For the past two weeks, the only news story that matters in Greece is the aftermath of a devastating and tragic firestorm that swept through the town of Mati, killing at least 91 locals and tourists, and scorching scores more.
Greek Prime Minister Alexis Tsipras has met with survivors, visited the town just 30 kilometres east of Athens, and has accepted the political blame for the tragedy. By contrast, the union chief for the local department says the sudden inferno was an act of God, and nothing could have prevented the tragedy. The fire was burning in a forest for an hour. The forest was made up of pine trees, which were tinder dry, and eucalyptus trees that are quick growing and favoured by loggers. They are also rich in oil and, once alight, burn with a high intensity. Then the wind suddenly shifted, catching the firefighters off guard, and there was only then a window of 20 minutes to save all in the town.
There is a reality, though, that the tragedy of Mati is also a tragedy of Greece and its finances, and long-term debt woes.
What didn’t help was the fact that Mati, like most other towns and villages across Greece, has poorly enforced planning regulations. Local authorities are under-funded, and there’s little money to police building code infractions.
Structures too are often left uncompleted. To finish a building means it will be taxed at a higher rate. If a building is left unfinished, then taxes are lower or non-existent.
Lower taxes for local areas also mean fire departments are under-financed, so too other municipal services like water and roads. And the burden falls back on the central government in Athens to make up the shortfalls.
It’s one thing for Tsipras to make a political gesture and accept the political blame — and the variances of changing winds and forest trees aside — the truth is that the collective blame rests with generations of Greeks who have used the system in place to underfund services and build without proper oversight.
Sadly, this terrible tragedy overshadows what is a very positive development for Greece — one that might ensure fire departments have adequate budgets, there are decent roads, and where councils can afford to enforce building codes — and all Greeks pay their share of taxes.
Athens has received bailouts in 2010, 2012 and 2015 totalling about €240 billion (Dh1.02 trillion), with each subsequent payout being more stringent than the previous one. At present, Greece’s debt to gross domestic product ratio remains at an exceedingly high 180.8 per cent — for every €1 in the Greek economy, another €1.80 is owed to institutional lenders, foreign banks, nations in the European Union, the European Central Bank or the International Monetary Fund. Imagine, for a minute, trying to service that level of debt. No matter how much money you take in, you still owe so much more.
Yes, all the lenders have imposed conditions and, proudly, the Tsipras government has met them all, imposing austerity, cutting services, raising taxes, axing social spending, and selling off assets owned by the Athens government.
Long-term debt
But the fundamental issue isn’t the willingness of the Athens government to meet those short-term demands. The key issue is what to do with all that long-term debt, pushing it back so far down the road that lenders are satisfied that they will eventually get their money back, but also providing enough breathing space so that the Athens government can begin to plan and stimulate growth after having satisfied its lenders that it is responsible and worthy of raising funds on the bond markets.
Back in 2015, the third bailout was worth €86 billion. Greece has managed to not need that last portion of that sum, which was delivered in payments, or “tranches”. As well as discussing Brexit and the immigration crisis, the EU leaders in late June also signed off on a debt-relief programme for Greece, letting it stand once again on its own two fiscal feet — if not entirely without conditions and minimal supervision.
Greece gets the last tranche of €15 billion, which will be split to service its debts and help it build up a buffer for hard times — a rainy day fund. Greece will also maintain a surplus of 3.5 per cent of its GDP until 2022 and then stick to EU budget rules, which would mean a surplus of 2.2 per cent of GDP on average in the period from 2023 to 2060, according to EU estimates.
Just under €100 billion in loans which are due to mature in the next four years would be extended by a further 10 years until 2032, giving Athens breathing space, allowing it to develop its economy and stabilise its finances. Interest and amortisation payments would be deferred for a decade as well.
What’s interesting is that the Eurozone also agreed to abolish a stepped-up rate of interest on some tranches, and it will also hand back any profit that the ECB or the central banks of Eurozone nations make on trading Greek bonds from now until mid-2022.
If it all sounds too good to be true, it’s certainly a very positive step for Greece. There’s even a provision for the EU finance ministers to review it in 2032. By then, who knows who’ll be in or out of the EU. Much like those poorly constructed and half-built houses, it will be someone else’s problem anyway.
