Executive Summary

Growth returning, volatility falling
During the period under review, Greece’s political and economic environment grew less volatile, while domestic and foreign observers recorded signs of timid economic growth. In relation to 2015 – 2016, the government appeared far more willing to introduce and, to a lesser extent, implement reforms, and welcome foreign investment.
These developments were encouraged by a positive international milieu. Business confidence in Europe, as measured by Eurostat, is at its highest point for over a decade.
True recovery still
out of reach
However, Greece continues to be the only European country that has yet to reach the stage of economic recovery. Nevertheless, there are some reasons for optimism. In spring 2017, the government concluded a €1.2 billion deal with a consortium led by the German company Fraport, which involved 14 of the country’s regional airports. This is the biggest privatization venture so far under Greece’s international bailouts. Following the conclusion of the deal, in July 2017, Greece successfully sold €3 billion in five-year bonds at a relatively low interest-rate of 4.6%. The bond issue was so oversubscribed that the country could have borrowed €6.5 billion, more than twice the desired amount.
Negotiations with
lenders continuing
Negotiations between the coalition government, consisting of the radical-left party (Syriza) and the far-right party Independent Greeks (ANEL), on the one hand, and the country’s lenders, on the other hand, continued. The second review of the adjustment program was completed – with considerable delay – in June 2017 paving the way for the disbursement of the third tranche of financial assistance (€8.5 billion) that was used to cover Greece’s current financing needs and arrears clearing.
Financial system
still fragile
The country’s economy is expected to grow in 2017 by 1.7% after stagnation in 2016 (-0.2%). Capital controls, imposed on the banks in July 2015 when the government announced a referendum, were not lifted in the period under review and are still in place. The Greek banking system still faces risks, as non-performing loans are a major constraint. Yet, between 2016 and 2017, the government continued to privatize the transport sector and sell-off state-owned property. At the same time, it continued to delay the implementation of agreements it had signed with private investors concerning the exploitation of gold mines in northern Greece and urban development of the east coast of Athens.
Growth ahead, labor market recovering
The OECD projects GDP growth to rise to 2.3% in 2018 and then moderate to 2% in 2019. So, Greece’s economy is projected to grow again, and the recovery is expected to strengthen as investment rebounds and private consumption rises. The labor market is also recovering though high unemployment remains a problem.
New safety net paired
with new taxes
The Syriza-ANEL government allocated funding for social assistance and began the implementation of a new social safety net, the Social Income of Solidarity. However, the government raised taxes and social security contributions to an unprecedented degree, which will hit the middle strata and professionals particularly hard, while it made little progress in fighting tax evasion. Economists argue that these measures have negatively influenced investment and job creation.
Efforts to control media and justice system continue
Finally, in the period under review, the government did not give up on its drive to control the media and influence the judicial system. Meanwhile, the weak state administration hampered further reform efforts. Such efforts, however, are necessary if Greece wants to change its model of production, currently based on domestic consumption and the provision of services to tourists.
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