Greece: out of intensive care

It’s looking sunnier in Greece

Investors should take a look at Greece, says Craig Mellow in Barron’s. “No, seriously.” Greece has suffered the equivalent of America’s Great Depression. The economy shrank by 25% of GDP after the 2009 debt crisis struck, and unemployment hit 28%. It required three bailouts by the EU and the International Monetary Fund, and came within a whisker of defaulting and leaving the eurozone. But now Europe’s perpetual basket-case is on the mend.

Growth returned in the first quarter and has endured so far this year. Greece hadn’t managed three successive quarters of growth for a decade. Unemployment has fallen to 22%. Yields on Greek debt have slid sharply in the past few months, reflecting rising prices. In July the government issued bonds for the first time in three years, which also reflects a gradual return of market confidence.

Political risk has diminished too, Prem Watsa of Fairfax Financial Holdings told Bloomberg.Successive governments have been notoriously unreliable, but in recent years things have improved. “The prime minister and finance minister have done all that was requested by creditors,” notes Watsa. Given this backdrop and cheap valuations, stocks have room to rise, says Mellow. Still, we shouldn’t get carried away. The equity market “remains thin and easily spooked”.

And despite some structural reform, the system is still riddled with “oddities”: most civil servants, for instance, have never had a job evaluation “because they go on strike if threatened with one”. And the key problem endures, adds Capital Economics. The public debt pile of 180% of GDP is still unsustainable, so Greece can hardly stand on its own two feet when the third rescue package expires next August “unless the eurozone [has] a serious change of heart about debt relief”.

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