Greece gets green light to exit bailout program, but worries linger

  • Written by MarketWatch
  • Published in Economics

Call it a happier sort of “Grexit.” Greece’s eurozone partners on Friday cleared the way for the country to depart its third bailout program in August, ending an eight-year stretch of financial assistance.

Finance ministers agreed a deal to provide some debt relief[1] , which should boost the country’s cash buffer as it attempts to build on a long overdue return to economic growth.

Greece’s economy is picking up steam, leaving the country on a new path that means “no return” to the dark days of the crisis, said Alexis Charitsis, Greece’s alternate minister for economy and development at the 7th Greek Investment Forum on Tuesday.

But don’t overdo it. Greece should continue to grow, but upside appears limited due to unfortunate timing, with the recovery gaining traction just as a tailwind from global and, more important, eurozone growth appears to be fading, said Ebrahim Rahbari, head of global macroeconomics at Citigroup, in an interview on the sidelines of the forum. And now, instead of Greece’s woes spreading fear, or “contagion,” to its fiscally strapped eurozone neighbors, there’s the danger that any sustained turmoil in Italy could undercut Greece.

“It’s unfortunate that Greece is recovering late in many cycles,” he said.

All that said, the numbers are moving in the right direction. The collapse of government finances in 2009 led to default, bailouts and a crushing, yearslong depression that shrank output by 25%. Gross domestic product grew 2.3% year-over-year in the first quarter and expanded by 1.4% in calendar year 2017, boosted by a rise in investment. Greece has returned to the capital markets, issuing debt twice in the past year via a five-year bond last July and a seven-year bond in February at yields of around 4%, contributing to a healthy cash buffer, according to Capital Economics.

Greece’s benchmark stock index, the Athex Composite Share Price Index GD, +2.01%[2] has lagged behind its European peers, posting a 4.6% year-to-date decline versus a 1.3% fall for the pan-European Stoxx 600 SXXP, +0.47%[3] In the U.S., the S&P 500 SPX, -0.63%[4]  is up 3.7% year-to-date.

But Athens is also likely to be left disappointed by the terms of the debt relief likely to be agreed on Thursday, analysts said. And there are plenty of nagging worries about Greece’s debt load and longer term economic prospects.

The Eurogroup, which is made up of eurozone finance ministers, is expected to agree to a three-part package of debt relief...

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