Features

Greece: another serving of EU fudge

Greece is finally emerging from its financial rescue programme, but it will have to keep a tight lid on spending for years.

902_MW_P05_Markets

Greece's crisis still hasn't been resolved

"It has been too long coming," says the Financial Times. After suffering the equivalent of America's Great Depression a 25% fall in GDP since its debt crisis began eight years ago, and three emergency bailouts, Greece is now finally emerging from its financial rescue programme. It exits the European Union and International Monetary Fund's bailout package in August.

Last week's deal with the EU stretched deadlines on €100bn of bailout loans. The repayment period has been extended to 2033; the grace period for interest payments has also been pushed back by ten years, so the average loan maturity is now 40 years.

Some of the last tranche of bailout cash will be allocated to servicing debt. The upshot is that Greece "has very little to repay in the near term and enough reserves to run the country for nearly two years", says Lex in the FT.

But the good news ends there. Greece "is swapping bailout hell for eternal purgatory", as Neil Unmack points out on Breakingviews. It will have to keep a tight lid on spending for years: the Europeans have insisted on a primary budget surplus (before interest payments) of more than 3.5% of GDP, three times the eurozone average. After that until 2060 the primary surplus falls to 2.2%.

Greece's debt pile is too high

Throughout the years, every plan to deal with Greece's recurrent drama was heralded as the ultimate solution. It never was and this one, despite EU economic affairs commissioner Pierre Moscovici's insistence that "the Greek crisis ends here", will also prove a false dawn.

As usual, the plan is based on "forecasts of strong growth and large budget surpluses that [are likely] to prove too optimistic", says Capital Economics. Greece doesn't have a hope of growing fast enough to work off its unsustainable debt pile of 180% of GDP. This package has alleviated but not solved the problem; the debt burden has just been pushed "further into the future". At some stage, however, "either a managed haircut or a disorderly default seem inevitable".

The economy has returned to growth, but still looks fragile. The 2% growth rate depends on ultra-long debt maturities and low interest rates. The banking system is still grappling with bad loans. Unemployment remains high at 20%; corruption is endemic. Political support for ongoing austerity is hardly guaranteed either. An unpopular pension reform, due to be implemented next January, "will test" people's inclination to make further sacrifices, says the FT. Once again, Europe has bought itself some time. And once again, a problem is being managed, not resolved.

Recommended

Can Mario Draghi save Italy's economy?
EU Economy

Can Mario Draghi save Italy's economy?

Italy's prime minister Mario Draghi hopes that his €222bn public spending plan, which includes high-speed internet, high-speed rail, and improving th…
30 Apr 2021
The Greensill saga: what’s it about and what does it mean for you?
UK Economy

The Greensill saga: what’s it about and what does it mean for you?

The collapse of Lex Greensill’s business empire has left a trail of financial devastation across several countries. Saloni Sardana looks at what happe…
27 Apr 2021
How the Covid-19 vaccine crisis is putting the EU in danger
EU Economy

How the Covid-19 vaccine crisis is putting the EU in danger

The botched coronavirus vaccine campaign will cause long-term harm to the EU's economy, says Matthew Lynn.
4 Apr 2021
How the vaccine wars will harm us all
Global Economy

How the vaccine wars will harm us all

Grabbing and hoarding vaccine supplies, or even manufacturing one’s own, might seem to make sense for a state in an emergency. But the damage done to …
27 Mar 2021

Most Popular

Big Tech on steroids: why the 2020s will be the “decade of the DAO”
Bitcoin & crypto

Big Tech on steroids: why the 2020s will be the “decade of the DAO”

Big tech companies have transformed the way we live our lives. But if you thought they were disruptive, you haven’t seen anything yet. As Dominic Fris…
6 May 2021
Could you end up paying inheritance tax on your family home?
Inheritance tax

Could you end up paying inheritance tax on your family home?

The value of the average UK home has risen by 53% since April 2009, but the inheritance tax threshold has remained static. And that means more people …
7 May 2021
Cryptocurrency ether has hit an all-time high. Why? And will the bull market last?
Bitcoin & crypto

Cryptocurrency ether has hit an all-time high. Why? And will the bull market last?

Cryptocurrency ether – the world’s largest cryptocurrency by market cap after bitcoin – hit an all-time high this week. Saloni Sardana looks at what’s…
5 May 2021