Connect to share and comment
Greece’s prime minister contends his country will emerge stronger.
collectors are on strike. A second nationwide general strike this month is planned October 19. Workers are threatening to block production of electricity bills, which the government is using to collect unpopular new property taxes.
“I do find it difficult to be optimistic. It’s in very deep trouble,” said Simon Tilford, chief economist at the Centre for European Reform, a London-based think tank. “Greece could have a truly awful 10 years.”
Structural reforms must be accompanied by investment, he cautioned.
“Investment in the Greek economy has collapsed,” he said. “The other problem is it’s difficult to maintain political support. That puts the government in a difficult position. Unless you can point to a payoff with these structural reforms, they are difficult to implement.”
Greece’s troubles were many years in the making. Awash in cheap credit when it dropped its drachma for the euro, the country engaged in an expensive military arms race with rival Turkey. Greece’s military spending in 2009 was equivalent to 4 percent of its GDP, by far the highest in the EU, according to World Bank statistics.
At the same time, it paid generously toward retirement pensions, and its tax collection system fell into disrepair with internal corruption and massive cheating by all classes of Greeks.
From Greece: 2,388 years of unpaid government debt
Harsh deficit-reducing austerity measures have enraged Greeks and structural reforms haven’t fully satisfied international lenders.
Greece’s “troika” of lenders — the International Monetary Fund, European Commission and European Central Bank — are expected to give Greece the next installment of a $150 billion bailout negotiated in May 2010. Without that $11 billion installment, Greece would go broke in the upcoming weeks.
The troika said in a joint statement this week that a deeper-than-anticipated recession means economic recovery will only begin from 2013 onwards.
“There is no evidence yet of improvement in investor sentiment and the related increase in investments, in part because the reform momentum has not gained the critical mass necessary to begin transforming the investment climate,” it said in the statement.
But exports are rebounding. That, along with lower labor costs “should lead to more balanced and sustainable growth over the medium term,” it added.
The troika warned, however, that the government’s plan to raise $50 billion by the end of 2014 by selling off state assets was off to a slow start. Targets for this year will be missed.
A second loan of $150 billion agreed to in June calls for Greek bondholders to take a 21 percent loss, but many experts say a larger write-down is inevitable. Greek officials have insisted that’s not the case, although the prime minister told his cabinet on Wednesday that they are negotiating “in every way we can” to reduce the debt.
Papandreou says the October 23 summit of European leaders must “decide on a comprehensive and lasting solution to the crisis in the euro zone.” He said finality is “crucial” for Greece and the world.
“We need to ensure confidence and calm in the markets,” he said Thursday.
Luxembourg Prime Minister Jean-Claude Juncker, who is head of the euro zone’s finance ministers, dismissed talk of Greece leaving the currency.
“This will not happen, as it will not happen that we will have to face a Greek default,” he told reporters Thursday after meeting with Papandreou in Brussels. “Everything will be done in order to maintain the financial stability of the euro area. We will be as helpful as far as we can to Greece.”
Even as reforms gain speed, it will take “one or two decades to rebuild the economy on a sustainable basis,” said Dimitris Malliaropulos, economic research advisor at Eurobank EFG in Athens.
“In the meantime, unfortunately, Greece will have lost its most precious human capital, as the young people with the highest qualification will have emigrated,” he said.
Thanos Papapetrou, 28, admits he thinks about leaving. He’s a computer programmer working on a European Union project digitizing library and museum documents.
His office is on the campus of his alma mater, the University of Athens. But during one recent sunny afternoon, he explained he couldn’t access it because students were occupying the building in protest of a new law aimed at modernizing higher education.
“I’m not allowed to enter it,” he said, noting that he and co-workers resort to whispering in a library in order to get work done. “It’s quite frustrating… I want to be optimistic but I can’t.”