Is a Grexit off the table?

The Economist

THE mood in Greek business circles is brightening. Greece is still grappling with a record recession that has shrunk output by more than a fifth and pushed unemployment close to 27%, the highest rate in the European Union. But a monthly index of business sentiment produced by IOBE, a think-tank, jumped in December to its highest level in two years (see chart).

Yannis Stournaras, the finance minister, predicts the economy will start to recover by October, boosted by a long-awaited rebound in tourism. A rush of early bookings has cheered hoteliers on Aegean Islands. Optimism in foreign markets and assurances from Berlin that Greece will be able to stay in the euro zone are helping, too. Billions of euros stashed under mattresses last summer, when a “Grexit” seemed imminent, have returned to their owners’ bank accounts. The Athens stockmarket has perked up and private-equity firms are scouting for bargains among crisis-battered Greek companies.

Opinion polls suggest the coalition government led by New Democracy, a centre-right party, is becoming more stable. Several recent polls showed the conservatives edging ahead of Syriza, the left-wing opposition, despite new pension and public-sector wage cuts imposed this month and a looming property tax that enrages middle-class voters. Antonis Samaras, the prime minister, has an unprecedented approval rating of 46%, compared with 28% for Alexis Tsipras, the Syriza leader. Mr Tsipras’s trips last month to Berlin and Washington, DC, intended to polish his image as a future premier, annoyed his party’s far left and failed to impress its moderates.

Even so, Greece is struggling to meet a new set of targets set by the troika—the European Central Bank, EU and IMF officials who monitor the €130 billion ($176 billion) international bail-out. Two slices of aid amounting to €43.5 billion have been paid since December; another €5.6 billion will be paid by March provided dozens of legal and administrative benchmarks are ticked off.

The troika recently rejected a draft investment-incentives law because it favoured the same local interest groups that already have a stranglehold on a large part of the economy. A €2 billion flagship privatisation deal—the sale of DEPA, Greece’s gas utility, and Desfa, its pipeline subsidiary—is dragging. Two Russian energy companies, the state-owned Gazprom and Sintez, a private firm, came up with the highest offers. After American and EU officials voiced disapproval, TAIPED, the privatisation agency, suggested all five shortlisted bidders seek Western partners.

A crackdown on tax evasion, another priority for the troika, has brought hundreds of arrests, including those of several prominent Athenian businessmen, but few convictions or seizures of property. Finance-ministry officials complain that courts hand out suspended sentences to large-scale tax evaders rather than put them in jail. Judges have blocked a troika proposal to set up fast-track tax courts to settle tens of thousands of disputed cases and make tax cheats pay up immediately.

The government is trying to contain simmering social unrest by taking a tougher line against protesters. It has forced striking Athens metro workers and seamen working on coastal ferries back to work through civil-mobilisation orders, to the relief of commuters and islanders who export fresh produce. Hundreds of farmers who have parked their tractors across highways to protest against having to file tax declarations for the first time are being threatened with prosecution. These social tensions are unlikely to go away even if the economic climate continues to brighten.