Most Greeks know the expression vicious cycle—or favlos kyklos. But when you ask them the Greek for virtuous cycle, they often struggle to find the term, or even deny it exists.
After six years of recession that have shrunk the economy by a quarter and left Greece with an unemployment rate of 27 percent, it is not surprising that vicious cycles loom large in the national psyche. But there is a Greek expression for virtuous cycle—enaretos kyklos—and the country may be beginning to enjoy one.
Athens returned to the bond market last week with the issue of 3 billion euros of five-year paper. The country’s banks are also able to raise equity on the market.
The challenge now is to take this positive momentum in financial markets and use it to build on the tentative signs of recovery in the real economy. Confidence can be infectious. It is not just financial investors who are giving Athens the thumbs-up. So are Greece’s euro zone partners, led by Germany’s Angela Merkel, who was in Athens last Friday.
The main channel through which a virtuous cycle could operate is investment, which will create the badly-needed jobs. As Greek banks find it easier to fund themselves, they will start supplying more credit to local companies, which have been starved of cash. Foreigners are also starting to invest now that Greece has lower wages and cheaper property.
Antonis Samaras, the centre-right prime minister, plans to present the country’s new “growth model” later this month to tap this potential. The idea is that the Greek economy of the future will be less focussed on consumption and more on investment and exports. It will seek to position itself as a supplier of higher-end tourism, logistics, transport and food.
But the emergence of such a virtuous circle is not guaranteed. As ever, the main risk is politics: either that Samaras’ fragile coalition will fall; or that it will lack the will to push through the further structural reforms that are needed to change the country for good.
Unfortunately, the possibility that the government will fall cannot be discounted given Samaras’ habit of damaging himself. The latest self-inflicted wound occurred earlier this month when his chief of staff was caught on video telling the Golden Dawn’s spokesman that the government had intervened with the judiciary to put the leadership of the extreme right political party behind bars. At the very least, this incident shows Samaras lacked