Will the Greek economy recover?

Greece is recovering - on shaky legs

A track record looks different. It has been almost a year since Greece regained its financial self-determination, at least with some restrictions, with the end of the third rescue package in August of the previous year. The country has received a total of around 289 billion euros from its euro partners and the IMF since 2010 - at the price of an imposed drastic cure that gave the Greeks a painful permanent recession.

In July, the Syriza left-wing government under Prime Minister Alexis Tsipras was voted out of office, now his successor Kyriakos Mitsotakis wants to get the country back on track with business-friendly policies. Because Greece has now regained its footing, but it is still a long way from being on a secure footing. Better-paying jobs in the private sector are on Mitsotaki's agenda, as are privatizations, corporate tax cuts and increased foreign investment.

Sluggish recovery

Alone: ​​To do this, the prime minister must get international creditors to ease the financial requirements. So far, these have demanded a budget surplus of 3.5 percent from Athens by 2022. Mitsotakis wants to weaken this requirement in order to have more room for growth-promoting investments from public funds. Because at 1.3 percent over the year, growth in the first quarter was only moderate, and unemployment was last at 17.2 percent.

So only a moderately dynamic recovery from the crash since 2010, when the first rescue package was crafted. The basic problem: the donors insisted on a strict austerity policy, but underestimated its devastating effects on the economy and society - Greece has since lost a quarter of its economic output, the income of the population has also fallen by around a quarter and their wealth by 40 percent. "Mistakes were made from the start," admitted even EU Finance Commissioner Pierre Moscovici around a year ago.

Low bond yields

The fact that Greece can finance itself on the financial markets again can be seen as a success. In mid-July, a bond was placed for the third time since the end of the aid program; a seven-year bond worth 2.5 billion euros was issued on the market at a yield of 1.47 percent. The demand was high; 13 billion could have been placed. Even ten-year papers currently only cost a 2.2 percent return.

"Greece can again finance itself cheaply on the capital market, but actually twice as much would be appropriate," says Peter Brezinschek, chief analyst at Raiffeisen Research. But the yields of Greece would be depressed by the expansionary monetary policy of the ECB, as well as by the investment obligation of many large investors. "That leads to a totally distorted picture."

Bumpy road

Basically, he sees Greece on the right track, even if it is bumpy. Brezinschek advises the new Prime Minister Mitsotakis to press ahead with a structural change towards higher-quality products through corporate investments, i.e. to create more domestic value. An example: Instead of exporting agricultural products directly, they should first be processed domestically. "There has to be more from the investment side," says Brezinscheck.

According to him, the economic problems in Turkey and Italy are currently holding back development in Greece. Is it therefore to be feared that the country will need another aid package in one or two years? Brezinschek: "Definitely not." (Alexander Hahn, August 13, 2019)