The Daily Update - Greece's stalling reforms

Greece is creeping back into the news again as slowly as it is creeping AWAY from its necessary financial reforms. Greece’s third bailout program ends this August, and the Eurogroup have demanded a ‘growth strategy’ by April and set 88 legislative tasks for them to complete by the 21st June to qualify for the final round of the €86 billion bailout package. Furthermore Eurozone finance ministers have yet to agree on any sort of medium-term debt relief to help keep Greece ticking over after August – let alone any contentious long-term relief measures. Continued uncertainty over these will make repeating last year’s successful and oversubscribed bond sale increasingly challenging and expensive.

Although the government recently eased the 2015 capital controls, increasing monthly withdrawal limits from €1,800 to €2,300, there seems to be little else in terms of real progress. The government’s stalling on promises to privatise certain industries is particularly telling. Their only notable positives are their efforts to address non-performing loans with the prospect of consolidating some of these into a newly formed ‘bad bank’; this along with the ESM’s seeming willingness to function as financial backstop to Eurozone failing banks by 2019.

According to the IMF over a quarter of Greece’s GDP is hidden from the government in a growing shadow economy. This exacerbates the hole in tax revenue but can’t solely be blamed on the corporate sector whom understandably also want to steer clear of the widespread red tape and excessive costs of regulation. The OECD estimates that regulatory cost are as high as 70% of all costs in the tourism sector - which seems hard to believe, and not only encourages non-compliance but discourages needed investment (both foreign and local) across almost every sector. This twinned with the seemingly inexorable brain-drain and planned and necessary further increase in taxes and cuts in pension will almost certainly constrain household consumption further when it is already growing at just 0.65%

Yet the country does now have a positive outlook from all three major rating agencies but this is upon its junk B3/B rating. Even if Greece is managing to hit their target primary budget surplus of 3.5% and yields hover around the artificial 4-5% level we still struggle to see the upside when public debt still stands at an unsustainable 176% of GDP. In our Net Foreign Asset analysis the country remains ranked 1 star, where it has sat now for over a decade and expect it to remain for at least another one.

Lastly, happy ‘Pi Day’ everyone! Today (3.14) is a special day for geeks and the birthday of Albert Einstein, but sadly from today onward will also commemorate the passing of another genius who triumphed over intellect and hardships, Stephen Hawking. In his words, "Look at the stars and not at your feet."

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