the return of the great sick woman of Europe – Corriere.it

Only ten years ago, or so, Greece was the big sick of Europe. Sick enough to run the risk of no longer being European, that is, of declaring default and leaving the single currency. In this seemingly infinite period of time, between the sovereign debt crisis and the one triggered by the pandemic, the literature on the Greek case has been exterminated. There is no agreement between scholars and politicians on the lesson to be drawn from the latest Greek tragedy, that is, whether the extremely rigid austerity imposed on it by international institutions has saved it or has inflicted avoidable suffering on the majority of its population. The fact is that, a few days before the elections on Sunday 21 May, amid evident lights and indelible shadows, the economic numbers finally seem positive. Yet, if Prime Minister Kyriakos Mitsotakis and his center-right New Democracy party are not at all certain of winning – indeed -, it means that there are shadows. Let’s try to understand, point by point:

The economy/1, what’s right: Towards the return to «investment grade»

Perhaps this is the emblematic indicator of the turning point experienced by Greece: it is no coincidence that the Financial Times calls it Greece’s greatest turnround. The twist is this: 11 years ago, in February 2012, at the height of the crisis that risked splitting the eurozone, the country’s rating touched the lowest level: selective default. Athens was excluded from investment grade, the reliability indicators of the major international agencies on the basis of which investors decide how to move. It is the reason why, for a long time, the European Central Bank could not buy Greek debt as part of its massive government bond purchase programs needed to stabilize the euro area economy. Now, the news is that Standard & Poor’s has changed the country’s outlook from stable to positive. A complete update, writes the FT, “would bring Greece to triple B minus, the agency’s lowest investment grade rating”, but in any case a return to investment grade, to a minimum of perceived and certified reliability, to a status that S&P only recognizes 70 countries. It should happen after the vote, if the new government shows itself capable of pursuing reforms, and it will be much more than a symbolic turning point because it will decrease borrowing costs not only for the government, but also for banks and businesses.

The exit from the surveillance mechanisms

Since last September, Greece is no longer under “special surveillance”. It means, underlines the Economist, that now «it can borrow from the markets on a regular basis, by paying a spread two points lower than the rate of German ten-year bonds, more or less like Italy». Until that moment, “the country had had to beg for a series of huge bailouts, which were repaid in advance”.

Skyrocketing growth

It seems incredible, but the Greek one is one of the strongest post-pandemic recoveries, with an increase in GDP of 8.4% in 2021 and 5.9% in 2022. When many quarters asked for the Grexit, Greece’s exit from the euro, it was assumed that the debt would never be sustainable, that primary surpluses would be impossible, that the banking system would not be able to reduce the stock of bad loans, recalls Eurobank CEO Fokion Karavias. And instead: the debt/GDP ratio fell to 171% last year, the lowest level since 2012 and one of the fastest reduction rates in the world, with a further decline expected in 2023; last year, the country recorded a primary budget surplus (net of debt interest) of 0.1%; and non-performing loans on banks’ balance sheets have fallen from over 50% in 2016 to nearly 7%.

The export boom

Between 2010 and 2021, while exports from the entire euro area have increased by 42%, the Greek ones have grown by 90. Dimitris Malliaropulos, chief economist of the Central Bank of Greece, calls it “Greece’s biggest success story in the last decade”. But he admits that the wage squeeze has contributed a lot: “The price of this improvement has been high.”

Mass digitization

The Mitsotakis government, explains the Economist, “has revolutionized the way citizens interact with the state, thanks to an impressive digitization programme”. And Covid has helped to increase revenue forcing citizens to use traceable electronic payments. This has allowed the emergence of a large part of the economic activity that was previously in the black, and can now be taxed.

The economy/2, what’s going wrong: the aftermath of austerity

Inevitably, years of heavy measures — public spending cut by 34% and pensions by 14% — have left their mark. Relative poverty (the statistical parameter that consider poora family of two adults with one consumption lower than the national average per capita) is one of the highest in Europe. “Until a few weeks ago, when it was increased from 832 to 910 euros per month, the minimum wage was lower than it was 12 years ago,” underlines the FT.

Another decade to go back up

After losing a quarter of its capacity, Greece’s production remains below pre-crisis levels. It is Giorgos Chouliarakis, economic adviser to the governor of the Central Bank of Greece, who believes chand the return to peak production “still takes a decade”and that to grow wages, “a serious multi-year investment plan in human capital, key infrastructure and health services” is needed.

The deception of modernization

The terrible train crash of February 28 – with 57 dead, including many students in their twenties – revealed the other face of the innovation triggered by Mitsotakis. From the series: under the many new apps, the nothingness of the services. El País, also recalling the more than one hundred victims of the 2008 fires, denounced a mix of chronic neglect and consequences of austerity: “Austerity has left on the chassis a state with deep-rooted vices – corruption, clientelism, commodification of politics – and has postponed any attempt at land reform or to create a modern taxman” .

The wrong privatizations

Depending on the school of thought, they have been excessive or partial. The Spanish newspaper has a balanced position, which largely concerns us: «Greece has come to privatize some of its islands to comply with the duties imposed by the troika. The Italian State Railways acquired 100% of their Greek counterpart in 2017, but infrastructure management remained with the Greek branch. The European Commission had raised concerns about the poor safety of the railway line and had repeatedly warned Athens to implement the European Train Control System, which was expected to be operational by 2020 and whose automatic braking system could help prevent the accident”. It didn’t happen. Hence the wave of protests that recalled those following the bailouts, the bailouts imposed by Brussels, with strikes and urban warfare. As if the miracle could end suddenly, as if the fear of plunging back into the crisis were ineradicable.

This is the economic framework in which Greece presents itself in a very delicate electoral appointment: in the next few days we will deal with the political aspects, with the competition between parties and leaders and with government prospects.

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