Greek economy to grow, if it stays the course of adjustment

Bank of Greece Governor
Yannis Stournaras

Greece's economy is on track to grow significantly this year for the first time since the beginning of the Great Recession in 2008, but that prospect could still be dynamited by its failure to stay the course of its current adjustment programme.

That was the upshot of the speech given by Greece’s central banker, Yannis Stournaras, to parliament today. Presenting the Bank of Greece’s Interim Report on Monetary Policy, he predicted growth of 2.5 percent of GDP this year and three percent in the next two years. This is close to the growth of 2.7 percent forecast by the International Monetary Fund and the European Commission.  

However, Stournaras warned that the figures were contingent on Greece’s staying the course of fiscal discipline and continuing to receive handouts from its eurozone partners until its programme ends in mid-2018. He warned the government to conclude its current assessment sooner rather than later. “There is no rational choice between concluding the assessment now or later. Conditions will be much worse later,” he said.

The ball in Greece’s court?

The ball is in Greece’s court to signal that it will legislate a new round of austerity measures, according to latest news reports from Brussels. The measures, which are part of Greece’s assessment under its bailout terms, were apparently discussed last Friday between Greek finance minister Euclid Tsakalotos and Eurogroup president Jeroen Dijsselbloem, and are said to amount to two percent of GDP, or €3.4bn.

“We made substantial progress today and are close to common ground for the mission to return to Athens the coming week,” Dijsselbloem had said on Friday. Until Monday afternoon there was no public word from Athens that it had given the go-ahead.

Defence minister Panos Kammenos told the weekend edition of Efimerida ton Syntakton that, “We are not going to legislate news measures. This is absolutely clear.” Kammenos, who is Prime Minister Alexis Tsipras’ coalition partner, also said the government would not legislate spending cuts that would take effect after 2018, when Greece’s current programme ends. He sounded confident that there will be a solution to Greece’s current assessment before the next Eurogroup on February 20.

The government is in part biding its time, encouraged by the rapid rise in opinion polls of Germany’s Social Democrat leader Martin Schultz. He is challenging Chancellor Angela Merkel and her austerity-based European policy in this autumn’s election.

Schulz’ position is having an effect on the political debate in Germany, where media are beginning to question the merits of allowing Greece to leave the eurozone – a position Germany’s powerful finance minister Wolfgang Scheauble favours – versus keeping the eurozone whole.

"Anyone who raises the issue of Grexit now is playing with the division of the continent,” Schulz said on the campaign trail. “This is perhaps in the interest of Donald Trump or Marine Le Pen, but certainly not in the interest of Germany and Europe. This is dangerous.”

Schulz’ inclusive attitude to Europe has deep roots. As president of the European Parliament he had told Greek lawmakers as long ago as 2012, that “Europe is not a community based on austerity. Europe is a community based on solidarity.” 

If the reports from Brussels are accurate, however, the Eurogroup is assuming Germany’s hard line of forcing the Greeks to generate a primary surplus of at least 3.5 percent of GDP.

Migrant relocation

Separately, the European Commission on Monday published its ninth monthly report on relocation of refugees. It says that member states have volunteered to relocate 11,966 asylum applicants (8,766 from Greece and 3,200 from Italy). The target, set in September 2015, is to relocate 160,000, in order to relieve pressure on asylum boards in the two countries that have received most of the refugee flows of the past several years in the EU.

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The relocation programme was one of the EU’s main responses to the Europe-bound refugee flows of 2015. Both as an attempt to solve the practical difficulties of processing so many applicants, and as a show of European solidarity, it has been of limited success. Initial uptake was slow, and several EU members – Poland, Austria, Hungary and Denmark – refused to offer quotas, while the Czech Republic has taken just 12 applicants. However, uptake has speeded up in recent months, and the Commission has prioritised the programme in spite of the naysayers. 

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