June 10, 2021

Europe

GREECE: Labor market reform after record bond sale

BY Wolfango Piccoli

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Report Contents

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( 6 mins)
  • Greece is experiencing a slow start to its tourism season but even though such a key sector continues to feel the impact of the pandemic, the latest GDP figures provided some encouragement for a swift economic recovery as Covid-19 wanes
  • The country just received its strongest-ever demand for a bond sale, drumming up EUR 30bn of offers for its EUR 2.5bn sale of bonds due in 2031. Greece has raised EUR 11bn through bond issues so far this year.
  • On the domestic political front, ruling New Democracy (ND) remains solidly ahead in the polls and is expected to pass a labor market reform next week.

Greece officially launched its tourism season on 14 May but has yet to experience a surge in the number of visitors. International traffic at Athens airport up to the end of May barely topped 800k, down 86.6% on 2019. Also, the latest travel balance figures from the Bank of Greece show that travel receipts for Q1 came to just EUR 82.7 million.

Although May saw an increase in arrivals, the Greek tourism industry does not expect to see notable numbers until July as it strives to secure between 40 and 50% of the revenues earned in 2019, before the pandemic struck.

Greece has been at the forefront of pushing for the adoption of EU Digital Covid Certificate, which the government hopes will make traveling this summer more straightforward. Nevertheless, acknowledging that tourism businesses are still facing considerable uncertainty, Prime Minister Kyriakos Mitsotakis unveiled at the beginning of June a EUR 420 million grant scheme for the sector to cushion against low revenues.

Encouraging signs from GDP data and bond sale

There were more encouraging signs for the economy from the Q1 GDP data published on 4 June. The Hellenic Statistical Authority (ELSTAT) took most market participants by surprise last Friday when it reported that GDP in the first quarter dropped by just 2.3% year-on-year, while it grew by 4.4% compared to the fourth quarter of last year. These figures were better than expected considering that Greece went into lockdown last November and authorities only began to remove restrictions this May.

Most of the GDP components behaved broadly as expected apart from investments, which grew by an impressive 19.1% on a quarterly basis, although much of this comes from seasonal inventory building by firms. Actual capital investments produced a more modest 3% rise quarter-on-quarter.

In the latest Stability Program, which Athens submitted to the EC last month, the finance ministry forecasts growth of 3.6% this year. To reach this target, the economy will need to grow by nearly 6% in the next three quarters.

Greece also sought this week to capitalize on the favorable market sentiment by reopening a 10-year bond it issued in January. It fetched more than EUR 30bn in offers, implying a 12x oversubscription. This was the largest orderbook that a Greek syndicated transaction has ever garnered. The final spread of 82 basis points over mid-swaps is also the tightest over Bunds secured by Greece since it restored its market access in 2017. Athens drew EUR 2.5bn form the re-opening. This took the issue total to EUR 6bn after EUR 3.5bn was raised in January, making it the Greek state’s largest security.

The government is hoping to build on these positive economic developments on the political front as well. After suffering some wear and tear during the six-month lockdown, when the public grew increasingly frustrated with the center-right administration’s handling of Covid-19, ND wants to leave the pandemic behind and turn attention towards a more encouraging future for Greece.

Labor reform bill next while reshuffle noise re-emerged

In a Pulse survey for Skai TV last week, support for ND stood at 38.5%. This gives the ruling conservatives a 14-point lead over main opposition party SYRIZA and underlining the dominance that PM Mitsotakis’ party currently enjoys as it marks two years since it came to power in a landslide election victory.

To emphasize this point, the poll indicates that 63% of respondents have a positive view of the vaccine rollout although ND has come in for some criticism over the program. As of 8 June, almost 38% of the population had received at least one dose of the vaccine. This is slightly below the EU average and raises some doubts about whether the 50% target set by the Greek authorities for end-June will be reached.

Despite such concerns, the main political flashpoint now is a labor reform bill being debated in Parliament before a vote next week. The draft law seeks to introduce, among other things, flexible working hours, a new framework to regulate overtime and new rules for strikes and unions.

ND argues that this will help the labor market adapt to a new era. The opposition parties argue that it hands too much power to employers and that it will lead to the abolition of 8-hour working days and 40-hour working weeks. They have been joined in their resistance to the reforms by labor unions, who held a 24-hour general strike on 10 June.

Although the government has a comfortable majority in Parliament and there is no suggestion of a mutiny in its ranks, the labor bill has provided a rare moment of unity among its rivals. SYRIZA has unsuccessfully tried to cultivate ties with the third party, center-left KINAL, since being voted out of power. But the two parties have aligned over the labor issue in recent days, accusing ND of trampling over workers’ rights and giving more power to employers. It is doubtful, though, that this will lead to a more tangible alliance between SYRIZA and KINAL.

Despite his party being in a strong position, rumors have resurfaced over the past few days that PM Mitsotakis is considering a cabinet reshuffle. These were denied by the government, but the PM may shake up his cabinet to signal that he is drawing a line under the pandemic period and that his focus is turning to the future, including the deployment of the significant RRF funds that Greece is due to receive from the EU.

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