Greece gets green light to exit bailout program, but worries linger
Call it a happier sort of âGrexit.â Greeceâs eurozone partners on Friday cleared the way for the country to depart its third bailout program in August, ending an eight-year stretch of financial assistance.
Finance ministers agreed a deal to provide some debt relief , which should boost the countryâs cash buffer as it attempts to build on a long overdue return to economic growth.
Greeceâs economy is picking up steam, leaving the country on a new path that means âno returnâ to the dark days of the crisis, said Alexis Charitsis, Greeceâs alternate minister for economy and development at the 7th Greek Investment Forum in New York on Tuesday.
But donât overdo it. Greece should continue to grow, but upside appears limited due to unfortunate timing, with the recovery gaining traction just as a tailwind from global and, more important, eurozone growth appea rs to be fading, said Ebrahim Rahbari, head of global macroeconomics at Citigroup, in an interview on the sidelines of the forum. And now, instead of Greeceâs woes spreading fear, or âcontagion,â to its fiscally strapped eurozone neighbors, thereâs the danger that any sustained turmoil in Italy could undercut Greece.
âItâs unfortunate that Greece is recovering late in many cycles,â he said.
All that said, the numbers are moving in the right direction. The collapse of government finances in 2009 led to default, bailouts and a crushing, yearslong depression that shrank output by 25%. Gross domestic product grew 2.3% year-over-year in the first quarter and expanded by 1.4% in calendar year 2017, boosted by a rise in investment. Greece has returned to the capital markets, issuing debt twice in the past year via a five-year bond last July and a seven-year bond in February at yields of around 4%, contributing to a healthy cash buffer, according to Capital Econo mics.
Greeceâs benchmark stock index, the Athex Composite Share Price Index GD, -0.22% has lagged behind its European peers, posting a 3.9% year-to-date decline versus a 1.1% fall for the pan-European Stoxx 600 SXXP, +1.09% In the U.S., the S&P 500 SPX, +0.19% is up around 3.3% year-to-date.
With economists doubting the sustainability of Greeceâs debt load, which stands at around 180% of gross domestic product, further pain may be in store down the road.
Expectations Greek debt will fall are âreliant on the governmentâs assumption that real GDP will grow at a sustained pace of over 2% in the medium term, which seems highly unlikely given poor demographics, troubled banks, economic rigidities and the continued austerityâ required by creditors, said Jennifer McKeown, chief European economist at Capital Economics, in a Wednesday note.
But for now, the worst fears for Greece are receding.
Rahbari was the co-author of a Citigroup report in 2012 that coined the term âGrexit,â just before the Greek government defaulted and executed the largest sovereign debt restructuring in history.
Political risks surrounding Greece have receded significantly, even with elections due no later than next year, Rahbari said. Some analysts have argued that a victory for the opposition New Democracy party would likely be interpreted as business friendly.
Grexit is âoff the table,â he said. âI wouldnât go so far as to say itâs off the table indefinitely â" many things can happen â" but it really isnât part of any serious discussion, thatâs one of the positives... We donât have to watch Greek politics that closely right now.â
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