In a post mortem of the era of bailouts, ratings agency Moody’s highlights the catastrophic impact of the eight years of austerity on the Greek economy and warns economic and political risks could derail the return to normality.
“Risks abound for Greeks to lose the ground they have made, like the mythical Sisyphus—who was forced to push a boulder up a mountain every day just to see it roll back down at night,” it says.
Its analysis punished on August 23, says that eight years of heavy austerity and restructuring of the labor market “wreaked havoc on the Greek economy.”
It notes that real GDP fell by a quarter of its 2008 level, the unemployment rate jumped up to more than 25%, and incomes fell by almost a third. As a result, the Greek economy remains far behind its European counterparts.
Greeks left the country in droves to find jobs elsewhere, leading to a 4% decline in the population from 2010. The ensuing brain drain altered the makeup of the Greek economy substantially, too, as the country could not support enough high-tech industries without highly skilled workers, it says.
The bright side
On the positive side Moody’s says that with its string of five consecutive quarterly increases in real GDP, Greece has produced its best run of economic growth since 2005-2006.
While growth has been consistent, the sources of growth are much less so: Exports have usually been positive, but consumption and investment have not, it says.
It is estimated that economic growth will keep up its pace over the coming years and consumption will contribute more to output as the labor market improves, driving stronger wage gains and boosting incomes and spending that will eventually trickle into the housing market, it said.
“Stronger global growth bodes well for the country, in terms of both improved exports and a greater influx of tourists to the Mediterranean,” it added.
Moody’s however warns that “risks abound for Greeks to lose the ground they have made, like the mythical Sisyphus—who was forced to push a boulder up a mountain every day just to see it roll back down at night.”
The rating agency identified outside forces that could disrupt the economic recovery, such as increasing protectionist policies and ongoing trade wars, as well as two main domestic risks for a sustainable return to international markets.
The first is that Greek authorities “will have to maintain their commitments to creditors, implementing what has been agreed upon so the country does not lose the credibility that the conclusion of bailout program has created.”
The second is that the government may face a change in power during the next election in early 2019, which “could add to uncertainty as to whether the country will enact the policies necessary to ensure sovereign debt remains sustainable.”