Today’s recommendation from the European Union (EU) Commission to end the so-called “excessive deficit procedure” on Greece comes after a sharp improvement in the country’s finances following years of spending cuts and tax increases and a recession that wiped out a quarter of the economy and caused unemployment and poverty to swell. “This is a very symbolic moment for Greece,” said Pierre Moscovici, the EU’s top economy official. “It’s the end of austerity, and the end of austerity means also we need to move to a strategy that’s based on growth, job creation and social fairness.” Greece has been under the spotlight since 2009 when its debt crisis exploded in the wake of a statistics scandal that showed the public finances were in far worse shape than thought.
Greece’s budget deficit was suddenly revised upward to double-digit levels and way above an EU limit of 3 percent. Being put under the corrective procedure, Greece had to come up with a strategy to get its finances in order but as confidence in the country drained away, it found itself unable to borrow money in bond markets. By May 2010, it required an international bailout to avoid going bankrupt and it’s been reliant on rescue funds ever since. In return for 300 billion euros (USD 340 billion) over three bailout programs, successive governments enacted waves of austerity measures and economic reforms.
The turnaround in the government budget has been remarkable. In 2016, Greece posted a surplus of 0.7 percent compared with the peak deficit of 15.1 per cent in 2009. Greece is hoping to exit its bailout era next year and is planning to start tapping bond markets, possibly in the next few months. The recent release of 7.7 billion euros of bailout funds means the country has enough money to pay upcoming debts and its budget surpluses will help it build up cash balances to pay them in the future. The Greek government welcomed the move and said in a statement that it is “becoming clear that the Greek economy is steadily returning to European normality, restoring confidence lost because to the decisions made that had brought the country to the brink of collapse in 2010.”
Being outside of the EU’s corrective procedures doesn’t mean Greece can go back to its profligate ways as it remains subject to the demands of its bailout program. The government is committed to running a primary surplus — that is, not counting the cost of servicing debt — for decades. The country also remains mired in debt, worth 175 per cent of GDP, and cannot afford to see its debt ratchet higher, potentially frightening off international investors again. Moscovici said financial markets should be reassured that Greece is a country they can do business with and said it’s time that Greeks who sacrificed so much see investments from abroad. “Greece is more and more a reliable country,” he said.
“You can trust this country and I think this is a very strong signal to investors.”
If the Commission’s recommendation is cleared by member states, only three EU countries would remain in breach of the rules — France, Spain and Britain. In 2011, when the global economy was starting to recover from the financial crisis, 24 of the EU’s then-27 members were in breach of the rules.