As the third Memorandum of understanding will be achieved next month and creditors of Greece push for a return of the country on the financial markets, it’s time to re-examine the situation of the country hence one of the most important crises in the history of Europe. Pierre Moscovici, European Commissioner for Economic and Monetary Affairs, wrote the following recently in his blog:
Like Ulysses back to Ithaca, Greece is finally reaching its destination today, ten years after the beginning of a long recession. It can finally breathe, look at how far it has come and contemplate the future with confidence.
If Moscovici is really appealing to Greek mythology, the myth of Sisyphus would have been more appropriate concerning the case of Greece.
Indeed, if the European Commission’s Compliance Report seems to be satisfied with Greek perspectives, underlining for example that “authorities have fulfilled their commitment to continue streamlining overall health spending”, effects of austerity measures have been and will continue to be disastrous for Greek society and its long-term growth. According to this report, the Greek primary surplus is expected to increase gradually from 3.5% of GDP in 2018 to 4.3% in 2022, while growth will gradually increase to 2.6% in 2020 before slowing to 1.9% in 2022.
This scenario is far-fetched to say the least, as “a primary surplus of 3.5% of GDP is hard to reach and sustain over the long term, especially after long periods of recession and high structural unemployment” (IMF, 2016), and growth perspectives are weak in the absence of public investment, with decreasing productivity. Since this growth will not be strong enough to equilibrate the Greek economy, new budget cuts will inevitably prolong the “sacrifices” demanded of the Greek people in the foreseeable future. So why does the European Commission and Pierre Moscovici still believe that “Greece can contemplate the future with confidence”?
Greece’s Debt Due
Debt Due By Holder (in USD bn)
Some insights can be found when analyzing Greece’s Debt Due (Fig.1) and the breakdown by holder (Fig.2): this astonishing profile (a wall of 12 billion in 2019, then a decrease to 4 billion in 2020 and 2020, before a new jump, etc.) is explained by the differential treatment of debts with different creditors. European institutions and States hold around 80% of the Greek’s debt. We then understand better the focus of the European Commission and the Eurogroup on achieving high primary surpluses through the application of “structural reforms”, refusal of new debt cancellation and the optimism about Greek public debt sustainability.
Indeed, according to Klaus Regling, the General Director of the European stability mechanism, the “sacrifices” demanded of the Greeks could last until the final expiration date (i.e. 2060): “The Commission stops when 75% has been repaid, but we don’t do that. We are monitoring until the very end.”
“Aye, and I saw Sisyphus in violent torment, seeking to raise a monstrous stone with both his hands. Verily he would brace himself with hands and feet and thrust the stone toward the crest of a hill, but as often as he was about to heave it over the top, the weight would turn it back, and then down again to the plain would come rolling the ruthless stone. But he would strain again and thrust it back, and the sweat flowed down from his limbs, and dust rose up from his head.” Homer, Odyssey, Book 11.
Thomas Lorans, Economist – Sources: Beyond Ratings, Wall Street Journal