By George Gilson
If psychology is half the battle in economic growth and investment, the Greek government had every reason to scurry to temper the impact of the IMF’s exceptionally bleak 2020 and 2021 projections and that is exactly what Finance Minister Christos Staikouras did in interviews today.
The Fund’s projection of a 10 percent drop in GDP and a 22.3 percent unemployment rate in 2020 caused shock and awe in a country that has still not managed to stand firmly on its feet after a very deep decade-long recession in which a whopping 25 percent of GDP was lost and the middle class was obliterated.
Poul Thomsen, the head of the IMF’s European Department who garnered little sympathy in Greece when he was for years overseeing the bailout austerity programme’s implementation – said the country will be hit hard for three main reasons.
Firstly, it relies heavily on tourism which will suffer a strong blow globally. Secondly, the economy is fueled largely by small businesses, a large percentage of which cannot survive a new crisis. Thirdly, Greek banks are still reeling due to the huge volume of non-performing loans and lack the liquidity to contribute in any substantial way to a restart of the economy.
Prolonging protection from foreclosure on the primary residence of delinquent debtors is right now a major sticking point in talks with Greece’s creditors.
Damage control after gloomy IMF report
Staikouras moved quickly to play down and question the IMF’s report with the not unfounded argument used by governments during the bailout memorandum era that the Fund’s projections have in the past been repeatedly off the mark, particularly as regards the disastrous consequences of extreme austerity on Greece’s real economy and society.
The finance minister countered the IMF with the EU’s projection of a eurozone-wide recession of between five and 10 percent.
He expects a drop of around seven to eight percentage points for Greece, which analysts view as quite optimistic.
Course of pandemic decisive in economic planning
Staikouras also offered an optimistic projection of a five percent rise in GDP for 2021.
However, much will depend on whether there is a second wave of Covid-19 in the autumn, which according to some estimates would lead to an extra three percentage point drop in GDP. A prolongation of the epidemic into 2021 would be an absolute disaster.
Catastrophic tourist season expected
Perhaps the most important reason Greece will be hit especially hard in comparison to other eurozone countries is that tourism accounts for an estimated 25 percent of GDP and the sector will be devastated in the aftermath of the coronavirus pandemic due to people’s fear and reluctance to travel for health and financial reasons and the lack of cheap flights.
Whereas Development Minister Adonis Georgiadis after the lockdown had said that the tourist season has been essentially lost for this year, the government is now suggesting that all is not lost at least for August.
Many of the larger hotel units are seriously considering staying closed this summer as the huge reduction in the number of tourists will make it difficult to cover high overhead costs.
Tourism, energy, and shipping are three sectors to which the government plans to offer targeted aid as they will be deeply impacted by the crisis.
Government aid to labour
Staikouras said that most of the 685,000 workers and employees of businesses that were shut by the government due to the epidemic or because the business was deeply impacted by it would receive their 800-euro stipend for April today.
He noted that thousands more who are eligible will be paid once their employers register them with the state.
Staikouras said that the 800 euros in aid will be disbursed again in May, but it is unlikely under current economic conditions that the measure will be further extended as there are reportedly only enough funds to get through July.
The government in order to foot the bill for its stimulus package has dipped into the cash buffer left behind by the previous government as a guarantee to facilitate borrowing.
Footing the bill
In yet another move to finance the package Greece today collected two billion euros from a seven-year bond with a 2.013 percent yield, with which the government is reportedly satisfied but not enthused as a seven-year issue in 2019 had a 1.58 percent yield.
Still, the result is considered positive given the current global economic turbulence.
“Greece drew 2 billion euros from a seven-year bond issue with a two percent interest rate. Amidst a global economic torrent the country continues to have access to the markets with a reasonable interest rate. That proves that the markets trust the government and the Greek economy,” Prime Minister Kyriakos Mitsotakis said in a tweet this evening.
Opposition politicians and some analysts view the heavy government spending to prop up the economy as a prelude to early elections so that ruling New Democracy can capitalise on its 20 percentage point lead over main opposition, left-wing SYRIZA in the polls.
Cabinet members and ND cadres vehemently deny that there is any such prospect.