Graph of the week from DWS. To be politically viable, transparency, inclusion and fairness must underpin the reforms to come in Greece.
In the end, the result wasn’t even particularly close. In last Sunday’s national elections, the center-right New Democracy party came out on top, with 40.5% of the vote. This is only slightly less than the result it achieved in the May 21 elections, when it failed to win an absolute majority, resulting in a comfortable majority of 158 out of 300 seats for the outgoing government. The difference with May is, of course, that New Democracy has this time reinstated the country’s majority bonus system. This system gives extra seats to the largest party in order to ensure the stability of the government.
Kyriakos Mitsotakis, Prime Minister since 2019, will once again be able to govern without a coalition partner. Short-term economic growth prospects look healthy, at least by European standards, but many challenges remain. Our chart of the week highlights one such area of concern. It shows how Greece’s accounts have become markedly in deficit in recent years. To be fair, this deterioration is largely due to the rising costs of fossil fuel imports, felt in most countries around the world. However, if we look at the details, we see that chemical imports have also risen, as have capital goods.
The latter is at least consistent with the fact that Greece is becoming more attractive for capital expenditure, including foreign direct investment. Greece’s economic landscape, once plagued by a crippling debt crisis, has undergone a remarkable transformation. Gone are the days of austerity measures. Instead, taxes have been cut and tax compliance has improved. The pandemic has given a boost to digitization, although other parts of the country’s infrastructure are shaky, as several high-profile disasters have shown.
Tackling the current account deficit is crucial to Greece’s economic trajectory, especially as portfolio investments can be quite fickle. “In the short term, vacation booking figures point to a good tourist season, which should at least prevent the deficit from worsening,” explains Ulrike Kastens, senior economist at DWS.
Greece will need to broaden its export base beyond traditional sectors such as tourism and agriculture. Investing in innovation and strengthening vocational training programs, as well as forging closer links between universities and the private sector, could also prove invaluable in boosting long-term growth potential.
Cutting red tape and promoting a business-friendly environment would also be appropriate chapters in the success story that Greece has become in recent years. Mr. Mitsotakis has emerged politically strengthened, and seems keen to tackle vested interests. The big loser in the elections was the left-wing Syriza party, led – for now – by former prime minister Alexis Tsipras. Yet years of economic hardship have left many Greeks disenchanted and skeptical of reform efforts, as demonstrated by the surprisingly strong performance of a new fringe far-right party. To be politically sustainable, the reform process must be based on transparency, inclusion and fairness, in order to restore confidence, not just that of foreign investors.
The Greek economic odyssey in current account and trade figures..
Sources : Haver Analytics Inc : Haver Analytics Inc, DWS Investment GmbH au 27/06/23
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