Status: 05/02/2022 08:22 a.m
Twelve years ago, the euro finance ministers launched the first loan program for Greece. Today the country is no longer a case for state bankruptcy – but is it really better off?
End of April 2010: Georgios Papandreou, then Prime Minister of Greece, officially asks the European Monetary Union for financial help – against the idyllic backdrop of Kastelorizo, an island in the southern Aegean: “Our partners will act together and offer Greece the necessary port to ship our boat stable and trustworthy again.” The countries of the euro zone and the International Monetary Fund then put together the first of a total of three rescue programs. Greece has to take this step because it can no longer get any money on the financial markets. Or only at very high interest rates. The deficits in the state budget are too high, as is the debt compared to economic output.
risk of bankruptcy survived
Twelve years later, the debt crisis is history for the time being. The acute phase is definitely behind the country, says Manos Matsaganis, professor of finance at the Polytechnic University in Milan: “But looking at the debt level, one can hardly say that Greece has solved its debt problem.” The debt exceeds the Greek economic output by more than twice: 206 percent. This is by far the highest value in the EU. For comparison: it was almost 130 percent when the debt drama started in 2010.
But under pressure from creditors, Greece reduced its budget deficit significantly – that is, the annual new debt. At the end of March, Greece repaid the rest of its loans to the International Monetary Fund (IMF). Most of the debt now lies with the European Central Bank and the European Stability Fund, the eurozone’s bailout instrument created during the crisis; they only have to be paid off by 2070.
Ironically, Syriza is implementing austerity policies
So Greece is once again able to service its debt. On the other hand: The austerity programs imposed by the creditors caused massive damage; government investment shrank by more than 50 percent. “Reducing public spending so drastically is a mortgage for future generations,” says Matsaganis. No wonder so many young Greeks have turned their backs on their country. Because they have better chances elsewhere.
Alexis Tsipras, head of the left-wing Syriza party, set out to free Greece from the dictates of the creditors. “Greece is leaving the catastrophic austerity policy, five years of humiliation and pain behind it,” he promised when he won the election in January 2015. But just six months later, the left-wing prime minister signed a new rescue package with budgetary targets that obligated Greece to continue to make savings.
At the same time, Matsaganis criticizes that essential reforms have fallen by the wayside – in health care, old-age provision and public administration. “There were no reformers in the Tsipras government,” says the economist. “His ministers just didn’t believe in it.”
Setback by Corona – but also hope
In the parliamentary elections three years ago, the conservative Nea Dimokratia became the strongest force. The new prime minister, Kyriakos Mitsotakis, promised to do everything differently – and to advance important reforms. “In just a few days, we took measures that took others months and years to implement,” said Mitsotakis at the beginning of his term in office. But the record so far has been mixed. And in between was the fight against Corona. The debts have continued to grow as a result of the billion-euro programs – including to rescue the important tourism industry.
As a result of the pandemic, there is also an opportunity for Greece: the member states have launched the “Next Generation EU” fund. The billions from this should flow into a climate-neutral economy. That could help the country grow stronger. And really leave the debt crisis behind. Economist Matsaganis also hopes so – with a certain skepticism: “It’s possible that we’ll squander the funds, but I’m optimistic that we’ll do better than in the past.”