Debt hampers future flexibility
The European Union’s post-bailout economic surveillance of Greece is scheduled to end in 2022. However, the government will need to address a double fiscal and current account deficit, incurred in 2021, as a result of the COVID-19 pandemic. Furthermore, the cost of energy and inflation increased in late 2021, eroding incomes and raising the prospect of further declines in public finances in 2022. These challenges cannot be met through public spending in an already over-indebted country.
Investment remains anemic
The government, in power since July 2019, faces the challenge of further boosting real private investment, which has not taken place as rapidly as hoped. The COVID-19 pandemic delayed economic recovery, while new security challenges (mainly worsening relations with Turkey) in 2021 further complicated the situation.
Bureaucracy hampering growth
The government has already reduced tax levels with the aim of stimulating economic growth. However, the Greek bureaucracy, despite significant progress toward digitalization, remains a serious impediment to resource management and faster growth. Moreover, the continuing brain drain expresses Greece’s persistent failure to reconcile economic development with labor market and education trends.
Unpredictable migration inflows
Another challenge faced by the government is the unpredictability of refugee and migration inflows. In early 2020, large, organized groups of migrants coming from Turkey tried unsuccessfully to push through the Greek-Turkish land border. Although the volume of inflows declined in 2020–2021, Greece will struggle to manage any new flows on its own if they become uncontrollable.
Challenges to banking, pension systems
The banking and pension systems also face pressing challenges. Banks have off-loaded a large proportion of non-performing loans onto private funds, but are still not able to stimulate the economy. Despite reforms to auxiliary pensions, the main pension system is still unsustainable, as the Greek population is rapidly aging and unemployment does not decline further.
Tax evasion a
The judicial system continues to function in a slow manner, provoking long delays in the dispensing of justice. Government revenue streams are undermined by widespread tax evasion and a narrow tax base. These are both major challenges that need to be tackled if the country’s economic growth is to become sustainable. Meanwhile, compared to international standards, the quality of secondary education in state schools remains low and the high school system is in dire need of reform.
Environmental damage already a concern
The natural environment is under threat. Particularly during summers, temperatures are rising much higher than in previous years, while large fires are causing unprecedented destruction. The government needs to implement a comprehensive policy to prevent the destruction of the Greek countryside and the degradation of quality of life in the cities. The training of civil protection personnel and the wider public, and acquisition of new resources to prevent and fight fires have become urgent priorities.
Probable return of governing party
Elections are expected to take place in 2023, although in Greece the government can call elections anytime. Early elections risk undermining government stability and economic recovery, and will further delay reforms. It seems that New Democracy is on course for re-election, but forming a new government will be tricky because of the abolition of the 50-seat bonus rule, making a snap poll likely soon afterward.
Single-party governments typical
Owing to Greece’s peculiar electoral system of reinforced proportional representation, the winner of elections obtains a disproportionate share of parliamentary seats. In addition to the parliamentary seats allocated to it through proportional representation, the party first-past-the-post obtains a bonus of 50 seats. The outcome of the distribution of the 300 parliamentary seats usually leads to the formation of single-party governments (with the exception of the economic crisis between 2012 and 2018 when coalition governments were formed).
Few checks and
Governments have the freedom to control public administration, state-owned enterprises and state-owned media. Few, if any, other institutions can counterbalance the government’s competences and freedom to allocate resources (i.e., funds, personnel and infrastructure). There is no tangible system of checks and balances in the Greek variety of parliamentary democracy. Consequently, the prize for the election winner is exceptionally valuable. Political party competition is thus extremely contentious.
Acrimonious political atmosphere
Polarization is also fueled by long-standing divisions between the left and the right, dating back to the Greek Civil War (1946–1949), which continue to permeate Greece’s highly acrimonious political atmosphere. Although the country’s high degree of party polarization hinders successful compromises and cross-party agreements, as well as policy continuity, the electoral system has negated obstacles to policymaking at the institutional level.
Acute polarization continues
The elections of July 2019 reproduced this pattern of acute party polarization, as the leading party, New Democracy, obtained close to 40% of the total vote, while the previously governing Syriza party obtained almost 32%. The third party, KINAL (a conglomeration of the former PASOK party and several smaller center-left parties), with only 8% of the vote, lagged far behind the two large parties. Only three other small parties of the radical and communist left (MERA25 and KKE) and the far right (the new Greek Solution party), managed to pass the threshold of 3% of the total vote needed to win entry into parliament. The rivalry between New Democracy and Syriza intensified during Syriza’s term in power (2015–2019), and continued thereafter. Opinion polls in 2020–2021 showed that the two parties continued to attract the largest share of voting preferences, even though the governing party (New Democracy) was far ahead of the opposition party (Syriza) throughout that two year period. (Score: 5)