Ten months after the outbreak of the acute debt crisis in Greece which sent shockwave beyond the borders of the eurozone member country, the Greek government expresses confidence that in a three-year period Greece will exit out the dark tunnel and return to growth and prosperity.
The country seems to have left default far behind, held local analysts such as Giannis Stournaras, Director of the Greek Foundation of Economic and Industrial Research. They noted that there are still major challenges ahead and Greece needs to change dramatically, without wasting more time in order to achieve the target set.
Next year will be the decisive second half in the battle to put the national economy in order, step off the deep recession and continue on the course of development, said Greek Prime Minister George Papandreou this week, as his socialist ruling PASOK party marked the first anniversary in government after last year’s general elections.
Burdened with a budget deficit which was estimated to stand at 13.6 percent of GDP in late 2009, as a result of years of mismanagement of finances, Greece narrowly escaped bankruptcy this spring.
Athens resorted to a newly created safety net of the European Union (EU) and the International Monetary Fund (IMF) which eventually decided in May to financially support Greece with 110 billion euro (152.6 billion U.S. dollars) over a three-year period in order to avoid severe repercussions in the global economy, such as a domino effect across Europe.
In exchange of the financial assistance, Papandreou’s government which accused the previous conservative government of hiding the extent of the problems, pledged to fully implement with no delay a harsh austerity stability and growth program.
The program includes cutbacks on salaries of employees in the overblown public sector, reaching up to 25 percent of their income, as well as cutbacks on pensions and a string of tax hikes ranging from fuel and electricity bills to transportation costs, tobacco, alcohol and basic food products.
The plan also envisages painful reforms such as the one of the pension system that raises the minimum age limit for retirement from 60 years old to 65, partial privatization of state companies, liberalization of closed professions and markets and other bold structural changes that are suggested by the EU and the IMF but are unwelcome by a large part of Greek society.
The country is hit by an ongoing string of general strikes and protests over the austerity measures that gradually seems to lose passion though. Early fears of social unrest have not come true yet, Greek citizens acknowledge the need of change, even though they do not agree with the mix of policies.
Opposition political parties and labor unions insist that there is an alternative way to exit the crisis, avoiding more austerity measures that add unfair burdens to low income households and law abiding entrepreneurs.
But government officials argue that Greece has no space for maneuvers, needs to show immediate results in the first half of the battle and these come only through the painful austerity measures introduced.
Ten months after the outbreak of the crisis Athens has won high remarks by the IMF and the EU which follow closely the course if its program and financial figures.
Foreign officials and experts, as well as local analysts applaud for instance the impressive reduction of the budget deficit to 8.1 percent of GDP in less than a year.
But they still point out to the major challenges that could derail the Herculean task of reducing the deficit to less than three percent by 2013 and return the country on the right track of growth. The fiscal discipline policies had a positive outcome so far on the reduction of state expenses, but there is still a revenues shortfall.
Representatives of trade chambers, consumer groups and economists warn that the fiscal adjustment by decreasing incomes and profits, while increasing taxes struggles companies and individuals.
Recession has reached approximately four percent this year and one in five small family enterprises faces the prospect of closure in the following months, as consumption has dropped dramatically.
According to the 2011 budget draft presented this week, unemployment is estimated to reach up to 15 percent next year.
The Greek government reassures that the review of the budget deficit of 2009 by the EU, according to sources it will be announced in the coming future that actually stood at 15 percent of GDP in 2009, will not have a significant impact on the current plan to face the crisis and Greek citizens will not have to make more harsh sacrifices in the near future.
Apart from the cutbacks on state expenses, and tax hikes, the eventual positive outcome of the efforts under way will largely depend on the battle to erase wide spread tax evasion and implement structural reforms to boost investments, the competitiveness of the Greek economy and development, Greeks analysts Loukas Karabarbounis, Assistant Professor of Economics at the University of Chicago, stressed.
Greece has lost precious time in the past three decades due to “curses” such as mismanagement, corruption and nepotism, but still has valuable resources, strategic advantages and examples of success stories in the shipping sector for instance that could form the basis for the “rebirth” of the country.
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