FES BRIEFING RECOVERY LOST The Greek economy is forced to fight its way back after Covid-19 Nick Malkoutzis Yiannis Mouzakis* April 2020 Greece has earned plaudits and positive coverage in the in­ternational media for managing to suppress the number of deaths and confirmed cases from Covid-19 when many Western European countries struggled with the disease. Greece went into staggered lockdown measures over sever­al weeks after the first case of the virus was announced on February 26. Schools were shut on March 10 and a broad lockdown was imposed on March 23. The government wid­ened the range of digital services available to citizens, in­cluding the ability to receive doctors’ prescriptions on their mobile phones, limiting the need for Greeks to leave their homes. An increase in intensive care beds, targeted testing and a high level of compliance with the restrictions on move­ment appear to have been vital in suppressing the virus, although Greece’s geographic location and the fact that Covid-19 made its appearance during the off-peak tourism season probably helped authorities keep the disease in check. Unlike the positive outlook in terms of public health, the Greek economy will emerge shaken from the coronavirus experience. The lockdown and the broader impact the dis­ease is having on global trade have halted the recovery from Greece’s long economic crisis. The damaging signs were im­mediately visible in key sectors, such as tourism and ship­ping, and have gradually emerged in other areas. Even in the best-case scenario, which envisages most re­strictions being suspended by July and Greece receiving at least some tourists, the recession is likely to rival, if not ex­ceed, the worst years of the recent debt crisis. * Nick Malkoutzis& Yiannis Mouzakis are the co-founders of political and economic analysis website MacroPolis(www.macropolis.gr) MOMENTUM FADES At the beginning of this year, Greece was in the best eco­nomic shape it had been for years. During the same week that Wuhan in China went into lockdown, Fitch upgraded Greece’s credit rating to just two notches away from invest­ment grade. The following week, Greece issued its first 15-year bond, attracting strong interest and a very attractive yield. Soon, the yield for its 10-year benchmark bond plum­meted to 0.92 pct – a level that had been unthinkable just months earlier. The government was expecting growth of 2.8 pct this year, building on a 1.9 pct increase in 2019. The hope was that Greece’s exit from its third bailout in 2018 and the change of government in 2019, when centre-right New Democracy ousted left-wing SYRIZA on a platform of business-friendly reforms and tax cuts, would attract investors and breed greater confidence among Greeks. The 2020 budget included forecasts for significant increases in investment and private consumption. The government ex­pected no complications in meeting the 3.5 pct of GDP pri­mary surplus target agreed as part of Greece’s post-bailout framework, although it was intent on trying to convince the European institutions to reduce this goal from 2021 onwards. Public debt was expected to fall to 167 pct of GDP as the economy grew, moving Greece further along on the path towards the sustainability that had been one of the corner­stones of the three adjustment programmes it underwent between 2010 and 2018. By the end of March, though, it became evident that none of these forecasts were relevant anymore and that the crisis triggered by the coronavirus would result in each of those figures being repeatedly erased and re-written, each time reflecting a bleaker outlook. 1