The country has achieved one of the most dramatic transformations in public finances seen in modern times—but it is not out of the woods yetby Vicky Pryce / January 11, 2018 / Leave a comment
Greece seems to no longer be making the headlines it did just a couple of years ago. That was when the country was going through huge political and economic upheaval.
Mired in a debt crisis, it had elected the radical left wing Syriza government which was then forced to accept tough conditions for an EU bailout, the third since 2010, or face default—or even a forced exit from the euro. Then followed a period of further austerity with capital controls and tax increases which hit the Greek people hard. There were cuts in the minimum wage, public sector salaries and pensions, with further impacts on spending and consumer and business confidence. The whole ordeal had disastrous human costs.
So why this period of relative calm—at least as far as Greece’s visibility in the news is concerned? Importantly, the fear of “Grexit,” which dominated movements in the foreign exchange and bond markets at its height, has been replaced by fear of Brexit. This has made the rest of the EU determined to ensure the remaining 27 stay together. Being more lenient to Greece is therefore now seen essential—as is recognising the substantial and broadly right wing reforms that Syriza, under its surprisingly effective leader Alexis Tsipras, has managed to achieve.
Through a series of public sector cuts and tax increases and finally, albeit reluctantly, engaging in a long overdue privatisation programme, Greece has achieved one of the most dramatic transformations in public finances seen in modern times. A deficit of 15 per cent of GDP in 2009 was turned into a surplus of 0.7 per cent in 2016. Last year saw a primary surplus, if you exclude debt servicing of some 1.75 per cent—which is an achievement in itself. Though Greece now faces an even tougher task of increasing this to 3.5 per cent for 2018 under pressure from its creditors, Tsipras has so far repeatedly tightened the screw with relatively little opposition, something that a right wing government without support from the unions would never have been able to do.
The cost of course has been enormous—and the country is not out of the woods yet. GDP is still some 25 per cent below what it was in 2009. House prices have collapsed and wealth has been wiped…