While many European economies are suffering from soaring inflation and weak economic growth, Greece has made a remarkable recovery from the pandemic and a decade-long debt crisis. There are lessons for policy-makers elsewhere, including those in the UK.
We all know that the UK economy is struggling. Just look at the market for UK government debt over recent weeks: yields on five-year bonds have risen above those on their counterparts for both Greece and Italy, two of the Eurozone’s most indebted countries. This means that global financial markets currently deem an investment in the UK to be riskier than one in the Greek economy.
At the international level, this is worrying. Greece, a country that has spent almost half its time in financial crisis since its independence from the Ottoman Empire 200 years ago, is seen as a better investment than the UK, a global financial leader. Former Bank of England deputy governor Charlie Bean calls this moment ‘significant’ for foreign investment in the country.
This is a different picture for Greece not too long ago. The global financial crisis of 2007-09 broke the Greek economy, forcing it to sign bailout agreements with the European Union (EU) worth hundreds of billions of euros, constituting the largest financial rescue of a country ever seen. Unable to cope with the repressive terms of the bailout, Greece defaulted on its debt back in 2016. What ensued was a financial collapse of a depth and duration greater than the US Great Depression, as well fears of an exit from the EU.
But as Reuters notes, Greece has emerged now from a decade-long debt crisis and has persevered its bailout programme. Andrew Cunningham, chief economist at Capital Economics, believes that next year Greece could be rewarded by becoming an investment grade level country once again.
Greece’s recent recovery, especially since the Covid-19 pandemic, is attributed to the leadership of Kyriakos Mitsotakis. His centre-right New Democracy party has unleashed a swathe of reforms aimed at diversifying the economy away from reliance on tourism by boosting foreign investment.
This has not been easy. The prime minister says his administration ‘had to take on the beast of bureaucracy’. But now, after years of austerity, hardship and reform, the country is enjoying one of the best recoveries from the pandemic, and inflation is increasingly coming under control.
The once struggling tech sector has seen a complete revival. Kathimerini, Greece’s leading newspaper, acknowledges that Google’s recent investment into a cloud region in Greece will create 20,000 well paid new jobs.
Microsoft has also promised a $1 billion data centre near Athens, and Amazon recently unveiled its ‘smart island’ project on the island of Naxos. The country’s digital governance minister, Kyriakos Pierrakakis, says that Naxos is ‘a portrait of Greece in the future’ and there is a clear ‘vote of confidence’ across Europe in the Greek economy. Big Tech has arrived and is staying – and Greece has its prime minister to thank.
Looking east from Greece, things are different. Turkish inflation stands at 84% – nearly ten times the EU average. The unorthodox macroeconomic policies of Turkey’s president, Recep Erdogan, have crippled the economy. The Financial Times describes this inflation as an ‘erosion of prosperity’, with GDP per capita also falling significantly in recent years. It will be interesting to see what happens to Erdogan at the upcoming elections, where the Turkish people will decide whether they can withstand his leadership any longer.
Germany, the main debtors to Greece during its collapse and traditionally the economic bull of the EU, is also poised for a recession. What’s more, the country is suffering great losses from pumping money into countering Putin’s war on Ukraine and the worst energy crisis seen in decades.
The only country other than Greece that has been standing on its own two feet in recent months has been Portugal. But while the latter has been enjoying the best performing stock market and the highest rate of growth in Europe over the past year, there are fears that 2023 will be much the opposite. The future of Europe is looking precarious.
It is difficult to take things directly from the Greek handbook. After all, more than half of young Greeks are unemployed and the country has half the GDP of Massachusetts despite being five times the size.
Nonetheless, it is important for UK policy-makers to recognise the weaknesses in our own economy and breed the right environment for investment – as Greece has done. This means not proposing unfunded tax cuts for our highest earners, but making greater strides towards energy security, supporting those worst affected by the cost of living crisis, and strengthening the infrastructure that Britain needs to support itself.
Building on the UK’s existing partnership with Greece, including the strategic bilateral framework, would have benefits too. Maybe then, international financial markets may look at the UK more favourably.