The economic challenges to Greece: What does the future hold?

David Madden (Senior Member, St Antony's College, Oxford)

Jens Bastian spoke on 23 November about The economic challenges to Greece: What does the future hold? Yaprak Gursoy was the discussant, and Kalypso Nicolaidis chaired.

He said that the Greek economic crisis had not gone away. It had been a programme country since 2010, with the third programme due to expire in 2018. This deeply affected the country and how it viewed itself. By contrast, Portugal, Ireland and Cyprus had each had one programme and then finished the process. Greek GDP had shrunk by 27%: this was unprecedented in peacetime. Unemployment was over 23%, with two thirds unemployed for over 12 months (benefits ceased after a year). Greece had become a high tax country, and tax arrears were rising. The elephant in the room was sovereign debt: Greece owed 323 billion euros, 85% of it to official credit institutions. Germany was owed 108 billion euros, and opposed debt relief, though the IMF favoured it. Migration added to Greece’s difficulties: with the closing of the Balkan route, over 63,000 refugees were trapped in Greece, which had changed from being a transit country to a hotspot. On the other hand, tourism was strong, Piraeus flourishing (the second largest European port after Rotterdam), there were potentially beneficial developments in the regional energy sector, and resilience in some business sectors e.g. start-ups.

Yaprak wondered about a Keynesian solution of pumping money into the economy. On the political side she detected signs of the deconsolidation of democracy in Greece (unlike eg in Spain and Portugal), with Golden Dawn the most extreme, fascist and violent party in Europe. Recent public opinion surveys had even picked up some evidence of nostalgia for the Junta. The sharp reduction in the granting of TV licences was a new issue.

In reply to questions, Jens added the following points: 

• Pumping money was not an option. If Greece were to have access to capital markets, she would have to pay interest rates of 7% or more.
• Greece needed more fiscal space. A primary budgetary surplus was unachievable. The Quartet (Troika plus European Stability Mechanism) should avoid micro-managing the Greek economy,
• Debt relief was technically very complex because of the difference between IMF and ECB procedures
• On relief, there seemed to some difference of approach between Merkel and Schauble. Public debate was unhelpful.
• There were two aspects of the brain drain: university graduates acting as baristas; and people going abroad for jobs and not returning
• Golden Dawn did not appear to be gaining in strength at present.