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Economy

Greece’s Economy Fixing Reforms Not Done Yet, Corruption Deterrent

ATHENS – If New Democracy leader Kyriakos Mitsotakis returns to power after the June 25 second round of elections – with enough votes to rule outright – he faces a daunting task in keeping an economic recovery going.

That’s due to a number of factors, including corruption which is seen holding back even more foreign investors although the rate of their return in 2022 was the highest in 20 years.

Writing for Reuters, British business journalist Hugo Dixon – through his site Breakingviews – indicated that while Mitsotakis in a first term from 2019 until now was able to accelerate a recovery despite the COVID-19 pandemic, that that hard part is keeping it going if he gets another term.

That includes dealing with a deficit of 9.7 percent of the Gross Domestic Product (GDP) in the current account – the trade in goods and services – and the national investment rate is still only half the European Union average.

https://www.reuters.com/breakingviews/greeces-reform-labours-are-only-half-complete-2023-06-05/

“The issue, rather, is whether Greece will be able to attract investment in the quantities needed for it to fulfil its potential. This will require reforms which won’t be easy,” wrote Dixon.

He said the pro-business Mitsotakis, who replaced the anti-business SYRIZA in winning July, 2019 snap elections, has rightfully gotten credit for accelerating a comeback that was rewarded by voters.

But tax evasion is still rampant – Mitsotakis gave what amounted amnesty to big tax cheats and bankers – and the justice system is seen as weak and notorious for decade-long delays in dealing with cases.

And part of the comeback was because of more than 32 billion euros ($34.29 billion) in EU COVID pandemic relief funding and reforms required by the country’s Troika of European lenders who put up most of 326 billion euros ($349.31 billion) in three bailouts from 2010-18.

The government’s fiscal deficit was only 2.3 percent of GDP in 2022, when growth was near 6 percent but despite the loans the debt is still 171 percent of annual output and a drag.

“The the easy rebound is over. From now on, high growth will either fuel inflation or suck in imports, unless the underlying capacity of the economy also expands rapidly,” the piece noted.

More threatening was the warning that, “Greece is living beyond its means again,” the problem that created the need for bailout to keep the economy from collapsing and being pushed out of the Eurozone.

Investment is still only 14 percent of national income and Greeks are finding it difficult to save – some 72.5 percent have less than 1000 euros ($1071) set aside and wages haven’t returned enough to deal with the high cost of living.

The Bank of Greece estimates that the EU will pump in another 70 billion euros ($75 billion) by 2026 but that’s not seen being enough for Greece to sustain a higher investment rate unless there’s more savings.

“Mitsotakis could fix the issue. For a start, he could wean the public off handouts, focusing government help on the neediest. He could also crack down harder on tax evasion – not just by the self-employed but also by well-connected oligarchs,” wrote Dixon, but that’s never been done yet.

Well-designed tax and benefit reforms could even reduce the country’s unemployment rate, which is currently 12 percent and increase its productive potential and provide a buffer if there are further shocks, it was said.

Aside from economic issues, the advice was to deal with rule of law problems noted by international groups, especially media freedom organizations saying Mitsotakis’ government was stifling journalists and spying on citizens.

Mitsotakis has dismissed criticism over his handling of the media crackdown complaints and a surveillance scandal and even a train wreck that killed 57 people didn’t take voters eyes off the economy and wanting to put bad news behind them.

 

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