2018 to be better for Greece
As Greece prepares to stand on its feet again after eight years of turmoil a leading academic says that although the worst is over, the chance of a triple-dip recession remains real.
Dr Ioannis Oikonomou, associate professor in finance at Henley Business School who has taught many subjects to JP Morgan, Goldman Sachs and Bank of America Merrill Lynch, warned the EU has made mistakes in tackling the Greek debt crisis and the fallout has changed the landscape of the EU with the bloc’s citizens hitting out over repeated bailouts.
But Dr Oikonomou said there are indications that things are picking up, as he puts it, “a bit.”
He said: “The economy is showing signs of recovery with modest growth, low inflation and a drop in unemployment – now at about 21.8 per cent down from almost 28 per cent in 2013.
“Tourism, the country’s most important sector, has rebounded with about 30 million tourists arriving in 2017 and more expected next year.”
Alexis Tsipras, Greek Prime Minister
But there’s plenty of reason for caution as Greece has been here before. In fact, it seems to repeat itself at two-year intervals.
In 2013 The Financial Times led with the headline: “Greece seen as over worst of crisis,” while in 2015 Clemens Fuest, president of the Centre for Economic Research, told reporters once again that the worst was over for Greece.
More recently, in 2017 Greek Prime Minister Alexis Tsipras said his government will lead Greece out of the financial crisis and reaffirmed his commitment to the EU.
Mr Tsipras said back in July: “We can now say with certainty that the economy is on the up, the worst is clearly behind us.
Drop the debt: Greeks have had 8 years of misery
He claimed Greece’s commitment to the single currency and the EU had never wavered, even in the depths of its crisis, insisting “Greece is an integral part of Europe.”
But Greece’s relationship with the EU has been fraught and Dr Oikonomou says the EU has both helped and hindered Greece’s road to recovery.
He said: “Last time I said that the worst times are over for Greece was at the end of 2014. A series of remarkable strategic mistakes and destructive negotiation tactics by the then newly elected Greek government proved me wrong.
“But Mr Tsipras and his party seem to have learned from their mistakes in this regards. So yes, I am doing to say it again and hope I will not be proven wrong a second time: the worst is over,” he adds.
‘Nein’ to eurozone control
The EU has played a part in Greece’s recovery, which has seen Athens at the centre of dramatic tax hikes and spending cuts in exchange for the emergency loans Greece needed to make payments on more than £260 billion of debt.
Dr Oikonomou: “Given years of mismanagement of the country’s budgets, overspending, corruption, lack of innovation and productivity and a mostly inefficient public sector, the EU has imposed a) a series of significant structural economic reforms and b) a much tighter governmental fiscal policy.
“My view is that, for the most part, the former initiative is moving in the correct direction and has benefited the Greek economy while the second one has been excessively strict, aiming to produce incredibly high primary surpluses which are suffocating the government’s ability to provide targeted incentives in certain sectors and basic economic aid to the poorest members of the Greek society – who have increased a lot in number over the period of the crisis.”
Dr Oikonomou said the EU has made both political and economic mistakes during the Greek debt crisis.
On balance, the EU has helped more than it has hindered Greece’s long road to recovery. But it has made mistakes, both politically and economically.
He said: “On balance, the EU has helped more than it has hindered Greece’s long road to recovery. But it has made mistakes, both politically and economically.”
As such, the first step on Greece’s road to recovery is financing, and the ability to take out more loans rather than going to the EU cap in hand.
But it’s still a high risk move.
Dr Oikonomou said: “What most people seem to ignore is that if Greece was to go to the markets right now in order to refinance its debt – so that it can honour the capital payments on expiring bonds, it would need to do so at a cost that is 3 times higher than the UK and about 10 times higher that Germany.
”This would mean a marked increase in the annual interest payments it would need to make. And the country could not afford another default event: that would lead to financial isolation. Naturally, this would lead to a double-dip recession – or really, triple dip if one looks at the recovery that was occurring in 2014, he says.”
But as Greece moves along the road to recovery what remains yet to be seen is if the Greek crisis has changed the relationship between eurozone states forever.
Dr Oikonomou said: “My feeling is it has. Not so much at the political level as to the feelings of the average EU citizen”.
The academic adds different EU nationals feel cheated or exploited by the loan agreements Greece made with the EU Troika – the European Commission, the European Central Bank, and the International Monetary Fund.
Greece and the EU are back on good terms
Most polls reveal the different narratives running through the crisis in different countries.
Dr Oikonomou said: “Many Germans felt that they had to bail out a nation which is not as productive, mostly true, or hard working, mostly false, and that this is not their business. Many Greeks felt that the loan agreements would endlessly perpetuate a situation that will lead nowhere: a government that has lost its fiscal and political autonomy and ability to spend its income the way it wishes too, mostly true, so that creditors can get richer from the interests and buying the country’s resources cheaply, mostly false.
“This has created a sentiment of mutual mistrust and a loss of the importance of the claim of the European identity.”
Dr Oikonomou added the rhetoric from the EU has at times be too controversial, and the insistence on an extremely strict fiscal policy and large primary government surpluses borders on self-defeating hard-headedness.
Although the crisis may be over, terms will not significantly improve the generation of Greeks now in their late twenties and early thirties referred to as “the lost generation”.
Dr Oikonomou says, for this generation, their lives will most likely be worse than that of their parents.
He said: “I cannot see things changing significantly for Greek youth for another 5-6 years – and I’m probably being optimistic.”