6 years down the line and Greece is still arguing with its creditors

A clear candidate for the saddest story and indeed theme of my time on here has been the economic depression inflicted on Greece. If I had my way Christine Lagarde could finish at the current trial she is involved in and then could move onto one with her former Euro area colleagues about proclaiming “shock and awe” for Greece back in 2010. This involved promising an economic recovery in 2012 which in fact turned into an economy shrinking by 4% in that year alone. Compared to when she and her colleagues were already boasting about future success, the Greek economy has shrunk by 19%, which means that the total credit crunch contraction became 26%. I also recall the bailout supporters attacking those like me arguing for another way ( default and devalue) for saying we would create an economic depression which in the circumstances was and indeed is simply shameful. Instead they found an economy on its knees and chopped off its arms too.

A new hope?

We have seen some better economic news from Greece as 2016 has headed towards irs end. An example of this came yesterday.

The unemployment rate was 22.6% compared to 23.1% in the previous quarter, and 24%  in the corresponding quarter of 2015……The number of unemployed persons decreased by 1.8% compared with the previous quarter and by 5.9% compared with the 3rd quarter of 2015.

As an economic signal we need also to look at employment trends.

The number of employed persons increased by 0.9% compared with the previous quarter and by 1.8% compared with the 3rd quarter of 2015.

Thus we see an improvement which backs up the recent information on economic growth.

The available seasonally adjusted data indicate that in the 3 rd quarter of 2016 the Gross Domestic Product (GDP) in volume terms increased by 0.8% in comparison with the 2 nd quarter of 2016…… In comparison with the 3rd quarter of 2015, it increased by 1.8% against the increase of 1.5% that was announced for the flash estimate of the 3rd quarter.

So we have some growth although sadly more of the L shaped variety so far than the V shape one might expect after such a severe economic shock. Another anti-achievement for the program. But there are hopes for next year according to the Bank of Greece.

Specifically, the Bank of Greece expects GDP to grow by a marginal 0.1% in 2016, before picking up to 2.5% in 2017 and further to 3% in 2018 and 2019, supported by investment, consumption and exports.

Let us hope so although we have hear this sort of thing plenty of times before. Indeed those thinking that Fake News is something only from 2016 might like to look back at the officials and their media acolytes who pushed the Grecovery theme around 2013. Also this by the Bank of Greece as its highlight needs to be considered in the light of the economic depression I have described above.

An unprecedented fiscal consolidation was achieved, with an improvement in the “structural” primary budget balance by 17 percentage points of potential GDP over the period 2009-2015, twice as much as the adjustment in other Member States that were in EU-IMF programmes;

Not everything is sweetness and light

The obvious issue is the way that a lost decade ( so far..) has caused something of a lost generation.

the highest unemployment rate is recorded among young people in the age group of 15-24 years (44.2%). For young females the unemployment rate is 46.9%.

Also the Bank of Greece gives us its own fake news unless of course Mario Draghi is wrong at every ECB press conference.

Substantial structural reforms have been implemented in the labour and product markets, as well as in public administration.


One way of looking at this comes from the current trend to issue policy statements on Twitter as everyone apes President-Elect Trump. From the IMF on Monday.

debt highly unsustainable; no debt sustainability without both structural reforms and debt relief

Of course we have known that for years and perhaps it might like to talk to the Bank of Greece about structural reforms! The next day we got this.

Debt relief AND structural reforms essential to make ’s debt sustainable & bring back growth.

The IMF has in effect told us that it is no longer willing to join in with the Euro area austerity fanatics.

On the contrary, when the Greek Government agreed with its European partners in the context of the ESM program to push the Greek economy to a primary fiscal surplus of 3.5 percent by 2018, we warned that this would generate a degree of austerity that could prevent the nascent recovery from taking hold. We projected that the measures in the ESM program will deliver a surplus of only 1.5 percent of GDP, and said this would be enough for us to support a program.

There are two main issues here where we see the path of austerity but also debt relief. The latter is a big issue as you see private-sector creditors took their pain in 2012 but the ECB has been unwilling to allow the official creditors to take their share and at most has been willing only to contribute the profits it made on its Greek bond holdings. Profits out of such pain spoke for its past attitude eloquently I think. Going forwards though this is an official creditor issue as they own the vast majority of Greek debt now.

The European Union’s commissioner for economic affairs was quick to respond.

Writing in the Financial Times, Pierre Moscovici rebuffed claims made by senior IMF officials this week that Greece’s debt is “highly unsustainable” and that the country needs further comprehensive tax and pensions reform.

Monsieur Moscovici has made all sorts of ridiculous statements in my time of following this issue such that it makes me wonder if he has any grasp of the concept of truth, which is quite an irony when he goes on to say this.

In this era of ‘post-truth’ politics, it is more important than ever not to let certain claims go unchallenged,

It may not have been the best of times for the main lending vehicle the ESM (European Stability Mechanism) which of course has produced anything but in Greece, to call 2016 “exciting” and predict this ” 2017 will be another exciting year”. Still it does now have a Governor of the Day and a Wheel of Governors which it is rumoured sees the Italian and Greek ones spin into the distance if you get it right or should that be wrong?

Meanwhile there is something rather familiar about 2017.

Compared to previous announcements, this means an increase of, in total, €7 billion. The EFSF funding volumes are increased by €13 billion to execute the short-term measures for Greece.

To give you an idea of the scale here Greece owes the EFSF some 130.9 billion Euros and the ESM 31.7 billion which is part of an 86 billion Euro plan. This means that these days when you see headlines about yields on Greek bonds they are much less relevant as Greece borrows from official sources. Frankly it would immediately be insolvent if it did not.


There are lots of issues here but let me use the IMF statement to highlight the crux of the matter.

While Greece has undertaken a huge fiscal adjustment, it has increasingly done so without addressing two key problems—an income tax regime that exempts more than half of households from any obligation (the average for the rest of the Euro Zone is 8 percent) and an extremely generous pension system that costs the budget nearly 11 percent of GDP annually (versus the average for the rest of the Euro Zone of 2¼ percent of GDP).

You see this in essence is where the crisis began. An inability to tax, often meaning the better-off, which combined with a generous pension system was also looking like a car-crash relationship. Yet 6 years of reforms later we are at deja vu which the appropriate sorry seems to be the hardest word of Elton John tells us is.

It’s sad, so sad
It’s a sad, sad situation.
And it’s getting more and more absurd.

Meanwhile the current government has done this as Maria Kagelidou of ITV News tells us.

promises 1.6 million pensioners on less than €850/month will receive one off 13th pension. €300 min. Total €617mil

A nice Christmas gift? In isolation of course but how can Greece afford this? Maria sent me some details which I will omit because they are identifiable but I will simply say that tax payments have been accelerated and it looks like the money has been borrowed from the future one more time.






13 thoughts on “6 years down the line and Greece is still arguing with its creditors

  1. I read the Greek pensioner associations have rejected the one off payment describing it as ‘peanuts’. It’s a mad world we live in!
    Glad so see that it hasn’t taken politicians long to jump on the ‘post-truth’ and ‘fake news’ bandwagon. I suspect the irony will be lost on them!

    • Hi Bez

      I wonder how many if them have any idea of what the truth is? As to the payments the pensioner associations may be right about “peanuts” in the grand scheme of things but those really down on their luck will no doubt be grateful for anything they can get.

  2. Without wishing to get into politics, the comments by Pierre Moscovici do seem to me to be the continuing triumph of politics over:
    1. Economics
    2. Common sense
    3. Common humanity.
    The Euro means that Greece cannot devalue. Any default would now essentially be a political nightmare for Germany in particular, as the debt is now owed to taxpayer-backed institutions. So, the two obvious escape valves are simply locked shut. And the consequence:
    1. A decade of contraction
    2. A tragic level of youth unemployment
    3. A pretence that Greece can grow its way out so as not to default, when even (in the famous words of a judge) a moron in a hurry can see that Greece is not going to pay back the debt.
    When the IMF thinks that measures are unsustainably harsh, you know that things are in a real mess.

    • Hi James

      It would appear that the mess is in some way both self-fulfilling and creating.

      Der Spiegel reporting that IMF will delay GR bailout decision until Spring, allowing time for Trump to get lay of the land. If true: Ugly”

      It is like some form of science fiction nightmare.

  3. i spent two weeks in Greece in November and visited many friends both in Athens and in rural areas. Athens, quite frankly, is circling the drain and there are no signs at all of things improving. Basic services and infrastructure are only just hanging on and it wouldnt take much for these to collapse. Roads and pavements are in the same dreadful state they have been for many years and the place is looking shabby. The rural areas are doing somewhat better as many people there have small holdings and can grow (and sell) a lot of what they need and often have rooms to rent out to tourists to supplement their income. In the past they looked towards the Athenians with envy; but no longer!
    I raised the issue of the black economy and lack of taxes with a number of folk and a common reply was ‘if we pay full taxes it will all go to the Troika and will not benefit Greece – if we pay someone in the black economy at least the cash stays in Greece and benefits Greeks’. An interesting way of looking at things!
    The Greek pension sounds very generous on the surface but many people receive much less than the figures quoted and struggle to live. A pension income is often the only money a household receives as unemployment is so high. Parents have to look after ‘children’ in their 30’s and 40’s.
    I have been pessimistic about Greece’s future in the Euro, for many years, and see no reason to change my opinion. The future still looks hopeless.

    • raised the issue of the black economy and lack of taxes with a number of folk and a common reply was ‘if we pay full taxes it will all go to the Troika and will not benefit Greece – if we pay someone in the black economy at least the cash stays in Greece and benefits Greeks’. An interesting way of looking at things!
      Been saying precisely this for years.
      When we holidayed in Zakynthos, I made sure I paid for EVERYTHING in cash.

  4. Hi Shaun,

    Lets be honest this whole Greek saga has been one of total dishonesty all the way through with none of the perpetrators suffering much in the way of consequences. Right from the Greek entry into the Euro with fiddled figures, ably assisted by the vampire squid, while everyone turned a blind eye to accounting practice. Then during the early stages of the first bailout pretending that it was for the benefit of the Greeks while it was actually about the Greeks bailing out the German and French banks on the never never with even more borrowed money, that the Germans and French (but not the banks) would ultimately be on the hook for. Throw in ECB and IMF projections of this miraculous but strangely never arriving recovery, the last Greek elections with the government claiming it would stop austerity while it actually did the exact opposite.

    Now of course this is all called “post-truth” and “fake-news”, those new phrases the establishment is desperately trying to get into the vernacular just as they did “mis-selling” when fraud would have been much more accurate. No debt relief will be considered until Merkel has won the German election, and even then it will be token to allow the Greeks to have another election themselves so maintaining the status quo. Hey the ECB can alway tack on a few extra noughts on the next electronic money printing to keep the ball rolling.

  5. Hello Shaun,

    I think its despicable how the Greek people have been treated. If the issues are just all politics then where’s the leadership from both sides?

    And did Greece give up the right to print its own Euros? I think it did , hmm, not the smartest of moves ( also not smart if they can print either – caution required ! )

    And in comparison …… Iceland ? are they still bottom up? no ?

    Interesting to compare Japan with Greece , both havent reformed but then again one makes a lot of money on trade and pays it taxes . I note that the PWC report stated that actually Greece is better or just as bad as Italy as far as the black economy goes!

    Perhaps both should be ejected from the Euro zone ( not EU )


    • Hi Forbin

      in economic terms Japan has more strengths with its manufacturing sector and its society is homogenous and law abiding. It would be interesting to measure its undeclared economy as whilst there is the Yakuza for example one would expect it to be relatively small.

      The national central banks do print Euros I believe but under the instructions of the ECB. This year the Greeks seem to have been keen on 10 Euro notes.


    • Greeks printing banknotes will not create wealth. Wealth comes from productive enterprise, like growing fruit & veges or raising animals or building, making, manufacturing, authoring useful stuff.

      I’ve been saying Greece needs to Grexit, default & devalue for years, and the troika still can’t prove me wrong.

  6. Greece is a scary example of the consequences of voters tolerating outright dishonest administration and voting for liars.

    The Greek system has failed to hold accountable very wealthy politicians who lie and do not pay tax. As a consequence the state budget does not have funds to pay for education, health care and pensions. The borrowing, the debt crisis and the lack of non-ECB bond buyers are symptoms of a lack of state income.

    Likewise, Italy tried Berlusconi’s business skills in an attempt to help Italian finances. I didn’t see any benefit for the ordinary Italian. God help the USA and all those Americans dependent on federal healthcare, veterans benefits etc.

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