Opinion

Hugo Dixon

Is Greece losing its reform drive?

Hugo Dixon
Jun 23, 2014 08:34 UTC

By Hugo Dixon

Hugo Dixon is Editor-at-Large, Reuters News. The opinions expressed are his own. 

Is Greece losing its reform drive? Prime Minister Antonis Samaras has stuck to a harsh fitness programme for two years. But just as it is bearing fruit, he has sidelined some reformers in a reshuffle. There is only one viable path to redemption for Athens: stick to the straight and narrow.

The Greek economy is not out of the woods yet, although the measures taken to balance public finances and restore the country’s competitiveness are having their effect.

Athens partly regained access to the bond markets in April. Banks have been able to issue equity on the markets. The unemployment rate has fallen for four months in a row, albeit to a still terrible 27 percent. The economy has also either just stopped shrinking or will do soon.

Greece’s top industry, tourism, is set to reach new highs this summer following last year’s record. Meanwhile, foreign investors are looking to take advantage of cheap labour, cheap real estate and a better investment climate. Only last week, the Chinese prime minister was in Greece, signing $4 billion of commercial deals and declaring that the country could become China’s gateway to Europe.

Europe should give Cyprus a hand

Hugo Dixon
Mar 17, 2014 10:51 UTC

Sunday marked the anniversary of Cyprus’ shock plan to raid the tiny island’s bank deposits. The envisaged tax, backed by the euro zone, covered all banks and all deposits, whether insured or not.

Although that unwise scheme was later rescinded, much damage was done to a country already deep in financial crisis. Uninsured deposits of the island’s two large troubled lenders still suffered big haircuts. Capital controls were imposed as well.

These restrictions were supposed to be a short-term measure, not that this ever seemed likely. A year on, the most important controls – preventing people or companies taking more than small sums of money out of the country – are still in place and depressing the economy’s animal spirits.

Greece will probably pull through

Hugo Dixon
Apr 22, 2013 08:52 UTC

Greece is not yet out of the woods. But there is a credible path that could lead the country back into the sunlight. That’s the main conclusion of a week I have just spent in the country.

Although the economy will have a terrible 2013, next year should be better. But the outlook is fragile: political crisis could yet rear its ugly head, tax evasion is rife and there’s the risk of external shocks.

Look first at the good news. Antonis Samaras’ coalition government has held together surprisingly well since it came to power last June following a period of political chaos, despite pushing through extremely unpopular measures. Samaras’ centre-right New Democracy party is neck and neck in the opinion polls with the radical left Syriza, the main opposition party. Samaras hasn’t suffered the plunging support of Spain’s Mariano Rajoy or France’s Francois Hollande.

Italy could do with market pressure

Hugo Dixon
Apr 15, 2013 09:34 UTC

Italy could do with some market pressure. Rome’s bond yields are now lower than they were before February’s inconclusive election. But as the politicians scheme, the economy burns. With markets calm, there is insufficient urgency to crack on with long-needed economic and political reform.

The fall in 10-year bond yields, which were 4.3 percent on Friday compared to 4.4 percent just before the election, is attributable to two factors. First, nobody wants to bet against the European Central Bank which has promised to do whatever it takes to preserve the euro. Second, the Japanese central bank’s pledge to buy gigantic quantities of bonds at home has buoyed asset prices elsewhere, including in Italy.

The backdrop to the current political crisis is starkly different to that in November 2011, when a sharp increase in bond yields created a panic which led to Silvio Berlusconi being forced out of office. Now none of the three main political blocs – Berlusconi’s centre-right group, the centre-left Democrats and Beppe Grillo’s 5-Star Movement – can govern on its own. But seven weeks have been wasted without a coalition being formed.

What a euro growth pact should contain

Hugo Dixon
May 7, 2012 10:16 UTC

It has become fashionable to talk about the need for a euro zone “growth compact” as weariness mounts over a diet of nothing but austerity. France’s new president Francois Hollande has popularised the idea. Even Mario Draghi has backed it. That gives the concept credibility as the European Central Bank president was one of the main supporters of the austerity-heavy “fiscal compact”, which requires governments to balance their budgets rapidly. Olli Rehn, the European Commission’s top economic official, has joined the bandwagon too: at the weekend, he advocated a pact to boost investment, while hinting that there may be scope to ease up a bit on the austerity.

But all this chit-chat won’t lead to much unless politicians are prepared take unpleasant decisions on reforming labour, welfare and banking – measures which would boost growth in the long run. That has to be the quid pro quo for loosening the current fiscal squeeze or further easing monetary policy – measures that would help in the shorter term. 

Without such a grand bargain, any growth compact is likely to amount to little more than extra funds for investment. Rehn mentioned the main ideas at the weekend: using EU budget funds to guarantee lending to smaller firms; encouraging countries with fiscal surpluses to increase public investment; and boosting the capital of the European Investment Bank. While these measures are worthy, they are not of the scale needed to change the course of one of the biggest economic crises in recent history.