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Greek recovery in 2014: Reality or empty promise?


In 2014 all eyes are on Greece. Not only because of the European Council Presidency until July but also because some of the other PIGS are doing well. As of midnight January 23, Spain exited its bailout program – a clear sign of progress. It’s the second country after Ireland to do so. So what about Greece? After 6 years of recession will the promise of better days in 2014 materialize?

The turning point might be April, after Eurostat officially assesses whether the Greek budget was in surplus – before the debt costs were serviced. The government expects that this year the surplus will be larger than the 700 million the year before. Improvement, therefore, ought to be rewarded and Athens expects Brussels to provide debt relief.

But officials from the Ministry of Finance do ask Brussels for a ‘haircut' but rather further a lowering of interest rates on loans and an extension of maturities from 30 to 50 years. The current debt relief policy will mainly aim at easing the fiscal burden and minimize the pressure on citizens for additional austerity measures and ultimately lower the debt-to-GDP ratio to 110 per cent by 2020.

However, in recent years and after tough negotiations with its international European Commission and the European Central Bank (ECB) Greece managed to get interest rates from the Eurozone down to zero. Thus, requesting lower interest rates will not yield much difference. As for maturities the ECB has already established a 10 year grace period. Still, an extension to 50 years will be definitely considered a political success in Athens as it will ameliorate a tense political climate.

Aside from assistance from the EU, Athens is also being independently proactive. Later this year Greece will attempt to return to the markets by introducing 5-year bonds.

Another option the Ministry of Finance could reconsider is Greece's smaller participation in financing structural funds. In Athens public perception estimates that given the dire economic situation the country finds itself in, it should be the recipient rather than the financier of these funds directed at funding projects in poor regions across Europe.

The officials in the Ministry of Finance claim that aside from the primary surplus all macroeconomic indicators have started to stabilize. Reason enough for the government to be positive about the future.

Yet, deflation may have boosted exports but led to the shrinking of consumption and the internal market. Unemployment remains at 27 per cent – around 50 per cent for young people. So what’s the impact on citizens?

Unfortunately nothing in the short term. Only further reform will ultimately catalyze growth. The road to recovery first requires an overhaul of taxation and insolvency policies. The existence, for example, ad hoc taxes like the 'solidarity tax' on income exceeding 12.000 euros per annum may be one of Greece's largest barriers to economic development as it is a barrier for investment in the private sector.

Fighting corruption can also spearhead growth. From day-to-day red tape and bribes to high-level corruption cases, the implementation of further anti-corruption policies could bear fruits. The Finance Ministry is looking to bring everybody accountable and Greek justice has started persecuting notorious businessmen.
Recovery is merely about indicators. While inflation could boost consumption ultimately it is growth and investing in new ideas that will open the road to better days – not only for Eurostat analysts but above all for citizens.


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