The country will exit its third bailout programme in August. Eurozone finance ministers meet next month to discuss optionsby Paul Wallace / May 16, 2018 / Leave a comment
In August Greece is due to leave its third bailout programme. That exit will be one to celebrate unlike the potentially catastrophic Grexit from the euro so narrowly averted in the summer of 2015. The hope is that it will close a tumultuous chapter in modern Greek history, which started with the first rescue in May eight years ago, included the write-down of over half of its privately held sovereign debt in 2012, the first default by an advanced country for more than half a century, and featured the no-holds-barred confrontation with Germany and other official lenders in 2015. But is Greece in any fit state to return to the markets while its debt still remains so high?
After a devastating collapse in economic activity over the past decade there are some signs of revival. The economy is now recovering from the further blow inflicted by the brinkmanship of Prime Minister Alexis Tsipras and his radical-left Syriza ruling party in the first half of 2015. In a belated reward for avoiding Grexit, Greece grew by 1.4 per cent in 2017, the fastest since 2007. The European Commission expects growth of 1.9 per cent this year, outpacing the 1.4 per cent forecast for Britain by the Bank of England as the economy pays the penalty for Brexit. The Greek budget—whose ballooning deficit of 15 per cent of GDP in 2009 so alarmed investors that the first bailout became necessary—is now in the black and there is a big surplus on the primary balance, which excludes interest payments.
Casting an ominous shadow over these encouraging developments is Greece’s skyscraper government debt, whose face value amounts to almost 180 per cent of GDP. That is double the level of around 90 per cent in Britain and the euro area. It is particularly worrying because Greece has a habit of reneging on its sovereign debt, having been in default for half the time since it gained independence in 1830.
While Greece remains in its bailout programme, in which it receives financial assistance subject to strict economic and fiscal conditions, the scale of its debt does not matter because it does not influence the interest that the eurozone rescue fund is charging on its loans. And because three quarters of the total debt is now in official hands…