Monday, May 20, 2013
Greece Isn’t Turning the Corner
May 20, 2013
Judging from the markets and English-speaking news media this week, Greece’s damaged economy has finally turned the corner. I doubt it.
The Financial Times and Wall Street Journal ran prominent pieces about bullish investors plowing back into Greek markets. On May 15, the Greek government’s borrowing costs on 10-year bonds fell by one percentage point, to the lowest level in three years.
Against this euphoria, the Greek statistics agency Elstat says the Greek economy contracted 5.3 percent in the first quarter of 2013 compared with a year earlier. This is the 19th consecutive quarter in which it has shrunk.
There will be a recovery someday, so is this it? Certainly, there have been positive signs. Early last week, the euro area’s finance ministers agreed to release 7.5 billion euros ($9.6 billion) of bailout funds to Greece -- 4.2 billion euros at the weekend, and the remaining 3.3 billion euros in June, provided that Greece first completes a number of measures.
The following day, Fitch Ratings upgraded Greece to B- from CCC. That is still six levels below investment grade, yet the improvement inspired one of the biggest sovereign-bond market rallies we have seen in Greece since the beginning of the crisis. Prime Minister Antonis Samaras even said Greece plans to re-enter the bond markets in the first half of next year.