The year 2018 was a turning point for the Greek economy, as the third adjustment programme accompanied by concrete measures to reduce the country’s financing needs over the next decade was successfully completed, according to Alpha Bank’s analysis of key challenges for the Greek economy.
The rate of economic recovery has increased compared to 2017, despite the fact that the primary surplus has exceeded targets for another year. Concerning the economic climate, both consumer confidence and business confidence indices have improved significantly in line with the stronger growth rate of economic activity.
The bank analysts pointed out that Greek government bond yields are still relatively high, making foreign borrowing difficult, while international financial uncertainty and the loosening of fiscal policy in Italy adds to the difficulties. The 2018 growth model, as shown by the analysis of gross domestic product components, relies on private consumption and tourism receipts, while investment expenditure remains subdued.
The most important challenges according to the economic analysis are the following:
Firstly, the international economic environment has become less favorable and more volatile. In particular, global demand may be reduced as there are signs of a slowdown of growth in China, the United Kingdom, the eurozone and the US.
The possibility of the United Kingdom leaving the European Union without a specific framework agreement could adversely affect trade flows, weaken the British tourists’ disposable income due to weaker sterling and reduce the available EU resources for Greece.
Secondly, the long-term maintenance of investment spending in years of economic recession below the level of depreciation has weakened the country’s productive capital stock both in terms of value and in terms of not incorporating new technological innovations that have recently taken place. As a result, labour productivity has either declined or remained subdued.
Thirdly, covering the above-mentioned investment gap will probably require the assistance of fiscal policy. It is necessary to formulate a more development-friendly policy mix within the narrow framework set by the target of achieving a high budget primary surplus. This stresses the need for the full implementation of the public investment programme and the reduction of tax rates on the capital and labour markets.
Fourthly, reducing the entrepreneurial and innovation deficit requires strengthening confidence in the institutional framework and creating a stable business environment.
The fifth challenge is the upgrading of public administration, particularly in the areas of the setting up of control mechanisms, human resources management and tax administration.
Finally, privatisations scheduled in 2019 must be speeded up and the programme to deal with non-performing loans and to reduce dependency on the BoG emergency liquidity mechanism must be successfully implemented.
Bloomberg report gives Greece a ‘B’ for its performance in eurozone
Despite the severe battering suffered by Greece’s economy during the extended crisis, Bloomberg has given Greece with an overall ‘B’ grade in its report for the euro’s 20th anniversary, published on Friday.
Entitled “As the Euro Turns 20, a Look Back at Who Fared the Best. And Worst”, the report gives a country by country breakdown of how the economy of each eurozone member-state has performed after joining the euro area, giving the grades of A (very good), B (satisfactory) and C (mediocre).
“While Greece suffered mightily during the sovereign debt crisis, it also eked out a B. For all that went wrong, being part of the euro for 18 years made it possible for Greece to build new trade relationships with Europe’s wealthier core. Transferring monetary policy to a credible central bank brought greater price stability in the early years and the recent past has seen a big improvement in competitiveness,” the report said.
Bloomberg Economics submitted 16 Eurozone member-states – excluding the Baltic countries that joined in 2011, to 10 economic tests to determine which countries best reaped the benefits of using the euro. The authors note that the tests do not indicate whether the countries would have been better off outside the euro, nor do they measure their overall prosperity and economic health, but simply “how well each country seized the opportunities and navigated the risks of a shared currency”.
“The results portray a divided continent. Of the 16 countries tested, six ended up with As, five got Bs and another handful scored Cs. The three Baltic nations that joined since 2011 weren’t tested because they haven’t been in the group long enough,” the report said.
Greece’s score in the 10 tests were as follows:
FAVORABLE FINANCIAL CONDITIONS – A
ABILITY TO BORROW – C
GREATER INTEGRATION – A
PRE-CRISIS COMPETITIVENESS – C
PRODUCTIVITY GROWTH – C
POST-CRISIS COMPETITIVENESS – A
INFLATION ANCHORING – A
POST-CRISIS LABOUR COSTS – A
FISCAL POLICY OPTION – C
PRE-CRISIS LABOUR COSTS – C
The ‘A-list’ countries included Austria, Belgium, Finland, Germany, Slovakia and Slovenia, other B’s went to Ireland, Luxembourg, the Netherlands and Portugal, while Cs were handed out to Cyprus, France, Italy, Malta and Spain.