From survival to revival

In the end, it wasn’t even particularly close. In last Sunday’s national elections, the governing center-right New Democracy party came first, with 40.5% of the vote. That was only a smidgeon short of its results in the May 21 elections when it fell short of an outright majority.^[1] It translated into a comfortable majority of 158 of 300 seats for the incumbent government.^[2] The difference compared to May, was of course that New Democracy has reinstated the country’s majority bonus system for this time around. This gives extra seats to the largest party with the aim of providing government stability.

Kyriakos Mitsotakis, the prime minister since 2019, will once again be able to govern without a coalition partner. Short-term prospects for economic growth look healthy, at least by European standards.^[3] But plenty of challenges remain. Our Chart of the Week highlights one area of concern. It shows how Greece’s current account has sharply moved into deficit in recent years. To be fair, much of the deterioration was due to higher costs in fossil fuel imports felt throughout much of the world. However, a look into the details shows imports of chemical products have also increased, as did capital goods.

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A Greek Economic Odyssey in current account and trade figures

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^{Sources: Haver Analytics Inc, DWS Investment GmbH as of 6/27/23}

The latter is at least consistent with Greece becoming more attractive for capital spending, including foreign direct investment. Greece's economic landscape, once plagued by a crippling debt crisis, has witnessed a remarkable transformation. Gone are the days of austerity measures. Instead, taxes have been cut and tax compliance has improved. The pandemic gave a boost to digitalization, though other parts of the country’s infrastructure are rickety, as several high-profile catastrophes highlighted.

Tackling the current account deficit is crucial to Greece's economic trajectory, not least as portfolio investment can be quite fickle. “In the short-term, holiday booking figures promise a healthy tourism season, which should at least keep the current account deficit from getting even worse,” explains Ulrike Kastens, Senior Economist at DWS.

Greece will need to expand its export base beyond traditional sectors, such as tourism and agriculture. Investments in innovation and strengthening vocational training programs, as well as forging stronger ties between universities and the private sector would be quite helpful too, in boosting longer-term growth potential.^[4]

Streamlining bureaucracy, reducing red tape, and fostering a business-friendly environment would also be suitable chapters in the success story Greece has become in recent years.^[5] Mr. Mitsotakis has emerged politically strengthened, and seems eager to take on vested interests. The big loser at the elections was the leftist Syriza party led – for now - by former prime minister Alexis Tsipras. Still, years of economic hardship have left many Greeks disenchanted and skeptical of reform efforts, as the surprisingly strong performance of a new far-right fringe party showed. To be politically sustainable, transparency, inclusivity, and fairness must underpin the reform process, restoring confidence not just among foreign investors.