By Nikolaos Karamouzis
Later this summer, a major event in Europe’s evolution will take place: Greece, the major culprit
of Europe’s past fiscal and economic irresponsibility, is due to exit formally the last of its bailout
programs. Just as the eurozone crisis began in Greece eight years ago, so too will it formally end
Or will it? As Greece prepares in August to shed almost a decade of official financial oversight
that has come at enormous social and economic cost, the discussion in Athens, Brussels, Frankfurt
and Washington is focused on the day after. Greece’s economic fortunes have improved
dramatically as it implemented almost a decade of creditor-driven reforms. Growth has returned;
the government primary budget is in surplus; the current account is roughly in balance;
international competitiveness has substantially improved; the credit rating is upgraded; both
exports and foreign investments have seen an upswing over the past two years; and the
unemployment rate is gradually declining.
The main question is whether Greece is ready to stand on its own feet. Has Greece’s political
leadership learned the lessons from the tragic experience of the past eight years?
Not everyone seems certain. Some official stakeholders, concerned about the transition period,
want the country equipped with some sort of official contingency precautionary credit line, or at
least want to ensure the government has piled up a sufficient cash buffer—likely close to €20
billion—in case Greece is unable to finance itself in the markets. But a new official program,
which a precautionary credit line would entail, may be perceived in the markets as a signal that
Greece is still not capable of keeping its own house in order.
The real challenge for Greece is how to boost its budding economic recovery while also
strengthening policy credibility and market trust. Only sustainable growth, reforms, a market and
business-friendly environment, and adherence to fiscal stability can do that. And only
unconventional policies in pursuit of those aims can impress markets. That approach should
include a program of public land development, massive privatizations, a radical reform of public
administration, an attractive framework for foreign investment and a pro-growth tax and pension
reform. A protracted exit from the last bailout that damages credibility only risks extending the
The moves made between now and the bailout program’s end in August will determine if Greece
can truly manage a clean and viable exit. The first step is to put together a credible and business friendly national growth and reform plan, based on a broad social and political consensus.
The goal must be a sustainable revival of private investment, which collapsed during the crisis, and the plan must offer a detailed timetable and list of priorities. Greek banks also must be prepared to reassure investors unequivocally that the financial system is sound.
This spring, Greece’s banks will undergo yet another stress test while also implementing
the new IFRS9 international bank accounting rules. Greece cannot move ahead so long as there
are lingering doubts over the financial strength of its banks.
To further reduce market uncertainty, Greece’s official creditors will need to decide on the
restructuring of the Greek public debt, no later than in the first half of 2018 according to their
earlier commitments. A final debt deal should ensure its viability in market terms, while also
keeping debt-servicing obligations at manageable levels over the long term.
Over the next six months, until Greece’s current bailout formally expires, the International
Monetary Fund must remain engaged in the program. Markets will need to see that the IMF is on
board with both the restructuring of the public debt and the solvency of the banking system
following the stress tests. A negative public stand could jeopardize a clean exit.
In addition, the Greek government under the Syriza Party, and the main opposition party, New
Democracy, should affirm their commitment to honoring the country’s fiscal targets: annual
budget surpluses, excluding debt service, equal to 3.5% of gross domestic product every year
until 2022. Any discussion about revising that target or changing the fiscal mix should be delayed
until market trust is fully restored. Such primary surpluses are indeed excessive and recessionary,
but under the current circumstances, the benefits of enhancing the country’s fiscal credibility
outweigh the costs.
Last but not least, Greece should remove all capital controls no later than August 2018. This will
serve as a powerful sign of confidence in the country’s prospects and credibility in its policy
initiatives, while it is likely to lead to an improvement of Greece’s credit rating.
Greece’s optimum strategy is for all stakeholders to work together over the next few months to
manage a clean and sustainable exit and a return to economic and social normality. The
economy’s recent gains can be reversed very rapidly under irresponsible policies. Credibility and
trust are fragile and have to be strengthened.
Mr. Karamouzis is chairman of Eurobank and the Hellenic Bank Association.