Kostas Melas: It’s time for the government to tell the truth about the Greek economy

Despite the government’s diligent efforts to conceal the true state of the Greek economy and the opposition’s complete inability to highlight the problem, the new wave of pandemic outbreaks appears to be leading the economy to more difficult paths away from a return to normalcy and a much coveted normality.

The resurgence of the health crisis seems to make more likely the unfavorable scenario that predicts a contraction of the Greek economy with a lower level of -8% and an upward trend towards double-digit recession. If this happens, it will further complicate the difficult situation of the economy, but at the same time it will increase the obstacles for a dynamic recovery in 2021. The data are now enough for the forecasts to be more secure. Some of them are:

• The heartbreaking data for tourism, which seems to move to the low level of 20% of the corresponding figures of 2019 (net receipts of 18.3 billion euros).
• The need to impose additional restrictive measures to combat coronavirus.
• The vertical decline in corporate revenue.
• The continuing decline in employment and rising unemployment.
• The increase of the budget deficit to 11,651 million euros compared to the target for a deficit of 2,086 million euros that has been included for the corresponding period of 2020 in the presentation report of the 2020 Budget, for the seven months January – July 2020.
• The explosion of the current account deficit, which in the first half of 2020 reached 7 billion euros, increased by 72.3% compared to last year.

Waiting for the data for August

But perhaps the safest element is the government’s decision to launch a new support package for the economy (businesses and workers) next fall of about 4 billion euros. It is by no means certain that it is enough. The country will face a sharp rise in unemployment.

Although emergency support measures, such as contract suspensions, reduce the scale of redundancies, it is clear that we are heading for a breakdown in employment. It is no coincidence that in June and July the number of registered unemployed of OAED exceeded one million. The government will be forced to expand support measures for the unemployed, further widening the budget deficit. The same will happen with support for businesses.

Of course, we must also expect the data for August, a critical month for the developments, as well as the data on how the GDP moved in the second quarter of 2020. These will be announced by ELSTAT on September 4, 2020. It is estimated that the recession in the second quarter will be around minus 16%.

The shocking 8%

What needs to be emphasized is that a recession of 8% for 2020 is a very important event for an economy like Greece, which in the previous ten years had lost about 25% of GDP with all that entails for incomes, the productive base and for the general well-being of citizens. The 8% reduction in one year is 1/3 of the total loss of the ten consecutive years.

This is a very large loss of GDP, which in absolute numbers translates into approximately 15 billion euros. At the same time, the negative effects of this reduction on all macroeconomic variables are great. I mention only the expected increase in the ratio of public debt to GDP to over 195%, but also the increase in the General Budget Deficit of over 8%.

Only these developments show a significant burden on the position of the Greek economy and the difficulties it is called upon to face when it is called upon to adapt to the demands that will exist after the pandemic is reduced. Despite the assurances that there will be no reinstatement of the restrictions imposed by the Stability and Growth Pact for the years 2021 and 2022, the degrees of freedom of the Greek economy are less than other corresponding economies of the Eurozone.

The reality of the Greek economy

Perhaps due to the existence of the pandemic and the forefront of public health, the difficult developments with the ongoing Turkish challenges, but also the euphoria caused by the creation of the European Recovery Fund, it seems that the current state of the Greek economy is not its real negative dimensions.

It seems as if it is not evaluated with the proper criteria. Also contributing to this is the perception that the operative cause is external and is not the responsibility of the rulers. Perhaps even the fact that it is an international phenomenon and not exclusively domestic also contributes to this reading. But all of the above are just excuses.

Recognition of the difficult situation of the Greek economy is the first step to design and then implement the appropriate measures to restore it gradually and within the framework of stability and growth. This is a slow and difficult process. The complacency behind the rhetoric of quick and easy recovery is the biggest danger.

An extremely dangerous theory has already begun to spread, in the form of an epidemic, that everything will be fixed automatically as soon as the pandemic ends. But does anyone know when the pandemic will end? The government’s responsibilities for spreading complacency are great. Attempting rhetorically positive expectations for the economy is sure to be unsuccessful.

Positive expectations are created on the basis of obvious real developments and not on the basis of corresponding desirable developments based on imaginary facts. After the big recession in the second quarter, the pace of recovery in Europe is expected to slow down, as the second wave of the pandemic is already just around the corner. Inevitably, this slowdown will deal even more blows to European markets, products, labor, and foreign trade.