adapted from an article in the Greek newspaper To Vima, May 28, 2023
At a time when the international political and economic environment remains fluid, with significant uncertainties and risks, the result of the first round of the Greek elections signals the end of domestic political uncertainty. The risk of a new period of political and economic instability that would hamper the recovery and potentially lead to new macroeconomic imbalances appears to have been averted.
In the first round of elections, SYRIZA was punished for remaining a protest party without a credible government program, at a time when people have moved beyond protest and are looking for a compass for the future. This was provided only by Kyriakos Mitsotakis’ ND, which, despite some governmental weaknesses and failures, achieved a historic triumph. If after the second round of elections the results of the first round are confirmed and the Mitsotakis government does not hesitate to promote bold reforms in the state and the economy, then not only will the prospects for the economy improve dramatically, but the government will also remain politically dominant, something which is unprecedented in the post-1974 period for the second term of a government.
The Greek economy recovered satisfactorily from the deep recession of 2020 caused by the pandemic. However, for the next few years all international organizations expect a significant slowdown in the rate of economic growth (see graph for the latest IMF projections). Given that new clouds have begun to gather over the global economy, and given the structural weaknesses of both the euro area and the Greek economy, the greatest risk is complacency.
For Greece, after the settlement of its debt in 2012, the immediate risks from a new international financial crisis have been limited. Until 2032, the external public debt is settled at relatively low interest rates. For this reason, the return of Greece to investment grade is also expected with relative certainty. However, the structural weaknesses of the Greek economy have only been addressed in a small part and the de-escalation of public debt as a percentage of GDP is far from satisfactory. One indication of the structural weaknesses that remain is the large widening of the current account deficit, just as the Greek economy began to recover from the deep recession of 2020. Moreover, according to the latest medium-term forecasts of the IMF, for the six-year period 2023-2028 an average annual GDP growth rate of just 1.6% is projected, as well as, a small further decline in unemployment and only a small improvement in the current account deficit.
The problem of how to achieve a significant acceleration of economic activity while simultaneously improving the international competitiveness of the economy, which will also lead to a faster de-escalation of unemployment and the ratio of public debt to GDP, is the main challenge of economic policy for the next four years. Bold reforms are needed, which a government with ‘untied hands’, such as the one predicted to emerge from the second round of elections, has no reason to delay in pushing forward with determination. The election result provides a historic opportunity for the government and the country.
© George Alogoskoufis