Saturday, February 9, 2013
Is There Hope for a Recovery of the Greek Economy?
February 8, 2013
After five years of a deepening economic recession and growing unemployment in Greece, one may wonder whether there is now hope ("elpida") for an end to the Greek fiscal and debt crisis, the restoration of the country's competitiveness, and a sustainable recovery of growth and jobs. A number of prominent academics and media pundits have noted that Greece has recently gained some breathing space; but they still foresee only meager prospects for success of the Greek reform program, which was adopted with the support of the euro group and the IMF in May 2010 and revised in March 2012. On their part, Greek opposition parties have been waging a vigorous fight for the abandonment of this program and its replacement by a strategy that would put an end to austerity, increase social transfers, and demand a far-reaching restructuring of the public debt. Yet, while conscious of the pains imposed by the requisite austerity measures on much of the population, the Greek governing coalition which took office in June 2012 has been taking resolute actions to reinvigorate the reform program and promote an early economic and financial recovery in cooperation with the country's partners.
It should be recalled that the Greek reform program went significantly off track last spring, triggering great fears of an imminent Greek exit from the euro zone. To a large extent, this was due to substantial slippages in policy implementation, particularly in the area of structural reforms, and these slippages were exacerbated by the political uncertainties surrounding the national elections in May and again in June 2012. With the serious weakening of Greece's policy credibility, public fears spread, the outflow of bank deposits accelerated, and domestic liquidity virtually dried up. Although justifiably disappointed with this turn of events, the country's foreign lenders tended to place all program shortfalls on Greece's door-step, leaving aside (until recently) their own responsibility for a number of program design weaknesses (including an underestimation of the so-called "fiscal multipliers"). Furthermore, recurring pronouncements by some European officials questioning Greece's position in the euro area tended to undermine confidence in the economy. As a result, economic conditions continued to deteriorate, with the decline in real gross domestic product (GDP) now estimated to have amounted to 6.0 percent in 2012, compared with 4.8 percent envisaged in the program, while the rate of unemployment surged to almost 27 percent (in October), as against a programmed annual average of 19 percent. The larger-than-programmed contraction of national output and the delays in policy implementation thus worsened the already doubtful outlook for the sustainability of the public debt.