News analysis

Greece nears austerity exit but not out of woods

Country set to get last tranche of EU bailout, but faces long road out of indebtedness

Almost a decade after it faced a humiliating national bankruptcy and required the biggest financial bailout of any country in history, Greece has just been told that, at long last, its unprecedented and hugely painful economic crisis may be reaching its end.

European Union finance ministers agreed earlier this week that Greece should receive the last injection of cash under its current bailout programme, thereby signalling the possibility that by the end of this year, the widespread austerity measures which the EU imposed on ordinary Greeks in return for lending the cash may be over.

This is good news for Greek Prime Minister Alexis Tsipras, who is facing a general election next year.

"Our plan has brought results," he claimed. "And even those who were more doubtful of us in the past will have to recognise it."

Still, Greece will continue to be saddled with unprecedented high levels of debt for the rest of this century.

Mr Tsipras, who at the age of 39 became Greece's youngest prime minister in modern history almost four years ago, initially promised jubilant Greek voters that there will be no cooperation with the country's European lenders.

A demonstrator holding a placard reading "stop (bailout) memorandum, old and new" on Jan 15 in front of the Greek Parliament building in Athens in protest against a new round of austerity measures.
A demonstrator holding a placard reading "stop (bailout) memorandum, old and new" on Jan 15 in front of the Greek Parliament building in Athens in protest against a new round of austerity measures. PHOTO: AGENCE FRANCE-PRESSE

He even held a referendum on the subject in July 2015, when a majority voted to reject all the conditions which Greece was asked to fulfil in return for financial credits.

But days after that referendum, Mr Tsipras discovered that the EU would rather see his country collapse than lend it money with no strings attached, so he accepted all the conditions which the lenders demanded.

EU finance ministers accepted this week that around 100 of a staggering total of 113 reform measures that Greece was required to adopt - including privatisation of government assets, the overhaul of the tax system and painful cuts in pensions - were implemented.

The EU therefore released another loan tranche of €6.7 billion (S$10.8 billion), to be paid in stages from next month, and ending in April.

With no major debt repayments expected in the near future and the national economy now growing for three consecutive quarters, the US ratings agency S&P also gave the country the thumbs up, moving it up by one level. Although this still puts Greek bonds in the "junk" territory status, it has emboldened the government in Athens enough to announce plans to borrow up to €4 billion on global financial markets.

However, these are early days in Greece's journey to financial stability. To start with, many of the reform measures which are yet to be implemented are hardly small.

And then, there is the question of Greece's national debt overhang, which currently stands at a staggering 180 per cent of the country's gross domestic product. The International Monetary Fund has long argued that this level of debt is unsustainable, and that the Europeans should write much of it off, since it won't ever be repaid.

But, fearing that it will create an unwelcome precedent, EU governments have rejected this approach. Instead, they simply rolled over repayment dates for much of this debt. Awkwardly, however, the EU Commission, the union's own executive, recently admitted in a report that, even if everything goes well, Greece will still have a debt equal to its entire economy by 2060 so, sooner or later, the question of debt forgiveness has to be faced.

And to make matters worse, EU governments have signalled their determination to monitor Greece well into the future to ensure that their loans are being repaid.

In short, even if their country will no longer subjected to new austerity demands, ordinary Greeks may well have to have to accept that, for decades to come, they will continue putting up with EU officials who fly into Athens, check into five-star hotels and tell the Greek government what to do.

A version of this article appeared in the print edition of The Straits Times on January 25, 2018, with the headline 'Greece nears austerity exit but not out of woods'. Print Edition | Subscribe