NYTimes — As Greece prepares to end nearly a decade’s worth of international financial bailouts next month, European policymakers have been eager to promote the country’s economic comeback story and the symbolic end of the region’s punishing debt crisis.
But the International Monetary Fund offered a dose of harsh reality on Tuesday. In a sobering report, it warned that Greece will face an uphill battle to tame its staggering debt, sustain economic growth and support the rising number of citizens pushed toward poverty after years of austerity.
On Aug. 20, Greece will become the last country to exit financial bailouts extended by the European Commission, the European Central Bank and the International Monetary Fund. The rescues were intended to prevent the 19-country euro area from breaking apart when Europe’s sovereign debt crisis started in 2010.
The country’s economy is now slowly growing again, and unemployment has fallen from record highs. Prime Minister Alexis Tsipras recently laid out a plan for growth and is refusing the offer of a precautionary credit line, a financial safety net that would come with new austerity terms after years of belt-tightening.
The I.M.F. praised Athens for racking up a number of economic “successes” since it was placed on the first of three international financial lifelines ultimately totalling 320 billion euros. Greece reduced an enormous budget deficit and eventually created a surplus, it said. Successive governments forged legal toolkits to deal with a mountain of bad loans at the nation’s banks. They also moved to reduce the outsize public sector, and curbed collective bargaining to make wages “more competitive.”
Yet Greece still has weak banks and private sector balance sheets, the fund pointed out.
Some capital controls remain in place, and the government has large arrears. A significant part of the population is considered “at risk” of poverty, weighing on prospects for a sustained recovery. And Greece still hasn’t made enough progress on key fiscal and market reforms.
Most worrisome is the country’s mountain of debt, which European creditors sought to make more manageable last month by easing repayment terms. It was the latest in a series of efforts over the years to bring Greece’s arrears down from a staggering 180 per cent of economic output — the largest in the eurozone.
The issue of debt sustainability has long pitted the I.M.F. against Greece’s other creditors. Germany, Europe’s austerity enforcer, has clashed with the fund, and the I.M.F. has refused to offer financial backing in the third bailout, a symbolic step, though one that analysts had been keenly watching for. Berlin is loath to offer additional debt relief to Athens, whereas the I.M.F. has said it does not believe Greece’s debt can be repaid without creditors easing up.
The IMF in its report said that despite recent debt relief efforts, which include extending the payback time for Greece’s bailout loans, reducing the country’s debt “can only be sustained over the long run under what appear to be very ambitious assumptions about G.D.P. growth and Greece’s ability to run large primary fiscal surpluses, suggesting that it could be difficult to sustain market access over the longer run without further debt relief.”
Though Greece’s economy is growing, it is still only three-quarters of its pre-crisis size.
Gross domestic product has expanded since the middle of last year, buoyed by an apparent renewal in exports. But much of the export growth comes from refining imported oil and exporting the final product — an activity that sustains tens of thousands of jobs but does not filter through to the broader economy.
Unemployment, which has fallen from a peak of 28 per cent, is still stuck above 20 percent, the highest in the eurozone. Over half a million Greeks left during the crisis in a brain drain that has hampered a recovery. Worryingly, poverty has “risen dramatically,” according to the Organization for Economic Cooperation and Development, a group of rich nations.
The social situation has deteriorated so markedly that the I.M.F., which many Greeks blame for worsening their plight as one of the original enforcers of harsh austerity, repeated its call for the Greek government to proceed with planned increases in targeted social support and investment spending. It also suggested reducing tax rates and broadening the tax base.
Even as it proposed pulling back on some of the harshest austerity, though, the fund recommended maintaining elements that have created hardship for large numbers of average Greeks.
Among other things, it urged the government to stick with a plan to cut pensions further next year and to resist restoring collective bargaining agreements, which cut the power of unions but also led to a drop in wages. Allowing the return of such deals would reverse recovery in employment and competitiveness, the fund said.
“Greece has reached this point thanks to enormous efforts,” the fund added. “Greece should now consolidate and extend its success by addressing, with determination, its remaining challenges.”