The Greek government claims a return to the markets in the second half of 2014, while the country’s European partners argue for the potential necessity of a third bailout. The likelihood for a bailout exit within the next year remains low. But political stability, if accomplished, can pave the way.
During festivities for the Greek Presidency of the European Council, the Greek Minister of Finance, Yannis Stournaras, declared that Greece may return to the bond markets in the second half of 2014. In particular, he noted that the Greek government is planning a ‘restricted’ return to the markets by issuing five-year bonds.
The bailout exit of Ireland and its comeback to business with 3 billion Euro-bonds sold has undoubtedly created a positive atmosphere regarding the remaining indebted countries of the Eurozone. But is this the case? Will Ireland mark the beginning of a streak of success stories in Europe or are matters for Greece so diametrically different that investors will be unready to bet on a ‘Greecovery’?
The Greek economy is undoubtedly showing some evidence of improvement. 10–year government bond spreads reached 7.58 percentage points on January 11, recording a decrease of more than 30 percent from 2010. Moreover, the looming achievement of primary surplus (excluding debt repayment costs) of 0.4 percent of GDP in 2013 has created legitimate expectations for recovery.
Credit rating agencies are upgrading the country’s credit rate creating a promising environment in the capital market. In particular, Moody’s raised the country’s credit rating by two levels last November and Fitch upgraded Greece to B- in May 2013.
According to a recent report from the Lisbon Council, Greece ranks highly in fiscal adjustment and current account deficit reduction. Given this improvement of the budgetary position of the country, Greek government denies the ‘third bailout’ rumors, hoping instead for debt relief in the form of lower interest rates and longer maturities for existing loans. The European Commission says that this is not a likely scenario.
Greek plans for a market return are treated with great skepticism from both the IMF and its European partners. Skeptics stress the country’s high debt levels and low growth prospects that make the above assumption too optimistic or even irrational.
Although Greece seems to have approached its fiscal target, the implementation of structural reforms is still lagging behind. Labor costs have been significantly decreased, but not because of productivity rise. Primary surplus, mostly due to horizontal cuts cannot guarantee sustainability in the absence of structural reforms, and political instability in the country does not allow for their implementation.
Behind such an optimistic scenario is an attempt to improve the public opinion about the government. This is important in view of the upcoming EU-elections. An electoral outcome in favor of the Greek radical left party Syriza is likely, but highly undesirable, as it will lead to further instability.
Leaving aside the imbalances within the Eurozone and lack of solidarity among partners, Greece is not Ireland. There, political stability prevailed and true collaboration among all stakeholders of the several policy networks allowed for recovery. On the contrary, the Greek crisis is much more than a purely economic one, triggered by the maintenance of a corrupted political system that preserves clientelism and statism.
With a quarter of the country’s electorate supporting parties attempting to preserve a dysfunctional state, and an alarming percentage of people supporting the extreme-right party Golden Dawn, a politically stable environment is difficult to see in the near future. Even within the current coalition government, compromises towards a joint political strategy are rarely reached, with politicians voicing opposition instead of collaboration, simply for electoral purposes.
Once the Greek people stop relying on populist rhetoric and Greek politicians join forces for the purpose of re-creating the Greek state, the country’s credibility will be restored, rendering a return to the markets feasible. If political stability is what determines the economic state of play at the end of the day, the EU-elections’ outcome appears crucial on the course of ‘Greecovery’.