Greek Economy Comeback Needs Long-Term Investors

FILE - Protesters from Communist-affiliated PAME labor union march during a 24-hour strike in front of the parliament in central Athens, Tuesday, Sept. 24, 2019. (AP Photo/Petros Giannakouris)

Prime Minister Kyriakos Mitsotakis’ recipe for a faster recovery for Greece is right on target but the economic comeback has a still-brittle base and needs the foreign investors and businesses who will come to the country to stay, a Financial Times report said.

So-called hot money, investment in financial assets that moves quickly as traders look for short-term returns, has returned. These investors try to find inflection points to buy low and ride their investment all the way up to the top. Such a turning point has certainly come for Greece,” Megan Greene, a writer is a senior fellow at Harvard Kennedy School wrote in a column for the site.

Likening the slow recovery after a 9 1/2-year crisis that required three international bailouts of 326 billion euros ($356.03 billion) – which failed to stop the growing debt, however – to Greece rising like a phoenix from the ashes, she added: “Fast money has done well investing in Greece, but the stickier long-term investors that Greece so desperately needs remain skeptical.”

Mitsotakis has already cut the corporate rate that the former ruling Radical Left SYRIZA, notoriously unfriendly to foreign business had set at 29 percent to satisfy the country’s creditors, and the Conservative leader is moving to start major projects that had been stymied, including the long-stalled $8 billion development of the abandoned Hellenikon International Airport.

He said that was to show foreign companies are welcome and as he said the corporate rate would be cut again, to 20 percent, as a further incentive. While the bailouts ended on Aug. 20, 2018, Greece still hasn’t been able to make a full market return, with investors still wary.

Greene said the victory of New Democracy in July 7 snap elections has brought a visible new enthusiasm and optimism visible in the streets which are bustling again with shoppers and restaurants brimming with business, although some streets still have boarded-up stores.

WHAT’S UP, DOC?

Markets are picking up on the excitement, she added, with sovereign yields lower in Greece than in the United States, although still higher than the interest on the loans that will take decades to repay with envoys from the lenders, the Troika of the European Union-European Central Bank-European Stability Mechanism (EU-ECB-ESM) monitoring the economy.

The main Greek stock index, the ATHEX, has soared more than 40 percent since January, roughly double the rise in the S&P 500 over the same period but the exchange is frequently volatile and a roller-coaster ride not for the faint-of-heart investor.

After shrinking more than 25 percent during the height of the crisis, the Gross Domestic Product (GDP) and economy is growing, albeit slowly, to 1.9 percent last year and consumer confidence is also rising after seemingly endless misery over pay cuts, tax hikes, slashed pensions, worker firings, suicides, home foreclosures and people hounded by debt collectors and banks.

Greene said there’s an anecdotal gauge as well. “Local friends tell me the greatest sign of improvement is that politics aren’t discussed nearly as much any more,” she wrote.

But hold the phone and don’t drop it. While Foreign Direct Investment (FDI) is up – it would have been hard to go down any more – the rate of increase halved in 2018 and state-run Enterprise Greece notes FDI “is relatively low compared to the country’s opportunities.”

Greek banks are also buried under an avalanche of some 75 billion euros ($81.91 billion) in bad loans – including those owed by New Democracy which hasn’t said if they will be repaid.

Having already gotten 50 billion euros ($54.61 billion) in bailouts, Greek banks could get another 9-billion-euro ($9.83 billion) injection from the new New Democracy government.

Sources who weren’t identified told the business news site Bloomberg earlier in September that it will come in the form of state guarantees unless that’s overruled by the European Commission as unlawful state aid to them.

ITALIAN RECIPE

It’s based on what Italy did though with Greek banks eager to get rid of at least 20 billion euros ($21.84 billion) in bad loans, many of them given to business executives who didn’t pay and didn’t account for where the money went and a series of scandals that brought down state banks.

That includes the saga of businessman Lavrentis Lavrentiadis, who was released from pre-trial detention in 2014 as prosecutors said he had embezzled 511 million euros ($558.07 million) from Proton Bank, which the government had to rescue.

Now it’s forecast that through the APS, which will be known as Project Hercules, lenders could reduce their bad loans by 30 billion euros ($32.76 billion) an unnamed source told the news site, which said the scheme will allow lenders to use government guarantees to back the securitization of bad-loan portfolios.

The bad debt would will be transferred to a special purpose vehicle (SPV) that will issue senior, mezzanine and junior bonds. The senior debt will be guaranteed by the government and will remain on the banks’ books.

Greene wrote if Greece hits a 2 percent growth rate it will be a long time before the economy is back to where it used to be before successive governments sought bailouts to pay for generations of wild overspending and packing public payrolls with patronage-for-votes.

Oxford Economics predicts Greece won’t recover to its pre-crisis GDP levels until 2033 and salaries cut 25 percent and more haven’t been raised, apart from those getting political favors from the government.

The World Bank’s Doing Business report ranks Greece 72nd globally, below all Eurozone countries save Malta, stained by corruption and dealing with the still-unresolved murder of investigative journalist Daphne Caruana Galizia who was probing wrongdoing at the highest levels of government.

“So lift a glass of mastiha for Greece (I did),” wrote Greene. “The battered economy is recovering and hot money is flowing in. But until the fundamentals improve, this phoenix still has one wing tied down.”