Kristian Rouz – Head of the European Stability Mechanism (ESM) Klaus Regling says Greece will not require a precautionary credit line after its economic stabilization program ends in August, as the debt-ridden nation’s finances have shown signs of improved sustainability.
He added that additional credit lines won’t be necessary if Greece stays on the path of economic reforms aimed at boosting its economic output, whilst cutting its reliance on borrowed funds to support its economic expansion.
"It very much depends whether it’s really needed," Regling said. "If everything remains quiet, reforms continue and Greece continues to develop its market access, then, based on what we know today, it’s probably not needed."
This comes after Greece’s GDP growth stabilized last year due to a robust influx of investment capital. However, the nation’s economic expansion has slowed somewhat in the fourth quarter, to 0.1 percent quarter-on-quarter, compared to a 0.4-percent pace of expansion in 3Q17, according to the Hellenic Statistical Authority.
The Greek economy grew 1.4 percent in 2017, suggesting the nation is gradually recovering from its massive debt troubles, which led to a crisis in both 2011 and 2015.
Since 2010, Greece has received 260 bln euros in aid from its fellow Eurozone members and the International Monetary Fund (IMF) – under the condition that Athens would implement reforms which ensure lower government spending and higher budget revenues based on more sustainable expansion in the private-sector tax base rather than mechanical tax hikes.
Although Greece has achieved some progress in cutting its spending, its private sector economy has remained sluggish. This year Greece expects to boost its tourism revenues by overhauling its services sector.
Regling said a precautionary credit line would also require that Greece implement new austerity measures. This is something the Greek government has little enthusiasm for, as austerity measures are rarely popular amongst voters.
"If there’s additional debt relief, there might be some additional surveillance, some kind of tighter surveillance," Regling said.
The ESM remains one of Greece’s largest international creditors; it holds over 166 billion euros of the nation’s governmental debt together with the European Financial Stability Facility. This is some 90 percent of Greece’s GDP.
Greece’s total debt-to-GDP ratio stands at 180 percent, with its government debt as high as 332 bln euros. A significant portion of this sum is held by the IMF, which also requires that Greece undertake painful market-friendly reforms.
The IMF says lowering its debt is crucial if Greece wants to emerge from the crisis as a sustainable and prosperous economy. This is part of the reason Greece’s creditors are willing to close the tab on its borrowing, and encourage the government to propel the economy via regulatory action.
Greece is eyeing its tourism industry, thriving off its sunny beaches and rich historic and cultural legacy, as a potential driving force of economic expansion.
"While having almost 30 million tourists from May to September is a huge number, it could reach 40 million in a nine-month period if the tourism season were extended," Yiannis Retsos, president of the Greek Tourism Confederation, said. "The bet now is to enrich the tourism product and have added value that will attract not necessarily more, but richer tourists, so we can have more receipts."
Greece saw a 10-percent increase in tourist arrivals last year to 27.2 mln people, generating a total of 14.5 bln euros in revenues. The authorities plan to increase arrivals to 36 mln people, and boost revenues to 20 bln euros by 2021, which will require 6 bln euros per year in investment. The recent influx of foreign capital might help achieve this goal.
Meanwhile, Regling said both the European bailout officials and the IMF are working closely to coordinate their assessment of Greece’s debt sustainability in order to improve the nation’s investment appeal.