Photo: AP/Bernd Kammerer
Greek prime minister Lucas Papademos assured FT reporters in an interview published today that Greece was making great strides towards fiscal sustainability, remarking that Greece is “more than halfway along the path to economic recovery—although the fiscal consolidation process will last longer.”Analysts have been sceptical about the likelihood that Greece’s debt will become sustainable regardless of the country’s recent selective default, and Papademos sought to quell fears that the country would need another restructuring—so long as Greek leadership continues to implement the reform program.
“I am optimistic that, following what we have done, we are standing on more solid ground than a few months ago. I personally feel confident that the economic adjustment process and the efforts that are being made will be continued in the future. Why? Because this is the will of the majority of the Greek people. The will of the majority of the Greek people will be taken very carefully into account by the political parties that will form future governments…
I am convinced that we are more than halfway along the path to economic recovery – although the fiscal consolidation process will last longer. Positive growth rates should be achieved within less than two years down the road.”
However, if we pick apart Papademos’s statements then his faith in Greece’s ability to return to the markets, continue with the reform program, and even stay in the eurozone appears much more tenuous.
First, the prime minister appears less than convinced that Greece will be able to return to the financial markets by 2015, and even his growth projections—that Greece will see positive GDP growth restart in the next two years—indicate that the possibility of this return is minimal, even under the best of circumstances. If that is the case, then even Papademos admits that Greece will need more money from the European Union, something which many analysts hypothesize could be provided through another restructuring.
What’s more, his rationale behind the success of the fiscal program and even Greece’s desire to remain in the eurozone rest upon uncertain assumptions—1) that Greek leaders are truly committed to the program, and 2) that the Greek people will continue to want to stay in the eurozone.
Candidates for the prime minister position—even the PASOK finance minister Evangelos Venizelos—have already argued that changes to the current bailout program might need to be negotiated after the country’s elections, likely in May. In addition, it’s hard to forget that PASOK’s commitment to the economic reform program under previous leadership was less than stellar. Even so, Papademos argues that this reluctance has changed in the last few months, particularly with the expulsion of party members who voted against earlier programs:
“Until November, there were different and opposing views on the programme. But over time, and perhaps this has been one contribution of this coalition government, we have forged a higher degree of consensus on the new programme – both on its objectives and the means of achieving them.”
But perhaps more concerning is Papademos’s faith in the commitment of Greece’s citizens to staying in the euro:
“In my mind there is no doubt that the country will remain in the monetary union. The overwhelming majority of Greeks believe that restoring fiscal sustainability and competitiveness can be achieved in a more effective and permanent manner within the euro area rather than outside. What is key is policy implementation and not to repeat past mistakes. If this is done, I see no problem. In the middle of an adjustment process it is inevitable that there will be painful output and employment costs. But I am convinced that this will be a temporary situation.”
In reality, that might be too ambitious an assumption. Greeks’ approval for the euro has fallen significantly over the last few months, from 81.1% in early November to approximately 70% in February. At the latter date, less than half of respondents believed that Greece would still use the euro currency in 2015.
Further, support for pro-bailout parties PASOK and New Democracy has been falling amid voter disillusionment and general distrust for government policies.
With the second bailout just completed, it is difficult to see a Greek exit from the eurozone in the immediate future, however long-term Greece remains unsustainable even as domestic and foreign distaste for the bailout and economic reform programs builds. But while Papademos may express optimism for the success of the Greek program, the facts upon which his assumptions do not induce the confidence Greece so badly needs from investors as well as its own citizens.
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