Greece: back in business
Victory for the centre-right in last Sunday’s Greek election is “good news for Europe”, says The Times. The new prime minister, Kyriakos Mitsotakis, “understands the role of business and markets in generating prosperity”, unlike the radical left-wing Syriza party of outgoing prime minister Alexis Tsipras.
The country’s stockmarket is also cheering, says Michael Msika for Bloomberg. It has been the world’s best performer this year, with the ASE benchmark index jumping by 45%. Government bonds have also done well. Yields have fallen to levels suggesting that Greece is barely riskier than Italy.
A decade of crisis
Greece’s 2009 sovereign-debt crisis, caused by extreme overspending and borrowing, precipitated a severe 25% slump in GDP, a fall similar to America’s Great Depression. Syriza swept to power in 2015 on an anti-austerity platform. Its attempts to secure better terms from international creditors and avoid austerity provided much drama – it nearly left the single currency after a snap referendum – but were ultimately futile. The result was capital controls and a collapse in business confidence. The country finally exited the international bailout programme last summer, but youth unemployment is still around 40%. Tired of “high taxes” and grinding austerity, voters have delivered a “crushing rejection for the eurosceptic “new left”, says Justin Huggler in The Daily Telegraph.
A parliamentary majority for Mitsotakis means that he must waste no time implementing pledges to cut bureaucracy, “force the pace of privatisation” and boost sluggish investment, says Stephen Pope for Forbes. Cuts to corporation and property taxes are also on the agenda.
Tax cuts could prove costly, says Ben Hall in the Financial Times, but the new prime minister may be hoping that planned reforms of labour and product markets could encourage the EU to loosen strict fiscal rules that require Athens to run a 3.5% primary budget surplus. Any deal could help boost growth.
Greece has returned to weak growth in the past two years, but still faces acute challenges, says Nektaria Stamouli in The Wall Street Journal. It is one of the “most difficult places in the European Union to do business”. Above all, public debt equivalent to 183% of GDP will act as a long-term drag on performance.
A long-term solution to Greece’s woes is likely to require a restructuring of its debt, as we have often pointed out. But despite the recent bounce, equities have still only recouped half of their losses from a 2014-2016 slump. Trading on a price-to-book ratio of 0.8, they look reasonably priced. The rally looks set to continue for now.