The Greek economy facing 2024 – just before the Thessaloniki Fair ritual

by Antonis D. Papagiannidis

Traditionally, the Thessaloniki International Fair – attended as it is by everybody who counts in Greek politics, especially the Prime Minister, along with the court surrounding politics – constituted the setting for positive assessments of the Greek economy performance, plus whatever criticism can be presented, but essentially for a glimpse at the economic policies to be implemented in the year to come. Up to the moment Greece yielded to the tough fiscal approach of successive Adjustment Programmes and the Troika, the Thessaloniki Fair was the ideal field for largesse to be dispensed.

In this year’s TIF, it looked as if this earlier habit would be restored: after all, everybody was proud of “fiscal space” resulting from the increased tax take (largely) fueled by inflation, while the much-awaited investment grade for Greek sovereign debt offered the ideal backdrop for a measure of exultation. Not to lose from sight that the two preceding years allowed for quite lax, benefits-based policies due to the need to counteract at first the grievous effects of the Covid pandemic, then the aftershocks from the energy-and-inflation crisis – along with the accommodating stance of the EU, that is the relaxation of the Stability Pact and all ensuing easygoing/accommodating policies.

So, as the Thessaloniki Fair got near, the media started the usual bidding up in search of the most generous policy package of goodies.

Then, as if touched by some magical wand, a retreat was marked. A rational explanation might be that the expected re-tightening of EU fiscal rules for 2024 was already being felt; nobody missed the fact that the working visit of Italian PM Georgia Meloni to Athens had prominently in its agenda the formation of a “European South” front, to fight for the non-return to the strict rules of the Stability Pact. But were one to dig deeper, one could easily discern a different discipline – the discipline of the markets. In the weeks preceding TIF, both R&I (Japanese) and Scope (German) awarded Greece the much-expected investment grade – but in the very hours before Greek PM Mitsotakis is to address the TIF crowd – and address Greeks, all around – the judgement of DBRS (Canadian) is to be bestowed. Since DBRS is one of the rating agencies whose judgement is accepted by the ECB in order to shape its own treatment of Greek sovereign debt, the Government felt it had to be careful enough not to rock the boat with boisterous fiscal announcements. The Greek economy is quite buoyant indeed, with a 2.4% expected growth rate; the debt/GDP ratio gets better (expected to be around 160% compared to 250+ % in 2020) ; most the country’s debt is held by the official sector, at preferential rates and with long maturities: still, a 400 + billion euros debt, which has increased by something like 44 bn euros in the last two years is not to be ignored, so gestures of fiscal cautiousness are in order.

This being said, where does the Greek economy really stand at 2023 TIF, whether the investment grade pat on the back is here or not? (In fact, investment grade is largely discounted by the markets in pricing Greek sovereigns). The growth expected for the whole of 2023, at 24% , is lower then the 5.9% of 2022 – in both cases, a better performance than the Euro area average; nonetheless it constitutes a recovery from the Covid-related recession of 2020 and the reaction to the winding-down of the energy price shock of 2022. Expectations for 2024 are a shade lower than 2%, but tax receipts will have to be higher if the Greek economy is to deliver an expected primary surplus of 2.1% of GDP – double of this year’s. This is why there is much talk about fighting tax evasion and broadening the tax base: a rather ritualistic evocation in Greek politics over time!

Problem is, the EU economy is cooling down – especially the German one which has dipped into recession: so, Greek exports that have already lost some of the oomph they had shown recently are treading on difficult ground since the EU market is the main destination for such exports. Will the performance of the tourist sector – which has been strong enough in 2023 notwithstanding the adverse effects of “overtourism” that are becoming evident – prove sufficient to keep the balance of payments from further deterioration? (The current account deficit was firting with 10% of GDP as of lately).

Inflation-wise the Greek economy has been quite successful in reining in headline inflation at less than 3% in mid-summer – almost half the Euro area rate. Greece’s good performance was largely due to the deceleration in energy prices: were the current oil price upswing to keep going, one wonders about the end result. The prices of foodstuffs and agricultural produce are of special worry – both to policy-makers and to the proverbial man-in-the-street (or rather: the concerned housewife).

Last but not least, Greece has been quite successful in drawing down (and putting to use) funds available through the Next Generation EU programme: right now we are in mid-programme and there has to be a doubling of efforts, if NGEU growth promise is to keep going. Here, the proclivity of the Greek political class to exult in self-proclaimed success may prove a problem since some re-calibration has to be effected.

All of which, make of the PM’s performance in TIF rites a matter of real interest. The inward-looking stance of the Opposition that is changing leadership leaves the TIF podium largely uncontested – but the row of problems to address gets no shorter.