(Bloomberg Opinion) -- During the euro-zone crisis at the beginning of the last decade, many European citizens felt they were paying an unfair price for Greece’s problems. As the first wave of the coronavirus pandemic fades in Europe, it’s the turn of the Greek people to feel aggrieved.
The country has had one of the best Covid-19 records in the European Union, thanks to the government’s swift decision to enforce a lockdown and widespread compliance among the population. There have been 185 registered deaths so far from the disease, out of a population of about 10.7 million people — equivalent to 17 deaths per million people. Spain and Italy had 578 and 560 registered deaths per million respectively, and “excess deaths” relative to the previous years were even higher.
Yet the economic pain for Greece may be similar to other southern European nations. The European Commission forecasts that Greek national income will shrink by 9.7% this year, compared with 9.5% in Italy and 9.4% in Spain. The country is, however, expected to rebound more sharply in 2021, by 7.9%, compared with an expectation of 6.5% growth for Italy and 7% for Spain. Greece’s initial contraction — set to be the largest in the EU — is happening because the economy relies heavily on tourism. As foreigners stay at home, hotels and restaurants suffer.
The government hopes that its success in coping with the pandemic will help it promote the country as a safer destination. But the success of the summer holiday season depends on what’s happening elsewhere too. A jump in Covid-19 cases in several Balkan states has prompted Athens to postpone the reopening of its northern border for all countries — except for Bulgaria — until the end of the month. While Greece has reopened its main airports to many international flights, new outbreaks would cause a rethink.
Still, Greece’s successful management so far of the pandemic does carry a prize. For a start, Prime Minister Kyriakos Mitsotakis has been able to reopen the domestic economy before other countries such as Britain. This will reduce the hit on gross domestic product. The government put in place expensive measures — including loans for small and medium-sized enterprises, and a furlough scheme for the underemployed — to help businesses and workers. It will hope to scale them back faster than elsewhere as activity resumes, easing the burden on the public finances.
Moreover, the country’s reputation is improving. One reason not to invest in Greece was the expectation that it would handle a crisis worse than others. That meant some foreign companies held back from pouring money into the country. The skepticism is starting to disappear. Last year, the Athens stock exchange index was the world’s best-performer — a sign of growing confidence in Mitsotakis’s reformist administration. Now, Greece’s 10-year bond yields have fallen below Italy’s, partly thanks to the European Central Bank’s decision to include the nation’s debt in its quantitative-easing program.
Greece still has serious vulnerabilities. The ratio of government debt to GDP is the highest in the euro zone and among the highest in the world. This year’s recession and the sharp increase in borrowing will add to that. The country’s financial system was slowly on the mend thanks to the launch of Project Hercules, a program of state guarantees. But banks’ exposure to bad loans still stood at 40.6% of total lending in December. While a decade-long economic crisis has ensured that the surviving companies are resilient, Covid-19 will cause more bankruptcies, adding to the lenders’ woes.
And yet, this time Greece knows it is not alone. Debt will rise across the euro area, and so will non-performing loans. Europe has, therefore, started to devise more creative solutions. These include the ECB’s massive asset-purchase scheme and the EU’s proposed 750 billion-euro ($845 billion) recovery program, made up of loans and grants to help the worst-affected countries.
Above all, Greece’s feeling of being bottom of the euro-zone class has all but disappeared. In the uncertain world ahead, it will be much harder to single Athens out.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Ferdinando Giugliano writes columns and editorials on European economics for Bloomberg View. He is also an economics columnist for La Repubblica and was a member of the editorial board of the Financial Times.
©2020 Bloomberg L.P.