Has Greece’s troubled economy turned a corner?

Remember the Greek crisis?

A huge loss of confidence in the Greek economy among investors came to a head when, in 2010, the country found itself unable to borrow on financial markets – something of a necessity given its chronic inability to balance the books.

Athens was forced to seek a bail-out from the International Monetary Fund, the European Central Bank and the European Commission and, in May 2010, the so-called “troika” issued a €110bn bail-out that was the first of three such rescue packages.

The loans came with strings attached and Greece was obliged to bring in a range of measures aimed at bringing its public spending more into line with its tax receipts.

They included big spending cuts and reductions to pensions and other state benefits, along with increases in taxes, including VAT.

The harshness of the austerity measures grated with the Greek public and, at the end of 2014, the government fell.

In January 2015, a radical left-wing party, Syriza, was voted into office, led by Prime Minister Alexis Tsipras.

He and his charismatic new finance minister, Yanis Varoufakis, promised to get better conditions from the troika and even held a referendum in which 61% of those taking part voted to reject the existing terms.

For a while, with thousands of Greeks rioting on the streets in protest at austerity, it looked as if the country would have to leave the eurozone.

Mr Tsipras – who would eventually roll over and accept the troika’s terms – was obliged in June of that year to impose capital controls to prevent a complete collapse of the country’s banking system.

Restrictions on the amount that could be transferred from Greek banks to foreign banks were put in place, banks were closed for 20 days and, when they reopened, cashpoint withdrawals were limited to €60 a day.

Today, however, a line appears to have been drawn under the episode as capital controls have finally been relaxed.

Kyriakos Mitsotakis, who succeeded Mr Tsipras as prime minister in July this year, tweeted: “Today, after four years, capital controls belong to the past and Greece regains one of the four fundamental freedoms of the EU, the free movement of capital.

“The lifting of capital controls is a necessary condition for attracting investments and for growth.”

It feels like a big moment. But can the Greek economy definitively be said to have turned a corner?

By some measures, the market seems to think so.

The Athex, the main Greek stock index, has risen by 40% since the beginning of the year.

Earlier this year, the government issued bonds for the first time since Greece exited its bail-out programme in August last year, while, even more incredibly, Greece’s borrowing costs – as implied by the yield on Greek government bonds – have fallen below those of the United States.

Greek 5-year bonds were tonight yielding 0.955% while US 5-year Treasuries were yielding 1.39%.

Those market moves reflect an improvement in the real economy.

The Greek economy grew by 1.4% in 2017 and by 1.9% last year, despite contracting slightly during the final three months of 2018, while in the first three months of this year it grew by 1.3% year-on-year.

The figures for the second quarter will be published on Wednesday and, while another quarter of growth is expected, the chances are that the slowdown in the wider eurozone will have had an impact.

Other indicators also point to an improvement in confidence.

Greek house prices rose by 7.7% on a year-on-year basis between April and June, their fastest rate in 12 years, while in Athens itself they rose by 11.1%.

This is said to be due to buying by foreign investors, particularly the Chinese, but also due to buying by landlords keen to let out their properties on home-sharing sites such as Airbnb.

Office prices are also rising while some international investors are also committing capital.

Hines, a US property company, has just completed its third major investment in the country this year and has just set up a joint venture with the National Bank of Greece to redevelop a major shopping mall.

Other foreign capital is also beginning to trickle in.

The new government hopes to give that process a push by cutting taxes – corporation tax is being lowered from 28% to 24% – and by resuming a programme of privatisation that was put on ice by Syriza.

For example, Greece’s biggest oil refiner, Hellenic Petroleum, is likely to be privatised, while a further 30% stake in Athens International Airport is likely to be sold.

A major investment at the site of the old Athens airport, much of it involving money from Gulf-based investors are likely to go ahead.

Yet progress is slow.

Unemployment in the country, despite having fallen every year since 2013, remains at 18% – the highest in the eurozone – while a brain drain during the crisis years saw as many as 400,000 Greeks, most of them in their 20s and 30s, move abroad.

Mr Mitsotakis and his colleagues need to find a way of attracting them home.

Greece’s banks, meanwhile, have been managing to attract more deposits but are still saddled with some €80bn worth of non-performing loans.

So the removal of capital controls ought to be a major factor in spurring further growth.

As Iceland found, when it abolished financial controls in the wake of its own crisis, international investors are much likely to invest in a country when they know they can get their money out if they need to.

But it will take a long time before the Greek economy, which contracted by 25% during the last decade, is back to the size it was prior to the crisis.
Source: Sky News