After eight years and more than €300 billion ($346 billion) in bailout money, Greece is tantalizingly close to exiting its latest aid program.
The third and current bailout, involving €86 billion and starting in 2015, is scheduled to end on Aug. 20. So far, only €47 billion of that amount has been disbursed. Today, euro-area finance ministers are meeting in Brussels to discuss Greece’s economic progress and iron out the final aspects of the bailout. They are expected to unleash a final €12 billion tranche and decide on how much future debt relief Greece can expect, the main area of contention between Athens and its chief creditor, Germany.
While Greece might be formally exiting the program in two months, it won’t be unshackled from Brussels. Athens will have to undergo quarterly reviews of its finances (more frequent than during the bailouts) and adhere to strict budget constraints. The indebted nation will be expected to sell off more state assets, such as the main airport. In exchange, Greece will get annual payments that come from the profits European central banks made on the holdings of Greek bonds, Bloomberg reported yesterday (paywall).
After two unsuccessful bailouts, a snap election, and almost falling out of the euro zone, the past few years have been so troubling for Greece that the severity of the economic crisis looks more like several historic crises rolled into one. The important question now is: Has Greece come out of this period with a stronger, healthier economy that it can (almost) sustain on its own?
“It is no exaggeration to say that the principal victim of the economic crisis was Greece,” Pierre Moscovici, the European commissioner for economic and financial affairs, wrote on his blog about how Greece has changed in the past eight years. Greece’s economy has shrunk by more than 20% since 2009. While it’s far away from a recovery, there are early signs of life. The economy grew 1.4% in 2017, the most since before the financial crisis, and in the first quarter of 2018, Greece was one of Europe’s faster growing economies. But this is still a nascent recovery, and economic growth fluctuates a lot from quarter to quarter. It may just continue to limp along.
In May 2010, when Greece signed its first bailout agreement, the unemployment rate in the country was 10%. Now, it’s double that. It’s come down from a peak of nearly 28% in mid-2013 but remains, by far, the highest jobless rate in the region.
The latest data shows that more people in Greece are at risk of poverty than when the bailouts began. It’s likely that cuts to government spending and strict austerity measures that were required to receive the aid money have played a part here. Meanwhile, future prospects for the economy are also hampered by the severe migration (paywall) and brain drain Greece suffered as a result of the crisis. Since 2008, hundreds of thousands of Greeks have left the country. With youth unemployment still above 40%, it’s difficult to attract talent needed to rebuild the economy.
The scary reality of Greece’s economic situation is matched by its finances. Almost half of the loans on the books of Greek banks are to debtors who are unlikely to be able to make their payments, a far worse state than other nations in the region. The share has climbed from about 10% in 2010.
Finally, good news! Greece’s 10-year bond yields may be almost 400 basis points higher than Germany’s, the region’s benchmark, but this still constitutes good news. At around 4%, Greece’s bond yields have come down enough to make it easier for the nation to repay its debts—of which there is plenty, with public debt at 180% of GDP—and some investors are confident enough to buy bonds from the country again. Access to capital markets will be integral to the nation’s success post-bailout, and low bond yields are a sign of health for Greece.
The same can’t be said for the stock market, which is still a reminder of some of the darker days of the recent crisis. In July 2015, the nation shut its stock market as it went into default on its debt; banks were closed and capital controls were imposed. When trading resumed the following month, bank shares plummeted 30%, the daily limit, right at the open. The third bailout began the same month. In spite of a near-global stock market boom, Greece hasn’t made up its losses from before this period.
Greece’s economic struggles have a long, long history, and given the current state of the economy it’s unlikely that this bailout exit will be the last hurdle to cross. However right now, the nation has retreated out of Europe’s spotlight, which shines instead on Angela Merkel’s attempts to hold onto power in Germany amid a migration standoff and the new populist government in Italy—which some fear will become the new Greece—confronting Brussels on budgeting, migration, and relations with Russia.