Greece

   
 

Key Challenges

More reforms needed to exit bailout review
Late in the summer of 2017, after long delays, Greece was able to conclude the Second Review of the Third Economic Adjustment Program. Over the next 12 months, Greece must first complete the Third Review of the same program. The government must implement a number of reforms that will enable Greece to exit the seven-year long close monitoring of the economy. Notably, in August 2018, when the current Third Economic Adjustment Program officially ends, Greece is expected to seek further financing by drawing funds on international markets. However, the IMF, having approved in principle a largely symbolic cash injection for the country, has repeated its long-standing warning that Greece’s debt remains unsustainable.
Growth meager,
investment remains
skittish
Thus, the prospects of the Greek economy remain uncertain, as loans on international markets incur higher interest rates than the rates granted to Greece by its lenders. Meanwhile, the growth of the Greek economy is meager, while large foreign private investments are not forthcoming, as the Syriza-ANEL coalition, being ideologically hostile to foreign capital, has given mixed signals to foreign entrepreneurs. Domestic investment was discouraged as the government suddenly and dramatically raised taxes and social security contributions. Thus, a better balance between taxation and business incentives must be attained.
New economic crisis
a serious risk
In view of the above, the most important challenge for Greece will be to avoid a new sudden economic crisis, resulting from further government indecisiveness, a banking crisis or a sudden call for a snap elections (a decision which rests exclusively in the hands of the prime minister).
Work needed in
education, courts,
public order
There are many open questions waiting to be addressed before the next general election (which, barring a sudden decision by the prime minister, are expected to take place in mid-2019). Open questions include restoring stability in education, public order and the administration of justice. In other words, sectors in which the Syriza-ANEL coalition government has experimented with rolling back reforms which had been affected before the government was formed (i.e., before January 2015). Since 2015, frequent education reforms have been announced, the government has been unable to impose law and order in the center of several major cities (e.g., Athens and Thessaloniki), and the administration of the judicial system has further declined (very slow and disputable functioning of courts).
Banking system, pensions are key challenges
However, the two major challenges that lie ahead are the health of the banking system and the future of pensions. Non-performing loans continue to be a major impediment for the financing of the economy and their shrinking will become a major issue in the forthcoming months with a political cost that the current or the next government will need to bear. The Bank of Greece plans to start stress tests for the country’s four systemic banks in late February 2018. Under the Third Bailout, pension payments, which had been cut by 40% since the start of the crisis, will be cut by a further 18% from 2019. This will be a necessary measure but also a major political challenge for any government.
Patronage practices reappearing
Unfortunately, while nominally interested in alleviating the suffering of victims of the economic crisis, the Syriza-ANEL government has resorted to traditional, pre-crisis patronage practices. The government has recruited party supporters to the public sector usually on temporary contracts, as it has been unable to finance large-scale hiring. It has also offered the poorer strata one-off social welfare transfers. In the traditional patronage manner, cash transfers were selectively channeled to favored interest groups, such as employees of state-owned enterprises and pensioners. It was only in early 2017 that the government at last established a social safety net for the poor. This unbalanced mix of patronage politics and social policy transfers needs to be re-assessed.
 
Over the next 12 months, policy challenges and debates will center on issues of economic growth, policy stability and redistribution.
Citations:
GDP growth rates of EU Member States, including Greece, are based on Eurostat data, shown at http://ec.europa.eu/eurostat/statistics-explained/index.php/File:Real_GDP_growth,_2006-2016_(%25_change_compared_with_the_previous_year;_%25_per_annum)_YB17.png

Unemployment rates of EU Member States, including Greece, are based on Eurostat data, shown at
http://ec.europa.eu/eurostat/statistics-explained/index.php/Unemployment_statistics
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