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The Guardian - UK
The Guardian - UK
Business
Nick Fletcher

Greeks must reap benefits after their sacrifices, says EU's Mosovici - as it happened

A woman walks past shut down businesses in central Athens.
A woman walks past shut down businesses in central Athens. Photograph: Louisa Gouliamaki/AFP/Getty Images

Greece has turned the page to become “a normal” member of the single currency, European Union authorities in Brussels declared as the country finally exited its eight-year bailout programm, writes Jennifer Rankin.

Its three bailouts during the eurozone crisis totalled €288.7bn (£258bn) – the world’s biggest-ever financial rescue. During that time, as the crisis that threatened to lead to the nation’s ejection from the single currency – “Grexit” – Greece has had four governments and endured one of the worst recessions in economic history.

Marking the official end of the third bailout programme on Monday, Pierre Moscovici, the European commissioner for economic and financial affairs, said Greece was beginning a new chapter after eight “very difficult” years.

“We have had eight very difficult years, often very painful years, where we have had three successive programmes. But now Greece can finally turn the page in a crisis that has lasted too long,” he told journalists. “The worst is over.”

Our full report is here:

On that note, it’s time to close for the day. Thanks for all your comments, and we’ll be back tomorrow.

The Turkish lira continues to come under pressure, now down 1.66%. Kathleen Brooks, research director at Capital Index, says:

Germany may say no now, but it is becoming increasingly likely that Turkey will need significant amounts of financial aid in the months to come. Qatar has come in with a credit line to backstop the economy, and has promised $15bn of investment in Turkey. However, this has not been able to stabilise the lira at the start of the week, which has suffered another rout today.

The problem for investors is two-fold: firstly, Moody’s and S&P, the credit rating agencies, cut Turkey’s debt to junk status at the end of last week, which limits the amount of sovereign debt larger investors like pension funds can purchase, it could also make a bailout by the likes of Germany less likely.

Secondly, the spat between the US and Turkey continues to gain pace. As the US threatens more tariffs, shots were fired this morning at the US embassy in Ankora. Until Erdogan’s government frees pastor Andrew Bunson, it is hard to see the Trump administration cutting Turkey some slack. Regardless of your view on the rights or wrongs of what the US is doing to Turkey financially, with Trump as President, it certainly doesn’t pay to mess with the US, especially when you upset the evangelical wing of the US this close to the mid-terms.

Meanwhile in Athens it has not gone unnoticed that Prime Minister Alexis Tsipras has chosen to remain silent about Greece’s much-awaited bailout exit, writes Helena Smith from Athens. His only public utterance today has been to tweet his congratulations to the county’s youth water polo team on its world championship victory.

Has this got something to do, perhaps, with the fact that his leftist-led government has signed up to a staggering array of ambitious targets? Post–bailout Greece has committed to produce primary surpluses of 3.5 % of GDP until 2022 – a feat achieved by only a handful of countries since the seventies - and 2.2 % until 2060.

For professor Kevin Featherstone who has followed the twists and turns of the crisis as head of the Hellenic Observatory at the London School of Economics, such obligations amount to perpetual purgatory.

“No other government in Europe would choose to follow this path. It is Ordoliberalism gone wild,” he told the Guardian.

With the fiscal straightjacket remaining so tight, there will be little scope for future administrations to improve economic competitiveness through investment, or accelerate social support for those pauperised by austerity.

“Rehabilitation falls well short,” Professor Featherstone said. “The prospect of a recurrence of the debt crisis has been eliminated but nothing has been done to help Greek society overcome the trauma of excessively high unemployment and bankruptcies.”

Tsipras had hoped to mark the exit with a visit to Kastelorizo, the remote Aegean isle where the drama began. Celebrating Greece’s ‘liberation’ in the place where former Prime Minister George Papandreou had in April 2010 first announced that Athens would seek help from the EU and IMF – after surging Greek bond yields made borrowing on capital markets prohibitive - seemed appropriate to coming full-circle.

But the outcry over his government’s handling of last month’s wildfires – a calamity that has left 94 dead and brought devastation and ruination to hundreds more – put paid to the idea. Fanfare, aides say, will be kept to a minimum.

The chief economist of the ESM rescue fund has admitted there were mistakes made with Greece.

In an interview with CNBC Rolf Strauch said:

This was a severe crisis situation and obviously it’s difficult to claim that everything went well in the sense that everything was completely right at the time. I think the overall direction of the programme was right and what we’re seeing now, are particularly the consequences of those many reforms that were taken, and it’s true that also the Greek people deserve a lot of respect for what they did over the years. Reforms have the feature that it takes a bit until you see the impact and so the benefits of the reforms weren’t occurring right at the start or right from the moment when they were taken, but they are coming in now and I think this process will continue. You should see the projected growth rates, they are about 2%. This is good news, the task is now to stay on course and reap the benefits of what was done in the past.

He also says that the efforts Greece has to make are not yet over:

Obviously, it takes a lot to restructure an economy, and therefore [Greece has agreed] the steps to be taken by the Greek authorities in the coming years and they have made some commitments on that.

The head of the European Stability Mechanism, the euro zone’s bailout fund, has wasted no time stressing the point that the debt-Stricken country will be subject to a strict regime of enhanced surveillance post-bailout, reports Helena Smith from Athens:

Speaking to the Greek daily Ethnos this morning Klaus Regling, the rescue fund chief, emphasized that Athens will be strictly monitored in the coming years so there is no let up in reform implementation.

“Greece is exceptional. It has received much more loans from us than any other country,” he told the paper, saying that Athens unlike any other member state had also benefited from “ huge amounts of debt relief.”

“No other programme country has received anything comparable. Therefore, the monitoring will be tighter than in the other cases and this will take the form of the so-called enhanced surveillance.”

Meanwhile the Greek government spokesman was hailing the “new phase” the country was about to enter.

“Citizens will soon feel the difference,” Dimitris TzAnnakopoulos told a radio station earlier today. He said prime minister Alexis Tsipras would soon be announcing handouts when he gave his annual economic address at the Thessaloniki trade fair next month and elaborated how the budget surplus would be handled.

Here’s an earlier piece looking at the country’s future following the bailout exit:

And Greece will also continue to be monitored:

Updated

On the other hand, Greece still faces serious challenges, according to Joan Hoey, director for Europe at The Economist Intelligence Unit:

There has been lots of pain, but to what gain, and to what purpose has the Greek government signed up to multi-decade, large primary budget surplus targets which are likely to hobble growth?

The economy has been in almost permanent recession since 2010, and real GDP has shrunk by more than a quarter from its pre-crisis peak in 2007-08. Unemployment is still about 20%, and youth unemployment is more than double that. Despite undertaking the biggest post-crisis fiscal adjustment of any euro zone country, Greece’s public debt is equal to about 180% of GDP. ESM fiscal and structural reform policies, to which Greece will remain subject after the third economic adjustment programme expires, are unlikely to generate sufficient economic growth to mitigate the country’s debt burden or reduce popular disaffection. Grexit is not a short-term risk, but Greece will struggle to improve competitiveness inside the euro area or grow its way out of its huge debt burden (179.1% of GDP in 2017), so it will remain a significant risk over the medium and long term.

The past eight years of bailouts have exacted a high cost in per capita GDP, employment, wages, pensions, living standards, life satisfaction and social and political cohesion. Greece has lowest life satisfaction rating of any OECD country. Divisions of income, equality, class and politics have sharpened. Greek sovereignty and democracy undermined as the country became subject to external tutelage. There is no popular enthusiasm for any party: popular cynicism and disaffection reign.

Greece has been benefiting from cyclical upswing in the euro zone in 2017-18; and tourism and merchandise exports have also performing well. These factors will remain important, and point to stronger real GDP growth of around 2% this year, after 1.3% growth in 2017. However, Greece faces formidable medium- and long-term challenges, including a very poor demographic outlook; a dysfunctional labour market and a huge emigration of Greeks during the past decade; still weak public finances; poor banking asset quality; closed professions; bad regulation; and an unsustainable public debt load. These structural weakness, together with a commitment to deliver annual primary budget surplus targets of 3.5% of GDP in 2018-22 and of 2% of GDP in 2023- 2060 will shackle growth.

Greek reforms laid groundwork for sustainable recovery - Moscovici

The austerity measures undertaken by Greece will lead to a sustainable recovery, says European economics commissioner Pierre Moscovici.

Speaking as the country exits its bailout programme, he said:

The extensive reforms Greece has carried out have laid the ground for a sustainable recovery: this must be nurtured and maintained to enable the Greek people to reap the benefits of their efforts and sacrifices.

He said the Greek economy is expected to grow by around 2% after 1.4% growth last year.

Back with Greece, and here is a link to the European summary of the main statistics:

Here’s our story on the tensions between Turkey and the US:

Currency crisis designed to bring Turkey to its knees - Erdogan

President Tayyip Erdogan has been speaking again about the crisis which has laid low Turkey’s currency and prompted a market sell-off. Reuters reports:

[Erdogan] said on Monday an attack on Turkey’s economy was no different from a strike against its flag or the Islamic call to prayer, responding to a recent currency sell-off in stark religious and nationalist terms ahead of a major Muslim holiday.

In a pre-recorded address to mark the four-day Eid al-Adha festival, which starts on Tuesday, a defiant Erdogan said the aim of the currency crisis was to bring “Turkey and its people to their knees”.

The lira has tumbled some 40 percent this year, hit by worries about Erdogan’s influence over monetary policy and a worsening diplomatic rift with the United States. The sell-off has spread to other emerging market currencies and global stocks in recent weeks.

Turkish pesident Recep Tayyip Erdoğan
Turkish pesident Recep Tayyip Erdoğan Photograph: AP

Amid the tension, several gunshots were fired on Monday from a vehicle at the U.S. Embassy in the Turkish capital. Nobody was hurt.

“The attack on our economy has absolutely no difference from attacks on our call to prayer and our flag. The goal is the same. The goal is to bring Turkey and the Turkish people to their knees - to take it prisoner,” Erdogan said in the televised address.

“Those who think they can make Turkey give in with the exchange rate will soon see that they are mistaken.”

Erdogan stopped short of directly naming any countries or institutions, but he has, in the past, blamed a shadowy “interest rate lobby”, Western ratings agencies and financiers.

The lira is currently down around 1.5% against the dollar.

Meanwhile a German government spokesman has said that it is up to Turkey to decide whether it wants to ask the International Monetary Fund for help.

Markets are continuing to head higher, as investors shrug off the continuing concerns about Turkey and concentrate on the prospects for US-China trade talks.

The FTSE 100 is up 0.55%, while Germany’s Dax has added 0.93% and France’s Cac has climbed 0.63%. Joshua Mahony, market analyst at IG, said:

The fears of last week seem to have been washed away with a renewed optimism over the direction of US-China trade. Markets often find it difficult to focus on one topic, and thus with the focus now shifting away from Turkey and towards China, it comes as no surprise that the pessimism of last week is fading into obscurity.

Wednesday will see a trade delegation from China kick off a two-day meeting with their US counterparts, and as long as there is hope for some form of breakthrough, markets are likely to be in a more optimistic mood. However, this optimism is likely to be ill-founded, for all the previous meetings have shown precious few signs of anything that looks like a breakthrough.

As Greece exits its bailout, new government figures show a drop in the country’s current account surplus compared to a year ago, but a rise in tourist revenues. Reuters reports:

Greece’s current account balance showed a smaller surplus in June compared to the same month a year earlier on the back of a wider trade deficit, the Bank of Greece said on Monday.

Central bank data showed the surplus fell to 210 million euros ($240.18 million) from a surplus of 737 million euros in June 2017. Tourism revenues increased to 2.33 billion euros from 2.007 billion in the same month a year earlier.

GREECE-TOURISM-FEATUREPeople visit the Aeropagus hill as the Acropolis is seen in the backround in Athens on August 6, 2018. / AFP PHOTO / LOUISA GOULIAMAKILOUISA GOULIAMAKI/AFP/Getty Images

“In June the current account ... (was) down by 527 million euros year-on-year, as a result of a deterioration principally in the balance of goods and to a lesser extent in the primary income account,” the Bank of Greece said.

It said the trade gap rose by 535 million euros as imports outstripped exports, mainly the result of a worsening in the oil balance.

In January to June, Greece’s current account showed a deficit of 3.8 billion euros, up by 555 million euros year-on-year as the trade deficit widened and the primary income account surplus shrank.

In 2017 as a whole, Greece’s current account deficit reached 1.5 billion euros, down by 418 million year-on-year.

And another reality check:

Here’s more on the forthcoming press conference on Greece:

Back in the UK, and luxury handbag marker Mulberry has seen its shares slump 26% after it warned it would take a £3m hit from House of Fraser’s administration. Our full report is here:

And G4S is down 1% after the UK ministry of justice took over HMP Birmingham from the company after drink, drugs and violence among prisoners:

Over in Turkey and the lira has edged lower again, down 1.4% at 6.09 against the dollar. But this is a far cry from its all time worst level against the US currency of 7.24 which it hit at the start of last week as economic crisis unfolded.

But the strain between Turkey and the US over the detention of a US pastor can be seen by the firing of gun shots at the American embassy in Ankara earlier this morning.

Updated

Jamie McGeever at Reuters has a few sobering facts as Greece “returns to normal”:

European shares edge higher

Markets in Europe are marginally better as traders return to their desks after the weekend break.

The FTSE 100 is up 0.33%, France’s Cac has climbed 0.32% and Germany’s Dax is 0.34% better.

Earlier Germany’s produce price index rose by 3% year on year in July, the same level as the previous month and in line with expectations.

Today Greece returns to normal, according to Portugal’s finance minister and head of the eurogroup:

Giorgos Papakonstantinou, who was finance minister when Greece signed up to the bailout, said he would do the same again if the country was in the same position.

He told the BBC’s Wake up to Money programme:

The choice we had at that point was either to allow the country to go bankrupt by not paying our debts... at which point we would not have been able to pay salaries and pensions and provide basic public services.

Or to sign a bailout which would give us time to reduce those deficits.

But he admitted there had been tremendous pain and suffering along the way as austerity measures hit hard.

And Zsolt Darvas of the Bruegel think tank said Greece could still face further problems. Speaking on BBC Radio 4’s Today programme, he said:

Unfortunately I give a high probability that Greece will enter a new crisis three to five years from now, partly because Greece still has a very high level of debt and it has to repay a lot in the near term.

If Greece’s growth slows down long-term, then markets might become very nervous and Greece will enter a new crisis.

European markets are expected to make a mixed start to the week:

Agenda: Greece exits bailout, Turkey and China still in spotlight

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

It’s a momentous day for Greece and its government led by prime minister Alexis Tsipras. After eight years and innumerable late night eurozone crisis meetings, the country is exiting its bailout programme. The so-called troika of creditors - the European Union, the European Central Bank and the International Monetary Fund loaned Greece a total of €289bn in three tranches in 2010, 2012 and 2015.

The country is now free to borrow money on the capital markets, something it has not been able to do while the bailout programme was underway. But it has suffered under tough austerity measures demanded by its creditors, and everyone involved understands there is still a long way to go.

Here is our report on the news:

Later this morning Pierre Moscovici, the EU’s economic affairs commissioner, is expected to hail Greece’s exit from the bailout. But our economics editor Larry Elliott says the programme has been a failure:

It is a tale of incompetence, of dogma, of needless delay and of the interests of banks being put before the needs of people. And there will be long-term consequences. When Greece first received help in 2010, the plan was for it to have access to the financial markets within two years. It has taken two further rescue packages and six years for that to happen.

His full analysis is here:

Elsewhere Turkey is likely to remain in focus after the recent collapse of the lira and concerns that its economic problems will spread elsewhere. David Madden, market analyst at CMC Markets UK, said:

The slump in the Turkish lira is on traders’ minds as the fear of contagion into the eurozone is likely to remain a dominant theme. It was reported that emerging market funds were already trimming their exposure to the country in July, and that was even before the severe decline in the lira. Over the weekend, the central banks of Qatar and Turkey signed a currency swap agreement, and this follows on from the $15 billion that the gulf state pledged to invest in the country. Dealers are still scared that banks that have lent money to Turkish finance houses could face defaults, and it is possible we might see an increase in non-performing loans in the Turkish banking system, and that could seep into the eurozone.

Jasper Lawler, head of research at London Capital Group, says there could be more volatility ahead:

Turkish markets are closed this week, which means volumes will be particularly low, therefore big swigs could be expected potentially unnerving traders once again.

On a more positive note, traders are hopeful that a planned meeting this week between Chinese and US representatives may ease some of the trade war fears that have overshadowed the markets in recent months.

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