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Greek recovery frail

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Tourists dove for cover beneath restaurant tables as shooting broke out in Monastiraki, a crowded neighbourhood in Athens, on July 16. Greek anti-terrorist police had trailed Nikos Maziotis, one of the country’s most wanted fugitives, to a shop selling camping equipment. As he fled, Maziotis opened fire with a handgun. He was arrested after being shot in the shoulder by a police officer.

Appearing before an investigating judge, Maziotis described his job as "being a revolutionary." He is accused of belonging to Revolutionary Struggle, a leftist extremist group that claimed responsibility for staging a rocket attack against the American embassy in Athens in 2007 and for several car-bomb explosions. The most recent, in April outside the International Monetary Fund’s office in Athens, came at a time when Greece was taking another step toward recovery, issuing its first sovereign bond since 2010.

Athens is enjoying its best year for tourism since it staged the summer Olympics in 2004. Fortunately the shoot-out in Monastiraki was quickly over.

"If there had been serious casualties, bookings would have been canceled across the board," said Panos Asimacopoulos, an Athens travel agent. "It goes to show how fragile the tourist industry is."

The Greek recovery is similarly frail. After a record 24 quarters of negative growth, the economy is forecast to grow by almost 1 per cent this year. About 20,000 new jobs will be added this summer, according to the National Bank of Greece, reversing six years of declining employment.

Business-confidence indicators are at a six-year high and consumers are again flocking to Athens’ shopping malls. The Finance Ministry says that Greece is on track to hit this year’s target of a budget surplus, before interest payments, of 1.5 per cent of GDP.

Even so, dozens of small but significant structural reforms are lagging behind schedule. Greek officials look forward with trepidation to September, which will bring the return of the troika, officials from the European Union and IMF who supervise the country’s $231.5 billion bailout. It will be their final joint review of progress: The EU loan program will end this year, although the IMF plans to disburse another US$21 billion in 2015 and the first quarter of 2016.

Negotiations will be tough. The Greeks want to ease the burden on hard-pressed taxpayers by reducing levies on fuel and, perhaps, by fudging an important reform that involves the large-scale dismissal of public-sector workers, which is fiercely opposed by the Pan-Hellenic Socialist Movement, the junior partner in the fractious coalition government led by the centre-right New Democracy party of Prime Minister Antonis Samaras. Another round of painful pension cuts is looming, on top of earlier across-the-board reductions averaging 30 per cent.

Finance Minister Gikas Hardouvelis, an American-trained economist, wants to slash the troika’s list of some 700 reforms to be enacted by the end of this year, arguing that such micromanagement no longer is required. With the unpopular "memorandum," as the bailout program is called by Greeks, on its way out, it is time, according to Greek officials, for Athens to assume ownership of the next stage of reform. They argue that six years of exacting adjustment are starting to show results, so Greeks are now readier to accept changes that could ensure them a prosperous future.

Outsiders are not so sure. They fear that, without the troika’s rigorous oversight, tax collection will slow, public-sector reform will be dropped and spending controls will be relaxed.

Next year’s budget will be included in the current EU program, making slippage less likely for the moment. Debt-relief negotiations, due to start at the end of the year, also may offer an opportunity for Greece’s euro-zone partners, the country’s biggest creditors, to set conditions. Greece is seeking longer maturities and fixed, rather than floating, interest rates on its mountainous debt, set to reach 180 per cent of GDP this year.

The troika, much disliked by Greeks, may disappear, but tight surveillance of Greek progress will not.

 

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