Greece Prepares to Stagger Back From Debt Crisis, the End of Bailouts in Sight

Posted June 21, 2018 10:18 p.m. EDT

BRUSSELS — European leaders announced early Friday a plan that would finally take Greece off financial life support, effectively declaring an end to a regional debt crisis that nearly destroyed the euro.

The deal reduces Greece’s dependence on its fellow European countries and on the International Monetary Fund, more than eight years after the Continent was plunged into a deep financial crisis that created lasting political fissures. Greece and several other countries in southern Europe were forced to impose painful austerity measures in return for bailouts from their richer northern neighbors. The actions included cutting pensions, raising taxes and in some cases even selling off public assets.

Those moves cut deepest in Greece, and they drove countless protesters to the streets for demonstrations against successive governments. Since the crisis began, the country has received rescue packages totaling some 320 billion euros ($370 billion).

“After eight long years, Greece will finally be graduating from its financial assistance,” said Mário Centeno, president of the Eurogroup, which comprises the finance ministers in the eurozone. “Greece joined Ireland, Spain, Cyprus and Portugal in the ranks of euro-area countries that turned around their economies and once again stand on their own feet.”

For Greeks, who have endured depressionlike economic conditions, the end of the final bailout program is “a historic moment,” Prime Minister Alexis Tsipras told parliament last week.

Greece will receive a final 15 billion euros in loans for the last two months of the program. After that, it will receive a significant debt relief package: a 10-year extension on loans that were granted during previous bailouts and a 10-year deferral on interests and amortization. Greece will have a cash buffer of 24.1 billion euros, covering its sovereign financial needs for the next 22 months.

“With all these measures we can safely say that Greek debt is sustainable going forward,” Centeno said.

But Greece still faces daunting challenges.

Unemployment is no longer at historic highs, but one-fifth of Greeks are jobless. The economy is growing, though at a relatively slow pace of 1.4 percent last year. Households have seen their incomes chopped by a third, hundreds of thousands of Greeks work low-paying temporary jobs, and more pension cuts and tax increases lie ahead. The country had to impose credit controls in 2015, and there are still limits on how much cash Greeks can withdraw from shaky banks.

“If you look at the past three years, the Greek economy recovered, jobs were created,” said Zsolt Darvas, a senior fellow at Bruegel, a Brussels think tank. “But I think you can’t just look at the past three years. You have to look at what happened in 2010, and clearly it was a huge disaster.”

Tsipras, who rose to power vowing to reverse austerity, has acknowledged that the end of Greece’s third bailout program will not bring about a magical transformation. “When you take a patient out of intensive care,” he told a group of Greek entrepreneurs last month, “you don’t make him run a sprint.”

Managing the country’s debt, which is equal to nearly 180 percent of its gross domestic product, remains a herculean task. In an interview with the German newspaper Die Zeit last week, Tsipras said an extension of repayment deadlines like the one included in the final agreement would “not cost European taxpayers anything.”

For Greece, severe belt-tightening will still be necessary if it is to have any hope of regaining credibility with international investors. The country still owes staggering sums to banks, financial institutions and other countries, which will be looking over Athens’ shoulder for years to come. Greece is still years away from being able to sell new debt on financial markets.

Tsipras’ political opponents, who have been gaining ground in opinion polls, have noted that the country will remain under foreign supervision for years to come and will still be subject to harsh austerity measures, including a package approved by parliament last week that includes further pension cuts, tax increases and privatization of state assets.

That view is often echoed by regular Greeks. “What exit? This is a life sentence,” said Giorgos Amanatidis, a 67-year-old pensioner in Athens. He added, “Taxes, taxes and more taxes.”

“Where’s the light at the end of the tunnel?” he continued. “What kind of future do my grandchildren have here?”

The consequences of the debt crisis extended beyond Greece. The rest of the region bears scars from the economic turmoil that began there and quickly spread. Investors lost faith not only in Greek assets but also in those of other financially weak European countries, like Ireland, Italy, Portugal and Spain. There was even talk that the eurozone would break apart.

Economic growth and investor confidence recovered only after the European Central Bank used its power to print money and flood the eurozone with cash.

“We have managed to deliver a soft landing of this long and difficult adjustment,” Centeno said. “There will be no follow-up program in Greece.”