The Economist

8 Leaders The EconomistAugust 4th 2018

1

G

REECE is gradually coming

out of the deepest depres-

sion suffered by any rich coun-

try since the second world war.

The economy is growing; unem-

ployment is falling (see Finance

section). On August 20th eight

years after it first sought help

the country will emerge from its final bail-out programme

with official creditors. The three bail-outs cost Greece €300bn

($350bn)—without counting interest payments or the effects of

harsh austerity. Before wildfires last week plunged the country

into mourning the left-wing government of Alexis Tsipras had

hoped to mark the occasion with street parties.

Greece’s recent progress is welcome but the country still

faces immense difficulties. Although euro-zone mandarins

will continue their inspections until most of the debts are re-

paid the onus will henceforth be on the Greeks to solve their

own problems. That has consistently proved beyond them

even when thecrisis was at its deepest.

Never waste a post-crisis

The marks of the crisis and the subsequent austerity are deep-

ly etched. Output in real terms is a quarter below its peak in

2007 and investment is down by two-thirds. The share of peo-

ple living in poverty has doubled. One in five of the workforce

is unemployed. Many of the most go-ahead have emigrated.

Although debt remains a crippling 180% ofGDP Greece

should once again be able to raise money thanks to an agree-

ment with creditors that extends the maturity of some loans

by ten years. But in return the country has pledged to achieve a

primary surplus ie excluding interest payments of 3.5% of

GDPevery year until 2022 and 2.2% until 2060—an almost im-

possible task. If growth slows interest rates rise or budget tar-

gets are missed private-sector lenders on whom Greece will

rely may question the sustainability of its public finances.

Such fragility only adds to the need to improve the econ-

omy’s growth potential. Greece’s productivity fell by 0.8% last

year even as the euro-zone average rose by 0.9%.

Structural reform is hard in any country but Greece’s politi-

cians will have to change their ways after years of inaction and

delay. If they set their mind to it they have a huge opportunity.

Few records exist of who owns land even though a compre-

hensive registry has been in the works for decades. Without

one selling land or anything on it can be delayed for years hin-

dering investment. Bureaucrats and judges slow business fur-

ther. The World Bank reckons that resolving a contract dispute

in court takes 1580 days. Businesses need licences to expand

production but the grounds for winning approval are often

vague. Privatisation and efforts to boost competition have

been half-hearted.

Tax collection is better than in the worst days of cronyism

and corruption. But the base is too small and high corporate-

and income-tax rates deter spending and investment. Those

who can evade. Plans to broaden the tax base in 2020 are rea-

sonable but demand rare political courage. The government’s

proposal to raise the minimum wage is sensible as long as in-

creases do not outstrip productivity gains.

Official creditors may think they are safe. But the crisis was

an indictment of the euro zone as well as Greece. The euro

zone was so anxious to avoid rewarding the country for its

profligacy before the crisisthat it shunned official debt relief

and realistic fiscal targets the solutions most likely to get

Greece back on its feet. In the depths of the crisis the currency

bloc risked being brought down by a member state that made

up less than 2% of its overall GDP. A crunch in Italy a much big-

ger economy that also has a large public-debt burden would

be a severe test—and going by Greece’s misery a fatal one. 7

Euro-zone austerity

The Greece-y pole

Greece GDP

% change on a year earlier

2016 17 18

1

0

1

2

3

+

Emerging from crisis Greece still has a daunting amount to do

S

OMETHING good is happen-

ing in the war-ravaged Horn

of Africa. Eritrea and Ethiopia

are making peace. It is as if North

and South Korea made friends

not just with platitudes at a sum-

mit but with actions on the

ground. In recent weeks Ethio-

pia’s new prime minister Abiy Ahmed and Eritrea’s dictator

Isaias Afwerki have signed a peace deal and reopened tele-

phone and air links between their two countries. On July 30th

Eritrea agreed to restore diplomatic relations with Somalia;

there is talk of mending ties with neighbouring Djibouti too.

It is too soon to say what all this means but the omens in

Ethiopia are good. As well as pursuing peace its new leader

has lifted a state of emergency welcomed back exiled dissi-

dents freed thousands of political prisoners and vowed to pri-

vatise lumbering state-owned enterprises. The big question-

mark hangs over Eritrea the North Korea of Africa.

The Eritrean regime hates being likened to North Korea’s—

and it does not have nuclear weapons—but the comparison is

unavoidable. Eritrea split from Ethiopia in 1993 after a 30-year

guerrilla struggle. The two countries fought a pointless war in

1998-2000 over a desolate border town; perhaps 70000 peo-

ple died. Eritrea is ruled by a despot-for-life whose critics wind

up dead or sweating in a gulag of shipping crates in the desert.

The Horn of Africa

How to make Eritrea less horrible

ETHIOPIA

SUDAN

SOMALIA

YEMEN

DJIBOUTI

SAUDI ARABIA

ERITREA

Red

Sea

500 km

Peace gives the North Korea of Africa a chance to open up