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Abu Dhabi, UAETuesday 11 December 2018

Greece exits bailout programme but much still to be done

Unemployment stood at 19.5 per cent as of May, property prices only just crept back into positive territory

The Gate of the ancient Roman agora in Athens. Greece has a lot of rebuilding yet to do. AP
The Gate of the ancient Roman agora in Athens. Greece has a lot of rebuilding yet to do. AP

Athens // On Monday, Greece exited its final bailout programme after almost a decade, a milestone that was applauded by its government and lenders but met largely with indifference by the rest of the country.

As Athens will now be free to borrow money on global financial markets for the first time since 2010, on paper at least the crisis that required an almost €300 billion rescue package is technically over. The Greek government has built up its cash buffer to cover financing needs until 2022 and various rating agencies have given favourable verdicts on the outlook for the country.

In some quarters, the end was a cause for celebration. Donald Tusk, president of the European Council, tweeted: “You did it! Congratulations to Greece and its people on ending the programme of financial assistance. With huge efforts and European solidarity you seized the day.”

But analysts cautioned there is still much to be done to rebuild the public sector, the judiciary and the general business environment.

Aristides Hatzis, a law professor at the University of Athens, said he does not consider the date a milestone. “Greece remains in close supervision, there is still strict conditionality, including unrealistic primary surpluses for the next four decades,” he said. “Add over-taxation and the retirement system to the mix to understand why one cannot be optimistic,” he noted.

The Athens Composite Index surged in early morning trade on Monday only to fall back later although it was still up 0.8 per cent by 4.17pm UAE time.

Mario Centeno, president of the Eurogroup, pointed out the country was now the arbiter of its own economic future. “Greece is today faced with a new reality. No more prior actions but also no more disbursements. With regained control comes responsibility.”

Between 2010 and 2015, the European Union, European Central Bank and International Monetary Fund lent Greece some €289 billion (Dh2.21 trillion) in three sets of loans to keep the country’s battered economy afloat.

The bailouts were accompanied by a series of economic reforms which required both an immediate and long-term overhaul of the economy, and had the result of slashing over 25 per cent from the country’s gross domestic product and introducing huge volatility. Between the third and fourth quarter of 2015, GDP growth went from minus 1.6 per cent to plus 1.7 per cent and back down to minus 0.7 the next quarter, according to Trading Economics. It has been a roller coaster ride since, fluctuating rapidly between contraction and meagre expansion. GDP growth was at 0.8 per cent for the second quarter of this year.

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From the first bailout until the last, Greece has worked its way through a total of five governments, including two caretaker governments. It was the current coalition SYRIZA/ANEL government which finally claimed the prize of a bailout exit.

And although the programme is over, the mountain of work that lies ahead is clear. Unemployment stood at 19.5 per cent as of May, property prices only just crept back into positive territory in the second quarter of this year after almost a decade of declines, and the pile of unpaid tax owed to the state, both legacy and new debt, is well over €100bn as of June this year, according to the Independent Authority of Public Revenues.

Yiannis Mouzakis, at the Greek news and analysis website, MacroPolis.gr, was more optimistic, at least in the shorter term. “The issue of debt is settled for now, within the political limitations of the euro zone, and with debt relief measures of extending maturities and deferring interest payments by a decade it is not an immediate concern until 2032 when it will get looked at again."

It will now be down to Greece’s current and future governments to keep the country’s recovery on track. "The extensive reforms Greece has carried out have laid the ground for a sustainable recovery: this must be nurtured and maintained to enable the Greek people to reap the benefits of their efforts and sacrifices,” said European Economics Commissioner Pierre Moscovici.

George Pagoulatos, professor of European politics and economy at the Athens University of Economics and Business, pointed out that Greece's exit did not mean the country was free to do as it pleased: “Practically, Greece remains under a very constrained fiscal framework. There are many elements in this framework that are very similar to what we’ve had so far, but clearly there is a symbolic change in that we have formally graduated three formal bailout programmes.”

Still, at least the EU can count on little chance of a Brexit style revolt by Greece any time soon. “The euro has been supported by the majority of the Greek public, even if support waned in 2015 and 2016,” said Prof Pagoulatos.

“There has also always been strong support of Greek membership of the European Union, despite the rapidly declining confidence in the EU institutions, as shown by Eurobarometer surveys,” he said.

But as for a sustained Greek economic recovery, Mr Mouzakis struck a more sombre tone. “In the longer term, Greece is facing serious demographic and productivity challenges which require significant reforms, long-term strategy and political consensus, which I currently don't see in the Greek political system.”