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Portfolio > Economy & Markets

Better Economic Times Ahead for Greece?

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Greek’s economy is finally showing some signs of recovery, and it can be attributable to many things. Most recently, the Greek government’s recent arrest of several key figures in the country’s notorious extreme right wing political party, Golden Dawn, has been lauded by the international community as a big step forward for Greece, a nation that has suffered extensively from the European sovereign debt crisis.

Golden Dawn, which has been in existence since the 1980s, gained strong support in Greece as the crisis deepened—so much so that it has 18 representatives in the national parliament—based largely on its opposition to the very unpopular austerity measures Greece is mandated to follow by the Troika.

The party’s populist approach, which included handing out free food, further endeared its cause to angry, long-suffering Greeks. But just as its increasing popularity resulted in a stark polarization of Greek politics, Golden Dawn’s virulent anti-foreigner thrust and numerous criminal activities also invited sharp criticism from both inside and outside Greece, according to John Diamondopoulos, senior lecturer in finance at the European Business School in London, particularly since the government of Prime Minister Antonis Samaras did not address Golden Dawn in any meaningful way until last week.

Now, the government’s crackdown on the party and its members for criminal acts has inspired renewed confidence in Greece’s government and boosted credibility in the country’s political system, Diamondopoulos said. “Going after Golden Dawn in a meaningful way has shown political will and it strengthens the government’s position to tackle the bigger issues that Greece continues to face,” he said.

Following the government’s tough stance, the Greece 20 ETF (GREK) rose by 2.5%, according to Diamondopoulos, as testament to renewed investor confidence in the country.

Although the Greek coalition government is still fragile, the resolve shown by Prime Minister Samaras strengthens his New Democracy party, Diamondopoulos said, while also weakening both the extreme right and the extreme left, which has argued for Greece to leave the Eurozone.

Its political willpower also puts the government on a firmer footing to be able to negotiate with the Troika for yet another bailout package for Greece—one that experts including Ben May, chief European economist at Capital Economics in London, believe that Greece won’t be able to do without.

Greece’s battered economy has been looking better in recent months, and even experienced a modest expansion in the second quarter that continued into the third quarter, May said, buoyed in large part by an uptick in tourism. Tourism revenues were weak last summer because of the uncertainty over elections in Greece, but this year, things were and still are different, “and Greece, together with other Eurozone economies, has been able to benefit from tourists who usually would go to Egypt or Turkey for their holidays, but are staying away from those countries because of political uncertainties there,” he said.

The Greek economy has exhibited other positive signs as well, notably a pick-up in exports. And a few days ago, International Monetary Fund (IMF) managing director Christine Lagarde praised Greece’s progress toward restoring competitiveness and financial stability, while emphasizing the continued need to move forward on both institutional and structural reforms.

However, “what we’re seeing really doesn’t speak to sustained progress, with unemployment in Greece still so high, with wages falling and consumer confidence still very weak, May said.  “Things certainly do look better than they did a year or even a few months ago, and that’s encouraging, but given the severe economic contractions we have seen in Greece, a turnaround at this point probably means that the economy is less in recession rather than on a course of sustained growth.”

One of Greece’s greatest challenges is introducing credit back into the system. “Somehow, credit has to be injected back into this economy because otherwise I don’t see how it’s going to grow,” said Diamondopoulos, who spent part of the summer in Greece.

The credit crunch is being felt at all levels, even for day-to-day transactions such as getting gas: “I had to pay in cash everywhere because so many places just didn’t accept credit cards, even though they had in the past,” Diamondopoulos said.

To say that Greece still has a long, long way to go would be an understatement. However, the government’s clampdown on Golden Dawn has shown that it will not stand for any nefarious behavior, even in times of extreme duress. And in the long run, said Diamondopoulos, this can only serve the country well.


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