The end of the crisis

Will Greece succeed?

After long years of crisis Greece finally sees light at the end of the tunnel. The third rescue program of the EU expired on the 20 August 2018 and it was announced that the Greek government should not count on a fourth rescue package, as there would be no more financial support from the European Union (EU) nor from the International Monetary Fund (IMF).

According to experts, the signs for a successful exit look good. Thus the economy of Greece is predicted a 2,5 percent growth rate for the year 2019 and the Greek sovereign debt has an improved credit rating, which results in lower bond yields than in the past. Those are at 4,3 percent. Furthermore, Greece freed itself from its budgetary deficit and can even show a budget surplus. In addition, potential investors should be provided with more security by creating a cash buffer, i.e. a reserve of 24 billion.

Despite this positive assessment, Greece still has a sovereign debt of 228 percent of the Gross Domestic Product (GDP), a high unemployment rate and a high social poverty. Moreover the Non-Performing Loans (NPL) pose a major problem. The IMF therefore calls for a reform of the Greek fiscal policies, for strengthening the social safety net, for an improvement of the balance sheets of the banks and for reshaping the governance-structures. However, the solution to these problems should be found in coordination and close cooperation with the European institutions.

The IMF underlined the necessity to take measures to prepare Greece for the markets for the long term. Greece would not fulfill these requirements yet. Therefore, the EU and its member states would have to agree to give Greece a higher debt relief. In particular, France supports this view, while a group of states under the leadership of Germany opposes such measures. This group admits that a debt relief could create better conditions for Greece, but fears at the same time that it will make them unable to fully repay their taxpayers.

To make sure not to lose potential investors, Athens must continue its reforms. The President of the Central Bank of Greece, Yannis Stournaras, points out that any deviation of the planned economic reforms could lead to the destruction of the confidence of investors. President Stournaras explained that the markets would wait to see if Greece would take additional measures after the end of the rescue program of the EU and the IMF on the 20 August 2018. It would be wrong to assume, that the June 2018 negotiated debt relief package with the Eurozone, would be enough to put Greece successfully back on the international markets. This deal, among other things, pushed back the repayment deadlines of the bailout loans. As soon as Greece would be on its own, the markets would test the Greek economy and would not forgive any mistake. All in all, many experts feel that Greece needs to implement even further reforms in order to re-establish itself as an independent actor on the international markets.