Crisis Nation

End in sight for Greece's EU bailouts, but not its problems

A woman walks past a wall covered with graffiti in Athens
No longer a casualty? Source: dpa

Alexis Tsipras talks a good game. This week, the Greek prime minister was busy proclaiming a new era for the perennially troubled, debt-ridden nation: “Growth is back. All indicators are positive. A new era is beginning for the economy, for the government, and for Greece.”

Big words from Mr. Tsipras, but the jury is still out on Greece’s prospects. This week, the European Commission predicted the country would grow by 2.5 percent this year and next year. Unemployment is still a painful 21 percent, although that figure fell by almost 3 points last year.

Perhaps most remarkably of all, in August, the country will finally leave the euro-zone’s bailout program, regaining a large measure of fiscal and political independence after 8 years under tight supervision from Brussels.

“We'll stick to our economic strategy: there'll be no surprises after the bailout program ends.”

Euklid Tsakalotos, Greek Finance Minister

Even after it exits the bailout program, Greece will only be responsible for a small amount of its debt. The vast majority – €230 billion ($280 billion) – is guaranteed by the International Monetary Fund and euro-zone governments, set to almost zero-percent interest and with repayment postponed for decades. Germany has put up almost 30 percent of that figure.

As a prelude to a full return to the capital markets, on Thursday the country held a bond sale, raising €3 billion at 3.5 percent. Greek sovereign debt is still rated as junk, but enough buyers seem ready to take a punt on fresh debt.

Finance Minister Euklid Tsakalotos is hoping to win a few last concessions on Greece’s debt mountain before finally exiting the bailout program. But above all, he looks forward to an easing of the stigmas on his country: “We will be a member of the club of the quite normally heavily indebted countries of the euro zone.”

Speaking to Handelsblatt in Athens, Mr. Tsakalotos was full of enthusiasm. In April, his government will present a growth strategy for the post-bailout era, covering all major economic sectors, as well as tax and social policy, he says. “We’re going to stick to this strategy: there’ll be no surprises after the end of the program.”

Creditors will want more of that sort of reassurance: There is nervousness that the end of the bailout could also mean the end of strict European supervision of Greece’s economic management. The infamous Troika – plenipotentiaries of the European Union, the European Central Bank, and the IMF – will finally pull out of Athens, leaving the Greeks to their own devices.

That makes the country’s creditors fear a return to the old, lax policies which ushered in the euro-zone crises of recent years. They have not forgotten that, not long ago, Mr. Tsipras’s Syriza party was in the vanguard of resistance to economic reform.

Times have changed, say many observers. But trust is still in short supply, and any new euro zone concessions on debt will come with strict political conditions. Greece must not “back down on promises on primary surplus, privatizations or bad loans,” said Klaus Regling, the managing director of the European Stability Mechanism, in an interview with the Greek newspaper Kathimerini this week.

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Mr. Regling’s comments reminded Greeks that their country is not out of the woods yet. Non-performing loans make up almost 50 percent of the country’s domestic debt. Exports and foreign investment are rising, but from a pitifully low level. Modernization of the dilapidated state apparatus is nowhere near complete: European diplomats estimate the task could take at least another five to 10 years.

Next year will be particularly hard, not least because Mr. Tsipras faces a general election. He can campaign on some good economic news, but his leeway for granting economic relief is very limited. 2019 will see further cuts to pensions, and public debt repayments of €14 billion, the highest level in 15 years.

Mr. Tsipras is hoping he can navigate these tough storms, bringing relief for the country and a place in history for himself, as the prime minister who guided his nation back to normality.

Ruth Berschens heads Handelsblatt’s Brussels office, leading coverage of European policy. To contact the author: berschens@handelsblatt.com

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