With Greece and its creditors aligned in their desire to avoid a fourth bailout, a smooth exit from the current program appears likely in August after completion of the fourth review; however, several more steps are necessary before Greece exits the program. Greek Prime Minister Alexis Tsipras may try to capitalize on a smooth exit from the program by calling early elections in the fall of 2018, before politically painful cuts in pensions take effect. The “twin deficits” in the fiscal and external accounts have all but disappeared, but fiscal imbalances have migrated to private sector balance sheets. Tax arrears and non-performing loans remain at record-high levels while growth disappointed in 2017. These challenges test Tsipras’s promise to make Greece “normal” again. Without further reform to improve the entrepreneurial climate and attract investment, the Greek economy risks being trapped in a low-growth equilibrium.
