Greece’s Financial Odyssey

After eight long years, Greece has been unshackled from its handcuffs. Well, sort of. Since 2010, the European Union and the International Monetary Fund have committed more than 300 billion euros ($352 billion) in bailout loans to Greece. In return, lenders imposed harsh fiscal terms on the country, which had to meet strict budgetary targets and accept frequent inspections. On paper, the belt-tightening worked, with Greece now running surpluses. But the economic toll has been immense: The economy has shrunk by more than a quarter, a million jobs have disappeared and thousands of Greeks have seen their living standards fall below the poverty line. With Greece exiting the rescue program as of Aug. 20, some economists fear the terms — forbearance on some loan repayments but no debt forgiveness — could invite a new crisis. For now, the biggest questions are whether the country can really stand on its own, and when Greeks will start seeing the economic recovery in their wallets.

Alexis Tsipras, the brash young leftist who became prime minister in 2015 on a pledge to end austerity, in the end fulfilled creditors’ conditions to keep bailout funds flowing. He raised taxes, cut government spending, reduced pension payouts and sold state assets to achieve a primary budget surplus (not counting interest on the national debt) of 4.2 percent of output and an overall surplus of 0.8 percent in 2017. Tsipras has even pulled off two bond sales since July 2017. With the economy on course to grow 1.9 percent in 2018, euro-area finance ministers in June added an extra decade to repay about 100 billion euros of debt to ease the country’s road ahead, once the rescue program ends in August. Some people, including Christine Lagarde, head of the IMF, remain skeptical that Greece's long-term future is assured, considering that the ratio of debt to output remains sky high at 179 percent. Unemployment, at 20 percent, is the worst in the EU. And the country's banks remain mired in bad loans, which equal about half their assets. To make sure Greece doesn't backslide, the exit plan requires it to maintain a primary surplus of 3.5 percent of output until 2022, falling to 2.2 percent until 2060. Creditors will also continue to conduct quarterly inspections of the country's reform efforts. While Tsipras hails a new era for Greeks, voters are disenchanted with him. Polls show his Syriza party trailing the center-right New Democracy party in next year's elections.