The last 6 years in Greece have proven the wit and wisdom of the late Yogi Berra to be very prescient.
It’s like deja-vu, all over again.
One clear example of that is that there is an extraordinary Eurogroup meeting of ministers today to discuss yet more plans for Greek austerity. It will also discuss how they can provide Greece with even more debt relief. Oh and just to add to the repetition all of this has to be done before the next set of bonds owned by the European Central Bank mature in July as Greece is unable to repay them on its own. There has been an extraordinary inflation in the number of Eurogroup meetings on the subject of Greece which is odd don’t you think when we are so regularly told how well things are going?
The Official View
Only on Friday Klaus Regling who as the head of the European Stability Mechanism is the main lender to Greece told us this in an interview with Corriere della Sera.
. The situation has improved compared to some years ago:
Poor old Klaus hits trouble in the same interview later as he tells us that Italy is not Greece!
Also, the two countries are not really comparable, Greece is in a completely different situation: it lost market access five years ago and needed huge amounts of money to stay in the euro area.
That does not seem like much of an improvement to me I do not know about you. Indeed Klaus hits more trouble as he tries to blow the trumpet for the program for Greece.
Greece has now a primary surplus, so it doesn’t need money every month to finance its budget. At the end of July, there is a real need for liquidity due to a sizeable debt repayment.
So it can finance itself except it cannot. Actually the primary surplus point is particularly important as it was presented back in the days of “Shock and Awe” from Christine Lagarde amongst others as a sort of Holy Grail. Once it was achieved the economy would grow – believe it or not but these clowns forecast 2.1% economic growth in Greece in 2012- and the debt burden would fall.Instead of course an economic depression was worsened and the debt burden rose. This means that Klaus needs to try to rewrite history and hope that nobody notices that it is the opposite of the May 2010 and following PR spin and hype.
the starting position in terms of economic problems was far more serious than that of the other programme countries.
The Debt Burden
Let us take a look at how much Greece now owes. First let us remind ourselves as to what the IMF forecast back in May 2010.
In Greece, debt would peak at 149 percent of GDP only in 2013. A pending data revision was expected to raise this projection by 5–7 percentage points.
Remember that we had the debt default called PSI in 2012 as the numbers instead ballooned. So with the success trumpeted by Klaus Regling it is now in better shape? Er no.
Greece owes some 321 billion Euros according to the latest estimates. This represents some 184% of Greek GDP which means that in this respect the original program failed in two ways. Firstly this debt peak has been some 30% or so higher compared to GDP so far at least and secondly the time-span was three years longer and counting..
The various flaws outlined here means that the official creditors of Greece have it in hock to just under 126% of its GDP. Klaus himself is responsible for debt totalling 87% of GDP. This is why he feels it necessary to churn out phrases like this.
So we are not close to any default.
The IMF holds a relatively small 14.7 billion Euros of Greek debt or about 8.4% of GDP. So you see the Euro area could easily replace it. What it cannot replace is the credibility that an IMF stamp on proceedings provides. When you review how far IMF credibility has fallen in recent years that is another sign of how bad things are.
The ECB is also a player here with 20.5 billion Euros left of the Securities Markets Program. Back in the early days it skulked off into the background with the profits from this but even the Euro area bureaucracy spotted that it was round-tripping the Euro area taxpayer and it now puts such money back in the pot.
Along that road you may note that media references to Greek bond yields are much less important than they once were as the real game is elsewhere.
Euro area ministers try to distract us from this in the manner of “look away now” or “move along, nothing to see here” but the reality has been a 6 year economic depression as opposed to the sunny uplands they promised. This has been the major player in everything else going wrong as the 2.1% economic growth promised in 2012 turned into a near 10% decline. That had a good go at wiping out all the gains from the 2012 PSI default.
In the first quarter of 2010 as in just before “shock and awe” Greek GDP was 59 billion Euros as opposed to the 46.1 billion of the last quarter in 2015. So we see a near 22% decline which is how you define an economic depression and perhaps the worst part is that according to the latest piece of data it is still getting worse.
The seasonally adjusted overall volume index in February 2016 compared with the corresponding index of January 2016 recorded a decrease of 3.0%.
Those retail sales numbers are an example of one of the deepest parts of the economic depression as the volume index were 2010=100 is 64.6. To put that another way they are buying less than two-thirds of what they did back then. Currently the most troubling aspect is the 5% fall in food purchases as the amount spent was already much lower. I guess the establishment can ignore that as they so often tell us such purchases are “non-core” . Even the sentiment indices are still struggling with the Markit manufacturing PMI at 49.7 still indicating stagnation.
This is happening when the rest of the Euro area has just had its best quarter for a while, due in my opinion to the beneficial impact of the lower oil price and the lagged impact of the past fall in the value of the Euro. Yet Greece seems unable to hitch much of a ride.
There is a rather wearying repetition as triumphant statement begets economic disarray and is followed by yet another triumphant statement. From the Guardian.
Greece has ‘basically achieved’ reform goals, says Jean-Claude Juncker.
Ah “basically achieved”, what again? Of course the man who told us he finds it necessary to lie has his own credibility problem! Meanwhile the Greek face yet another austerity program and yet more cuts to pensions. From Kathimerini
Sunday night of overhauls of the Greek tax and pension systems…..All 153 coalition lawmakers backed the legislation, which is worth 5.4 billion euros in budget savings.
Each time this medicine has been applied before the patient has become even more ill rather than improving as it turns out that the mathematics was supplied by Yogi Berra.
Baseball is 90 percent mental and the other half is physical.
It is now 6 years since the Euro area met to discuss and then approve the “shock and awe” program of May 2010. What they created was in fact a severe and long-lasting economic depression which is showing few if any signs of ending even now. This result is the opposite of the promises made back then. Greece was on a downwards trajectory but what it needed was a rope thrown to it to pull it up not a further shove in the back. Later we learned from US Treasury Secretary Geithner that more than a few at the meetings wanted to punish Greece and sadly that is the one part which did suceed.
Meanwhile the ordinary Greek has suffered from the economic depression which ensued. In essence the problem was this from the IMF.
Greece embarked on a far-reaching program of reforms in May 2010.
If it had then we would not be where we are and the first incarnation of the Syriza government looked hopeful but then engaged reverse gear. So the Greeks have been let down on so many levels. Even the latest austerity program will hit them again and miss the wealthy with of course the irony that if the truly wealthy had been taxed much of this would never have been necessary. Still there is Europe Day to celebrate.