The astonishing success of Eurozone bailoutsAs Greek borrowing costs fall to French levels, the bloc’s ‘periphery’ shows the value of steady reform

11/12/2024

By Chris Giles

When Greek government borrowing costs fell below French levels late last month, attention focused on the political turmoil in Paris. There is no doubt that the fall of the government after its inability to set a budget demonstrates dysfunction in Paris, but the real story lay elsewhere. It is the astonishing success of what we have derogatively called the Eurozone’s “periphery” a decade or more after its sovereign debt crisis. While there was a natural focus on rising French borrowing costs compared with those of Germany, France has no difficulty servicing its debts, which are no more expensive than a year ago. In the same period borrowing costs have fallen a little in Germany on the expectation of lower interest rates, but come down by much more in Portugal, Ireland, Italy, Greece and Spain — the countries at the centre of the 2010 to 2015 Eurozone crisis. Between the eve of the Covid crisis in 2019 and 2024, IMF data shows GDP per head will have grown more than 11 per cent in Greece, around 7 per cent in Italy and Portugal and almost 4 per cent in Spain. Ireland has done even better on this measure — nearly 18 per cent — although its GDP data exaggerates this due to the location of intellectual property in the country for tax reasons. France has shown less than 2 per cent growth, with Germany being negative. This story of success in Greece defies all the doomsayers and hotheads of 2015, when the country briefly flirted with leaving the euro under its populist-left Syriza government. Rather than suffering in “debtors’ prison”, condemned to the permanent austerity and poverty forecast by the 2015 Greek finance minister Yanis Varoufakis, the country’s economy has not only grown much faster than the Eurozone average, it has also been able to run the primary budget surpluses demanded by its creditors under its bailout plans. Just last month, the Greek government repaid part of its debts under an early bailout programme from 2010 because its investment-grade status allowed it to borrow more cheaply in financial markets. At the time, Wolfgang Schäuble, then Germany’s finance minister, suggested that the rest of the Eurozone would have benefited from being rid of its troublesome Greek child. But it is impossible to argue now that a chaotic Grexit, and the inevitable turmoil, defaults and doubt about other Eurozone members, would have been a preferable outcome. I remember one of the more critical members of the international rescue operation coming into the FT in the 2010s dismissing Greece’s economy as having nothing to offer but a bit of summer sun for northern Europeans. That sun generated 17 per cent of Greek electricity in 2023, up from zero in 2010, and its rapid ascent will enable the country to be part of the industries of the future, such as energy-hungry data centres. The success stories are not limited to Greece, however. Employment growth has been strong since 2012 in Germany, but stronger in those condemned as the periphery during the Eurozone crisis — Portugal, Ireland, Italy, Greece and Spain. The IMF estimates that Germany will have a worse primary budget position than all of these countries in 2024. So, as we look to the second half of the 2020s, the lesson to learn from the crisis over a decade ago is the value of solidarity across Europe, enabling sovereign debts to be put on a sustainable basis with support from more financially secure countries. Conditionality attached to this support was vital, despite its political difficulty. Kicking the can down the road, as happened often from 2010 to 2015, was also necessary to foster difficult compromises. The difficult and quiet success of the economic reforms since tends to pass people by. But it is now undoubted in Europe’s “periphery” and time for France and Germany to practice the medicine they so enjoyed prescribing a decade ago.

Πηγή Financial Times