Econostrum | Economic News in the Mediterranean

Greece officially freed from the European Union's tutelage

Written by Frédéric Dubessy on Tuesday, August 23rd 2022 à 16:25 | Read 299 times

Greece is no longer under the supervision of the European Commission (photo: F.Dubessy)
Greece is no longer under the supervision of the European Commission (photo: F.Dubessy)
GREECE. "A historic day for the country and for the Greeks". This is how Greek Prime Minister Kyriakos Mitsotakis celebrated Greece's official exit from the European Commission's trusteeship in an address to the nation on Saturday 20 August 2022.
"Thanks to the sacrifices and resilience of its people and the determination of the authorities, Greece is today closing a difficult chapter in its long and proud history," said Paolo Gentiloni, European Commissioner for Economic and Monetary Affairs, Taxation and Customs Union.

In 2010, in the wake of the economic crisis, faced with a wall of debt and Athens' inability to access the financial markets to finance it, the European Union (EU), the European Central Bank (ECB) and the International Monetary Fund (IMF) came to the aid of a country in dire straits. Three rescue plans followed one another for a total of €289 billion. The release of the sums was however linked to strong counterparts. The creditors demanded numerous unpopular reforms, including wage and pension cuts and tax increases, as well as restrictive austerity measures in public budgets, numerous privatisations and a hiring freeze in the public sector.  "A twelve-year cycle that has brought pain to citizens, stagnated the economy and divided society is coming to an end," the Greek Prime Minister summarised today. Kyriakos Mitsotakis predicts "a new clear horizon of growth, unity, prosperity is emerging for all".

Balance in advance of its debt to the IMF

In August 2018, at the end of the third programme, the EU decided to apply a special regime of enhanced surveillance to Greece's economy to see if the government was continuing on the right track and in particular to monitor the implementation of the reforms voted. At the same time, Athens undertakes to maintain a primary surplus (before debt service) of 3.5% of its GDP.

For Paolo Gentiloni, "Greece has effectively implemented essential reforms to strengthen its economy and public finances. Its achievements are all the more commendable given that this period was marked by two serious external shocks: the Covid-19 pandemic and the Russian invasion of Ukraine."

This trusteeship will have saved the country from bankruptcy, but also preserved the euro zone.

In May 2022, the country paid off its entire debt to the IMF, i.e. €1.85 billion, two years early. This allowed it to save some €230m in interest.

Athens forced to run a string of budget surpluses

Although Kyriakos Mitsotakis says "we have strong growth and a significant drop in unemployment of 3% since last year and 5% since 2019", Greece is still in a delicate situation. The unemployment rate was 30% at the height of the crisis, it was still 14.8% according to the World Bank in 2021 and would have fallen to 12% in 2022 (7% on average in the euro zone). The European Commission is forecasting GDP growth of 4% in 2022 (2.6% on average in the euro zone), compared with 8.3% in 2021, mainly thanks to tourism. However, at $216bn ($215.7bn) in 2021, it is still more than 15% below its 2008 level. The World Bank has indicated that inflation will rise by 1.2% in 2021.

The hole caused by the effects of the debt, which is expected to rise to 180% of GDP (97% on average in the other countries of the euro zone) by the end of 2022, will have to be filled. As well as raising wages, which are among the lowest in the eurozone. To achieve this, Athens is forced to run a series of budget surpluses.

"The Commission will continue to support Greece in this new phase of its economic development, working in partnership to carry out the reforms and investments foreseen in the ambitious recovery and resilience plan," says Paola Gentiloni. In June 2021, the European Union approved Greece's recovery plan of €17.8bn in grants and €12.7bn in loans under the Recovery and Resilience Facility (RRF).

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