The Greek economic ‘miracle’? The citizen does not always benefit

It takes some getting used to: positive or even cheering stories about the Greek economy. The financial trade press in particular lacks superlatives about the country that has been leading the wrong lists for years. Greece is aeconomic miracleIndian investor Ruchir Sharma of Rockefeller Capital Management wrote in his column in the Financial Times. And weekly magazine The Economists labeled the southern European country as a ‘European success story‘.

Those praises are justified, says Dimitris Malliaropulos in his office on the fifth floor of the classical headquarters of the Bank of Greece in the center of Athens, overlooking the Acropolis. Greece, says the central bank’s chief economist, has outperformed peer countries in the Eurogroup in recent years. “We are really out of the valley.”

Indeed, the Greek economy is growing, which means that the country has finally left years of recession behind it. In 2022, gross domestic product increased by 5.6 percent and is expected to increase further this year. The credit bureaus have now upgraded the country to BB+, one step away from the creditworthy BBB rating. And that translates into foreign investments, for example in real estate and in the establishment of multinationals such as Google, Microsoft, Pfizer and Tesla. Exports are increasing, as is tourism.

Electoral argument

The growing economy is a key electoral argument for Kyriakos Mitsotakis, prime minister since 2019, who hopes to win a second term in the second round of parliamentary elections on Sunday. In the first round, last month, the conservative leader already won a solid victory. Because the largest party in the Greek electoral system receives a large number of bonus seats in the second round, Mitsotakis seems to be heading for an absolute majority.

But not everyone is so enthusiastic about the Greek economic statistics. “Is this growth sustainable?” asks economist Louka Katseli, for example. Katseli is emeritus professor of economics at the University of Athens and she was minister of economy and labor for the social-democratic party PASOK.

Investments, says Katseli, are constructive if they are aimed at increasing exports and replacing imports. “I am referring, for example, to the agricultural sector or the manufacturing industry. Greek growth is less constructive: it is in mergers and acquisitions, hotels, refurbishing houses to rent out as Airbnb, and in the digital sector.” In the short term, that sounds good, says Kasteli. “But if we don’t increase our productivity, the markets will start doubting our public and private debt again. Just like in 2010.”

Dijssel flower

Malliaropulos, who has been with the Bank of Greece since 2013, still vividly remembers the troubles of the 1910s. “I sat at the table with Jeroen Dijsselbloem. Nice guy. He has imposed severe austerity measures on us, but he always put the interests of Greece first.”

As soon as the name of the then president of the Eurogroup and the current mayor of Eindhoven is mentioned, you are immediately back to the succession of lows that the Greek economy was at the time. In 2010 it turned out that the government had cheated with the budget figures. Investors lost their confidence. The country practically went bankrupt.

Difficult negotiations with the ‘Troika’ of the European Commission, European Central Bank and International Monetary Fund led to draconian cuts and reforms. Wages fell, but prices remained the same, so that the average Greek barely had anything to spend. The recession lasted many years longer than expected. The Greek economy is still a third smaller than before the economic crisis.

The Hellenic Anti-Poverty Network reported at the end of last year that three out of ten Greeks run the risk of not making ends meet. Especially outside Athens it is not strange to suddenly see a car without a window passing by: no money for a repair. In the capital itself, it is striking that little has been invested in buildings and roads. Sidewalks are often shabby; no trace of urban renewal.

Economist Katseli is particularly concerned about growing inequality in Greece. “We are getting a society of insiders and outsiders. Public health care has been eroded. Some do very well, but those who don’t make it alienate themselves from the political system. That process, which you see all over Europe, is worrying for democracy.”

Columnist Koen Haegens van The Green Amsterdammer noted earlier this month that Greece has become “exactly what the critics feared: a low-wage country on the periphery of Europe. A delightful destination for holidaying Dutch and Germans. For too many residents a Greek tragedy without end.”

Confronted with those words, Malliaropulos looks dejected for the first time during the conversation. “That is really a completely wrong picture. Greece is not primarily a holiday destination for Northern Europeans. Our exports have surpassed tourism, and we are developing into an energy hub.”

Pay cut

Of course, the central banker also recognizes how painful the austerity measures imposed by the Troika were for the average Greek. “First of all, it was absolutely necessary to lower wages in order to make the country competitive again. And even though wages are now rising again, they are still 20 percent below the level before 2010. That remains painful.”

There has been considerable debate among economists about the necessity and extent of the cuts. The recession lasted much longer than planned. Has the country been cut short? Dijsselbloem acknowledged, in 2018 News hourthat he land too many reforms had imposed. And the IMF has also been critical of its role in the recovery program for the Greeks.

The Troika has made mistakes, says Malliaropulos. And yet the Greek economist should not think that then minister Yanis Varoufakis (Finance) had his way in 2015 and Greece had left the Eurogroup. “Varoufakis was misinformed. He brought our country to the edge of the abyss, with a view of nothing.”

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Outside the Eurogroup, says the banker, Greece would have been much worse off. “I can’t even imagine how that would have worked out during corona or the energy crisis. As an EU country, for example, we are entitled to 30 billion euros from a European fund, with which we improve roads and, for example, install 5G. We would have missed that otherwise.”

With regard to the Greek economy, it is as if you see the glass as half full or half empty, says Malliaropulos. “Yes, there is still a lot of poverty and yes, you can also say that the average Greek has to deal with higher housing costs due to all investments in real estate. That’s a big concern. Many houses are rented out as Airbnb while people cannot find a place to live. That could become a major social issue.”

But in general, he says, things are moving in the right direction. “And, with the upcoming re-election of Mitsotakis in mind: the Greek voter sees that too.” Katseli, in turn, thinks that the sitting prime minister will mainly benefit from the “fear trap”. She explains: the middle class is so afraid of losing what they have that they prefer to vote for something they know, even if it’s not always good for them. “This will benefit Mitsotakis.”

A version of this article also appeared in the newspaper of June 23, 2023.