Greece Graduates from IMF After 10 Years... 'Healing Wounds Still a Long Way to Go'

Prime Minister Michotakis Meets IMF Managing Director
"Athens IMF Office to Close Within Months"
Debt, Unemployment, Growth Rate Improve
Public Sector, Bank Restructuring Inevitable

[Asia Economy Reporter Naju-seok] Greece is finally escaping from the International Monetary Fund (IMF) bailout that has weighed on it for 10 years. This is the result of high-intensity austerity and rigorous structural reforms since it began IMF supervision following the 2010 economic crisis. Greece’s experience with the bailout, caused by lax fiscal management represented by retirement pensions guaranteeing up to 90% of income, offers significant implications for our economy, which is pursuing fiscal expansion policies. Although Greece has succeeded in escaping a major crisis, it is expected that it will take considerable time to heal the long-lasting wounds.

[Image source=AP Yonhap News]

On the 7th (local time), Greek Prime Minister Kyriakos Mitsotakis visited the IMF headquarters in Washington and met with Managing Director Kristalina Georgieva. After the meeting, Prime Minister Mitsotakis said, "The IMF office in Athens will be closed within a few months." The closure of the office symbolizes that Greece has completely exited the IMF supervision system.

Bloomberg News analyzed the end of Greece’s IMF supervision by stating, "Technically speaking, it is no longer a country in crisis." Greece was once unable to raise capital in international financial markets due to default concerns, but now it has reached a state where it can normally raise capital through government bonds. In November last year, the yield on Greece’s 10-year government bonds even fell below 2%. The economic growth rate has also ended its negative growth, with 1.7% growth last year and an expected growth of around 2% this year.

Greece received a bailout of 289 billion euros (372.33 trillion won) from the IMF and the European Union (EU) after experiencing the 2008 financial crisis. This was due to a fragile economic structure with no substantial industries other than tourism and severe tax evasion, compounded by lax fiscal management. After joining the EU, the Greek government used the lowered government bond borrowing costs to squander funds on pension increases and various subsidies.

After receiving the bailout, Greece had to endure excruciating pain. It drastically cut wages not only in the public sector but also in the private sector, and implemented pension reforms and privatization of public enterprises. To repay debts, Greece sold operating rights of Piraeus Port and Thessaloniki Port to private companies. Moreover, beautiful islands once seen in movies were sold to foreign wealthy individuals.

Especially, the Mitsotakis government, inaugurated last year, increased investment by cutting corporate taxes and promoting various reforms. Foreign media report that the pro-business Mitsotakis government has revitalized the Greek economy. In fact, the Mitsotakis administration is pushing forward gold mine development and foreign capital investment, which were previously prohibited by past governments. Supported by these development policies, real estate prices are rising, showing signs of economic recovery.

[Image source=Yonhap News]

Prime Minister Mitsotakis plans to increase investment in renewable energy while encouraging investment to boost corporate confidence. In an interview with a media outlet, he said, "I believe Greece has now entered the process of breaking the vicious cycle," and added, "Soon, we will put Greece into a virtuous cycle."

Researcher Oh Tae-hyun from the Korea Institute for International Economic Policy analyzed, "This is the result of painful social system reforms such as securing tax revenue by issuing cash receipts and pension reform."

However, it is still premature to say that Greece has emerged from the long tunnel. Greece’s debt-to-GDP ratio stands at 180.2% (as of the second quarter of last year). Considering that the average national debt ratio of European countries is 80.5%, this is excessively high. Only Japan and Sudan have higher debt ratios than Greece. The European Commission (EC) estimates that Greece will only reach the sustainable 100% debt-to-GDP ratio by 2041.

The unemployment rate, which once soared to 27.8% in 2014, has dropped to 16.4%, but there is still a long way to go. Bloomberg columnist Leonid Bershidsky noted that after the economic crisis, Greece’s purchasing power parity (PPP) is only about two-thirds that of EU member states, effectively relegating it to the level of Eastern European countries like Latvia and Romania.

In particular, the fact that the crisis originated in the public sector is pointed out as an obstacle to Greece’s economic improvement. Greece’s large public debt prevents it from using fiscal policies typically employed by crisis-hit countries. The problem of non-performing loans held by banks also weighs heavily on Greece’s future. As of September last year, Greece’s non-performing loan ratio was 42.1%, a figure achieved after some cleanup of bad loans.

The EU approved last year for Greek banks to transfer more than half of their bad loans to a dedicated bad bank. However, even with the bad bank established, Greek banks still have to resolve the remaining half. Ultimately, to reduce non-performing loans, it is suggested that the Greek government revise bankruptcy laws to facilitate the disposal of zombie companies and mortgage foreclosures more easily.

This content was produced with the assistance of AI translation services.