Greece, how long can it keep going like this?

Today’s topic reminds me of the famous quote by Karl Marx.

History repeats itself, first as tragedy, second as farce.

Sadly Karl did not tell us what to do on the 4th,5th and 6th occasions of the same thing as I note the news from Reuters on Friday.

The legislation contains more austerity measures, including pension cuts and a higher tax burden that will go into effect in 2019-20 to ensure a primary budget surplus, excluding debt servicing outlays, of 3.5 percent of gross domestic product.

This sounds so so familiar doesn’t it which of course poses its own problem in the circumstances. This continues if we look at the detail.

The income tax exemption is reduced to 5,600-5,700 euros from 8,600 euros to generate revenues of about 1.9 billion euros. The lower threshold will mean an increased tax burden of about 650 euros for taxpayers.

Up to 18 percent cuts in main and supplementary pensions and freezing of benefits thereafter until 2022. The cuts will result in savings of 2.3 billion euros.

I do not know about you but if I was raising taxes in Greece I would not be raising them on the poorest as lowering the lower income tax threshold will hit them disproportionately. After all it was the very rich who helped precipitate this crisis by not paying tax not the poor. But the underlying principle’s are pretty much what we have seen since the spring of 2010 especially if we add in this part.

Sale of stakes in railways, Thessaloniki port, Athens International Airport, Hellenic Petroleum and real estate assets to generate targeted privatization revenue of 2.15 billion euros this year and 2.07 billion euros in 2018.

This reminds me of the original target which was for 50 billion Euros of revenue from privatisations by 2015. As you can see the objectives are much smaller now after all the failures in this area and of course these days assets in Greece have a much lower price due to the economic depression which has raged for the last 7 years. Back then for example the General Index at the Athens Stock Exchange was around 1500 as opposed to just below 800 now suggesting that this is yet another area where Greek finances are chasing their tail.

The same result?

Last week saw yet more sad economic news from Greece.

The available seasonally adjusted data indicate that in the 1 st quarter of 2017 the Gross Domestic Product (GDP) in volume terms decreased by 0.1% in comparison with the 4 th quarter of 2016, while it decreased by 0.5% in comparison with the 1 st quarter of 2016. ( Greece Statistics).

This meant that yet another recession had begun which will be a feature of the ongoing economic depression. Another feature of this era has been the official denials an example of which from the 8th of March is below.

Greece’s Prime Minister Alexis Tsipras was confident that the times of recession were over and that “Greece has returned back to growth” as he told his cabinet ministers……..After seven years of recession, Greece has returned to positive growth rates he underlined.

He was not alone as European Commissioner Pierre Moscovici was regularly telling us that the Greek economy had recovered. This means that as we look at the period of austerity where such people have regularly trumpeted success the reality is that the Greek economy has collapsed. The scale of this collapse retains the power to shock as the peak pre credit crunch quarterly economic output of 63.3 billion Euros ( 2010 prices) fell to 59 billion in 2010 which led to the Euro area stepping in. However rather than the promised boom with economic growth returning in 2012 and then continuing at 2%+ as forecast the economy collapsed in that year at an annual rate of between 8% and 10% and as of the opening of 2017 quarterly GDP was 45.8 billion Euros.

What is astonishing is that even after all the mishaps of 2015 with the bank run and monetary crisis there has been no recovery so far. The downwards cycle of austerity, economic collapse and then more austerity continues in a type of Status Quo.

Again again again again, again again again again

The Time Problem

The problem here is simply how long this has gone on for added to the fact that things are still getting worse or at best holding station in economic output terms. This means that numbers like those below have become long-term issues.

The seasonally adjusted unemployment rate in February 2017 was 23.2% compared to 23.9% in February 2016 and the downward revised 23.3% in January 2017.

It is nice to see a fall but falls at the rate of 0.9% per annum would mean the unemployment rate would still be around 20% at the end of the decade following the “rescue” programme which I sincerely hope is not the “shock and awe” that Christine Lagarde proclaimed back then. If we move to the individual level there must be a large group of people who now are completely out of touch with what it means to work. I see a sign of this in the 25-34 age group where unemployment was 30.4% in February compared to 29.3% in the same month in 2012. This looks like a consequence of the young unemployed ( rate still 47.9%) simply getting older. As the female unemployment rate is higher I dread to think what the situation is for young women.

Meanwhile tractor production continues its rise apparently according to the German Finance Minister.

Schaeuble: Reforms Agreed By Greece Are Remarkable, Goal Is To Get Greece Competitive, It Is Not There Yet ( @LiveSquawk )

It reminds me of last summer’s hit song “7 Years” but after all this time if we had seen reform things would be better. The fact is that there has been so little of it. Putting it another way the IMF ( International Monetary Fund) has completely failed in what used to be its objective which was helping with Balance of Payments crises. Even after all the economic pain described above the Bank of Greece has reported this today.

Mar C/A deficit at €1.32 bln from €772.4 mln last year, 3-month C/A deficit at €2.53 bln from €2.37 bln last year ( h/t Macropolis )

QE for Greece

This is being presented as a type of solution but there are more than a few issues here. Firstly the reform one discussed above as Greece does not qualify. But also there is little gain for a country where its debt is so substantially in official hands anyway and the bodies involved ( ESM, EFSF) let Greece borrow so cheaply for so long. In fact ever more cheaply and ever longer as each debt crunch arrives. It would likely end up paying more for its debt in a QE world where it issues on its own and the ECB buys it later! So it could be proclaimed as a political triumph but quickly turn into a financial disaster especially as the ECB is likely to continue to taper the programme.

Also people seem to have forgotten that the ECB did buy a lot of Greek debt but more recently has been offloading it to other Euro area bodies who have treated Greece better than it did. One set of possible winners is holders of Greek government bonds right now who have had a good 2017 as prices have risen and yields fallen and good luck to them. But the media which trumpets this seems to have forgotten the bigger picture here and that if the hedge funds sell these at large profits to the ECB then the taxpayer has provided them with profits one more time.


So we arrive at yet another Eurogroup meeting on Greece and its problems. It is rather familiar that the economy is shrinking and the debt has grown again to 326.5 billion Euros in the first quarter of this year. There will be the usual proclamations of help and assistance but at the next meeting things are invariably worse. Is there any hope?

Well there is this from Greek Reporter.

The size of Greece’s underground economy — where transactions take place out of the radar of tax authorities — is estimated to be about one quarter of the country’s official GDP, according to University of Macedonia Professor Vassilis Vlachos….. Among the main factors contributing to the shadow economy increase, according to Vlachos, is the citizens’ sense that the tax burden is not distributed fairly and that there is a poor return in term of public services, as well as inadequate tax inspections……Based on the findings of the survey, participation in the shadow economy is at 60 percent for the general population and rises to 71.6 percent among the unemployed.

If he is correct then this is of course yet another fail for the Troika/Institutions. As to the official data there are some flickers of hope such as the recent industry figures and retail sales so let us cross our fingers.



21 thoughts on “Greece, how long can it keep going like this?

  1. I think that Greek unemployment figures only measure those actively seeking employment as a % of the total workforce (do correct me if my memory is wrong!) and that the real rate of unemployment is much higher. Many folk have simply given up hope of ever working again. This latest round of cuts will be brutal and in combination with tax increases, may collapse the economy entirely. Everything that Greece now earns goes out the backdoor in repayments. It isn’t sustainable and a change of government will make absolutely no difference. I am amazed that there hasn’t been a revolution in Greece!

    • Hi Pavlaki

      Yes that is the way the numbers are calculated hence the issue of the participation rate in the United States in the credit crunch era. The data was making me think along those lines so let me show it.

      “The number of unemployed persons decreased by 43,387 persons compared with February 2016……….The number of employed persons increased by 7,589 persons compared with February 2016”

      As the London Underground puts it, mind the gap.

  2. I would point out that privatisations, in other words the sale of state owned capital assets, produces capital receipts, not “revenue” as ongoing income.
    To treat a capital receipt as income is an accounting fraud, or as Harold Macmillan said “selling the family silver”. I seem to recall Thatcher’s Chancellors used this trick to balance the books….when they very much didn’t!
    Of course, Macmillan himself was guilty of sleight of hand, eventually leading to Maudling’s note for his Labour successor ” sorry, old cock, to leave such a mess”….foreshadowing Liam Byrne by some years!

  3. I know you try to avoid politics here, but this story is totally, profoundly political. For anyone interested, Varoufakis’ new book “Adults in the Room” is a must-read exposure (and a page-turner).

    • On a subject like this,it’s hard to not mention politics.I don’t think left and right matter here as all roads lead to ruin.
      It’s hard to see an outcome for the Greek people that doesn’t involve severe pain and the loss of their sovereignty.

      • They signed away much sovereignty when their kleptocrats fraudulently joined the euro. I disagree with your conclusion, default and GrExit would involve severe pain but it is a reclaimation of sovereignty.

  4. I have no idea what to add to this besides the question why isn’t this an emergency? Bond holders have been protected at every step and an entire population held to ransom. The unemployment levels surely these must set some alarm bells ringing? perhaps the Greeks serve a purpose, what we’ve done to them we’ll do to you if you don’t do as you’re told. Dystopia in a nutshell.

    Additional strictly O/T: With Shaun’s permission I would like to give my own humble blog a plug, todays post is on the Social Care fiasco, everybody welcome.

    • ‘Bond holders have been protected at every step and an entire population held to ransom. ‘

      Absolutely.Just like they were with RBS,Halifax,Bradford&Bingley. etc.Socialism for the rich,capitalism for the poor.

      An absolute scandal.

  5. ‘Meanwhile tractor production continues its rise apparently according to the German Finance Minister.’

    It really is becoming apparent to me that hope is the only strategy the Troika have despite outward protestations of competence.

    Einstein’s quote on the definition of insanity is worth remembering her.

    Shaun,o/t,due to shifts I don’t get to comment much before midnight but it’s great to see you keeping up the pressure to call these situations for what they are.

  6. hello Shaun,

    yet another missed opportunity to compare Iceland with Greece. 🙂

    Eventually Greece will recover – then the Troika will claim how masterful they were……….. about 30 years late of course .

    meanwhile this Greek people must be smoking something , normally this kinda depression would put people on the street protesting

    perhaps they are and MSM are not reporting it , or maybe they’re too brow-beaten


    • Hi Forbin

      I note that the plans being set in the Eurogroup tonight go out to 2060 so your 30 years guess would appear to have some support. As to Iceland I will bear it in mind. As to protesting there was another General Strike last Wednesday.

  7. Great blog as always, Shaun, although not a cheery start to the week.
    Reading it made me curious about what has been happening to Greek immigration to Canada in recent years. (Greekfest in Ottawa every year is the best and most popular ethnic festival in Canada’s capital by far.) These are the numbers I could find from 2008 forward: 106 (2008), 118 (2009), 101 (2010), 102 (2011), 146 (2012), 299 (2013), 373 (2014), 477 (2015). The numbers are small, but the trend is clear: there has been a quintupling of Greek immigration to Canada since 2008. It would be interesting to know what the comparable figures are for the UK. Emigration must serve as a safety valve to reduce pressure on Greece from the economy’s collapse, but in the long term, if, as is likely, they are losing their younger, better-educated people, it has to imperil its future.
    Bonne fête des patriotes! (In most of Canada, we celebrate the Queen Victoria’s birthday today. In Quebec, they commemorate the rebels who took up arms against her in the Rebellion in Lower Canada in 1837!)

    • Large numbers have emigrated to Oz – I can’t find anything more precise than between 10-20,000 since 2013 . A good Greek friend and his family are among them.

  8. Greek state pension 882 EUR

    Bulgaria average state pension 170 EUR

    In both cases, the oligarchy is paying very little tax and living extravagantly. In both cases the administration cannot effectively administer public funds for public wellbeing. – 8 billion of fraudulent pensions paid out, from a gdp of 184 billion.

    • Hi Expat and thanks for the links

      I have to confess the Bulgarian one made me think on two counts. Firstly as you have pointed out in the past there is still a large gap between Greece and many of its neighbours. Secondly how do pensioners get by in Bulgaria as the numbers quoted seem subsistence levels at best?

      • In rural Bulgaria, you see lots of pensioners with substantial vegetable gardens, beehives, orchards, chickens, goats, a cow or 2 etc. Fishing & Hunting (as in shooting wild pigs, rabbits, etc for meat) are popular. Many of the middle class city dwellers have a summer villa with small land in addition to the communist era block apartment in the city. The younger generation (of modest incomes) who move to a big city and rent will probably retire back to their villages. Property is inherited by Napoleonic law – you cannot will it otherwise.

        In Greece’s case – 4% of GDP pension fraud suggests that some are profitting (they won’t make any noise) while the many are likely to see more cuts and falls in official GDP. I regard corruption as the root cause of these inequities.

  9. if I were raising taxes I would abolish THE most regressive tax of them all – VAT thereby giving the economy a boost and concentrate on increasing progressive income tax rates in the higher echelons and and corporation tax rates.
    As for a group whom are out of touch with work life this evokes memories of the early 80’s and onwards for me. I believe there is a minority of school leavers from the early 80’s now in their late 40’s – mid 50’s who have never worked due to the “improvements” being made at that time, so, in one way Greece is going through a more concentrated version of what the Uk was dragged through all those years ago.

    The IMF had to fail as the other members of the “troika/authorities” whatever they’ve named themselves this week refused tio provide debt forgiveness on the level requested by the IMF thereby forcing the IMF to leave the ECB and EC to get on with their failure.

  10. Ok. From someone on the ground in Greece the truth. It’s all a fabrication and lie. Everyone here is in a payment plan to the government. We cannot pay what they are throwing at us, so we apply for payment plans to pay social security, tax, and all the other tax bills we get presented with.
    You apply to pay them off, then you can’t sustain it, so you apply again to get another plan, all the while smiling to your neighbour that everything is good. It will end in civil war here, because it’s worse than any of you know.
    The season for tourists starts at May, yet they don’t even have the licences done for sunbeds on the beach by then, so business put the beds out and arrested for doing it without a licence, 21,000 Euro fine from one resort in fines. It’s a joke here. Greece is being killed. The Eu and Euro needs to drown like what it is doing to the poorer countries. When Uk leaves the Euro, it will only get worse. I just hope when it all goes bad here in Greece, the Brits and Yanks will help us.

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