Whatever happened to the economic recovery promised for Greece?

It was only yesterday that I was discussing the failure of one part of the establishment which is the central banking system. In the UK this has been represented by the Bank of England “pumping up” Buy To Let mortgage lending and then claiming it will be in future the agent to deal with it ignoring the fact it created the problem. Later in the day Janet Yellen of the US Federal Reserve gave us at least the third version of Forward Guidance in 2016 alone. Yet the country which has been most let down by the various establishment’s has been Greece. Not only has its own political establishment failed it but the European Commission, the European Central Bank and the International Monetary Fund have done so too.

In particular we need to remind ourselves of this from back in the late spring of 2010 when what was even then the second bailout begun and people like Christine Lagarde starting boasting about “shock and awe”. It was supposed to led to this.

Real GDP growth is expected to contract sharply in 2010–2011, and recover thereafter with unemployment peaking at nearly 15 percent of GDP by 2012.

There was supposed to be economic growth starting in 2012 and then running at around 2.1% for two years and then pick-up to 2.7% in 2015..

but from 2012 onward, improved market confidence, a return to credit markets, and comprehensive structural reforms, are expected to lead to a rebound in growth.

Even companies like Enron have struggled to produce a document that turned out to be so false and such a misrepresentation of what was about to take place. This was then followed 2 or 3 years later by promises of what became called ” Grecovery” whereas even now we see a reality described below.

GDP for 2015 in volume terms, amounted to 185.1 billion € compared with 185.5 billion € for 2014 (0.2% reduction).

If we look into the detail a fall of 13.1% in investment was hardly optimistic for the future and if we consider that the whole process was to improve debt affordability then this example of genuine deflation showed yet another sign of failure.

GDP (market prices) for 2015 amounted to 176.0 billion € compared with 177.6 billion € for 2014 (0.9% reduction).

This is deflation because a price fall has added to the fall in output whereas the debt burden is in nominal terms and has got more expensive. So whilst Greece gets plenty of help in paying the interest the capital burden is in fact increasing on this measure.

Of course the establishments also engaged in a lot of scaremongering about what would happen if Greece had defaulted and devalued. By now if we look at the example of places like Iceland it would be doing much better.

Greek loans and bank deposits fall again

This is what particularly troubles me right now. Last year there were substantial falls in deposits at Greek banks as the fears that there would be “haircuts” of the form applied to some in Cyprus spread. Accordingly bank deposits fled the Greek banking system to avoid this. The problem is that you might have expected some to return as the situation calmed down, well take a look at this.

This shows us the scale of the monetary destruction wreaked by the original crisis then the self-inflicted problems of last year but also that not only has the money not returned it is drifting away.

Back on the 4th of December 2015 I discussed the impact of this on the Greek banking sector and its ability to support lending in the economy so let us take a look. From the Bank of Greece.

In February 2016, the annual growth rate of total credit extended to the domestic private sector stood at -2.3% from -2.1% in the previous month. The monthly net flow of total credit to the domestic private sector was negative at €295 million, compared with a negative net flow of €504 million in the previous month.

The very weak investment numbers for 2015 made me look at bank lending to industry and there is no recovery to be found here.

In particular, the annual growth rate of credit to non-financial corporations remained at -1.6%, unchanged from the previous month, and the monthly net flow of credit to non-financial corporations was negative at €49 million, against a negative net flow of €14 million in the previous month……..In February 2016, the monthly net flow of credit to sole proprietors and unincorporated partnerships was negative at €20 million, compared with a negative net flow of €12 million in the previous month,

The Greek banks

Here has been a tale of woe where there have been three major recapitalisations and the bottom line or cause of this is shown below by Macropolis.

The picture is different, though, if we look at the non-performing exposure (NPE), where the stock reached 115.8 billion euros and the relevant ratio and coverage both stood at 50 percent. Eurobank has the lowest NPE ratio (43.8 percent). Alpha (51.3 percent) and Piraeus (50.7 percent) are at the high-end.

That is not a long way short of the total amount of private-sector deposits is it? In other words we have a credit crunch on a quite extraordinary scale which the ECB is still supporting. The size of the ELA (Emergency Liquidity Assistance) programme is still 71.3 billion Euros which poses two issues. The first is that it is still there and the second is the cost of it as Greek banks have to pay an interest cost some 1.5% higher than normal rate for ECB borrowing.

What is the economic outlook?

For the Euro area overall the outlook is for economic growth but not much of it as the European Commission has reported today.

In March, the Economic Sentiment Indicator (ESI) registered the third consecutive drop in both the euro area (by 0.9 points to 103.0) and the EU (by 0.7 points to 104.6).

This means that the export outlook for Greece is only mildly favourable and so it is likely to have to generate economic growth domestically. The latest figures for industry are not optimistic.

The Turnover Index in Industry (both domestic and non-domestic market) in January 2016 compared with January 2015 recorded a decline of 13.3%.

If we look to the underlying index we see that it was at 65.5 in January where 2010 the bailout year was 100. Whilst the major driver of the recent fall was mining and quarrying it was also true that manufacturing turnover fell by 13.1%. Prices are falling fast but not by that much.

Also the specific surveys for Greece were patchy too with consumer sentiment falling to -71.9 from -66.8 whilst economic sentiment rose from 89 to 90.1

If we move to the Markit business surveys or PMIs then we await a new number at the turn of the month but the number at the beginning of March showed at 48.4 that there was certainly no growth and perhaps a contraction.

Greece will also be grimly noting the recent rising trend of the Euro which has seen it pass 1.13 versus the US Dollar today.


It is hard to find the right words to describe the scale of the economic destruction that has been seen in Greece. Perhaps the unemployment numbers are the most eloquent.

The unemployment rate was 24.4% compared with 24.0% in the previous quarter, and 26.1% in the corresponding quarter of 2014….As regards the unemployment rate for different age groups, the highest unemployment rate is recorded among young people in the age group of 15-24 years (49.0%). For young females the unemployment rate is 54.3%

So as a young woman you face an unemployment rate of 54.3%? That must be so demoralising. There is also the migrant crisis which is affecting Greece along the lines of the Shakespearian dictum that sorrows come in battalions rather than single spies. It may well boost GDP  a little but also imposes costs. Yet at best the country seems to be facing what is an L shaped recovery which is simply extraordinary considering the size of the decline. I would make those in charge attempt to explain that again and again.

Let me finish with some good news albeit of a Magpie type style from Bloomberg.

When it comes to luring foreign visitors to sun, sea and a bit of history, Greece might be about to gain from Turkey’s losses.

The Greek Tourism Confederation expects the number of visitors to rise to a record 25 million this year and bring 800 million euros ($897 million) of extra income,








19 thoughts on “Whatever happened to the economic recovery promised for Greece?

  1. If I had Euro’s in a Greek bank I’d be shipping them to Germany.The writing is on the wall.

    It’s like Northern Rock,EU stylee….

    • Hi Dutch

      It would appear that many of those who had deposits in Greek banks are thinking along the same lines. However if the ECB numbers are any guide the money may well have departed the Euro zone as the German level of bank deposits has been around 4.6 trillion Euros for the past year or so. The money could be in near Euro places such as Denmark or Bulgaria but there have been issues with the Bulgarian banks so maybe not there.

  2. It’s a shame that the IMF are not held to account for their forecasting abilities. It’s hard not to feel sorry for Greece but they did have a choice and decided to take the blue pill.

    In the words of Placebo ” see you at the bitter end”.

    • Hi rzzr and welcome to my website

      What amazes me is the way that the media continue to take IMF forecasts seriously when in fact they are usually wrong. Whilst I agree with you that the Greek establishment had a choice ( and choose the Euro) I think this is much less true of the ordinary Greek. After all Syriza was elected on an anti-austerity program before rolling over onto its stomach….

  3. Great blog as usual, Shaun.
    Mme Lagarde and the IMF were also hugely optimistic about the impact of their bailout of Ukraine:
    In April 2014 the IMF was predicting that there would be growth rates of real GDP of -5.0% in 2014, 2.0% in 2015 and 4.0% in 2016. Instead of growth in 2015, there was a decline of 9.9%, and the National Bank of Ukraine is predicting only 1.1% growth in 2016 (in its January Inflation Report).
    The decline in real GDP in 2014 in the NBU’s annual report for 2014 was 6.8%, also substantially worse than the IMF forecast.
    In Ukraine, at least, there really is a recovery, as the economy grew in 2015H2. The NBU has erred on the low side in its forecasts of real growth recently and hopefully growth in 2016 will be somewhat stronger than the NBU thinks. Nevertheless, I think the IMF forecasting record for Ukraine is almost as disgraceful as it is for Greece. The IMF doesn’t seem to make a serious effort at forecasting at all. As Max Keiser says, their forecasts are just sales gimmicks to sell the gullible leaders of a country on their bailout packages.

    • “their forecasts are just sales gimmicks to sell the gullible leaders of a country on their bailout packages.”

      Yes, but, why don’t the so called “leaders” look the IMF Board straight in the eyes at their meetings saying “I just don’t believe you!”?

    • Hi Andrew and thank you

      I hope that Ukraine will provide further reinforcement for my suggestions for Greece, so let me use the IMF’s own words from your link.

      “Exchange rate flexibility. The hryvina has been allowed to float—a radical departure after years of exchange rate rigidity,……..A flexible exchange rate is crucial for Ukraine to restore competitiveness and support exports and growth, avoid a destabilizing loss of reserves, and provide a shock absorber for the economy. ”

      So why was this not necessary in Greece? The answer of course is that is was. It is not a free lunch as the drop from around 16 to the Euro at the time of the IMF article to around 30 now has had consequences for inflation but in times of real distress it can be a release valve.

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  5. I guess a Troika promise should never be trusted

    still time for a Greek euro exit ?

    or has too much been lost ,,,,


    • Hi Forbin

      Definitely to both. It is never to late to do the right thing and if the Troika had confidence in what they had done then they would not now be calling themselves the Institutions. Actually the latter sounds like a Hale and Pace comedy sketch.

  6. Hi Shaun
    Thankyou for another interesting
    in depth piece.
    I admit complete failure in what I
    thought would happen in Greece, my guess
    was that Grexit would lead to the deck of
    cards falling one by one. There is an
    enormous irony in your last two quotes,
    Greece gets almost a billion euro bonus
    because of the Turkish situation and yet
    Turkey, just a few vital miles east gets vast
    amounts of cash and more importantly
    much more political power!


    PS Sorry for mentioning the “P word” but
    I hope that you agree it is financially valid?

    • Hi JRH

      The Euro establishment has proved to be both more resilient and cynical than pretty much everyone thought. Also they were aided and abetted by the Greek establishment. Also the Greek people were hoping that they would be better off in “European” hand than their own establishment. Somewhere in that mix it all went wrong.

      As to the politics it is impossible to completely avoid it…

  7. “….what would happen if Greece had defaulted and devalued. By now if we look at the example of places like Iceland it would be doing much better.”

    I’m not sure it’s that straight forward any more Shaun, I agree your point about Iceland but am doubtful their example transfers easily to Greece because of exports.

    Does Iceland export much? Did it ever? Greece does have links to other Global industries. In this world of Globalisation with integrated supply chains, where added value is input to a product by half a dozen countries before it is brought to market, it appears to me that a country such as Greece in this situation could only affect that portion of the finished product that it is responsible for and that part could be a very small value of the overall product, thereby rendering any “competitive advantage” via a devaluation very small and not enough to substantively help Greece with it’s balance of payments and GDP/employment other than with products made exclusively in Greece that are not subject to any Global supply chain.

    I also have to disagree the EC sentiment indicator – for me I expect 1.5% – 2% growth for the EZ in total.

    My comments ARE NOT intended as a defence of the shambolic actions of the Troika/Authorities or whatever they’re calling themselves this week.

    • Hi Noo2

      A default and devaluation is certainly not a “free lunch”. But the latter does help ameliorate the problems of the former until the beneficial effects come into play. How much a devaluation benefits the economy can vary as the UK has discovered as 1992 was different to 2007/08. But it remains vastly preferable to trying to do it by “internal competitiveness” or to give it the right name wage suppression. Before it got taken over by Euro area politicians the IMF used to believe so too.

      Also I firmly believe it would shake up the Greek establishment and thereby give an opportunity for at least some of the promised reforms to actually happen.

      As to the Euro area you are not that far away from Markit who predict 0.3% for Q1

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