Has Greek Recession Bottomed Out?

greek flag waving

Six years into a deep recession and with life for many Greeks becoming misery after a series of austerity measures cut their disposable income nearly in half, some analysts believe there are signs that the economy may finally begin to turn around next year.

If so, that would mirror Prime Minister Antonis Samaras’ insistent mantra that he’s creating a “success story,” and that there will be a primary surplus this year that could even lead to Greece, dependent on international lenders, to get back into the markets in 2014.

The economy is set to shrink about 4 percent of Gross Domestic Product (GDP) this year, which would take it to about a 25 percent reduction since a crushing economic crisis forced Greece in 2010 to seek aid.

The Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) has put up $325 billion in two bailouts but those came with big pay cuts, tax hikes and slashed pensions that have put more than one in four Greeks – two of three of those under 25 – out of work and one in five into poverty.

But some analysts point to signs of stability and the end of talk about Greece being forced out of the Eurozone of the 17 countries using the euro as a currency.

Yannis Ioannides, an economics professor at Tufts University outside Boston, told USA Today that changes required to restore competitiveness have only just begun. He faults the government for weak leadership and putting the burden of adjustment on the poor instead of the rich, who for example, “are the biggest tax evaders.”

“Reforms,” says Ioannides, “have been legislated but not implemented.” There’s been almost no privatization of state assets.

Athens-based economic consultant Miranda Xafa told the newspaper that more reforms are needed even if modest growth begins next year. “The recovery,” she says, “is likely to be L-shaped rather than V-shaped as long as private investment remains weak.”

But foreign investors are showing interest again and the country’s banks, brought into distress when a previous government imposed 74 percent losses on private investors and holders of Greek bonds, have been recapitalized with 50 billion euros ($67.7 billion) of bailout money, even if they aren’t lending it.

Ioannides said just as important as the numbers is what he sees as a change in public opinion. “Instead of just blaming outsiders,” he said, “Greeks are taking ownership of the problem, recognizing that their economy is inefficient and corrupt and has to change.”

What is needed now, he said, “is not for the government to merely take orders from creditors, but to step forward and present a comprehensive plan for growth, like the Irish have done.”