With the Greek national elections on the horizon and the European parliamentary elections imminent, political controversy is driving inaccurate pronouncements on the state of the economy in Greece, writes Dimitris Papadimitriou.
Dimitris Papadimitriou is Greece’s former minister of economy and development, as well as president and professor of Economics Levy Economics Institute.
Despite continued proclamations of economic collapse, the Greek economy continues to recover and is again on a path of growth this year, leaving behind the alarmist headlines of “bankruptcy” and “Grexit” from just a few years back.
This growth is also now limiting austerity and overcoming the prolonged recession (2009-2016), and the crisis of confidence that resulted from its uncontrolled public debt.
While the economic recovery is moderate and investments still inadequate, there has been significant progress on many fronts in the last two years, despite the turbulence in the financial sector, with bank balance sheets loaded with non-performing loans creating a barrier to bank financing, and the pathologies of the political system still ongoing.
Notwithstanding increasing pessimism about the international economy, the economic recovery in Greece will continue, thanks largely to its macroeconomic and fiscal stabilization program ensured by the multiannual sustainability of its public debt as worked-out by the European Stability Mechanism.
There has been noted an improvement in the country’s credit ratings, competitiveness, and entrepreneurial conditions, now creating attractive investment opportunities. Moreover, the country is seeing steady employment growth together with reductions in income inequality that strengthens its social cohesion.
It is these improved conditions that allow reasonable optimism for the future of the economy regardless of the outcome of the elections. These conditions do not justify micro-political and populist criticism of a “collapsed economy” and “disappearance of the middle class” that are often in the media, coming mainly from the current government’s opposition parties vying to replace it in the next elections.
These politically polarizing cacophonies, apart from damaging the positive economic climate of Greece and its economy, misrepresent the country’s admittedly bad record of public sector financial management of years past, as well as the steady progress that has taken place in recent years.
Putting aside the sloganeering encountered during pre-election campaigns, it is useful to compare the economic performance of the last two four-year terms that coincide with two different types of government:
The first four years (2011-2014) of the centre-right coalition government that implemented the conditions of the first two Memoranda of Understanding (MoU), and the second four years (2015-2018) of the centre-left coalition government that implemented those of the last two MoUs.
The percent change of each period in the key statistics as reported by Eurostat and the Greek Statistics Agency show real GDP to have changed from -17.9% during the first term to 2.8% in the second; private consumption respectively from -18.6% to 1.8%; gross fixed capital formation from -47.0% to 2.8%; exports of goods and services from 10.6% to 17.5%; imports of goods and services of -13.4% to 12.3%; employment growth of -14.3% to 4.5%; employee compensation of -29.8% to 5.2%.
Average in each respective four-year period as % of GDP: general government balance of -9.0% to -0.8%; current account balance of -4.4% to -1.4%; and finally, direct taxes of 1.4% to 0.5% and indirect taxes of 3.1% to 1.6%.
The differences in performance between the two four-year government terms are not only due to the natural reaction of an economy recovering from an unprecedented recession, but also to the strategic choices of policies implemented in each period guided by the respective MoUs.
The latter four-year term avoided wage cuts and, instead, adopted active labor market policies, such as a multi-faceted public benefit employment program and other programs focusing on youth employment and entrepreneurship together with specific social support programs, including those of minimum income guarantee and cash transfers to low-income and unemployed families.
In addition, during the second four-year period, the social insurance system was reformed and put on a more sustainable basis, while new online investment tools and structural reforms were introduced to ease the start-up of new businesses.
Finally, by exceeding the required primary surplus targets of 3.5%, the current government has created a fiscal environment enabling it to pursue redistributive social policies easing the economic burden of the most vulnerable.
Irrespective of the outcome of the forthcoming elections, the progress of the last four years should be recognised, and its policies continued and intensified if Greece is to regain a significant fraction of the GDP and employment levels lost during the crisis that began in 2009.