It is a very symbolic day for Greece. This Saturday, the 16th European Union economy officially exits the “enhanced surveillance framework” where it was placed in 2018. A final step towards returning to normality for this country, which has been badly hit by the crisis for more than a year. after the end of the last aid programs of the European Union and the IMF two years ago.
Brussels’ satisfaction is clear. “The Commission recognizes that Greece has met most of its economic policy commitments to the Eurogroup,” the European executive said in a press release on August 10. He welcomes the implementation of the reforms despite “the difficult circumstances” caused by Covid-19 and the war in Ukraine.
resilience
For the Commission, “the resilience of the Greek economy has improved significantly” and the risks of a domino effect on the rest of the eurozone, which had panicked markets at the height of the crisis, have “reduced significantly”. Greece then lost access to the capital market to finance its debt.
“The exit from the surveillance framework is an important signal that shows that Greece has finally managed to achieve the goals set for it, after so many years of crisis and austerity measures,” analyzes Ploutarchos Sakellaris, professor at the University of Athens and former vice-president President of the European Investment Bank. But the country must continue on its way, there is still a lot to be done.”
debt reduction
There are many signs of improvement. Public debt is falling rapidly and is projected to fall to around 180% of GDP this year, according to OECD forecasts. This is still huge compared to the average for eurozone countries (97%), but the decline now appears to be well underway, despite the health crisis that has forced the tiny republic to increase public spending over the past two years .
The unemployment rate, which was close to 30% at the height of the crisis in 2013, has fallen to around 12% (still very high compared to an average of 7% in countries that have adopted the single currency). And solid growth is back, even as GDP remains more than 15% below 2008 levels, down 8% last year. Greece is likely to grow faster than the European average this year and next, according to the OECD, thanks largely to tourism receipts beating all records this summer.
diversification of the economy
“Tourism in the broader sense represents one-fifth of the national wealth. Greece must try to diversify its economy in order to improve its growth, which is still too weak,” says Ploutarchos Sakellaris. “Athens is aiming for a return to investment grade by rating agencies by early 2023 so that it is no longer a special case within the eurozone,” explains economist Miranda Xafa, former Greek representative at the IMF. To achieve this and meet European Union requirements, the country needs to run a budget surplus in 2023 to ensure steady debt reduction. »
This is a challenge, stresses the economist, especially since next year’s parliamentary elections will not encourage the conservative government of Kyriákos Mitsotákis to cut public spending. As everywhere in Europe, there is a need to help households penalized by the explosion in energy prices. Even if Greece, which is not very dependent on Russian gas and generally less dependent on gas than others, is relatively protected. The only positive point of the current crisis, high inflation, will help the country reduce its debt-to-GDP weight in the coming months, notes Miranda Xafa.
