#mouzakis

The Greek economy is back in focus on this episode of The Agora as we take a peak at the 2022 budget and a closer look at broader trends and challenges.

MacroPolis co-founder Yiannis Mouzakis provides a whistlestop tour of the budget, explaining its key elements and what obstacles the Greek government's economic plan could encounter next year.

Two men with extensive knowledge of the Greek economy, Bob Traa and Jens Bastian, join us for a broad discussion about causes for optimism, but also reasons to be cautious as 2022 beckons, including low productivity, high unemployment and limited prospects at home for young Greeks.

Bob was the IMF’s senior representative in Greece at the outset of the economic crisis, between 2010 and 2013. He has also written a book about the country's economic challenges (more below).

“All the factors that could work in Greece’s favour did, and the country seemed Covid-free. Greece took a massive gamble by throwing open its doors again, seeking maximum economic benefits.

Data from Bank of Greece show that up to August, 4.8 million tourists visited the country. Although the figure pales in comparison to the 21.8 million that had visited during the same period last year, it is close to 50 pct of the Greek population.

Arrivals from within the EU were 3.1 million and 1.7 million came from outside the EU. Although down by nearly 73 pct, more than 725,000 Germans still came to Greece, another 528,000 visitors came from the UK.

The signs of the risks involved in welcoming tourists started appearing in the tests carried out at the entry points, where the positivity rate in July averaged 4.15 pct. Although the method of averages does not capture the entire picture and testing methodology, on a like for like basis on positive rates, visitors were 10 more times likely to carry the virus.

The perfect viral storm started forming in Greece as the holiday season for Greeks also began. Locals left the cities for islands and coastal resorts where they would meet and mingle with travellers from abroad.

“The Finance Ministry plans to commit up to 2 pct of GDP in the form of direct support, which is more than 3.5 billion euros to cushion some of the blow.

In the early stages of the debt crisis, imports dropped by nearly a third. The decline then stayed just below 10 pct. As demand gradually recovered in recent years, imports of goods and services per quarter have exceeded 17.5 billion euros. A sharp drop in Q2 and a more modest fall in Q3 could see imports drop by 8 billion euros.

When all this is added together, it is evident that the developments in the third quarter will be key in deciding the fate of the Greek economy this year. In the region of 20 billion euros of economic activity could be lost if the collapse extends to two quarters in the critical middle of the year.

In a recent opinion poll by MRB, those surveyed were asked who they would like to see as next Greek President if the incumbent, Prokopis Pavlopoulos is not awarded a second term. Twenty-six percent said they would like to see former prime minister Kostas Karamanlis be appointed Greece’s new head of state.

This is the man who fell asleep at the wheel when the global financial crisis hit in 2008. He famously claimed at the time that the Greek economy was “fortified” against shocks even though it had a mass of debt to rollover during the next years. In this fraught environment in 2009, he allowed his government’s fiscal performance to collapse and presented a falsified picture to Greece’s European partners, overseeing a catastrophic end to the previous decade for Greece and the sowing of the seeds for a tumultuous decade that is just coming to an end.

If anyone is looking for signs of whether Greek society is emerging from this experience any wiser, the fact that one in four Greeks is even considering the prime minister of the 2004–2009 as a suitable candidate for the  presidency is a huge disappointment and does not bode well for the future. It suggests that many Greeks are not willing to punish the populism and political irresponsibility that has cost their country so dearly over the last decade.

Greece has dealt competently with the public health risk posed by Covid-19 but faces a possibly even bigger challenge in mitigating the economic impact of the crisis.

“The numbers suggest that although a market-friendly and stable environment is welcome for all types of economic activity, it is was domestic and foreign demand for products and services and, critically, apparent political stability that formed the necessary conditions for Greek businesses to respond and increase investments.

Also, any pursuit of investment should take into consideration the role of house building in the pre-crisis performance. The conditions that led to the property boom from the late 90s to the summer of 2007 will be impossible to replicate, especially given Greek banks’ impaired ability to finance while they are dealing with the issues of non-performing loans.

The banks have deleveraged significantly since the crisis onset and mortgages now stand at 57 billion euros, with a decent chunk of those not being serviced. The non-performing exposure in residential loans stands at nearly half the loans at 48 percent.