Shoppers are seen on downtown Athens’ Ermou Street, on Friday. Greece’s economic gains are now part of its narrative, widely recognized by both domestic and international observers, says the writer. [InTime News]
The narrative of Greece’s economic recovery reads like a modern saga of revival.
Since the 2019 elections, which ushered in a pro-business government for the first time since 2009, the nation has been rewriting its economic story. This government has managed to navigate Greece through the tumultuous waters of global economic crises, including the pandemonium of the Covid-19 era.
Greek fiscal policy has consistently beat expectations. According to recent data from Bloomberg, Greece’s debt, while still the highest in the EU, is on a swift decline, projected to match Italy’s in the foreseeable future. This is not merely a numbers game; it signifies a strategic pivot from the austerity measures of the past, which, in hindsight, appear overly restrictive. The infusion of EU recovery funds post-crisis has underscored that a balanced approach of fiscal stringency and strategic investment might be the true path to sustainable growth.
Greece’s economic journey from the brink of collapse to a state of cautious optimism is a testament to the power of governance with a clear vision
Over the past 30 years, Bloomberg has maintained a presence in Greece, observing the dynamic changes within its economic environment. Recently, I had the privilege of hosting a gathering in Athens, where Prime Minister Kyriakos Mitsotakis joined over 40 leading banking executives and regulators. Despite the prevailing global uncertainties, the atmosphere was that of cautious optimism.
This reorientation in policy has not only helped in managing the national debt but has also fostered an environment where economic activity could rebound. Businesses have found fertile ground for investment, and the government’s commitment to overperforming budget targets has reassured creditors and investors alike.
Banking sector reformation
Turning to the financial sector, Greece’s banking system is undergoing a renaissance of its own. The introduction of the Hercules program, inspired by Italy’s own efforts to cleanse bank balance sheets, has dramatically reduced the bulk of nonperforming loans. From a peak that threatened economic stability, Greek banks now boast an NPL ratio of 6.7%, inching closer to the EU average of 2.3%. This overhaul has paved the way for privatization, with the recent sale of a 10% stake in National Bank of Greece for €690.6 million. In a further sign of a gradual return to normality, Greek banks were also allowed this year to pay dividends for the first time since 2008.
The political landscape has played no small part in this economic turnaround. A one-party government, the first since 2009, has acted with a clarity and speed that has proven essential for such reforms. The ability to implement policies like Hercules without political gridlock has not only addressed the banking sector’s woes but has also sent a strong signal to the markets about Greece’s commitment to economic reform and stability.
However, as Greece looks toward its next electoral cycle, the specter of political instability looms. The potential for a shift back to a fragmented political scene could disrupt the economic calm that has been so painstakingly built. The recent European elections and polls hint at this possibility, suggesting that maintaining the momentum of reform could face new challenges.
Yet, there’s a silver lining around the clouds of political uncertainty. The economic gains are now part of the Greek narrative, widely recognized by both domestic and international observers. The challenge and opportunity for the next government will be to not only maintain but enhance these reforms. This includes fostering an environment where investment thrives, confidence in the financial system is restored, and Greece continues to be seen as a beacon of economic resilience in Europe.
Safeguarding the recovery
The road ahead for Greece is paved with both opportunities and potential pitfalls. The economic policies that have led to this point need to evolve, focusing not just on macroeconomic stability but also on microeconomic vitality. This means continuing to support businesses, enhancing the labor market, and ensuring that growth benefits are distributed across society.
Moreover, the narrative of Greece’s recovery should include a commitment to green investments and digital transformation, areas where the EU’s Recovery and Resilience Facility can play a key role. These sectors not only promise continued growth but also address global challenges like climate change.
Greece’s economic journey from the brink of collapse to a state of cautious optimism is a testament to the power of governance with a clear vision. The lessons from its reforms are clear: fiscal prudence, targeted economic interventions, and political stability are crucial. For investors and policy makers alike, Greece’s story offers both a lesson in recovery and a case study in the virtues of political stability for economic reform.
The future will hinge on how the Hellenic nation can safeguard what has happened in the past five years and remain on the same path that has started bearing fruit and has placed it in the epicenter of foreign investors.
Constantin Cotzias is European director at Bloomberg LP.