Greek Business File, April-May 2020, No 125

By Kyra Adam


Fighting the enemy

“This is no longer only a global health crisis; it is also a major labour market and economic crisis that is having a huge impact on people.” Guy Ryder, ILO’s Director-General

The upcoming weeks and months will determine the major or minor changes in everyday life, of peoples on planet Earth and their social behavior as well as their personal economic future, plus the economic future of their countries.

Covid-19 is hitting hard, and not only on human lives. It is hitting the global economy. The perspectives are to differing degrees pessimistic for the near future, depending on the predictions for a quick or more lengthy recovery from the virus. For the time being there are three world wide accepted economic scenarios: a quick recovery or a global slowdown or a pandemic- driven recession.

In any case, one thing is certain: Covid-19 is driving the world economy and many major national economies into a deep recession, the duration of which depends on the unknown yet variable functions of the persistence of the virus itself, plus the success of all preventive measures taken, plus the resistance of public health sectors in every country. The general expectation over the complete year is the drop of global growth to zero, the weakest since 2008. The most severe drop is estimated for Q1 of 2020 with a 2% fall in world GDP and a further decline of 0.4% in Q2. The resurgence expected in 2021 varies according to the degree of optimism or pessimism.

Here is the entry to an unprecedented period of turmoil and volatility which will shake the global economy to its foundations expressed in other words: In Europe the situation is critical on the front of public health and the economy.

Company after company of all sizes and nationality, industry after industry scream for financial assistance from Brussels and national governments in order not to face bankruptcy in the near future.

As the Spanish PM correctly put it there is an urgent need for an EU reconstruction “Marshall Plan” to revitalize the European economy. This “reconstruction” in the middle of this “πανδημία” will be based on the quiet abandonment of fiscal rules and discipline, allowing national governments, (like Germany, France, Spain etc.), to inject huge amounts (unthinkable one month ago) into sectors of national economies in order to survive.

That is why, on March 25, in a common letter, nine European leaders (France, Italy, Spain, Greece, Portugal, Ireland, Luxemburg, Slovenia, Belgium) called on the bloc to agree on a “common debt instrument” issued by a European Institution, in order to raise funds to support the health sector, as well as the broader economies.

Meanwhile, in late March, the European Central Bank launched a ‘heroic” bond – buying a programme of 750 billion euro, and naming it the new Pandemic Emergency Purchase Programme (PEPP). “Purchases will be conducted until the end of 2020 and will include all the asset categories eligible under the existing asset purchase programme (APP)”. As Mrs. Christine Lagarde put it “There are no limits to our commitment to the euro”.

There was an immediate positive side effect of the ECB’s decision: Greece is no longer excluded from the procedure, despite the Greek Debt.

However this much attended “gift” is not a big relief for the Greek Government. PM K. Mitsotakis’ priority is to keep Greeks safe, imposing difficult measures such as the lockdown. His biggest concern is to make sure that the Public Health Sector is still standing and will be standing in the months to come, despite the losses the sector suffered during the Memorandum Years, in numbers of doctors, medical staff and infrastructure. This “battle” has been dubious since Day one, which is why the government has put pressure on citizens ‘to stay home at any cost”, strong advice which is not easily followed owing to the good weather amongst other things.

As far as the real economy is concerned, the recession will hit back on Greece. The Governor of the Central Bank, Mr. Stournaras, has already informed Mitsotakis’ government that by the end of this year growth will be zero and below. The government is already trying to protect companies and industries in obligatory lock down as well as their employees, reducing their social security contributions, suspending the payment of bank loans etc. and giving a bonus of 800 euro to each employee in April.

The biggest concern is the banks. Their outlook has taken a turn for the worse as the Greek economy is going to be hit by the Covid-19 crisis for an unknown period of time.

The same concern applies to tourism- the most “stable income” for the Greek state, with no safe predictions by the end of 2020.