Greece exits the troika's bailout programme. After eight years of austerity, the economy's health remains precarious, and for many economists the EU's aid programme was a failure.
20 August marks the formal end of Greece's bailout programme: the economy will no longer be under the supervision of the troika. From now on Athens will have to manage on its own, either through taxation or by borrowing on the financial market. So far Greece has received loans totalling 289 billion euros, subject to an obligation to carry out reforms and spending cuts. But according to economists – especially British ones – the European Union's bailout programme was a failure. Unemployment and poverty dominate Greece's economic landscape, and the recovery will be slower than expected.
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It was May 2010 when, following the economic crisis born from the revelation that previous governments had falsified public accounts data in order to allow the country to enter the eurozone, Greece received the first of three aid packages from the so-called troika, a supranational body made up of the European Commission, the European Central Bank and the International Monetary Fund. At the time, as Bloomberg reconstructs, politicians from the eurozone's creditor countries argued that the crisis was the result of chronic fiscal and economic indiscipline, and that to justify breaching a "no-bailout clause", the loans had to be tied to strict conditions covering everything from public spending to public administration and the justice system.
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"The ultimate goal of the financial assistance programme and of the reforms in Greece over the past eight years has been to create a new foundation for healthy and sustainable growth," said Portuguese finance minister Mario Centeno, who chairs the meetings of his eurozone counterparts. Yet from 2009 to 2017 a third of GDP went up in smoke, half a million people emigrated abroad and living standards collapsed after the loss of more than one million jobs pushed unemployment to 28 per cent (although it now appears to have fallen back to around 20 per cent).
Initially the bailout packages boosted revenues and were used to repay the debt accumulated up to 2009, which had exceeded the European Union's limit by five times. To keep revenues stable, more taxes were introduced at the expense of the middle class and services were cut. At the same time, the Greek government reduced the salaries of 150,000 public sector employees, hiring only one person for every five who left without renewal. According to experts, part of the economic collapse was caused precisely by an explosion in public sector hiring, making this countermeasure unavoidable. In the meantime, however, the decision paralysed the justice system due to the large number of legal appeals.
"There were imperfect decisions – let us call them mistakes as well – made towards Greece by European and international institutions," commented European Commissioner for Economic and Monetary Affairs Pierre Moscovici, "decisions that weighed heavily on Greek citizens. But today's results, which have brought the country out of the crisis, show that the efforts made pay off." Yet despite Greece having sold state assets, made radical changes to the electricity market and amended regulations covering everything from lawyers to hairdressers, and despite the sharp fall in labour costs and cuts to the minimum wage, the Greek economy is not recovering in the same way as those of Spain and Ireland, which were also recipients of troika loans. Exports and international competitiveness were the driving force for Spain and Ireland, though neither started from the same position as Greece.
Could things have been done differently? Several economists agree that many cuts were too drastic and even counterproductive: spending cuts have produced a tax burden today higher than in most European Union countries, as Miranda Xafa of the Centre for international governance innovation notes, as reported by Internazionale. This is one of the main factors probably strangling growth. The tax exemption threshold is higher than the average wage of private sector workers: a more business-friendly climate therefore needs to be created.
In short, economic activity remains well below its pre-crisis levels. There is a recovery, but it is weak, and it cannot be ruled out that new downturns could undermine the little progress made so far. What the bailout programme has certainly generated, the Guardian says, is a political fracture: "Once, voters believed that if they worked hard, they would earn a decent wage and that in times of hardship the state would take care of them," the British newspaper reports. "If that belief no longer holds, it has a great deal to do with what has happened over eight years in Greece."