It is no exaggeration to say that the principal victim of the economic crisis was Greece. The violence of the financial shock was such that the country’s economic, social and political structures were all affected, in a profound and lasting manner.
We all know the story of how the crisis began. The true state of the public accounts had been hidden, masking a gaping deficit. When it was revealed, market confidence evaporated. The crisis suddenly revealed – and amplified – the underlying weaknesses of the economy and the structural fragility of the state apparatus, which had difficulty collecting taxes or even knowing the exact number of civil servants recruited.
Yet Grexit would have been a disaster, implying a fatal erosion of the euro area. To avoid that scenario, Europeans assumed their responsibilities. The euro area countries, the European Commission and the International Monetary Fund (IMF) stepped in to replace the markets, mobilising an unprecedented amount of financial assistance for Greece in exchange for deep reform of its economy and administration.
Solidarity in exchange for reform: that has been the political and financial deal underpinning our work since May 2010. It is also the key to understanding the agreement I hope to see and am working to achieve at the Eurogroup this Thursday.
Eight years have passed and €273 billion has been lent to Greece under three consecutive financial assistance programmes. Yes, the amount is eye-watering. But these loans have not been provided in vain.
So what has Greece achieved in a decade of reforms? The answer is an enormous amount, more than any other EU Member State in recent years. Put simply, Greece has made profound changes to its economic structures, and these have begun to bear fruit.
Consider some of the Herculean tasks completed since 2010.
- First of all on taxation, long the Achilles’ heel of the Greek state. Thanks to the broadening of the tax base and the lowering of the minimum taxation threshold, income taxes are now fairer and more efficient. Tax revenues are higher and better distributed. At the same time, a land registry cadastre has finally been put in place. With 29% of properties covered so far and full coverage expected in 2021, the Greek state will be able to verify assets and tax returns and ultimately improve tax collection and fight tax avoidance.
- Secondly, we have worked with the Greek authorities to stabilise the banking system. To improve governance and limit interference of all kinds, national banking authorities have been made more independent and transparent, in line with international best practice. We then turned our attention to cleaning up these banks’ balance sheets by reducing non-performing loans. This was crucial to ensure a return of Greek banks to the markets and to secure financing for the economy to support investment, job creation and growth.
- Finally, we had to repair Greece’s social fabric, hard hit by the crisis but also marked by structural inequalities. I have considered it my duty to protect Greek citizens from poverty. Together with the Greek authorities, we first of all thoroughly rethought the social systems, allowing resources to be redeployed to the most vulnerable: students, the unemployed and families in difficulty. We also modernised the health system by strengthening the primary care network and developing universal health coverage. Almost two million previously uninsured Greeks now have full access to healthcare. Finally, we have strengthened the social safety net by establishing a social solidarity income to effectively combat economic insecurity in the country. More than 600,000 Greeks have already benefited – nearly 6% of the Greek population. This is a real achievement!
So how should we assess these eight years of financial assistance? The sacrifices of the Greek people have paid off and there are numerous signs that the country is on the road to economic normalisation.
- The Greek economy sank into recession in 2008, contracted by as much as 9.1% in 2011, grew briefly in 2014 then stagnated again in 2015-16. Last year saw a return to growth (1.4%) and we forecast the economy will expand by 1.9% this year and 2.3% in 2019.
- On the fiscal front, the results have been impressive. While Greece had the highest budget deficit in Europe in 2009 – 15.1% – last year it had a surplus of 0.8%.
- Labour market reforms, competitiveness gains and the return to growth are beginning to bear fruit. Getting the economy growing again and generating jobs was a key priority, because behind Greece’s economic crisis there was a social tragedy in Greece that we had to combat. Reaching nearly 27.9% at the height of the crisis, the unemployment rate fell to 20.1% in 2017 and is continuing its downward trend. Current levels are still far too high, but we are making progress.
These encouraging developments are giving confidence back to economic actors. As proof, all the main rating agencies have raised Greece’s rating in recent months and the yield on 10-year bonds stands at 4%, its lowest level since 2006.
Greece is now on the final straight of its programme and on track for a successful conclusion. I am convinced that we will reach a final agreement at the Eurogroup this Thursday, with a view to a successful conclusion of the programme by 20 August – I have made this my priority.
This will be a historic moment for the Greek people, who deserve to regain full economic and financial sovereignty. It will also be a strong symbol for the euro area as a whole, because it shows what we can achieve together.
It is now up to Greece to remain on a responsible path. The economy is recovering but remains fragile and severely handicapped by an abyssal public debt at 180% GDP. The exit from the programme is a first step – certainly decisive – but there is still much work to be done.
It is essential that the Greek government continues its debt reduction efforts and commits itself to a sustainable growth strategy. I have full confidence in the Greek authorities to carry out this task. We will be at their side throughout this period.