ATHENS, Greece (AP) – With more of a whisper than a resounding thud, Greece has removed another restriction dating back to its painful financial bailout years.
Saturday’s formal end of “enhanced surveillance” by European Union creditors means the country will no longer face quarterly scrutiny of its public finances to win debt relief payments.
That gives the centre-right government of Prime Minister Kyriakos Mitsotakis greater freedom over the budget at a time when Greece, like all of Europe, is grappling with a post-pandemic cost-of-living and energy crisis sparked by the war Russia in Ukraine. As Moscow has cut off natural gas to Europe, energy prices have soared, fueling runaway inflation and threatening to plunge Europe into recession.
However, Greece, like the other bailed-out EU members Spain, Portugal, Cyprus and Ireland, will continue to be controlled by its creditors while it repays its debts. In the case of Greece, this will take another two generations, with the last loans due in 2070.
Wolfango Piccoli, co-chairman and director of research at Teneo, a consultancy that has covered Greece’s financial crisis for years, said the end of enhanced surveillance is unlikely to have a significant impact.
“It’s mainly a technical issue that most investors are expected to ignore,” he said.
While the Mitsotakis government may try to score domestic political points with the enhanced surveillance exit, “this will be an exercise in futility,” Piccoli said.
“The vast majority of the public is focused on the cost of living crisis,” he said.
That’s true for Efthymia Paidi, a 23-year-old florist in downtown Athens who grew up during Greece’s financial crisis and doesn’t feel like much has changed since then.
“I think the crisis is essentially ongoing, it never ended,” he said. “What I see is constant repetition. … Unemployment is still high and wages are low, while the cost of living is high”.
Saturday’s milestone marks exactly four years since the end of the international loan program that left Greece defeated but still a member of the European Union and its common currency, the euro. The Greek crisis rocked global markets and pushed EU unity to its limits.
Investors stopped lending money to Greece in 2010 after Athens admitted to misrepresenting key budget data. To keep the country afloat, its European partners and the International Monetary Fund approved three bailout loan programs that ran from 2010 to 2018 totaling 290 billion euros ($293 billion).
In return, creditors demanded what many Greeks still see as a pound of flesh: deep cuts in state spending and wages, tax increases, privatizations and other radical reforms aimed at straightening public finances. The economy contracted by more than a quarter, unemployment rose to nearly 28%, and skilled professionals emigrated en masse.
The programs led to balanced budgets and a successful return to public borrowing from international markets. Last year, the economy recovered most of a 9% pandemic-induced contraction in 2020 and is expected to grow 3.5% this year amid an expected tourist season.
The recession and COVID-19 relief measures pushed Greece’s public debt to a staggering 206% of economic output in 2020, but it eased in 2021 and is expected to reach 185% this year.
The European Commission, the EU’s executive arm, said that “as a result of Greece’s efforts, the resilience of the Greek economy has improved substantially and the risks of spillover effects to the economy of the ‘euro have decreased significantly”.
“It is no longer justified to keep Greece under enhanced surveillance,” he added.
But challenges remain, many beyond Athens’ control. Inflation reached 11.6% in July, slightly below the previous three-decade high, but still higher than the 8.9% in the 19-nation euro zone. Although government subsidies are preventing households and businesses from increasing their energy bills for now, gas, fuel and energy prices are expected to rise further in winter, as in the rest of europe Also, unemployment in Greece was almost 15% last year and is only expected to drop to single digits in 2024.
In a lingering reminder of the crisis years, Greece’s credit rating remains below investment grade, raising the cost of borrowing on international markets. However, most of the country’s debt is held by its European partners on favorable terms and Athens hopes to regain investment grade next year.
Teneo’s Piccoli doubts that the exit from enhanced surveillance “will make a big difference in relation to a possible credit rating upgrade in 2023”.
The country needs to move quickly on some grassroots reforms – including speeding up the creaky justice system, cutting red tape and fighting persistent corruption – that fell through the cracks during the bailout years, he said. say the expert in Greek public administration Panagiotis Karkatsoulis.
“The end of the watchdog period can mean, and I would like it to mean, a new era related to reforms,” he said. “Without the reforms, it would be more of a symbolic movement.”
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