Little Hope for Greece

Greece’s financial woes have once again dominated the headlines in recent weeks as that country’s financial crisis has re-emerged to threaten to lead to chaos in the Eurozone.  While Greece appears to have reached a last-minute deal with its international lenders on a four-month extension of its current bailout program, this has merely provided a short-term fix that will result in this issue resurfacing in the headlines in four months time.  Moreover, while Greece has managed to pull out of its six-year recession, its economic struggles are far from over and the fundamentals of the Greek economy remain very poor.

Once again, Greece was on the brink of defaulting on its debts and being forced to withdraw from the Eurozone, before a last-minute deal was reached by the new left-wing Greek government and Eurozone finance ministers that will extend Greece’s current bailout program by four months (the Greeks had asked for a six-month extension).  In order to reach this deal, Greece’s government had to promise a series of reforms that contradicted their election promises from earlier this year.  Among the reforms that were forced on Greece were a renewed effort to crack down on tax evasion, new programs designed to improve government finances through cost savings, and a focus on reducing the level of corruption in Greece.  Nevertheless, many European governments want Greece to do more and this will lead to more showdowns between the two sides in the coming months over issues such as privatization programs and public sector wages.

While the focus has been on Greece’s finances, its economy remains in dire straits.  Last year, Greece managed to record positive economic growth for the first time since 2008.  However, nearly all of this growth was the result of a very strong year for Greece’s tourism industry (which has benefitted from the collapse of North Africa’s tourism industry), the one sector of the Greek economy that has managed to weather the long crisis.  Outside of the tourism sector, the Greek economy remains in shambles, as the country’s manufacturing sector has collapsed and most of its service sector continues to struggle.  In fact, Greek economic output remains 25% lower now than it was in 2008, a result akin to that of the Great Depression in the United States in the early 1930s.  Moreover, Greece’s unemployment rate remains near 26%, despite the fact that so many working-age Greeks have left the country in recent years.  With domestic demand certain to remain weak for the foreseeable future, and with a complete lack of products and services to export to faster-growing markets outside of Europe, Greece’s economic future remains bleak, regardless of the result of the current financial crisis.