ATHENS — Greece is set to exit post-bailout scrutiny — and the government and creditors are touting the exit as the end of a dark era that has inflicted deep scars on the economy and society .

On August 20, Athens officially ends the enhanced surveillance regime that followed its three consecutive bailouts from 2010 to 2018. This decision sends “a message to investors and markets that Greece is out of the woods”. [and] one step closer to investment grade,” according to George Pagoulatos, director of the Hellenic Foundation for European and Foreign Policy think tank in Athens.

“After 12 years…a difficult chapter for our country is coming to an end,” Greek Finance Minister Christos Staikouras said in a statement last week, adding that this will allow the country greater freedom in the economy. economic policy making.

The European Commission has welcomed Greece’s achievements and its commitment to pursue reforms beyond the end of enhanced surveillance.

But the headlines obscure the fact that Greece still grapples with many of the weaknesses that have weighed on growth for decades, analysts said. And they make the economy particularly vulnerable to new shocks from the war in Ukraine, the energy crisis and the risk of stagflation that threaten the euro zone.

“Inflation is at its highest for 29 years. [while] salaries are still very low,” said Wolfango Piccoli, co-president of the consulting firm Teneo. “There are new economic challenges that completely rule out this moment. Voters are focused on the real economy, rather than technical issues.”

The Greek economy has rebounded since the crisis era. The unemployment rate, which during the crisis reached a staggering 28%, is now 12.5%. Its gross domestic product grew by 8.3% in 2021 and the Commission expects it to grow by 4% in 2022 and 2.4% in 2023.

However, inflation stands at 11.5%, making the cost of living almost unbearable for many Greeks. Greece also lags behind most advanced economies when it comes to providing well-paying jobs, according to the OECD.

Moreover, despite the reforms Athens had to push through as part of the bailout deals, it was unable to address some of the biggest structural challenges. These include massive bureaucracy, especially in the judiciary, and chronic tax evasion. Rather than diversify its economy, Greece remains extremely dependent on tourism. And the vast majority of businesses – usually small businesses – are considered insolvent.

Meanwhile, Greece still bears the dubious distinction as the only eurozone member whose sovereign debt has an undesirable rating – even as Prime Minister Kyriakos Mitsotakis says the country could achieve investment status in the first half of 2023.

Against this backdrop, Greek sovereign debt remains among the most expensive in the Eurozone, reflecting investor sentiment that there remains a significant premium needed to hold its government bonds. On Tuesday, the yield on its 10-year bond was 3.26%, compared to 3.07% for Italy, which has been plagued by political unrest. That’s well above the ultra-safe German Bund at 0.94%.

Turn a corner?

Greek debt has become more expensive since last fall, with the trend exacerbated by moves by the European Central Bank to tighten policy this year. Yet the yield on 10-year bonds remains significantly lower than it was in mid-June, when it hit 4.69%. The ECB’s subsequent commitment to deploy a new bond-buying “tool” to ease borrowing costs in the most indebted eurozone members, notably Italy, eased some of this pressure. .

The tool, dubbed the Transmission Protection Instrument (TPI), “has a stabilizing effect [and] provides a safety net for any economy that might face a crisis, including Greece,” Pagoulatos said.

Moreover, fluctuating bond yields do not have a major impact on Greece’s borrowing costs. Its debt – which amounts to 350 billion euros – is regulated with an interest rate contained under the terms of the rescue plan, and approximately 70% of these obligations are owed to public financial institutions, according to repayment schedules. term, rather than to private investors.

Domestically, Athens has implemented many reforms, notably in the social protection system, the labor market and fiscal governance.. Some long-planned measures remain on hold, but are being extended until October, including advancing a number of privatizations, clearing the pension arrears, and bringing the tax system into operation.

Greece is also among the main beneficiaries of the EU’s pandemic recovery fund and is expected to receive up to €17.8 billion in grants and €12.7 billion in loans. The country’s RRF program foresees that 37.5% of the plan will support green investments and 23.3% will be directed towards the digital transition.

The years of crisis revisited

Despite all the progress, many economists now say the long-term cost of the bailouts – which channeled some 290 billion euros in loans from the Commission, ECB and International Monetary Fund – has inflicted pain that is becoming still feel today. Austerity measures imposed by creditors, mainly in the form of deep cuts in public services and crushing taxes, amounted to 72 billion euros.

“The EU learned a lot during the Greek crisis ‘workshop’, which enabled it to react faster and more effectively to future challenges,” said Evangelos Venizelos, who has held senior positions within of the Greek government between 2011 and 2015, notably as a deputy. prime minister, during the bailout crisis. “The lenders have shown solidarity but also a punitive attitude.”

Greek GDP grew from $355.9 billion in 2008 to $188.7 billion in 2020 and starts growing again to around $216.4 billion in 2021. The economic depression has left Greeks exhausted, angry and disillusioned. Nearly half a million left for Europe’s wealthier north, and few returned.

Greece has made huge progress, argued Alvaro Santos Pereira, director of country studies at the OECD, but still has a long way to go to catch up with its peers.

For example, he said, “nearly 15 years after the onset of the global financial crisis, Greek banks are just beginning to bring their bad debt ratio down to single digits, allowing them to start providing the essential financing for new investments”.

And among analysts, bailouts will remain a controversial topic for years to come.

“It’s too early to tell if the bailouts were successful,” Teneo’s Piccoli said. “The economy is recovering, but in the meantime the usual weaknesses are emerging. The concern is that not much has changed in terms of structure.