A year on from a crisis that could have taken the country out of the eurozone, the Greek economy is improving slowly. After the first review of the adjustment programme is completed, growth should return. Further improvements are also possible, particularly in the goods and services markets, to raise potential growth. Although it is now accepted that adjustments to European debts are required to put Greece's public finances on a sustainable footing, any decisions have been postponed until 2018.
One year after Greece's economic and political crisis reached its most acute phase with a referendum that many feared would take Greece out of the eurozone, the country is now doing better, but not by much. The political situation has become more settled, both with respect to creditors and domestically. Alexis Tspiras has now been in place for 18 months, despite an increasingly fragile majority in parliament. The Greek economy remains disappointing. Despite hopes in 2014 that it would consolidate its recovery, it slipped into recession which, although moderate in scale, continued into early 2016. The first review of Greece's economic adjustment programme has been signed and, along with renewed confidence and the improved functioning of the banking system that may result, we expect the economy to stabilise and then recover more strongly in 2017. However, there remain several obstacles and risks. In the short and medium term, excessive fiscal consolidation could damage the upturn, particularly if there is no easing of the fiscal targets assigned to Greece, which the International Monetary Fund is continuing to call for.
Further out, the Greek economy's scope for recovery is in question. To what extent have reforms changed the way the economy works and increased its growth prospects? The answers to these questions are not clear. However, they are essential for the conduct of monetary policy, and also to assess the sustainability of public finances. As regards the public finances, there was little progress in the last year, particularly given promises made in August 2015 of imminent restructuring. The recent agreement reached by European creditors and the Greek government is largely political in our view, and does not really address the fundamental problem of debt sustainability. We are being told to wait and see how things develop between now and 2018. The IMF was powerless to stop such backsliding, but it has clearly voiced its disapproval.
by Frédérique CERISIER