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GREECE....

The slightly more positive economic news from Greece has been overshadowed by the terrible fire that cost so many lives in late July just outside Athens...

 

Although it all happened tens of miles away from where most of my Greek relatives live, smoke clouds had covered a huge area blocking out the sun;  such was the intensity of the fire.  The known loss of life is already higher than the UK faced at Grenfell Tower. 

Prime Minister Alexis Tsipras rushed home, cutting short a trip to Bosnia. 

A month before that he was in London and I met him on June 26 at the Guildhall in late June, at an event organised by the City of London. It was a charm offensive to lure investors into Greece. Not an easy task;  though much easier than what he is facing now,  with the investigations and post mortems going on in the town of Mati. But Tsipras impressed while in London. His English - which I am told was non-existent when he took power as head of the radical left Syriza party in coalition with a small right wing party, has now become rather good.  He understood and fielded well numerous questions from the audience.

He almost never wears a tie, which would make it difficult to imagine him at a Mansion House dinner, for example. But it is worth remembering that when elected in January 2015 he was only one year older than Macron was when he in turn became France’s Prime Minister in 2017.  What is also remarkable about him is that he is a left wing politician actually implementing very right wing policies;  albeit dictated to Greece by the country’s creditors. And he also accomplished the remarkable feat of winning a referendum on rejecting the tough conditions imposed on Greece’s third bail-out - and ending up accepting them all - and more!

Greece is staging a modest recovery at present and the need to keep the EU united at a time of Brexit has meant that it has earned some much needed goodwill from its neighbours.  In a Eurogroup meeting just before Tsipras’s  trip to the UK it was agreed that Greece will be exiting the third-bail out finally in August this year. As I and my co-author and fellow Greek-born economist, Danae Kyriakopoulou of OMFIF pointed out in a joint article recently, the agreement comes ‘after eight years of crisis, four governments, eight finance ministers, three bail-outs, 450 policy reforms and €274bn of loans’.  And debt at 180% of GDP is still the highest in the EU, though the agreement calls for an extension in maturities and interest holidays for part of the loan.

It is not of course a ‘clean exit’ as the Greeks would have liked,  as tough conditions remain:  more tax rises and pension cuts are planned for 2019 and  its creditors will continue after August to visit every quarter, as there will be a period - a rather long one in fact - of enhanced surveillance and debt relief conditionality.

There is a question still therefore of whether the debt relief measures are enough and whether there should at some stage be a debt write off. Otherwise Greece will be forced to continue with austerity and be required to produce large primary surpluses each year for decades to come. This will inevitably constrain growth. Although tourism is at record levels, confidence in the rest of the economy is subdued and the consumer remains cautious after experiencing a 25% drop in GDP since 2008 and unemployment stubbornly stuck above 20%. 

Continuous tax rises have been crippling. One extraordinary statistic says it all:  the percentage of disposable income spent on housing by Greeks is some 40% as against 11% for the EU as a whole. And because of the huge tax burden of owning a property, hundreds of thousands of houses that are inherited are just refused by the beneficiaries and handed over to the Greek state as the associated costs of running those properties are simply unaffordable. 

The remarkable willingness of the greeks to accept years of austerity may be shaken by recent events. Budget cuts are already being blamed now for a reduction in firefighting equipment which may have made it more difficult to contain the fires.

Still, Tsipras was charming and hopes to encourage foreign investment into the privatisation process going on at present.  At the smaller private workshop with him after the public event I found myself the only woman among 30 or so attendees and to my delight following that meeting have been asked to join the City’s Diversity Working Party which I have accepted with alacrity! 


PM Vicky Pryce with Prime Minister of Greece,
Alexis Tsipras, in London's Guildhall

 

Past Master Vicky Pryce is a former Joint Head of the UK Government Economic Service;  a Board Member at the Centre for Economics and Business Research; and a Member of the OMFIF Advisory Board. She is the author of "Greekonomics: the euro crisis and why politicians don't get it";  published by Biteback Publishing.