Executive Summary

Growth returning as volatility declines
During the period under review, Greece’s political and economic environment grew less volatile as the government relatively faithfully fulfilled the last requirements of the Third Economic Adjustment Program for Greece (2015 – 2018). Domestic and foreign observers recorded signs of timid economic growth. In comparison to the previous reporting period, the government appeared far more willing to introduce and, to a lesser extent, implement reforms.
Mixed record on private investment
The government allowed the privatization of regional airports and part of the railway system to proceed. However, it continued to delay implementation of agreements it had signed with private investors on gold mine exploitation in northern Greece and urban and tourist development along the east coast of Athens.
Return to bond market
still out of reach
Greece continued to be the only European economy that had not yet fully recovered, in the sense that the government remained unable to borrow funds on the international markets. Capital controls, imposed by the government immediately after its own fruitless decision to launch a referendum in July 2015 on the European Commission’s austerity package, were eased during the review period, though not eliminated. The Greek banking system continued to face risks, as non-performing loans remained a major constraint.
State sought to influence media, judiciary
The government sustained efforts to influence media and the judicial system. It also continued to pursue contested educational reforms, even though no clear pathway was visible. Health care reforms were enacted and a new system of social assistance for the poor was rolled out, though even these were doomed to be insufficient, as the weak state administration continued to hamper reform efforts.
Elections derail focus
on growth
Given that Greece entered a long electoral period in the fall of 2018, there can be little optimism for economic growth. Into 2019, elections will be held for national, regional and local governments (the last elections took place in 2015) as well as the European Parliament. Political instability has often bred economic decline. Each government turnover has been preceded and followed by a period of bureaucratic inertia, rising deficits, reform fatigue, and economic uncertainty. The government’s decision in November 2018 to embark on a debatable reform of the constitution will further complicate and polarize domestic politics.
Recovery depends on political stability
If political stability is preserved in the short term, then 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 challenge. However, economic growth remains fragile and much will depend on the volatility of international government bond markets as well as on the performance of other European economies (especially Italy). With the opposition New Democracy party enjoying a ten-point lead in polls, the Syriza-ANEL government is keen to regain control of the economy and increase public spending before the next national election. One assurance that may prevent irresponsible economic policymaking, however, is that Greece will undergo post-bailout surveillance linked to balanced budgets and further reforms (as Portugal and Cyprus after their bailouts).
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