Government budget and reforms: Greece’s debt balance

Status: 02/05/2022 08:22

Twelve years ago, the euro area finance ministers launched the first loan program for Greece. Today, the country is no longer a reason for state bankruptcy – but is it really better?

Wolfgang Landmesser, WDR

End of April 2010: Georgios Papandreou, then Prime Minister of Greece, officially asks the European Monetary Union for financial assistance – in the idyllic backdrop of Kastelorizo, the southern Aegean islands: “Our partners will work together and offer Greece the necessary port to resend our boat stable and dignified The countries of the euro area and the International Monetary Fund then prepared the first of a total of three rescue programs. Greece must take this step because it can no longer raise money from the financial markets. Or only with very high interest rates. State budget deficits are too high. like debt versus economic production.

the risk of bankruptcy has survived

Twelve years later, the debt crisis is history. The acute phase is definitely behind the country, says Manos Matsaganis, professor of finance at the Polytechnic University of Milan: “But looking at the level of debt it is hard to say that Greece has resolved its debt problem.” Debt exceeds Greek economic output more than twice: 206%. This is by far the highest value in the EU. For comparison: when the debt drama began in 2010, it was almost 130 percent.

Under pressure from its creditors, however, Greece significantly reduced its budget deficit – that is, its new annual debt. In late March, Greece repaid the remaining loans to the International Monetary Fund (IMF). Most of the debt is now on the European Central Bank and the European Stability Fund, the euro area rescue tool that emerged during the crisis; they just have to be paid off by 2070.

Ironically, Syriza is implementing austerity

So Greece is able to service its debt again. On the other hand: the austerity programs imposed by creditors have caused enormous damage; government investment has shrunk by more than 50 percent. “This drastic cut in public spending is a mortgage for future generations,” says Matsaganis. No wonder so many young Greeks have turned their backs on their country. Because they have a better chance elsewhere.

Alexis Tsipras, head of the left-wing Syriza party, set out to free Greece from the dictatorship of its creditors. “Greece is moving away from a disastrous austerity policy, five years of humiliation and pain behind it,” he promised, winning the January 2015 elections. But just six months later, the left-wing prime minister signed a new bailout with budgetary targets obliging Greece to make further savings.

At the same time, Matsaganis criticizes the fact that the necessary reforms have been pushed to the background – in health care, the elderly care system and public administration. “There were no reformers in the Tsipras government,” says the economist. “His ministers just didn’t believe it.”

Corona’s failure – but also hope

In the parliamentary elections three years ago, the conservative Nea Dimokratia became the strongest force. New Prime Minister Kyriakos Mitsotakis has promised to do things differently – and to accelerate important reforms. “In just a few days, we took action that took others months and years to implement,” said Mitsotakis at the start of his mandate. But the record so far has been mixed. And between them was a fight with Corona. Debts continued to rise as a result of programs worth the billions, including bailing out a major tourism industry.

As a result of the pandemic, there is also an opportunity for Greece: Member States have launched the “Next Generation EU” fund. Billions of this should go to a climate neutral economy. This can help the country grow stronger. And really leave the debt crisis behind. The economist Matsaganis also hopes – with some skepticism: “We may waste funds, but I am optimistic that we will do better than in the past.”

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