European Commission President Jose Manuel Barroso was in Athens on Thursday. It was the first visit to Greece by the head of any of the troika elements since the country agreed its first bailout in May 2010. Greece’s isolation within Europe could not be highlighted or summed up in a better way.
Barroso brought kind words of support and messages about growth, which the Greek government will treat as a useful display of solidarity in these difficult and lonely times. But the EC chief’s visit was eclipsed by the presence of the top troika officials in Athens.
Greece’s immediate fate rests in the hands of these three men. The words this trio includes in their review of the Greek program, due by the beginning of September, is likely to determine whether eurozone leaders and the IMF board approve the release of more loan installments.
It is clear that patience with Greece is wearing thin. Perhaps for some it has already snapped. The troika has reportedly found Greece is behind on 210 of the 300 reform targets. On the fiscal side, there is also concern that the goals will not be reached without new cuts this year and that debt will not be sustainable without a new restructuring.
The Greek government will argue that this has been a traumatic year. The country has gone through two bitter national elections and the economy is shrinking faster than anyone predicted. The three-party coalition formed last month hopes that this will be enough to convince Greece’s lenders to show some understanding and extend the fiscal adjustment period by two years, to 2016.
However, the government will have to do more than plead. While accepting its shortcomings, Greece also has some significant steps to show. The primary deficit, for instance, continues to fall. June’s budget execution figures show it beating the target by almost 2 billion euros. Tax revenues are expected to hit 6.5 billion euros rather than the 5.1 billion originally planned. And, despite objections from some ministers, the government has put together an 11.5-billion-euro package of spending cuts for the next two years.
On the reforms front, where the key problems lie, the coalition has tried to show it wants to move at a quicker pace. It has installed a new head at the privatizaton fund and has committed to selling state assets. It announced this week the closure of 21 public organizations as part of a streamlining of the civil service.
But there is an economic reality underlying all this, which is that Greece’s economy is locked in a downward spiral. The recession is expected to reach up to 7 percent of GDP this year. This means it would have contracted by more than a fifth since the crisis began. Unemployment is heading towards 25 percent and retailers expected their revenues to be halved.
To impose further deep cuts on this depressed economy is torture. But to end the torture, someone has to hear your cries and be prepared to help. Currently, the cries from isolated Greece are not reaching anyone’s ears. Perhaps Barroso heard it. If he did, the question is if anyone is in turn prepared to listen to him.
This article appeared in the economic section of Portuguese weekly newspaper Expresso on Saturday, July 28