Greece reaches a Euro area target or standard

Yesterday saw an announcement by the European Commission back on social media by a video of the Greek flag flying proudly.

The Commission has decided to recommend to the Council to close the Excessive Deficit Procedure (EDP) for Greece. This follows the substantial efforts in recent years made by the country to consolidate its public finances coupled with the progress made in the implementation of the European Stability Mechanism (ESM) support programme for Greece.

It sounds good although of course the detail quickly becomes more problematic.

Greece has been subject to the corrective arm of the Stability and Growth Pact since 2009. The deadline to correct its excessive deficit was extended several times. It was last set in August 2015 to be corrected, at the latest, by 2017.

That reminds us that even before the “Shock and Awe” of spring 2010 Greece had hit economic trouble. It also reminds us that the Euro area has seen this whole issue through the lens of fiscal deficits in spite of calamitous consequences elsewhere in both the economy and the country. I also note that “the corrective arm” is a rather chilling phrase. Here is the size of the change.

The general government balance has improved from a deficit of 15.1% in 2009 to a surplus of 0.7% in 2016

Greeks may have a wry smile at who is left behind in the procedure as one is at the heart of the project, one has been growing strongly and one is looking for the exit door.

If the Council follows the Commission’s recommendation, only three Member States would remain under the corrective arm of the Stability and Growth Pact (France, Spain and the United Kingdom), down from 24 countries during the financial crisis in 2011.

Let us wish Greece better luck than when it left this procedure in 2007. Also let us note some very curious rhetoric from Commissioner Dombrovskis.

Our recommendation to close the Excessive Deficit Procedure for Greece is another positive signal of financial stability and economic recovery in the country. I invite Greece to build on its achievements and continue to strengthen confidence in its economy, which is important for Greece to prepare its return to the financial markets.

Another positive signal?

That rather ignores this situation which I pointed out on the 22nd of May.

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.

Achievements? To achieve the holy grail of a target of a fiscal deficit on 3% of GDP they collapsed the economy. They also claimed that the economy would return to growth in 2012 and in the case of Commissioner Moscovici have claimed it every year since.

A return to financial markets?

Whilst politically this may sound rather grand this has more than a few economic issues with it. Firstly there is the issue of the current stock of debt as highlighted by this from the European Stability Mechanism on Monday.

Holding over 51% of the Greek public
debt, we are by far Greece’s biggest creditor a long-term partner

I note that the only reply points out that a creditor is not a partner.

The ESM already disbursed €39.4 bn to and combining EFSF it adds up to € 181.2 bn.

That is of course a stock measure so let us look at flow.

I am happy to announce the ESM
has today effectively disbursed €7.7 bn to Greece

I am sure he is happy as he has a job for life whether Greek and Euro area taxpayers are happy is an entirely different matter especially as we note this.

Of this disbursement, €6.9 bn will be used for debt servicing and €0.8 bn for arrears clearance

Hardly investment in Greece is it? Also we are reminded of the first rule of ECB ( European Central Bank ) club that it must always be repaid as much of the money will be heading to it. This gives us a return to markets round-tripping saga.

You see the ESM repays the ECB so that Greece can issue bonds which it hopes the ECB will buy as part of its QE programme. Elvis sang about this many years ago.

Return to sender
Return to sender

There is also something worse as we recall this from the ESM.

the EFSF and ESM loans lead to substantially lower financing costs for the country.

Okay why?

That is because the two institutions can borrow cash much more cheaply than Greece itself, and offer a long period for repayment. Greece will not have to start repaying its loans to the ESM before 2034, for instance.

Indeed and according to a speech given by ESM President Regling on the 29th of June this saves Greece a lot of money.

We have disbursed €175 billion to Greece already. This saves the Greek budget €10 billion each year because of the low lending costs of the ESM. This amounts to 5.6 percent of GDP, and allows Greece the breathing space to return to fiscal responsibility, healthy economic developments and debt sustainability.

No wonder the most recent plans involved Greece aiming for a fairly permanent budget surplus of 3.5% of GDP. With the higher debt costs would that be enough. If we are generous and say Greece will be treated by the markets like Portugal and it gets admitted to the ECB QE programme then its ten-year yield will be say 3% much more than it pays now. Also debt will have a fixed maturity as opposed to the “extend and pretend” employed so far by the ESM.

What if Greece joining the ECB QE programme coincides with further “tapers” or an end to it?

If you wish to gloss over all that then there is this from the Peterson Institute for International Economics.

Is austerity really over?

There are issues with imposing austerity again so you can say it is now over. I looked at this on the 22nd of May.

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.

It was noticeable that one of the tax rises was in the amount allowed to be earned before tax which will hit the poorest hardest. But according to Kathimerini yesterday the process continues.

The government is slashing state expenditure by 500 million euros for next year……..The purge will mainly concern health spending, while credit for salaries and pensions will be increased.


The background economic environment for Greece is as good as it has been for some time. Its Euro area colleagues are in a good phase for growth which should help exports and trade. According to Markit this is beginning to help its manufacturing sector.

Having endured a miserable start to 2017, the latest survey data is welcome news for Greek manufacturers as the headline PMI pointed to growth for the first time since August last year.

If we look for another hopeful signal it is from this as employment has been a leading indicator elsewhere.

The number of employed persons increased by 79,833 persons compared with April 2016 (a 2.2% rate of increase) and by 23,943 persons compared with March 2017 (a 0.6% rate of increase).

The catch is that in spite of the barrage of official rhetoric about reform that Greek economy has gone -1.1% and +0.4% in the last two quarters with the latter number being revised up from negative territory. But the worrying part is that elsewhere in the Euro area things are much better when Greece should be a coiled spring for economic growth. Let me give you an example from the building industry where it is good that the numbers are finally rising. But you see annual building was 80 million cubic meters in 2007 and 10 million yes 10 million in 2016. That is an economic depression and a half….



18 thoughts on “Greece reaches a Euro area target or standard

  1. You have to hand it to the EU. apart from the minor matters of trashing the Greek economy and round-tripping all the debt back to EU taxpayers, they have achieved their real aim, the political one of keeping the EU show on the road.
    Poor old Greeks.

    • Don’t forget the Greek oligarchy. The Greek 1% pay little to no tax. If they paid their fare share, no austerity would be required and ECB help would not be needed.

      They have got off scot free whilst using fake news to blame other countries and institutions. Greek oligarchy and kleptocratic politicians are the problem.

      • I bet that you are right and defer to your knowledge on this, but I still feel for the ordinary Greeks, who really have taken a hit IMHO

  2. Hello Shaun,

    So the ECB is still back door bailing out the French and German Banks via Greece.

    Why do the Greek people put up with it?

    better than life out side the Euro ?

    God , they have to be absolutely raving mad or desperate ( or both , poor souls )


    PS: how’s Iceland doing ?

    • Why do the Greek people put up with it? Well, they:
      1. Riot a lot;
      2. Voted in an anti-austerity government;
      3. Voted down 61-39 the bailout
      And none of it got them anywhere.
      What more can they do?

      • Yes – contrary to the UK, the Greeks seem to want to stay put at any price.
        As Yanis V. said – they fear exit would lead the nation back to the bad old days. Or in his words ‘this time it’s banks not tanks’.

  3. Does anyone think like me that by the time the EU have finished with us over BREXIT negotiations we will be a slightly better off version of Greece and totally beholden to them for eternity, we had our chance and now it’s gone, as the Eagles predicted – “you can check out – but you can never leave……”

    • It is absolutely clear that the objective is to cerate such a bad deal that no-one else will want to check it out, but to cloak the whole charade with the ultra-smooth M Barnier. How else is one to interpret:
      1. Demands for up to Euros 100 billion.
      2.”Standing firm” on EU citizens’ rights, aka wanting to keep ECJ as supreme court here
      3. Meeting opposition leaders.
      While I know that we don’t do politics here, the Greek example is very indicative of how the EU wants to treat naughty children

      • Agree absolutely, they have no intention of reaching an agreement or settlement, it’s all about creating an example of what will happen if any other member state should possess the temerity to contemplate leaving, and when you step back and look upon the EU as a club, can anyone imagine any club threatening and intimidating anyone who wishes to leave with an array of punishments and penalties?

        With Mark Carney in the Bank of England to continue downward pressure on sterling in addition to the negative sentiment from the “negotiations” it will lead to the inevitable capitulation of HM Government and may even result in the loss of our currency should noone challenge Carney’s refusal to raise interest rates.

        I hope I am proved wrong, but the way this charade has played out, it all looks pre-planned to me.

        • I think it’s a valid concern Kevin.

          The Establishment are worried all over the world at the minute.People seem to be kicking them in the teeth at every vote they get.

          My broader fear is that these vain attempts to plug the holes in the ship will precipitate a crisis of a deeper,more serious nature than the one the original plugging was meant to stop.

          In much the same way as QE,ZIRP etc have taken a debt problem and made it a bigger debt problem

      • ‘It is absolutely clear that the objective is to create such a bad deal that no-one else will want to check out’

        Taking these lines in negotiations never works out well in my experience.

        • yes the EU is showing it’s true colours over Brexit and I would have thought, alienating many who would have chosen to remain. Had they shown a softer side many might change their position but acting like a dictatorship will drive more into the Brexit camp.

    • Canada has been trying to do an EU free trade deal for 8 years. Most recent blockage was a Belgian veto, which came from the Walloon regional parliament.

      Many Brexit fans cheerlead how Germany needs UK buyers in trade. But UK has to do a deal that gets vetoed by none of the 27 …. I agree there is no chance of this happening any time soon …

    • Brexiteers, voted for Brexit, they got their way and now they have to live with their decision, they should have thought of this before they voted.

      Like small children they expect to leave a club but still benefit from membership of the club refusing to take responsibility for their actions. Give me strength!!!

  4. ‘Holding over 51% of the Greek public
    debt, we are by far Greece’s biggest creditor a long-term partner’

    Wouldn’t wanna be Greece when the EU turns on it.

    • Hi Dutch

      I was just thinking it already had when I remembered the words of US Treasury Secretary Timmy Geithner. From the NY Times.

      “To Mr. Geithner’s dismay, however, Mr. Schäuble took the conversation in a different direction.
      “He told me there were many in Europe who still thought kicking the Greeks out of the eurozone was a plausible — even desirable — strategy,” Mr. Geithner later recounted in his memoir, “Stress Test: Reflections on Financial Crises.” “The idea was that with Greece out, Germany would be more likely to provide the financial support the eurozone needed because the German people would no longer perceive aid to Europe as a bailout for the Greeks,” he says in the memoir.

      “At the same time, a Grexit would be traumatic enough that it would help scare the rest of Europe into giving up more sovereignty to a stronger banking and fiscal union,” Mr. Geithner wrote. “The argument was that letting Greece burn would make it easier to build a stronger Europe with a more credible firewall.”

      Of course the irony is that Greece would ( in my opinion) have been better of if it had been kicked out of the Euro…..

      • So, in a nutshell, the fate of Greece was determined as a function simply of how to get the German voter to accept ever closer union…

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