Deutsche Welle: The Greek economy is safe (for now)

Economic analysts told Reuters that the Greek economy does not seem to be in danger in the near future, even in an environment of rising interest rates.

The era of “cheap money” is coming to an end as central banks, one after the other, raise interest rates in a bid to tame inflation. In fact, in the last few hours, an upward spiral of interest rates seems to be underway in Europe and America. Will this development have consequences for the heavily indebted Greek economy, which has not yet regained the status of “investment grade” for rating agencies? Speaking to Reuters, reputable financial analysts believe that there is no danger at the moment. The reason for the report was the visit of the new German Minister of Finance Christian Lindner to Athens and his remark that Greece will soon leave the status of “enhanced supervision”.

J Κrg Kremer, chief economist at Commerzbank, believes that “even with rising interest rates, very high public debt will obviously be able to be financed and this is due to financial assistance provided by the international community. Public creditors outside Greece hold more than 60% “In addition, the loans have a fixed interest rate and a very long repayment period, which averages 18.2 years.” Only 26% of loans become due in the next five years. As a result, “government debt refinancing is less expensive than higher interest rates,” concludes J Κrg Kremer.

“Limited risk with positive growth indicators”

In the same vein, Alexandros Kritikos, a member of the board at the German Institute for Economic Research (DIW) based in Berlin, recalls that for much of the Greek debt, the repayment period now reaches 50 years, ie until 2070. “That is why “, he points out,” but also because the economy is showing positive growth indicators, the risk is currently limited “. However, it seems that for countries with high public debt, high inflation is a “double-edged sword”. On the one hand, inflation “certainly helps the heavily indebted countries because it reduces the real debt burden, but on the other hand it makes it necessary to help the weaker economic strata and this could lead to new borrowing, something that Greece would like.” to avoid, warns the DIW economist.

Commerzbank chief economist Jorg Kramer says 2022 is a special year of transition, while focusing on the positive outlook for the Greek economy. “For next year, a primary surplus is forecast again,” he says. “The fact that the Greek economy is returning to the path of growth helps in this direction. The weakening caused by the pandemic has been overcome. Despite any problems, a growth rate of more than 3% is expected. Recently, private consumption has been supporting the economy. “as early as spring, experts expect a significant boost in tourism.” However, Reuters does not fail to remind that recently the spreads of Greek bonds are increasing dangerously again.

New interest rate increases

Meanwhile, scenarios for a dramatic rise in US interest rates have been confirmed: The US Federal Reserve (FED) has announced a rise of seventy-five basis points. It is resorting to the largest rate hike in thirty years, in a bid to combat the highest inflation in forty years. It even leaves open the possibility of a new increase in July. “We waited until the last minute for some signs of declining inflation, but in the end the opposite happened and the forecasts speak of a further rise,” explains the head of the Bank Jerome Powell. It is noted, however, that the Fed, in contrast to the European Central Bank (ECB), is obliged by its Statute to take into account developments in the labor market as a criterion for the conduct of monetary policy. Currently the unemployment rate in the US is around 3.6%. “An unemployment rate of 4.1% with inflation at 2% would be a successful account for us,” said Jerome Powell.

On the other side of the Atlantic the reactions were immediate: On Thursday the Central Bank of Switzerland (SNB) decided to increase its interest rate by 50 basis points, but it remains at a negative sign, -0.25%. “This is a sudden development,” some analysts say, while others say they expected a move from Bern, but on a smaller scale. “The goal of a more restrictive monetary policy is to prevent further inflationary pressures on goods and services,” SNB chief Thomas Jordan told a news conference, adding that he did not rule out further interest rate hikes in due course. A few hours later, the Bank of England announced an increase of 0.25%, leaving open the possibility of new interventions, as inflation in the UK is expected to exceed 11% by the end of 2022.

Giannis Papadimitriou (Reuters, DPA, AFP)

Source: Deutsche Welle