There are reasons for moderate optimism about Greece

Kyriakos Mitsotakis has committed to a well-designed programme of economic reform, fiscal responsibility and administrative modernisation © AP


There are reasons for moderate optimism about Greece

The political system has proved resilient but the pace of reform must not slacken

Ten years ago Greece plunged into a debt crisis that threatened to sweep away much of the political, social and economic progress achieved after democracy replaced military dictatorship in 1974. The economy shrank by a quarter, unemployment soared and Greece came close to crashing out of the eurozone. The crisis tore at the fabric of society and demolished one of the two political parties that had alternated in power since the return of civilian rule.

Today, on the face of things, the emergency is over and the outlook is bright. The authorities have lifted capital controls, imposed four years ago. Greece’s 10-year bond yield touched an all-time low in July. Consumer confidence is at its highest level since 2000. Elections in July produced a comfortable parliamentary majority for New Democracy, a conservative party committed under prime minister Kyriakos Mitsotakis to a well-designed programme of economic reform, fiscal responsibility and administrative modernisation.

New Democracy’s victory represented the delayed revenge of the Greek bourgeoisie against the Syriza party, which came to power in January 2015 as the most radical leftist government seen in a European democracy since the second world war. However, even critics of Alexis Tsipras, Mr Mitsotakis’s predecessor, ought to acknowledge that some of the credit for Greece’s recovery goes to the Syriza leader, who eventually swallowed the medicine prescribed by Greece’s creditors.

The most impressive aspect of Greece’s return to stability is the resilience of its democracy. Many outsiders claimed, at the height of the crisis, that Greece was at risk of succumbing to rightwing extremism and even becoming unmoored from the western alliance system. Yet the far-right Golden Dawn party did not win a single seat in the July elections. So far from being an awkward partner for its EU and Nato allies, Greece is rightly regarded as a pole of stability in the turbulent Balkans and eastern Mediterranean.

It is important not to paint everything in rosy colours. Greece’s return to two-party politics is a positive development insofar as it avoids the kind of political fragmentation visible elsewhere in the EU. However, Greece’s old two-party system, which pitted New Democracy against the Pasok socialist party, was notorious for clientelism and corruption. It is vital that these deeper currents of Greek public life do not reproduce themselves in a system now dominated by New Democracy and Syriza.

As in other European countries, the quality of Greek democracy depends on more than regular free parliamentary elections. No less important is the independence of public institutions, such as the judiciary and central bank, which came under pressure when Syriza held power. Likewise, Mr Mitsotakis must not relax in his efforts to overhaul the public sector, an area of profound concern to the foreign creditors and investors whose support will be essential to drive forward Greece’s economic recovery.

It is unfortunate that this recovery is beginning just when the global economy is running into headwinds. Even before these clouds appeared on the horizon, however, Greece was not rebounding from the debt crisis with the vigour of other stricken eurozone economies such as Ireland, Portugal and Spain. One reason is that the Syriza government made too little progress in attracting foreign direct investment and completing the privatisation of state assets.

A second factor is the fragility of Greece’s banks. By the middle of this year, they were burdened with about €85bn in non-performing loans. To some extent, however, liquidity conditions are now improving. Domestic private depositors, who withdrew their money in a panic when Syriza’s early recklessness threatened to tip Greece out of Europe’s currency union, have returned some €12.3bn to the banks since the start of 2018.

Mr Mitsotakis’s government has made a promising start by announcing corporate tax cuts and other measures aimed at improving the investment climate. These include going ahead with the long-delayed €8bn Hellinikon project to redevelop the area around the former Athens international airport.

Provided that Mr Mitsotakis sticks to his reform plans, Greece’s eurozone creditors should offer a helping hand by lowering the targets for primary fiscal surpluses required of the government since the country left its third bailout programme last year. It is in everyone’s interest that Greece should put itself on a sustainable path of higher long-term growth. A mutually reinforcing mix of Greek reform and creditor assistance is the best way to get there.

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