In 2010, Europe was plunged into an unprecedented financial crisis. So much so that the European Union and the International Monetary Fund had to come to the aid of several European countries such as Greece and Ireland in 2010, Portugal in 2011 or financial support for Spain in 2012. A little more a decade has passed and the evolution of these countries has been different.
To begin with, on April 5, Greece completed in advance the payment to the IMF of all of its outstanding debt, contracted with the institution since 2010 in the various bailouts of the Greek country. Greek Prime Minister Kyriakos Mitstotakis announced this on Twitter: “End of an era for the IMF as a lender in Greece! The government, paying in advance the last obligations of the country, closes a gray chapter which opened in March 2010. An era that the Greeks should not and will never relive. Today, despite the international upheaval, the national economy remains firm on the path of progress and alongside the citizen. We said it, we do it!”
The country had to be rescued up to three times between 2010 and 2015. At that time, the Greek economy suffered from certain imbalances such as high public social expenditure or high military expenditure, which caused it to accumulate a large public debt. But does an early payment mean the Greek economy is healthy? “Greece is not doing well”insists Antoni Cunyat, collaborating professor at the Estudis d’Economía y Empresa of the UOC. “It is the most backward country of all those who have been rescued,” adds Carlos Balado, professor at OBS Business School and director of Eurocofín
Professor Cunyat explains that it was the country that was the worst off and claims that it did not go bankrupt thanks to the help of the EU and the IMF: “The consequences of its abandonment for the rest of Europe would have been disastrous.” But he cannot manage to raise his head and show the example of GDP per capita which in 2010 amounted to 20,000 euros and in 2019 it fell to 17,000 euros. “Greece is still poorer than before the bailout,” laments the UOC professor.
Cunyat points out that the public debt of the Hellenic country is more worrying, which was until 2015 at 180% of GDP, in 2019 it was at the same percentage, but in 2020 it rose above 200% of GDP, which it ranks as the second most indebted country after Japan.
Most worrying in the case of Greece is that its public debt is higher than during the bailout, in 2020 it was over 200% of GDP
“Greece paid to demonstrate its solvency to the markets”, underlines the professor of the UOC, in spite of the fact that the situation in Greece is not very promising, “the country wanted to show that it is a reliable country: I paid my debt and I did it in advance”. Balado agrees and explains that it is now that Greece is starting to regain confidence, because it is the country that will later pay its debt. “Let’s see what happens, because their data is still negative”Add.
Greece’s problem is structural, as Cunyat explains, because the cost of public services is higher: “What you have to be aware of is that you have to adapt your social protection system to your possibilities. For the professor of the UOC, the problem of Greece has a way out and he recalls that the measures of the troika were intended for this, to improve the tax system towards a more efficient system and the social protection and social pension system which was not sustainable. “An effort has been made, but it is insufficient,” he said.
For the director of Eurocofin, Greece must continue to adjust the labor market, although less intensely, but there must be an adjustment of the public system, because the stability pact (which is stopped by the pandemic) imposes to have a debt of 60% of GDP.
On the other side of the ladder is the case of Ireland, which can be described as successful. The country has managed to reduce public debt, since during the financial crisis it amounted to 120% of GDP, and in 2020 to 58%. GDP per capita has also increased significantly, rising from 36,000 euros in 2010 to 80,000 in 2020, even if, as the two professors point out here, it should be noted that there is the effect of multinationals (Amazon, Google, Facebook…) and low taxes. “Ireland is a miraculous success story with a trick. If I have the lowest taxes, I have Amazon and all the multinationals paying taxes there, because obviously things are more favourable,” Cunyat points out.
Professor Balado explains that it was the first country to recover, it was rescued in 2010, and the first to regain market confidence, which is why it is showing better growth figures. But he points out that a large part of the wealth generated in Ireland is repatriated to other countries, that is to say that the profits of these multinationals go to the country of origin. “Removing the tax benefit, corporation tax is 12.5%), Ireland can be compared to Spain,” assures the professor of the OBS Business School.
“The origin of Ireland’s debt was different from that of Greece,” explains Cunyat. In Ireland the banking system collapsed, it is the case most similar to that of Spain, so we tried to bail out the banks with public aid which affected the public deficit and the debt. “In Greece, the public system has been disastrous”, assures the professor of the UOC, since he had a system of social advantages above his possibilities.
Nuances in Portugal’s recovery
Halfway between the success of Ireland and the stagnation of Greece is Portugal, which was saved in 2011. Antoni Cunyat explains that it is a success with nuances, since he managed to increase the GDP per capita from 16,000 euros in the which was in 2011 to 19,000 in 2019. The indicators are good, since in the case of employment, he managed to reduce it to 6%. However, special attention should be paid to the public debt, since it was only reduced from 130% at the time of the bailout to 116% currently.