Is Greece on the road to recovery? Lithuanian economists are divided

European aid is felt most not by Greeks trying to scramble out of their nation’s debt but by the private banks in Europe’s largest states that granted loans to Greece, according to financial analyst Valdemaras Katkus.

“About 95% (€205 billion) of the first two loan packets were used to repay loans, and the Greek state received only €9.7 billion from them,” said Katkus.

Swedbank senior economist Nerijus Mačiulis pointed out that Greece is feeling the benefits of the aid of the Eurozone states – it has not gone bankrupt, it has remained in the Eurozone, and he said with the help of reforms, it can lay the foundations for economic growth.

However, between 2008 and 2015, 30% of all companies, or 250,000 companies, went bankrupt. Over the same period, 850,000 jobs were lost along with €30 billion in annual income.

“Currently, the unemployment level in Greece is at 25%. That’s 1.16 million unemployed – almost as many people as there are in Estonia. The country has €321 billion in debt, which is 180% of the country’s GDP,” said Katkus.

Katkus said that it would be wrong to say that Greece was successfully moving out of the crisis: “The country is in a catastrophic situation. The lie here is that the Eurozone is helping Greek people and companies. Currently, the Eurozone is simply rolling its ball of problems.”

Greece has seen little of the bailout

Katkus pointed out that about 95%, or €205 billion, of the first two bailout packages granted to Greece were used to repay debts and went directly to private banks in Germany, France and the UK. The Greek government received only €9.7 billion from the two packages worth €216 billion.

“Last week, it was decided to give Greece a loan of an additional €10.3 billion, which will be delivered in parts in June and August. However, this does not solve Greece’s problems since it has to return €11.2 billion in old debts in June,” explained Katkus.

“To receive the €10.3 billion, Greece had to agree to 7,500 pages of legal changes. These are very painful changes: the increase of the VAT from 23% to 24%, higher automobile and real estate taxes, and the reduction of pensions to €384 per month (in 2008, Greek pensions were €810 a month). Greece is obligated to implement these reforms and form a privatisation fund that must include 71,500 public-sector entities,” said Katkus.

However, Mačiulis said that the International Monetary Fund and European Commission‘s agreement with Greece for aid has delivered the aid that was hoped for.

“The state is not going bankrupt and is not leaving the Eurozone. That is what was hoped for from the agreement with the IMF and European Commission. The state is receiving financing and implementing reforms that will help it balance its budget in the long term. Nothing unexpected is happening, and the risk of a ‘brexit’ has replaced the risk of a ‘grexit,’ so that’s why the topic of Greece isn’t at the center of attention,” Mačiulis said.

“It is hoped that Greece’s economic recovery will be supported by structural reforms. However, that is a long-term process and it is said that the loan terms for some Greek debts can be extended to 50 years. We cannot talk about Greece making a breakthrough within half a year or a year but Greece’s worst period is in the past,” he said.

A long and hard road ahead

“When most of its problems are in the past, we will observe a faster economic recovery. However, much will depend on what sort of reforms will be implemented in Greece, how they will be implemented, and how well they can fight corruption and improve business conditions. Such cultural changes don’t happen very quickly,” said Mačiulis.

Katkus believes that the country may take decades to get back on its feet.

“The IMF’s analysis shows that this year’s unemployment rate might reach 6% (the unemployment rate in Germany) in 44 years. Therefore, it would be hard to expect the country’s economy to grow through new jobs.”

“The second driver of growth is investment. However, Greek banks have currently received €43 billion in support and have 44% bad loans. They need another €10 billion to become operational. Greece’s banks are currently ‘zombies’ – they can’t give out any new loans for investments or to replace old equipment. Speaking of foreign investments, if you’d believe George Soros, no sane private investor will invest until Greece’s debts are written off or until Greece leaves the Eurozone,” Katkus said.

He calculated that it would take the country 20 years for its GDP to return to 2008 levels.

Reducing its debt would help

“Germany said that it might consider writing off Greece’s debt or reducing it in 2018. This is essentially the case because in 2017 the Bundestag elections will be held in Germany, and the current German government does not want to lose its voters,” Katkus said.

“After its debt is written off and its burden reduced, Greece should continue to enact reforms, but with lower debt service costs, it can expect the return of private investors and higher economic growth,” said Katkus.

Mačiulis doubted that Greece would be allowed to write off its debt but he said that the debt burden could be reduced by reducing interest payments.

“There are various instruments that could reduce Greece’s need to borrow and lighten its debt burden,” said Mačiulis. “I truly believe that international creditors will reach that agreement.”