Greece’s bailout may have finished, but the economic pain still has a long way to run
It is a landmark moment: Greece has finally received its last payment from the European Stability Mechanism, with an unprecedented €204bn (£183bn) in bailout loans delivered since 2012 as Europe grappled with a sovereign debt crisis.
European Council president Donald Tusk was fulsome in his praise today. “You did it!” he said. “Congratulations to Greece and its people on ending the programme of financial assistance. With huge efforts and European solidarity you seized the day.”
“Did what?” the Greek people would be forgiven for asking. For all the triumphant talk of “emerging” from the bailouts, Greece’s economy has not staged anything which might be termed a recovery. GDP grew last year but output remains a quarter below its 2007 zenith, according to the World Bank.
The sorry tale of Greece’s last decade has left scars which will take years to fade. Symbolically, the nation was forced to bend to its creditors’ will, while in economic terms the damage may be greater still, with the crisis leaving permanently lower output. It’s easy to see why, with youth unemployment still at almost 40 per cent in May. A generation of young people (or at least those left after a wave of emigration) have few foundations on which to build future growth.
The need for reforms of the Greek economy was clear, with a pre-crisis clientelist state securing support with a glut of well paid jobs, a massively generous pensions system, and a large tax gap – all compounded with black holes on the government’s fantasy balance sheet.
Yet the Greek crisis should not be reduced to a fiscal morality tale: wherever someone has borrowed recklessly, somebody else has lent irresponsibly. When the financial crisis struck and the scale of Greece’s over-extension became clear the lenders should have been on the hook for losses.
Instead, creditors in the Eurozone’s bigger economies used their political clout to enforce eye-watering levels of austerity. Even the International Monetary Fund – nobody’s idea of fiscal doves – has made it clear that debt relief should be part of the solution.
Meanwhile, even with no more bailout payments, Greece – in theory – still has to pay back the loans, and has pledged to continue to run large primary budget surpluses funded by high taxes. If the end of the bailout programme represents a success, it is a Pyrrhic victory.