Greece remains mired in an economic depression without the promised Grecovery

As we begin to make our way through another year we should not allow our minds to be numbed by past events concerning Greece. There is an element of human nature where we need higher doses of shock and horror to attract our attention and the Greek situation is an example of this. However something did attract my attention this morning and it was something that could be badged as good news. From Reuters.

The European Central Bank lowered the cap on emergency liquidity assistance (ELA) Greek banks can draw from the domestic central bank by 0.1 billion euros to 71.4 billion euros ($79.5 billion), the Bank of Greece said on Thursday.

In fact let me also present the good news bit.

The move reflected improving liquidity conditions in Greece’s banking sector, helped by the stabilization of private sector deposit flows, the Greek central bank said.

The obvious issue is that 100 million Euros is not a whole lot of improvement! Indeed we can go further by reminding ourselves that this is “emergency” assistance when the emergency is supposed to be over. Putting that into numbers the amount of ELA which peaked above 90 billion Euros in late summer 2015 still looks rather elevated to me.

Greek bank deposits

The situation in the Greek banking system troubled me back on the 4th of December as shown below.

Business and household deposits dropped by 590 million euros or 0.5 percent month-on-month to 121.08 billion euros ($129.1 billion), to their lowest level since March 2003.

This meant that the state of play back then was this.

Greece saw a 42 billion euro deposit outflow from December to July.

My contention was that the banking system was still in a state of distress and was accordingly in now position to help a sustained economic recovery in Greece contrary to the official rhetoric. Let us bring this up to date with the figures for December.From Macropolis.

The Greek banking system displayed deposit inflows of 2.65 billion euros in December following outflows of 390 million in November,

On the surface this looks good news but as we look deeper we see deposits fell in November which is against the recovery mantra and that they have only reached 123.38 billion Euros. This compares to the recent peak of 171.9 billion and the fact that they remained above 171 billion Euros until November 2014.

We can put this another way which is in terms of the money supply where the wider measure M3 fell by 26% in the year to November 2015. That is a depression and indeed depressing statistic and comes in spite of an official -0.3% interest-rate from the European Central Bank. It finds itself pushing on something of a monetary string in Greece as M1 growth of 11% becomes M2 and M3 contractions of around 26%. The December numbers will be a little better but in essence the beat goes on.

How can the Greek banks help the economy?

We see here that December was better but in this instance did not offset November. From the Bank of Greece.

The monthly net flow of total credit to the domestic private sector was positive at €210 million, compared with a negative net flow of €458 million in the previous month.

This leaves the annual situation as shown below.

In December 2015, the annual growth rate of total credit extended to the domestic private sector stood at -2.0% from -2.2% in the previous month

In other words we are seeing a continuation of the concept of a credit crunch. We hope that December’s improvement signals better days ahead but so far the pattern has been pretty much relentless.

Economic growth

Last week we received this news.

Available seasonally adjusted data indicate that in the 4 th quarter of 2015 the Gross Domestic Product (GDP) in volume terms decreased by 0.6% in comparison with the 3 rd quarter of 2015, while it decreased by 1.9% in comparison with the 4 th quarter of 2014.

If we look back we see that the peak for the Greek economy was the second quarter of 2007 when quarterly economic output reached 63.3 billion Euros at 2010 prices. Those of a nervous disposition might like to look away now as the latest figure was 45.6 billion or some 28% lower. That number just shouts economic depression at us off the page or DEPRESSION.

Let us remind ourselves of what the IMF promised back in 2010. From my update on the 6th of October 2014.

Believe it or not the Greek economy was supposed to return to growth in 2012 (1.1%) and then grow at over 2% from 2013 onwards.

Some still seem to believe this as this from a Vox EU paper by Barry Eichengreen, and Charles Wyplosz shows.

Thus, by the end of 2012, following three years of turmoil, the Crisis was over……..With prices rising by 4% in Germany, rebalancing within the Eurozone proceeded without forcing a disastrous deflation on countries like Greece.

Actually I am teasing as this is plainly satire and well-played to the authors but the point is valid that the official view essentially does believe this. Otherwise how did IMF Managing Director Christine Lagarde get a second term?

As a final point regular readers will recall that I had my doubts about the numbers from early 2015 and I note that they have been revised down heavily.

Deflation too

My definition of deflation is that aggregate demand in an economy falls and Greece has plainly experienced that. The next step is the type of deflation which is a downwards spiral and yesterday we got a reminder that Greece has also experienced that.

The HICP in January 2016 compared with December 2015 decreased by 1.7%…….The Harmonized Index of Consumer Prices (HICP) in January 2016 compared with January 2015 decreased by 0.1%.

The underlying index which peaked at 104 in the spring of 2013 is now 98.3.  So we see that as well as output falling prices have too. We do not have the latest GDP deflator data but we are left with the view that debt dynamics in Greece are deteriorating which of course is exactly what it does not need.

As it stands the debt to GDP ratio is 180% and the problem is that whilst the interest on it is affordable these days the capital burden is not. Whilst the headlines proclaim a ten-year yield in Greece of 10.5% the truth is that the vast majority of its debt is in official hands ( European Stability Mechanism, ECB and the like) allowing Greece to borrow very cheaply. The capital issue is simply the lack of economic growth reinforced by falling prices.


The beat goes on for the economic depression that has been inflicted on Greece. This is illustrated by the fact that the unemployment rate is 24.6% still and sadly after some improvements is showing signs of flatlining. In essence a million workers disappeared and have so far not returned. So we get the occasional flicker of hope but sadly a grim reality replaces it. It was heartbreaking to note that after the farmers protested in January and threw tomatoes at the Greek police people were seen afterwards picking them up and presumably were hungry.

My argument has been all along that the only way out of this is to default and devalue. It is not perfect but it is better than this shambles. From Yannis Koutsomitis.

still disagree on debt relief. IMF wants full Greek NPL sale, warns of more bank recapitalizations: sources via BBG (NPL = Non Performing Loans)

Okay and here is the ECB from Kathimerini on that subject.

“The capital plans have been fulfilled, so there is no need for additional capital requirements. We are in good shape in that respect,” Daniele Nouy, who chairs the Single Supervisory Mechanism, told the Greek newspaper Agora.

All that is before we get to the migrant crisis where Greece yet again finds itself in the front line.





17 thoughts on “Greece remains mired in an economic depression without the promised Grecovery

  1. Thanks for this blog post regarding Greece’s economy; I really enjoyed it and am definitely recommending this blog to my friends and family. I’m a 15 year old with a blog on financial markets and economics at, and would really appreciate it if you could read and comment on some of my articles, and perhaps follow, reblog and share some of my posts on social media. Thanks again for this fantastic post.

  2. ‘My argument has been all along that the only way out of this is to default and devalue. It is not perfect but it is better than this shambles. ‘

    Amen to that Shaun.The only problem with that is that we’d find out that some Euro area banks have been skinny dipping after all……..

    Deutsche is coming out with a swimwear range apparently….better late than never.

    • Hi Dutch

      The official story is that it is nothing to do with the French and German banks which only leads to more suspicion! As to Deutsche I suspect the swimwear line will all be the same colour nude.

      People before banks would be my motto and modus operandi.

  3. Hi Shaun,

    Great post. And it raises questions. Who has had a recovery ? How have they broght the recovery about ? It is interesting to compare Greece with Latvia’s internal devaluation.

    Greece’s unemployment & 28% reduction in GDP are hardly worse than Latvia – with the significant difference the Latvia has seen a substantial recovery since 2008.

    Likewise, Iceland has gained 50% recovery from trough. More significantly the 2016 number excludes certain investment banks where the 2008 figures included them. In terms of equality and best economic outcomes for the majority we can safely say that Icelandic citizens are better off without these failed banks.

    I’d suggest the 2 above examples firmly support your premise that Greece would be much better letting the banks sink.

      • ‘…we can safely say that Icelandic citizens are better off without these failed banks.

        we would be too’

        can I x2 those comments? It’s nice to know you’re not the only one.

    • Curious country Latvia, lost 25% of its population over the last 25 years. When people leave for whatever reason, they rarely go back.

  4. Hi Shaun
    Due to their wonderful depression of their own workers income from 2000 onwards, Germany had excess money to give to the Greeks to buy shiney new useful things like tanks and submarines which they happened to make. Of course the transfer went via the banks so they could cream off their fat margins as usual.
    Since 2008 the Germans have insisted club-med follow the teutonic masterplan of austerity within the euro straightjacket. Never once have they considered easing the situation by reversing their own internal repression, by reducing consumption taxes and/or income taxes , to reverse the flow of money from the homeland.
    The ‘German miracle’ since the turn of the century isn’t because they make better ‘stuff’ than others and sell even more across the world. Its because they export money /credit after depressing internal demand. By the way the Swedes ( you know that ‘socialist paradise’) have been closely following their example.
    The Greeks ( along with Portugal etc) can overcome this by publicly cancelling the debt. Just like that. And stay in the euro if they want to. One country , one vote.What are Germany going to do? Invade? Oh I forgot, they encouraged a load of Syrians et al to do that already.
    There would be much tut-tutting, ( as bad as the Argies don’t you know) and then life would go on.

    • Post default,grass will still grow,people will still dig for oil.If you listen to the vested interests,you’d believe the world would end.As Iceland shows,that’s just not the case.

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