for young people. I also have a son in university and another still at school. It's worrying

Tsipras appears most proud of the fact that the market interest rate, or yield, on the government’s 10-year bonds has fallen back to about 3.7 per cent, a level not seen since 2005, from an all-time high of 48.6 per cent almost six years ago.

“It is the key figure on the long-term prospects for our economy,” he said. “This is undoubtedly a straight vote of confidence to the Greek economy, from investors and from the capital markets.”

High price

However, the fledgling recover has come at a high price. Years of spending cuts and tax increases have left millions in poverty, while hundreds of thousands of young, educated Greeks have emigrated, leaving the most vulnerable behind.

Nikos, a 50-something-year-old owner of a family hotel on one of the Greek islands who has returned from visiting his daughter on a six-month Erasmus programme in the Netherlands, speaks during the half-hour metro ride from the airport to the city centre of how he is concerned about her future when she graduates with a marketing degree next year.

“I think people will have more confidence when we leave the bailout,” he says, declining to give his surname. “But there aren’t many jobs for young people. I also have a son in university and another still at school. It’s worrying.”

Still, they’re the lucky ones. Almost 38 per cent of Greek children are at risk of poverty, the highest in the euro zone, according to Eurostat, the EU’s statistics agency.

The country’s unemployment rate, while falling, still tops an ignominious league across the continent. Nearly half of loans in the country’s banks are in trouble or outright default (compared to an already-elevated 12 per cent rate in Ireland and 4.6 per cent on average in the EU).

And while private investors were forced to take a €107 billion discount – or “haircut” – on what they were owed in March 2012, marking the biggest debt restructuring in history, Greece’s borrowings still stand at 180 per cent of gross domestic product (GDP), the highest in the euro region.

The debt mountain – compared to Ireland’s 70 per cent ratio – has left the IMF and Greece’s EU bailout partners at odds over its long-term sustainability.

The IMF has consistently called on the EU to provide debt relief for Greece, either by writing off some of the loans or by offering further extensions on repayments.

While euro zone finance ministers are open to debt relief, discussions are currently centred around giving Greece further repayment extensions if future economic growth falls short of expectations – subject to future governments continuing to implement economic and fiscal reforms.

Tsipras, who was forced to yield to onerous Troika demands in mid-2015 in exchange for a third bailout – after his brinkmanship politics triggered a run on the banks, capital controls and a near-Grexit – is fixated these days on what’s politically achievable, in order to make a clean break from the programme.

While debt haircuts are off the table, EU officials know Greece needs a credible path to an easing of debt repayments if economic growth falls short of expectations in future. But even if a debt-relief plan is agreed by August, Greece faces immediate challenges.

“Next year is critical for the country,” according to Theodoris Georgakopoulos, editorial director of DiaNEOsis, an independent, non-profit think tank. “Greece has to repay €14 billion of borrowings, the highest number for the next 15 years. Also, a great bulk of austerity measures that have already been legislated for are going to take effect starting January 2019, including further cuts in pensions and a lowering of the tax-free barrier. This will affect millions of Greeks – and in an election year.”

Fiscal crisis

Unlike Ireland, where a near collapse of the banking system in 2008 led to a fiscal crisis and international bailout (as the cost of making good on a banking guarantee became too much for the State to bear), Greece was forced to become the first euro zone country to seek a rescue package, in May 2010, as it grappled with massive budget and trade deficits.

A build-up in the “twin deficits” was masked in the initial years after Greece joined the euro in 2001, and foreign capital flooded in. However, markets took fright in late 2009, a year after the global financial crisis erupted, when the then newly-elected prime minister George Papandreou revealed the budget deficit for that year would be almost 13 per cent of GDP, more than double the previous estimate and a multiple of the 3 per cent EU limit.

Eurostat had problems with the reliability of Greek economic data from when the country of almost 11 million people applied for euro membership a decade earlier. Any remaining credibility was shot when it emerged in early 2010 that Greece had managed to artificially lower its debt shortly after joining the euro area with the help of a complex financial deal – involving off-balance-sheet currency swaps – arranged by Wall Street investment bank Goldman Sachs.

Greece’s woes were driven by a weak track record on tax collection (especially in election years), large black-market economy (estimated last year by Germany’s Institute for Applied Economic Research at 21.5 per cent of GDP, more than double that of Ireland, Germany or the UK), and a swollen public sector, blighted by high levels of absenteeism, generous pension arrangements and a senior appointments system based on clientelism rather than merit.

Depoliticise tax collection

Under the gaze of the troika, Greece has sought to depoliticise tax collection by setting up an agency independent of the government. It has also clamped down on tax evasion – though €100 billion remains outstanding, much of which will never be paid – and cut its public-sector wage bill by 40 per cent by axing about one-third of its public administration roles.

The current left-wing government – once feared by markets – has made tentative steps at encouraging foreign direct investment.

A “golden visa” programme to win investment from overseas has attracted 2,500 individuals, mainly from China, Turkey, India and Russia.

Chinese nationals have accounted for more than half of the recipients, according to Dimitris Papadimitriou, the minister for economy and development, as Beijing eyes opportunities in a recovering economy and strategically important location.

Athens sold control of the country’s largest seaport, Piraeus, last year to Chinese state-owned shipping group Cosco, which plans to spend hundreds of millions developing the facility. Having also put money into Greece’s energy sector, the Chinese “are still looking for other investments here, including commercial buildings”, said Papadimitriou.

Tsipras continues to insist the country will make a clean break from the shackles of the rescue programme, without the need for a precautionary, or back-up, credit line

Looking for more novel ways to lure investors, the government moved this week to fast-track plans to legalise the growth of cannabis for medial purposes. It expects this could attract up to €1.5 billion of investment over three years.

“There is significant interest from Canadian and German investors,” said Papadimitriou, an economics professor by background. “Going from field to pill production could lead to significant numbers of employment and significant investment, since supply is very limited to satisfy demand worldwide.”

A post-bailout economic plan currently being mapped out by the government will also focus on more established industries, like energy and tourism, which remains underdeveloped due to the proliferation of small family-run hotels like the one owned by Nikos.

Bond sales

Greece, which plans to raise €19 billion through three bond sales before exiting the bailout, decided earlier this week to postpone a debt issuance as financial markets were hit by turbulence. Still, Tsipras continues to insist the country will make a clean break from the shackles of the rescue programme, without the need for a precautionary, or back-up, credit line.

However, Panos Tsakloglou, a professor at the Athens University of Economics and Business, can’t help but think that Greece would be in a better place if Tsipras’s first government hadn’t taken such a “confrontational approach” to the Troika in 2015, which killed market confidence (Greece had already made a tentative return to the bond markets the previous year), almost led to Grexit, precipitated the third bailout, and fresh elections.

Still, the dramatic showdown also turned the leader of Syriza, or “Coalition of the Radical Left”, into the first Greek prime minster to meet and beat targets laid down the bailout masters.

Tsipras has also benefitted indirectly from the European Central Bank’s €2.3 trillion bond-buying quantitative easing efforts (even though its junk-rated bonds don’t qualify for inclusion in the programme) and a rebound in the global economy.

“However, I have a feeling in the years to come the climate will not be as favourable as it used to be, so it will make our efforts [to overhaul the Greek economy] far more difficult,” said Tsakloglou. “If we are again to have fiscal imbalances and be cut off very quickly from capital markets, I’m not sure another bailout will be available.”

Back on Syntagma Square, matters of a more visceral kind prompted about 140,000 protestors to assemble from the far reaches of the country last Sunday.

Far larger than most anti-austerity demonstrations, the gathered crowd were protesting against the government’s efforts to resolve a long-running dispute over the use of the word “Macedonia” in the name of its Balkan neighbour, as it implies a claim on an area in northern Greece.

Greece may be downtrodden by years of austerity. But passions still run deep in this corner of Europe.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times