Greece is drowning under all the debt its “rescue” brought

After looking at the recent economic success of Spain on Friday, which was confirmed this morning by the official data showing 3.2% GDP growth in 2016 it is time to look at the other side of the Euro area coin. This is a situation that continues to be described by one of the songs of Elton John.

It’s sad, so sad
It’s a sad, sad situation
And it’s getting more and more absurd
It’s sad, so sad
Why can’t we talk it over
Oh it seems to me
That sorry seems to be the hardest word

This is the situation facing Greece which is on its way back into the news headlines after of course another sequence of headlines proclaiming a combination of triumph and improvement. What is triggering this is some new analysis from the IMF or International Monetary fund and it is all about the debt burden. It is hard not to have a wry smile at this as the IMF has been telling us the burden is sustainable for quite some time in spite of it obviously not being so as I have regularly pointed out in here.

The IMF analysis

The Financial Times has summarised it like this.

Greece faces what is likely to be an “explosive” surge in its public debt levels that within decades will mean it will owe almost three times the country’s annual economic output unless given significant debt relief, the International Monetary Fund has warned in a confidential report.

Not that confidential then! Or perhaps conforming to the definition of it in Yes Prime Minister. Worrying after some better news in relative terms from the World Economic Forum suggesting that Greece was a lot further down the list of national debt per person (capita) than you might think. Japan of course was at the head at US $85.7k per person and intriguingly Ireland second at US $67.1k per person but Greece was a fair way down the list at US $32.1k each. Of course it’s problem is relative to the size of its economic output or GDP (Gross Domestic Product).

If we look at the detail of the IMF report it speaks for itself.

The fund calculated that Greece’s debt load would reach 170 per cent of gross domestic product by 2020 and 164 per cent by 2022, “but become explosive thereafter” and grow to 275 per cent of GDP by 2060.

If we switch to Kathimerini we find out the driving force of the deterioration in the debt sustainability analysis.

Greece’s gross financing needs are estimated at less than 20 percent of GDP until 2031 but after that they skyrocket to 33 percent in 2040 and then to 62 percent by 2060.

If we step back for some perspective here we see confirmation of one of my main themes on Greece. This has been that the debt relief measures have made the interest burden lighter but have done nothing about the capital debt burden which has in fact increased in spite of the PSI private-sector debt reprofiling. We can bring in that poor battered can now because the Euro area and the IMF thought they had kicked it far enough into the future not to matter whereas the IMF is now having second thoughts. In short it has looked at the future and decided that it looks none too bright.

The crux of the matter is the amount of the austerity burden that Greece can bear going forwards. Back in May 2016 the IMF expressed its concerns of future economic growth.

Against this background, staff has lowered its long-term growth assumption to 1¼ percent, even as over the medium-term growth is expected to rebound more strongly as the output gap closes.

That will do nothing for the debt burden and will have been entwined with the extraordinary amount of austerity required under the current plans.

This suggests that it is unrealistic to assume that Greece can undertake the additional adjustment of 4½ percent of GDP needed to base the DSA on a primary surplus of 3½ percent of GDP.

As an alternative the IMF suggested something of a relaxation presumably in the hope that Greece could then sustain a higher economic growth rate.

The Euro area view

This was represented last week by Klaus Regling of the European Stability Mechanism or ESM.

I think it’s really important for Greece because it will reduce interest rate risk and improve Greek debt sustainability.

What was that Klaus?

we are dealing here with a bond exchange, where floating rate notes disbursed by the ESM and EFSF to Greece for bank recapitalisation will be exchanged for fixed coupon notes. There are measures related to swap arrangements that will reduce the risk that Greece will have to pay a higher interest rate on its loans when market rates go up………In addition, the EFSF waived the step-up interest rate margin for the year 2017 on a particular loan tranche. A margin of 2% had originally been foreseen, to be paid from 2017 on.

As you can see each time Greece is supposed to pay more they discover it cannot and we need more “short-term” measures which according to Klaus will achieve this.

All this will go a long way in easing the debt burden for Greece over time, according to our debt sustainability analysis. It could lead to a cumulative reduction of the Greek debt to GDP ratio of around 20 percentage points over the time horizon until 2060.

It does not seem a lot when you look at the IMF numbers does it. Also Euro area ministers repeated something which they have said pretty much every year of the crisis, from the FT.

Mr Dijsselbloem, who is also the Dutch finance minister, said that Greece was recovering faster than anyone expected.

Really? What was that about fake news again?

Retail Sales

We can learn a lot from these numbers and let us start with some badly needed good news.

The overall volume index in retail trade (i.e. turnover in retail trade at constant prices) in November 2016, recorded an increase of 3.6%.

Although sadly some of the gloss fades when we note this.

The seasonally adjusted overall volume index in November 2016 compared with the corresponding index  of October 2016 recorded a decrease of 0.2%.

So overall a welcome year on year rise and the strongest category was books and stationery. However perspective is provided if we look at the index which is at 69.7 where 2010 was 100. As that sinks in you get a true idea of the economic depression that has raged in Greece over the period of the “rescue” and the “bailout”. Most chilling of all is that the food beverages and tobacco index is at 55.6 on the same basis leaving us with the thin hope that the Greeks have given up smoking and fizzy drinks.

Also it is far from reassuring to see the European Commission release consumer confidence data for Greece indicating a fall of 3.4 to 67.8.


There is much to consider here but we find ourselves looking back to the Private-Sector Initiative or debt relief of 2012. I stated back then that the official bodies such as the ECB and IMF needed to be involved as well because they owned so much of the debt. It did not happen because the ECB said “over my dead body” and as shown below what were then called the Troika but are now called the Institutions pursued a course of fake news.

Thanks to Michael Kosmides of CNN Greece who sent me that chart. As we note the fake news let me give you another warning which is that Greece these days depends on its official creditors so news like this from Bloomberg last week is much less relevant than it once was.

The yield on Greece’s two-year bonds surged 58 basis points to 7.47 percent, while those on benchmark 10-year bonds rose 22 basis points to 7.13 percent as of 2:41 p.m in London.

The real issue is that Greece desperately needs economic growth and lots of it. As I pointed out on December 16th.

Compared to when she ( Christine Lagarde of the IMF) 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%





23 thoughts on “Greece is drowning under all the debt its “rescue” brought

  1. Great blog to remind us of the forgotten Greece. I would take the following from it:
    1. Greece is bust;
    2. From public pronouncements from the authorities, Greece is healthy and on its ever-upward trajectory;
    3. Internally, the IMF knows it’s bust;
    4. We are therefore witnessing a massive set of lies in order to protect the Euro;
    5. No-one seems to care a damn about the humans in Greece.
    Is that a fair summary?

    • The way that the EU behaved in Greece (and in Ireland) was one of the reasons I voted to leave the EU. The way they have behaved since convinces me it was the right decision. When Papandreou had the temerity to stand up to the EU he was swiftly replaced. When Tzipras tried it they turned off the finance until the banks were out of money and the country on its knees. Ireland had to vote twice to ratify the Lisbon treaty and were threatened with Armageddon if the vote went the wrong way. The EU is a dictatorship, albeit fairly benign at the moment – but they all start out that way. They now threaten us with a harsh Brexit to discourage others from leaving . They sound like the Warsaw pact countries. Do they learn nothing from history?
      Greece is a mess and will continue to be wrung out until all European elections are settled (to the EU’s satisfaction) and the Euro is stable and then it will ultimately be cast adrift. Everyone knows it is unsustainable however the Greeks can continue suffer until the EU feels safe. It is a disgrace.

      • The evidence for the lies is in Shaun’s article, where the internal IMF briefing acknowledges a different state in Greece from the public announcements;
        2. As to the human aspect, I have not seen a single measure taken by the EU to help the obscene youth unemployment levels in Greece, Spain and Portugal

        • Apologies, I didn’t make it clear – what evidence do you have that the lies were made to protect the Euro as opposed to the Institutions protecting their own jobs?
          The Euro is being protected explicitly by the ECB, ESM and EFSF. No lies are required to protect it as it is already fully protected.

          I am trying to move the debate on Shaun’s pages away from emotional outburst to fact based discussion as Shaun does most of the time.

          Re-reading point 5 I agree,no – one does seem to care INCLUDING THE GREEK AUTHORITIES who should be the first in line to help their people, but I am unaware of any initiatives they have undertaken to address this structural problem.

  2. I find it ironic that the EU is looking at fake news whilst at the same time peddling stories that Greece is fine and has never been in better shape.

    • Ha ha ha. LOL.
      I think that, if you read your dictionary properly, you will find that the definitions are as follows:
      1. Truth- the world as we, the elite, would like you peasants to believe (and vote accordingly);
      2. Fake news – Anything that does not tie in with 1.

      See also definitions for “populism” and “referendums”, which may be found respectively under “appalling” and “undemocratic attempts to undermine the truth (see above) through populist (see above) means”.

  3. Great blog as always, Shaun.
    It is tangential to the sad situation that you describe, but Greece is the only one of the countries for the EU, Iceland and Norway, for which Eurostat does not publish a quarterly house price index, although the Bank of Greece does publish a quarterly HPI:
    (When I tried to calculate the annual inflation rate for 2016Q3 from the numbers, I came to -1.0%, as opposed to -1.5% shown in the table for previous year change. Is this a clue as to why Eurostat refuses to incorporate this index in their tabulations?)
    It is also the only one of these countries besides Iceland and the Netherlands for which Eurostat does not publish a quarterly OOHPI series. Why the Netherlands would be a hold-out is a bit of a mystery. Are you doing a blog on the Dutch economy soon? However, the unavailability of both countries to provide data would surely put in doubt whether the ECB could switch to a Monetary Union Index of Consumer Prices (MUICP) incorporating an OOHPI series. Perhaps, recognizing its unusual situation, the EU should agree to finance the full cost of Greek programs to create an HPI and an OOHPI that would meet Eurostat norms, at least for the next decade. Otherwise, Greece’s internal problems could forestall a necessary statistical reform by Eurostat and a necessary monetary reform by the ECB.

    • Hi Andrew and thank you

      Your link gives us a reminder of another depression which is the one which has held sway in the Greek housing market. We don’t get a great idea pre the bust as the data shows from early 2006 but an index set at 100 in 2007 and now being 59.3 is a clear bust! As you point out it seems to be still drifting lower.

      As to the Netherlands I knew I had seen house prices on the official stats site so went and looked for them. So why they are not part of the OOH (NA) project is something of a mystery to me too.

      Similar timing to the UK for the bounce back ( starting ~summer 2013) but less of a rally…..

  4. Hello Shaun ,

    two course of action are open to the Greek people

    1, leave the Euro and default

    2, full fiscal and monetary union with Germany

    3, default anyway

    * you can see my maths are just the like IMF & ECB (!)


    • Or perhaps I could add two more, using the IMF’s maths as well:
      1. Use Goldman Sachs to massage the figures;
      2. Use the IMF, Dutch finance minister etc to endorse the figures;
      3. Endorse, then repudiate austerity;
      4. Go bust/default.

    • Lots of venom here for the ECB lies. We need to remember that the Greek people have another enemy in this process. They are the Greek politicians/oligarchy who cleaned out the loans into their back pockets and lied through their teeth, giving the ECB blatantly false data. The Greek oligarchy deserve venom too !

      Greek pensions are still fairly generous by Eastern European standards, and default ends this. It is worth noting that the Bulgarian state pension is EUR 75 per month. In the event of default, many Greeks believe they will be treated similarly.

      The oligarch scam is to create a corrupt parliament which will allow the 0.1% to pay no tax at all, and finance public services by debt. At some point the debt will become unmanagable and the parliament will claim a surprise that requires vicious spending cuts. But it is a very predictable consequence of tax evasion and deficits.

      • ExpatinBG: You are quite keen on the relative purchasing power of various countries; perhaps you could tell us how well Greek pensions perform in those terms?

        • Check out this article

          665 EUR/month seems plenty to buy food and electric. Lots of farm produce markets from small farmers/ country dwellers. These are much better value than European supermarkets. For city dwellers who pay rent, it could be a struggle. Countrydwellers who grow their own food probably live well. Sorry, I don’t know what it costs to live in Greece – so I won’t make fictional comment on Greek PPP.

          The Bulgarian press reports describe Greek pensions as tremendously generous. Home/flat ownership in BG is very high and pensioners do not pay rent. Many have 2+ properties and live in the village or villa. This allows their children to use the tower block apartment or them to rent it. Even with this, many must grow their own food. Some even sell homebrew brandy (rakiya) to supplement their incomes. Life is tough on 75 EUR / month. The Bulgarian default and subsequent poverty of those dependent on govt spending is a scare story in the Greek press. ‘If we default our pensions will be Bulgarised ….’

        • For city dwellers who pay rent, it could be a struggle.
          Likely to be a large, if not overwhelming, majority?

          So things are tight, & perhaps not so generous?

    • Fascinating to see how the debt is almost all owed (now) to taxpayers, one way or another…I am not sure Joe Public has been kept abreast of this…

      • I think that was the plan all along

        governance of the people by the Banks for the Banks


        PS : the poor Greeks – will no one save them ?

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