Our Opinion: 2019

Recovery in Greece?

Having just returned from a 10 day family holiday in Greece, it is clear that there is occasion for some optimism in the country’s revival, but there remains huge challenges ahead.

The complete reliance on tourism remains concerning. Tourism generates over 25% of Greece’s Gross Domestic Product and at least 1% of the 1.9% economic expansion last year came from tourism. It has a near monopoly status on providing jobs and economic wellbeing. Yet, Spring has begun, hotels are full and, during my stay last week, Greece’s stock market rose by over 9%, as most financial markets around the world lost ground. Banks were particularly strong, leading the rally.

Part of the reason was the election results last weekend and what they mean for Greece’s future.

Five years ago, Syrizia picked up 24% in the European elections – a remarkable result for a small, leftish coalition party. A few months later, they won the general election too with a promise to negotiate with the European Union to end a harsh regime of fiscal discipline, drastic public-spending restrictions, rampant privatisation and debt restructuring, in return for billions of Euros in bailout cash. Tsipras, its leader said at the time that Syriza’s popular support robbed the then coalition government of any ‘political or moral legitimacy to continue with austerity policies’.He pledged to end ‘five years of bailout barbarity’ and, in July 2015, gave the choice to the people in a referendum to accept the bailout conditions set by the so called Troika – the European Commission, the European Central Bank and the International Monetary Fund – or reject them, knowing that could lead to Greece defaulting on its debt and leaving the Euro.

Tsipras and his finance minister Yanis Varoufakis, approached the Eurogroup as committed Europeans, determined to relax the onerous bailout conditions. Not only did they fail to win any concessions, they completely capitulated, ignored the result of the referendum, agreed to honour the existing obligations in full as well and agreed to take no further unilateral actions. It meant that everything that the Troika demanded of the previous governments were demanded of, and, incredibly, accepted by Syriza.

The dangers of ignoring a referendum result is well demonstrated by this week’s European elections, where Syrizia vote collapsed, forcing it to call a snap General Election. Tsiprias said simply that the result ‘did not meet expectations.’

Syrizia has not only failed to deliver on their promises but completely ignored them. They have now been punished by their electorate. Four years into Tsipras’s premiership, Greece remains stuck in the economic and social rut in which it found itself after the Eurozone crisis that began in 2010.

They talked of forging positive relationships with their European friends, but resisting the EU’s harsh demands, and shaking off the fiscal straitjacket of austerity. In practice, they acquiesced at every key moment. Just a few days after the Greek electorate voted ‘no’ to the EU’s demands, the Government accepted them in full, lacking the bravery to carry out plans designed by Varoufakis and supported by the electorate.

The end of the bailout loans and the conditions attached to them was proudly announced in August last year as the end of externally forced austerity in Greece. It was nothing of the sort. The Eurogroup has actually imposed on Greece budget-surplus targets of 2.2% of GDP or more until 2060 (which means that state revenue must be greater than spending). This would be an impossible objective for most flourishing economies, let alone a recovering one. It comes on top of Troika-dictated austerity until 2022 – all of which will be monitored by the EU and the ECB.

Greece’s GDP has shrunk by 25% over the past decade and its debt-to-GDP ratio has grown from 130% to 180% per cent in 2018. Unemployment peaked at nearly 30% in 2013 before falling back to 20%. However, over half of new jobs created in 2017 were part-time, and many unemployed people, especially young people, have emigrated. The average monthly salary in the private sector has fallen from €1,285 a month in 2012 to just €929 in 2018.

Despite all the rhetoric, Greece’s direction of travel has remained unaltered under Tsipras. Privatisation has continued apace, with airports, railways and large segments of the energy grid all sold off. The homes of families unable to pay their debts to banks have been auctioned off. Public-sector employment has shrunk by 30% in a decade, leaving basic services, from healthcare to transport, painfully understaffed.

Syriza is paying the price for promising the impossible: abolishing austerity while remaining in the EU.

It can be no surprise that the leftists long promising an end to austerity are now being rejected in favour of centre-rightists, who are now promising the same thing. That is what underpins New Democracy’s revival: the promise to relax the harsh fiscal regime that has been strangling Greece for too long.

New Democracy’s emphases are different to Syriza’s – tax breaks for property owners rather than tax rises for the wealthy – but the big manifesto commitments to lift employment levels, increase GDP and, finally, increase state spending and investment are not so dissimilar. The key promise that would unlock all these policy pledges is lifted straight from Syriza’s past: to negotiate a new deal with Greece’s European and international creditors. From a voter’s perspective, where Syriza has repeatedly failed, New Democracy has yet to try.

But New Democracy faces the same obstacle as Syriza: the EU.

Syriza’s were no doubt genuine in their desire to improve the dire situation of the Greek people and understood the deep-rooted weaknesses of the Greek economy, from its chronically low levels of productivity and its overreliance on imports to its huge levels of public and private debt. It’sflaw, however, was to attempt to oppose the Troika-imposed austerity regime while simultaneously refusing to leave the Eurozone and the EU. It attempted to act with a degree of national sovereignty within a union that explicitly denies and curtails it.

There was no room for manoeuvre – no way to devalue the currency, or to increase investment in a particular industry, because such powers were no longer in the gift of the Greek state. As a member of the EU and the European Monetary Union, and a heavily indebted one at that, Greece was no longer in control of its own affairs. That Tsipras thought the democratic mandate of an election and a referendum would carry any weight in the EU was, at best, naïve.

So even if New Democracy does defeat Syriza in the coming weeks, its commitment to remain within the EU will mean any attempts to relax the regime of austerity will fail.

Now is not yet the time to celebrate a rise in the value of Greek businesses. However, out of the fire might yet come a new, more modern and more dynamic Greece: Achieving this will demand a long period of self-discipline, high quality policymaking and, above all, self confidence that this once proud nation can flourish again.

3rd June 2019