Business Comment Business

Greek gift or blessing in disguise?

Does the return of Greece to the bond markets finally herald its recovery? Samuel Russell investigates.

Archive This article is from our archive and might not display correctly. Download PDF
SpirosK Photography
SpirosK Photography
This week marked the climax of several important events for the European Union's most economically troubled member. To begin with, Greece issued its first issue of government bonds for four years. The good news was that it was six times oversubscribed. The bad news though is that the rate offered was 4.75 per cent - almost three times the rate at which the British Government borrows at. The day afterwards, the German Chancellor Angela Merkel visited the country in part to congratulate the government on their success but also, as many Greeks will tell you, to ensure that their country fulfilled their obligations.

Opinions on these events are divided. Many have heralded it as a return to normality for Greece, the light at the end of the tunnel. Some, though, mutter that normality is not something that Greece has ever experienced, economically at least. Thus while Merkel's visit added some poignancy, the congratulations are a warning too.

The fact that Greece has finally returned to the markets is certainly a good thing. It represents the passing of a milestone towards a resumption of self-sufficiency, an end to the bailout. However there should be a note of caution. Many of the conditions attached to the bailout, intended to return (and keep) Greece to the straight and narrow, have failed their purpose. Under the IMF (and EU) the country's recession has deepened, wages have been slashed and public sector gutted. The open failure of some parts of the IMF project has cast a shadow over all of it.

Due to this, in part, some of the better suggestions have been forgotten or ignored. The classic North-Western European view on the South, it is corrupt, still holds in a large way. The loss of the Lagarde list (found months later) which contained a list of all Greeks holding money in Switzerland to avoid taxation is one piece of evidence for this.

Another is the result of the European Union's report on corruption. Upon being asked "do you think corruption is widespread in your country", 99 per cent of Greeks said yes, the highest out of any country polled. So Greece's financial future is far from secure. There are still a number of changes that need to be made, so when austerity is lifted it will be done in a way that promotes growth, not just a few people's pay-checks.

The rates offered on these bonds are also extremely high, though a representation of the risks involved in lending to a country which has just re-entered the financial markets. It is, however, far from a sustainable level. The recent news that the Greek government ran its first budget surplus for years should be some consolation, meaning it will have to borrow less at this higher rate (will still have to borrow some to repay the loans that are maturing). If this rate should continue, though, it would increase the interest payments that Greece has to make each year making it harder for Greece to continue a budget surplus. Recovery so far has heavily relied on a 'troika' of the European Commission, the European Central Bank, and the IMF.

As Greece returns to economic independence the role of the EU and the troika become less important however. Thus now is the time for them to show the Greeks (and perhaps the world) that they can be trusted and will improve the country. The role of the IMF, in leading the troika's role, is a difficult one, tasked with the nigh on impossible task off turning an economically failed state into one which is stable. Their name evokes memories of pain, recession and hardship; in Argentina their name is sometimes used as a swearword. Their help is not always wanted. Now though maybe is a chance for the IMF to show that it can do good, atoning for some of the errors made.

The future of the country where the idea of Europe was invented does not only rest on this 'troika'. The Greek people must vote to make corruption and the economy, not 'neo-Nazis' or immigration, the centre of policy. Perhaps, in the country where democracy originated, the people need to start holding their politicians to account.

You Might Also Like...

Leave a comment

Disclaimer: this page is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.