Will the Greek economy ever come back to growth?

Alexis Tsipras at the informal meeting of the Heads of State on the refugee crisis (TVNewsroom European Council, 23/09/2015)

Eurozone’s Finance Ministers convened in Luxemburg two days ago and proposed that Greece should immediately focus on the necessary reforms in order to be able to cope with the third bailout programme.

Both sides (creditors and Greece) agreed that Greece will have to implement the 48 prerequisites- measures that will unlock the next much needed tranche of 3 billion euros.

The aforementioned measures are included in the 2016 draft budget that was presented by the Greek government and show that the economy will shrink even more during 2015 and 2016 and will come back to growth no later than 2017.

However, the International Monetary Fund (IMF) warns at its World Economic Outlook report that there are still chances of market turbulences in case a Greek political uncertainty returns despite the fact that the dangers have been reduced due to the agreement and the new bailout programme. It is also noted that the consequences of an upcoming market unrest are possible to be transmitted to the rest of Europe.

It remains to be seen though whether the implementation of these measures will actually lead to growth and boost the Greek economy or the Greeks will become once again “subjects” of their creditors’ natural experiments.

Eurogroup keeps on demanding reforms

Once again the 19 Finance Ministers of Eurozone gathered to discuss Greece’s bailout programme and upcoming measures. The outcome of the meeting was, as in the past ones, a mutual understanding that Greece has to start working on the implementation of structural reforms in order to be financed by the EU creditors.

More specifically, the president of Eurogroup and Dutch Finance Minister  Jeroen Dijssebloem stressed: “A lot of work has to be done, a number of reforms still have to be implemented and new reforms have to be designed. It’s in the Greek interest to deliver as quickly as possible so we can also continue on the process of bank recapitalisation and go into the debate about debt restructuring.”

The Greek government is betting on this debt restructuring in order to make its debt viable; a debt which is currently at 187,6% of GDP. The EU creditors seem to be ready to undertake such action and bring the IMF back to participate in Greece’s programme. The latter was also underscored by Michel Sapin, the French Finance Minister, who mentioned that: “It’s crucial because the IMF is on a different timetable and the IMF can only put its next program in place when we have agreed to easing the debt burden”.

Will Greece’s tough draft budget bring growth?

It was last Monday when the Greek Prime Minister submitted to the parliament the draft budget for 2016; a year with lots of tax increases and spending cuts to come.  According to the budget, it is anticipated that the economy is going to be contracted by 2.3% in 2015 and 1.3% in 2016 which is in accordance to the creditor’s estimates.  The government is also supposed to receive 4.3 billion euros through the implementation of mainly tax-based measures.

The IMF’s report supports the aforementioned figures regarding the Greek economy’s growth and underlines the impact of a potential future political unrest on the country’s economy and to the rest EU member states in case the necessary reforms are not put into action.

But these measures are going to bring growth not before 2017. The Greek citizens are undertaking this long-lasting crisis for more than 5 years now and it seems that it would take several more years till the revival of the economy.

All the previous bailout programmes for Greece have failed to bring growth. The reasons are twofold. Either the Greek governments are incompetent to materialize the necessary reforms and implement the right measures or the measures proposed by the creditors are problematic and cannot bring the desired results. Whatever the reason the outcome remains the same. No growth for Greece.

The first review: Well begun is half done

The first review of whether Greece is in line with the programme is most likely going to take place at the end of October. The Greek government has little time to vote for the measures that have been agreed with the creditors and start implementing immediately fundamental reforms.

However, the leader of the governing left-wing Syriza party is aware of the fact that the first review will be very crucial which will lead not only to the recapitalization of the Greek banks but also to debt restructuring. More in detail, Alexis Tsipras mentioned during his speech in the parliament two days ago: “We are aware that the successful conclusion of the first review is the key that will open the door for the necessary debt restructuring.”

All in all, the Greek government seems to be ready to finally listen to its creditors and implement the necessary measures but we must wait and see whether this is going to last and most of all whether the measures will have the desired positive impact on the economy.

Follow Chris on Twitter @CAnyfantis