Does Trump matter for the Greek economy?

Given Greece’s position, lumbered with a public debt that is almost twice the size of its annual economic output, the idea of someone who has described himself as the “King of Debt” being elected US president would, under normal circumstances, spark the hope that a kindred spirit will inhabit the White House.

Donald Trump’s assertions that he is “great with debt” and that he has “made a fortune by using debt” make him sound like the kind of person you would want on your side when you are struggling to make ends meet. It is doubtful, though, that the US president-elect would want to invest time in the Greek issue. At the height of the frantic negotiations between Athens and the rest of the eurozone, Trump said he felt that the euro was “set up to hurt the United States” and that he had little concern for Greece’s predicament.

“I’d let Germany handle it,” he told Fox Business. “We have enough problems; let Germany handle it. Germany will take care of it. This is peanuts for Germany. They’ll take care of it. Frankly, [Russian President Vladimir] Putin probably comes in to save the day, if Germany doesn’t.”

Based on this, it appears that Athens should expect minimal engagement from a Trump administration regarding the Greek debt issue.

There is also a fear, based on Trump’s efforts to connect with the white working class in the US, that his arrival in the White House will signal a broader retrenchment from Washington on global economic issues that will propel the return of protectionism.

Although he has not homed in on the Transatlantic Trade and Investment Partnership (TTIP), the free trade deal that the US and the European Union have been trying to secure (with some difficulty), Trump has said that he would like to withdraw the US from the North American Free Trade Agreement (NAFTA) and to impose tariffs on some imports.

Some economists are concerned that this would lead to a recession and spark an international trade war. Others believe that economic reality will prevent Trump from sparking a global race to raise trade barriers.

“We live in a world of supply chains where imposing tariffs on Mexican or Chinese imports will raise costs of United States businesses and make it hard for them to compete,” wrote Harvard economics professor Dani Rodrik in The New York Times last week. “Mr Trump is a businessman, and he will understand soon, if he does not now, the senselessness of blanket protectionism.”

The economic threat of a Trump presidency for Greece may lie elsewhere, though. Speaking to a parliamentary committee last week, Alternate Finance Minister Giorgos Houliarakis set out some of his concerns.

The first potentially damaging factor he identified is the uncertainty that Trump brings to the global economy. Uncertainty can be a nebulous concept but for Greece’s fragile economy it presents a very clear danger. If we needed a reminder of how vulnerable the Greek economy is and how even the slightest shock could have a damaging effect, the August unemployment figures published last week provided it. Despite another strong tourism season, the unemployment rate actually edged up to 23.4 percent in August, with 1,700 people being added to the list of 1.13 million that are without jobs.

Last week, the European Commission predicted in its fall economic forecasts that the Greek economy will contract by 0.3 percent this year before growing 2.7 percent next year and 3.1 percent the year after. Clearly, though, to get anywhere near meeting these ambitious targets, driven by strong increases in investment and exports, Greece needs a stable European and international economic environment. If that stability is not there, the strength of the recovery, if not the recovery itself, will be in doubt.

“Following Brexit and Trump’s victory, we expect increasing apprehension about the various political events coming up in Europe over the next 12 months,” said Deutsche Bank senior economist Marco Stringa last week.

“This uncertainty will constrain the euro-area recovery, underscore our expectation for a slowdown in euro-area 2017 GDP growth and further complicate the European Central Bank’s task,” he added, seeming to confirm Greek concerns.

Houliarakis also made a couple of other, more specific, points that are worth contemplating. He said that if Trump goes through with his pledge for a 1-trillion-dollar public investment program, this will have an impact on the US’s current account and lead to the dollar weakening against the euro.

“The policies Trump can implement immediately without the approval of Congress are on trade and immigration, and these could push the US into recession,” Megan Greene, the chief economist at Manulife Asset Management, told Kathimerini English Edition. “If that is the case, the Federal Reserve [the US central bank] would not be able to hike rates further and the dollar would weaken.”

A weak dollar would pose a new challenge to Greece’s recovery. Much has been made of Greece’s painful internal devaluation effort since the beginning of the crisis but it has also taken place against the backdrop of a falling currency. The euro stood at 1.44 against the dollar at the start of 2010, before Greece signed its first bailout, and has since fallen steadily, even dropping below 1.10 this year. This process has made Greek exports cheaper and Greece more attractive to tourists from the US.

Anything that reverses this trend will be an added burden in the efforts to haul the Greek economy onto the road to recovery.

The final factor identified by Houliarakis is the possibility of the Federal Reserve tightening its monetary policy by raising interest rates if it deems Trump’s policies to be inflationary. This would affect liquidity abroad as well as in the US, which the government official believes would be a blow to economic recovery in Europe and other parts of the world.

“Trump’s fiscal stimulus program should help growth, but requires the approval of Congress,” said Greene. “By the time these policies are debated and legislated by Congress and finally feed into the real economy, it will probably be 2018. If significant fiscal stimulus does come through in the medium term, then the Fed will have to combat inflation and so will hike rates more quickly, causing the dollar to strengthen. Fed rate hikes could tighten financing conditions in emerging markets, but are unlikely to have a significant direct impact on conditions in Europe.”

For now, there is little that Greece can do. Like the rest of the world, it can only wait and hope that a Trump presidency will not trigger the kind of economic reverberations to match the political shock waves caused by his electoral victory.