Boats bob gently in the azure waters of the harbour here, and the largest town on the island of Kefalonia shows little if any scars from the seismic events that have occurred in Greece these past most recent years. It was here, Kefalonians say, that Homer’s Odyssey was based, and not the neighbouring island of Ithaca, and there seems to be a body of evidence that supports their claim.
The island was made famous by the Nazi’s massacre of some 5,800 Italian troops during the Second World War, an event that is recalled in both the book and movie-adaption of Captain Corelli’s Mandolin.
And then there was the great earthquake of 1953 that destroyed most buildings, killed many and raised the entire island by some 60 centimetres out of the Mediterranean.
But perhaps the longest and most difficult chapter to the people of this island to overcome is the effects of the past six years of economic hardship and cutbacks, all necessary and mandated as terms for the very economy of the island – and that of Greece itself — to survive.
Finally, come August, if everything keeps going to plan, Greece will leave its third bailout and hopefully remain afloat. According to the latest figures from Eurostat, the European Union’s (EU) statistics and economics agency, Greek debt has dropped slightly in 2017, down to 178.6 per cent of gross domestic product from 180.8 per cent in 2016. And while Athens’ still has the highest debt ratio across the 28 nations of the EU, it is slowly heading in the right direction. Debt levels across the 19-country Eurozone fell to 86.7 per cent of GDP last year from 89.0 per cent in 2016, Eurostat reported.
Last year, the Athens government recorded a budget surplus of 0.8 per cent of GDP, up from 0.6 per cent in 2016.
Since 2010, the Greek government has received three separate bailouts from a combination of the International Monetary Fund (IMF), the European Central Bank (ECB) and EU nations totalling some €240 billion (Dh1.05 trillion).
The third bailout was arranged in the summer of 2015 and was worth €85 billion. By August 20, Greece will be free to gain full access to international money and bond markets. What’s more, Athens hopes it will be free to set its own economic policy after eight years of tight supervision by the troika of the IMF, ECB and EU.
It’s a day that can’t come soon enough for Greek Prime Minister Alexis Tsipras, who has been talking up his government’s performance. He’s confident that come August 20, Greece will exit the bailout without needing any extra precautionary credit line.
And the statistics seems to back him up too, at least in two instances.
Firstly, last July Athens did return to the international bond market, floating €3 billion in debt which had a yield of 4.625 per cent. In layman’s language, the bigger the risk for lenders, the higher interest rate or ‘yield’ the borrower pays. German debt, for example, is low risk and so it costs Berlin 0.55 per cent or so in ‘yield’ or interest to borrow. For Greece, that 4.625 per cent yield was surprisingly good, considering Athens’ past record and poor credit rating. (It should be noted that those who bought the €3 billion were hedge funds, which might speak more to their willingness to speculate than to Athens’ actual credit worthiness.) Athens would have gone back to the markets to borrow more in February, but there was too much volatility then, in part caused by markets reacting to the fall out of the tax bill passed in the US and by fears over US trade policy and tariffs.
Secondly, although the third bailout was worth €85 billion, Athens survived without having to draw down some €25 billion of that facility — which leaves some Greeks wondering just why they had to endure so must austerity, so many cuts to services, so many reductions in social programmes, and so many sales of their public and semi-public bodies.
Not so fast, Tsipras says, saying that there’s no going back to the good old, bad old debt days when Green government spent like drunken sailors.
What Tsipras’ government has proved is that it can effectively managed its spending for now at least. Come October 2019, Tsipras’ government faces a general election, and there are some within the EU who fear that those old spendthrift days may very well return.
But the key long-term is debt relief: How to reduce or manage the €327 billion that is owed by Greece to its lenders. Eurozone creditors are now working on a debt relief offer for Greece that would be an incentive for Athens not to backtrack on reforms and to continue to stick to prudent fiscal policy. The idea is that Greece would keep to an agreed reform path, hold the line on its primary budget surplus and a deal will be done, restructuring that staggering €327 billion in long-term debt.
All the bailouts came with their own terms and conditions, all increasingly complex and over-ridden by the terms of each successive deal. There are still some 80 specified actions that the Athens government needs to complete by the end of this month and then it might just indeed be plain sailing for real long-term debt relief.
The biggest stumbling block from that list seems to be the privatisation of state assets. Back in 2010, when the bailout saga started, it was hoped as much as €50 billion could be raised. Not a chance, given union opposition and Greek bureaucracy — and just €5 billion came in then. Under the terms of the 2015 bailout, Athens must raise another €3 billion by the end of this year through privatisations, but it has already reached €2 billion of that target. Athens must still divest portions of its gas, water and electricity companies and sell off leases to vast tracts of seaside property to raise the remaining €1 billion required — but it certainly looks doable.
Come June, EU heads of government will meet in a summit and French President Emmanuel Macron and German Chancellor Angela Merkel hope to get the go-ahead on reforming the Eurozone and the ECB. That key goal is only worthwhile if the Greek debt issue is solved or most likely to be concluded. The long-running Greek drama could very well be a thing of the past, just like the broken ancient ruins dotting the landscape of Kefalonia.