CNBC: Greece is on track to exit its bailout plan but doubts over its future remain
Greece’s bailout program is set to end in August of next year but doubts remain over whether the country will be able to stand on its own feet after the summer.
After implementing hundreds of new laws in exchange for financial disbursements from its 86 billion euro ($100 billion) bailout program, Athens is set to break from its international creditors in 2018.
Greece has been complying with its creditors’ demands, it has avoided political crises and it is growing again. Against this backdrop, Europe will want to be rid of its longest-standing financial burden as soon as possible and it’s therefore unlikely to present any additional monetary aid after next summer.
“The problem of Europe is that it wants to put Greece behind (it) as soon as possible,” a senior official close to the process, who didn’t want to be named due to the sensitivity of the situation, told CNBC.
This means that, despite the Greek economy returning to growth levels, the EU will do its utmost to ensure Athens concludes the program and is no longer a headache for the region.
A ‘clean exit’ on the way
As a result, Greece is on track to get a “clean exit” from its current bailout program — after August 20, 2018, the country will no longer have a team of foreign creditors demanding hundreds of new reforms in exchange for money.
This is good news for Greece, Europe and the International Monetary Fund (IMF), but it could prove short-lived. Among its international creditors there are concerns that even though Greece will have enough cash, it might not continue with the recent reform momentum.
“None of the structural issues have been resolved.”-Daniel Gros, Director of the Centre for European Policy Studies
Greece “has a balanced current account and a (variable) primary surplus with little interest to pay, so not much action is required just to maintain the status quo,” Daniel Gros, director of the Centre for European Policy Studies, told CNBC via email.
However, “none of the structural issues (public administration, enforcement of contracts, and so on) have been resolved. The country continues to pass all the laws and regulations required by the Troika (the IMF, the European Commission and the European Central Bank), but on the ground little has changed,” he said.
After a small contraction in growth in 2016, Greece is expected to grow about 2 percent in 2017, according to forecasts by the European Commission.
“It’s slowly starting to grow, yet the legacy of the crisis is very large,” Maartje Wijffelaars, senior economist at RaboResearch’s Global Economics and Markets, told CNBC via email.
The Greek economy is still about 30 percent smaller than prior to the crisis and unemployment is a clear problem, in particular among young people, where it stands at about 40 percent.
Waiting for debt restructuring
There’s another factor that could help Greece to stand on its feet: debt restructuring. However, not even that is a clear indication that Greece will not be a problem for Europe again, mainly because there is no decision on how this will be implemented. European creditors do not want to start specific talks on debt until Greece concludes the bailout reviews — possibly pushing these discussions into the next year.
“As long as Greece’s public debt problem is not adequately dealt with, the risk of a sovereign default and Grexit remains present,” Wijffelaars said in a note back in May.
Claus Vistesen, euro zone economist at Pantheon Macroeconomics, recalled that European institutions will somehow continue their oversight on Greece.
Greece “can’t, by definition, stand on its own feet given that the European Central Bank and the European Union own over 80 percent of its total debt. They will continue to impose strong oversight,” he said via email.
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