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Greece Set to Leave the Bailout Scheme as it Assumes the EU Presidency

On Monday 30 December 2013, the Greek Prime Minister, Antonis Samaras, announced that the country would leave the bailout programme in 2014. In a televised speech he stressed that with Greece assuming the EU stewardship this January, the coming months held the promise of renewed confidence after nearly four years of difficult austerity measures. Following Ireland’s withdrawal from the bailout programme earlier in December, this will be a major step on the road to recovery from the financial crisis that has gripped the eurozone since 2010. The Prime Minister said that in 2014 Greece would ‘venture out to the markets again [and] there will be no need for new loans and new bailout agreements.’

After receiving two aid packages that helped to reduce the nation’s debt in 2012 by €130 billion, during 2013 confidence grew amongst investors that the debt would be repaid, which resulted in a fall of interest rates on Greece’s 10-year bonds by about 8% compared to its peak figure of 30% at the height of the crisis. This meant that Greek government bonds became one of the most profitable assets during 2013, showing returns as high as 47%. However, some analysts doubt the assertion that Greece will need no further aid during 2014 as its international lenders have reached no agreement on a figure for the fiscal shortfall in the new annual budget, and officials from the financial troika comprised of the European Commission, the European Central Bank and the International Monetary Fund have been pressing the Greek government to make further cutbacks.

Old problems, new solutions

In addition, the deflation in the economy, the so-called ‘internal devaluation’ of wage cuts, high unemployment and price cuts, is set to continue well into 2014. This may create difficulties for the Greek government: persistent internal economic problems combined with the inefficiency of the country’s public administration, its unpopular and problematic tax system and the pressures of the upcoming EU parliamentary elections in May 2014, could at least be distracting for the Greek EU presidency and at worst weaken its authority. Only a year ago, even Greece’s continued membership of the EU seemed in jeopardy. Four years after Greece’s dire economic situation helped to trigger Europe’s worst debt crisis for more than half a century, there are still doubts about whether it can stay the course.

Since Antonis Samaras became Prime Minister of the coalition government in 2012, the political scene has been dominated by widespread public anger over the harsh austerity measures that were a prerequisite for implementation of the international bailout programme. The government’s majority in parliament was reduced from its original twenty-six seats to only three in December 2013 after Samaras expelled the controversial former cabinet minister, Vyron Polydoras, from the conservative-Socialist coalition when he refused to support a revised tax law demanded by the country’s lenders.

This new legislation, which replaces the unpopular property tax attached to electricity bills, introduces a new broader based real estate tax, which also covers land holdings. Projected figures show that it will raise about €2.65 billion, which is €0.25 billion less than under the previous tax law and which the government plans to offset by cutting €200 million from its 2014 investment programme. The level of home ownership in Greece is amongst the highest in Europe, at 80% compared to the 70% EU average, so a large proportion of families’ wealth is tied up in property. In order to boost the stagnant market, under the new legislation property transfer tax is reduced from its previous 8-10% to 3%. Polydoras had argued that the new tax would be ‘heavy and unbearable.’ Although inspectors from the troika have agreed to the new tax, they have expressed concern that Greece may not be able to collect it efficiently. In defiance, the Greek parliament has extended the ban on home repossessions for a further year.

The Greek government has not always been in agreement with its international lenders over its austerity measures, particularly in this restriction on home repossessions. This is one of the main reasons why in December, for the third time, the troika interrupted an inspection visit to Greece and withheld the latest bailout payment of €4.9 billion. This does not put Greece in immediate financial difficulty as no large bond payments are due until May 2014. Anticipating an end to recession, the Greek Finance Minister Yannis Stournaras is expecting to see growth in the economy by 0.6% in 2014, which would be a welcome recovery after the 25% drop during the past six years. He said that the new tax legislation would be the last austerity measure before the economy begins to turn around.

Taking centre stage

Greece’s taking over of the EU presidency, which gives it the ability to control policy, could be a major milestone in the rehabilitation of the country’s image as an economically and politically stable state. However, the population’s growing hostility to the EU and Germany in particular is one part of the crisis that refuses to go away. This is exemplified by the drive-by shooting that took place in December at the official Athens residence of Germany’s ambassador. Fortunately nobody was hurt. Greece’s Deputy Prime Minister and Foreign Minister Evangelos Venizelos quickly reacted, describing the attack as a ‘cowardly terrorist action’ aimed at tarnishing the country’s image abroad at the commencement of its EU presidency. He stressed that Greece stood alone in the EU as having made the fiscal adjustments worth €70 billion over three and a half years – equivalent to 35% of the country’s GDP – that had been necessary to combat the economic crisis. Venizelos has described the much stated irony of Greece’s ‘presiding over Germany’ as indicative of the collapse of the founding principle of equality amongst states within the EU. In the face of these initial problems, the Greek coalition government sees the six-month period of its EU presidency as a chance for Greece’s European credentials to be taken seriously, and for Greece to be seen as a country that is on the road to recovery.

There is always the worry that, despite its budget surplus, Greece may still miss its fiscal targets. There is still speculation about a new bailout, despite the Prime Minister’s assertion that Greece would be leaving the programme. Others also worry that Greece’s presidency will divide rather than unite Europe, that its often difficult relationship with the troika may overshadow its term of office and only strengthen the divide between north and south. Venizelos has expressed the opinion of many in Greece, that considering the government’s success in combating the country’s economic problems, the troika’s rescue programme could have been ‘more flexible and more clever.’

Priorities for Greece will be to stimulate economic growth and tackle its immigration and youth unemployment problems. Some members of parliament privately admit that with the government focussing on European affairs, it will allow Greece to enjoy an unofficial period of grace free of the necessity to implement more of the unpopular reforms that have polarised Greek opinion and weakened the coalition. The European parliamentary elections in May 2014 brings the prospect of much anti-EU sentiment being voiced in Greece, but Venizelos is determined that Greece, as ‘the laboratory of the crisis,’ should contribute positively towards the vital debate on Europe’s future.

 


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