On Tuesday, Greek Prime Minister Alexis Tsipras chose Ithaca, home to Odysseus, the protagonist of Homer’s epic, and the place to which he returns after a decade of being lost at sea, to announce the end of Greece’s “modern-day Odyssey”. The country has exited its third and final bailout since 2010, having borrowed €289 billion ($330 billion) from a ‘troika’ of lenders, the IMF, the European Commission and the European Central Bank, over a period of eight years in order to retrieve itself from the brink of financial collapse. In return, Greece undertook structural reforms, submitting itself to a controversial and painful austerity programme. The economy shrunk by a quarter, unemployment was at 28% (50% for those under 25 years of age), government spending was slashed as were salaries and pensions, hundreds of thousands of Greeks emigrated and a third of the country fell into poverty. Yet the path is far from clear and the road is long. Greece owes a staggering 180% of GDP in debt. Also, as part of the bailout conditions Greece will need to maintain a 3.5% primary surplus (a budget surplus prior to interest payments) until 2022 and then around 2% until 2060. The IMF has warned that such budget surpluses are rare. It is especially challenging for a country that has just emerged from a decade of economic strife and austerity and has an ageing population. There are concerns that they will constrain Greece’s ability to grow and pay off its debt. While several of the required reforms were initiated during the bailout period, a lot remains to be done. This includes greater flexibility in the labour market, simplified licensing processes for companies and banking reforms to help clean up the non-performing assets on banks’ balance sheets (individuals and companies that could not pay back loans); almost half of all outstanding loans of banks are now NPAs. The tax system will have to be reorganised so the tax base is widened and the bulk of the tax burden does not fall on the middle class.
Greece’s Eurozone creditors agreed in June to a softening of debt repayment terms, including extended maturity periods, delayed interest payments and buffer funds to stabilise and ease the country’s re-entry into financial markets. Yet, the IMF, based on its assessment of risks and bleaker longer-term growth projections that differ significantly from the European Commission’s projections, has cautioned that Greece is at risk of getting stuck in a debt trap with onerous surplus conditions having to be maintained. These conditions imply restraints on government spending programmes that could, for instance, be used to stimulate growth. The country’s creditors need to consider reducing the mountain of debt, so Greece stands a solid chance of emerging from what has been a modern-day odyssey.
