In a side street in the heart of Athens, two siblings are hard at work. For the past year they have run their hairdressing business – an enterprise that was once located on a busy boulevard – out of a two-bedroom flat. The move was purely financial: last summer, as it became clear that Greeks would be hit by yet more austerity to foot the bill for saving their country from economic collapse, they realised their business would go bust if it continued operating legally.
“We did our sums and understood that staying put made no sense at all,” says one sibling. “If we didn’t [offer] receipts, if we avoided taxes and social security contributions, we could just about make ends meet.”
They are far from being alone. A year after debt-stricken Greece received its third financial rescue in the form of international funding worth €86bn, such survival techniques have become commonplace. For a middle class eviscerated by relentless rounds of cuts and tax rises – the price of the country’s ongoing struggle to avert bankruptcy – the draconian conditions attached to the latest bailout are invariably invoked in their defence. Measures ranging from the overhaul of the pension system to indirect duties – slapped on beer, fuel and almost everything in between – and a controversial increase in VAT are similarly cited by Greeks now reneging on loan repayments, property taxes and energy bills.
Against a backdrop of monumental debt – €320bn, or 180% of GDP, the accumulation of decades of profligacy – fatalism is fast replacing pessimism on the streets. “Our country is doomed,” sighs Savvas Tzironis, summing up the mood. “Everything goes from bad to worse.”
Close to half a million Greeks are believed to have migrated since the crisis begun, thanks to the searing effect of persistent unemployment (at just under 24%, the highest in Europe) and an economy that has shed more than a third of its total output over the past six years. The nation has been assigned some €326bn in bailout loans since May 2010 – the biggest rescue programme in global financial history. Yet the fear that it is locked in an economic death spiral was given further credence last week when Eurobank analysts announced that consumption and exports had also fallen, by 6.4% and 7.2%, in the second quarter of the year.
The duration and depth of the recession is such that the World Bank now compares it to the slumps seen in eastern European countries in the early 1990s. The poorest 20% of Greece’s 11 million people have suffered a 42% drop in disposable income since 2009.
“If we continue down this road, a fourth, even a fifth, bailout should be expected,” says Aristides Hatzis, associate professor of law and economics at Athens University. “I don’t see any progress. The economy is stagnant, the private sector devastated, the public administration underfunded and ineffective. And there is always the spectre of Grexit at the end of the tunnel.”
The 14 August bailout deal was meant to have put paid to that. Announcing the agreement after months of negotiations that not only brought Athens to the brink of euro exit but provoked the continent’s biggest existential crisis in recent times, EU commission president Jean-Claude Juncker chirpily announced that Greece was “irreversibly” part of the euro area. The 19-member currency bloc had “looked into the abyss”, but henceforth, he said, there was no looking back.
A year on, however, there are many who would argue otherwise.
In many ways, the Greek debt drama has disappeared in the folds of other crises now stalking Europe: in quick succession, fractious debate has moved from the influx of refugees through the Aegean islands to repeated terrorist attacks and Britain’s shock referendum vote to leave the EU.
The runaway train that was carrying Greeks downhill at the height of the crisis has slowed down to the point where loss and sacrifice have almost been normalised. The gradual relaxation of capital controls – imposed to prevent a run on banks as fears grew that Greece might crash out of the eurozone – has helped reinforce the sense that the economy has returned to a path of stability. The global lack of appetite for any more Greek drama is such that eurozone finance ministers disbursed a whopping €10.3bn in emergency loans in June and made an unprecedented promise of debt relief when the current programme finishes in 2018, on condition that Athens presses ahead with yet more unpopular reforms. The country is predicted to see growth of 2.5% next year.
“No economy can withstand endless recession and stagnation,” says George Pagoulatos, professor of European politics and economy at Athens University. “At some point there could be a change of preferences, with forces who would want to continue outside the euro,” he adds. “It is anyone’s bet what will happen if the economy doesn’t [exhibit] a strong recovery in 2017.”
But few believe it will get better before it gets worse. After promising to eradicate austerity, the once popular leftwing prime minister, Alexis Tsipras, is now a reviled figure.
Anti–EU sentiment is on the rise. In October, 70% thought it better for Greece to remain in the single currency; by July those backing the euro had fallen to 50%. Real recovery can only come if the country’s staggering debt burden is reduced. Without debt relief, the International Monetary Fund, which has yet to participate in the latest rescue, believes interest payments on the growing pile will account for 60% of the budget by 2060. In an excoriating review of its own role in the crisis, the IMF’s internal watchdog recently admitted to a litany of mistakes, including the failure to foresee the recessionary impact of austerity on an economy curtailed by corruption and vested interests.
Almost all agree that last summer’s bailout simply kicks the can down the road – an art EU mandarins have mastered since Greece’s ordeal by financial collapse begun. Europe’s weakest link will face further tumult when the latest measures kick in this autumn and the Syriza-led government is forced to enact contentious employment reforms to secure a further €2.8bn in loans.
“I wish I could say Greece has been on the mend over the last year,” says George Papaconstantinou, who oversaw the country’s first rescue package as finance minister. “Instead we are witnessing a double-dip recession that can be wholly ascribed to Syriza’s first six months in office, which almost destroyed the country and certainly set it back many years.”
More than ever, he says, Greece needs large-scale foreign investment to kickstart growth – investment that is unlikely to happen in the face of government hostility to investors, both domestic and foreign.
Papaconstantinou, who has chronicled the crisis in a memoir, Game Over, argues that last summer’s lifeline was all the more tragic for being unnecessary. “What really differentiates the latest bailout from the previous ones is that this time around, it could have been avoided,” he writes in the book. “It became necessary because of a mix of ideological blindness, lack of understanding of basic eurozone rules, unforgivable brinkmanship and plain incompetence during the first six months Syriza was in power.”
A year on and Greece, though quiet, remains as febrile as ever on the frontline of the euro storm.
Coping with crisis
How other countries gripped by the eurozone’s problems have fared
Italy In the wake of the British referendum, Italy is Europe’s most pressing problem. The country has lost competitiveness since joining the euro and has experienced two lost economic decades during which growth has barely risen. The country’s banks are awash with bad debts. Prime minister Matteo Renzi has called a referendum on constitutional reform for October. Defeat on this would spark a political crisis, and probably an economic crisis as well.
Spain Along with Italy, this was the country that looked to be in the most trouble in 2012, when interest rates on its bonds rose to dangerously high levels. Since then, Spain has performed the stronger, and in the second quarter of 2016, its economy grew by 0.7% compared with Italy’s 0.1%. Spain has squeezed domestic costs and taken advantage of a weaker euro to boost its exports. Loose fiscal policy has also helped stimulate activity.
Portugal Like Spain, Portugal’s fiscal policy contravenes eurozone rules; both countries face Brussels sanctions as a result. In most respects, though, Portugal is more akin to Italy than to its Iberian-peninsula neighbour, with a recent record of slow growth, weak productivity and a shaky banking system. As in Italy, the public debt ratio is too high for comfort, and rising.
Ireland Of all the countries to receive bailouts during the euro crisis, Ireland has done the best. Strong growth has resumed, albeit partly thanks to the activities of US-owned multinationals, and unemployment has come down. Two potential problems loom, however. First, the housing market – the source of Ireland’s financial problems during the crisis – has started to exhibit bubble-like tendencies again. Second, Ireland is the country most exposed to Brexit.
Larry Elliott
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