What economic situation faces the new Greek government?

There was a link between the two main news stories on Sunday. Those who feel the main aim of the original Greek bailout was to allow European banks to exit the country will have had a wry smile at the ongoing travails of Deutsche Bank. Also the consequences of that bailout are still being felt in Greece which may vote for political change but finds itself continuing to be in troubled economic times. From Kathimerini.

Crucially, asked to what extent the creditors would be open to a reduction to fiscal targets, Regling said the 3.5 percent of GDP target Greece has committed to is a “cornerstone of the program,” adding that it’s “very hard to see how debt sustainability can be achieved without that.”

This was a reminder that via the fiscal target some 3.5% of economic activity each year will be taken out of the economy to help reduce the size of the national debt. A bit like driving a car with the handbrake on. It also gives us a reminder of the early days of the Greek crisis where a vicious circle was set up as austerity shrank the economy which meant that more austerity was required and repeat. Accordingly Greece was plunged into what can only be described as a great depression. Putting it another way the Greek economy is now 18.8% smaller than it was as 2010 opened.

Another disturbing feature is the weakness of the current recovery. I have written throughout this saga about my fear that what should be a “V-Shaped” recovery has been an “L-Shaped” one. So after a better 2017 ( which was essentially the second quarter) we find ourselves reviewing not much growth.

The available seasonally adjusted data indicate that in the 1st quarter of 2019 the Gross Domestic Product (GDP) in volume terms increased by 0.2% in comparison with the 4th quarter of 2018, while in comparison with the 1st quarter of 2018, it increased by 1.3%

So if there is a recovery impetus it is finding that its energy is being diverted away by the primary surplus target.

Trade Problems

Yesterday we got the latest trade data for Greece and this matters because it is a test of what has become called the internal competitiveness model. This was produced for the Euro area crisis because there was no devaluation option as the official view is that the Euro is irreversible. Thus the wages of the ordinary Greek had to take the whole strain of whipping the economy back into shape. How has that gone?

The total value of imports-arrivals, in May 2019 amounted to 5,230.9 million euros (5,832.8 million dollars) in
comparison with 4,356.6 million euros (5,130.8 million dollars) in May 2018, recording an increase, in euros, of
20.1%…….The total value of exports-dispatches, in May 2019 amounted to 3,044.6 million euros (3,415.5 million dollars) in comparison with 2,955.0 million euros (3,501.2 million dollars) in May 2018, recording an increase, in euros, of 3.0%.

In itself a rise in the import bill may not be bad as it can indicate an economic recovery on its way. Also in these times of trade wars then an increase in exports is welcome. But we need to look further as to the overall position.

The deficit of the Trade Balance, for the 5-month period from January to May 2019 amounted to 9,421.0 million
euros (10,515.9 million dollars) in comparison with 8,086.2 million euros (9,738.3 million dollars) for the
corresponding period of the year 2018, recording an increase, in euros, of 16.5%.

These numbers do not allow for two of the main strengths of the Greek economy so let is put them in.

The rise in the services surplus is attributable to an improvement, primarily in the transport balance and, secondarily, in the travel and other services balances. Transport receipts (mainly sea transports) rose by 9.8%. At the same time, non-residents’ arrivals and the relevant receipts rose by 0.5% and 22.8%, respectively. ( Bank of Greece)

Those numbers are only up to April but we see that even without the grim trade data for May the overall current account was not going well.

In the January-April 2019 period, the current account showed a deficit of €5.1 billion, up by €335 million year-on-year.

Of course the flip side of Euro membership is that the value of the currency is unlikely to take much notice of this as due to Germany’s presence the overall position is of a consistent surplus. But whilst tourism in particular has done well the idea of a net exports surge is just not happening.

Looking Ahead

The Bank of Greece told us this at the beginning of this month.

economic activity is expected to increase by 1.9% in 2019, by 2.1% in 2020 and by 2.2% in 2021, mainly driven by private consumption, business investment and exports.

Those numbers send a chill down my spine because throughout the crisis we have been told that Greece will grow by around 2% per annum. This was supposed to start in 2012 whereas in fact the economy shrank at annual rates of between 4.1% and 8.7%. For now growth via exports seems unlikely to say the least.

The private-sector Markit PMI survey told us this.

Operating conditions in the Greek manufacturing sector
improved moderately in June, with the headline PMI
dipping to its lowest since November 2017. Weighing on
overall growth were slower increases in production and new business.

The reading was 52.4 ( 50 = unchanged)  so slow growth was the order of the day as we note Greece is being affected by a sector that in the Euro area overall is contracting.

Bond Market

There has been a spate of articles pointing out that Greece now has a ten-year yield which is very similar to that of the United States. Actually that is not going quite so well this morning as at 2.17% Greece is 0.1% higher. But it is being used as a way of bathing the situation in a favourable light which has quite a few problems.

  1. Rather than a sign of economic recovery it is a sign of a policy ( primary surplus target) which is sucking growth out of the economy.
  2. Pretty much any yield is being bought these days!
  3. Greece does not have that many government bonds in issue as so much of the debt is now owned by the two Euro area bailout vehicles the ESM and EFSF. They disbursed some 204 billion Euros to Greece and now hold more than half its national debt. It is also why if you look back at the first quote in this piece it is Klaus Regling of the ESM who is quoted.

So rather than success what the bond yield now tells us is that Greece is in a program that the so-called bond vigilantes would love, otherwise known as the primary surplus target. It also has seen the ESM debt kicked like a can to the late 2050s. That is really rather different.

Why would you pay investors 2% or so rather than 1% to the ESM? A blind eye keeps being turned to that question.

It is also why I find it frankly somewhat frustrating when people like Yanis Varoufakis call for QE for Greece as via the ESM It got its own form of it on a much larger scale. Their real problem is that it came with conditions.


This has been a long sad story perhaps best expressed by Elton John.

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

There have been some improvements but the numbers below also highlight the scale of the problem to be faced.

The seasonally adjusted unemployment rate in March 2019 was 18.1% compared to 20.2% in March 2018 and the downward revised 18.4% in February 2019.

If we look back to the pre credit crunch era then the employment rate was around 10% lower than that. Also a youth unemployment rate of 40.4% is considerably improved but if we look at the past numbers we see that not only must so many young Greek’s not have a job but they must have no hope of one. Also it has gone on so long that some will now be in the next category of 25-34.

So the new Greek government has plenty of challenges so let me finish with the main two as seen by the Bank of Greece.

 This is so because, with a public debt-to-GDP ratio of 180%


Banks have made progress in reducing non-performing loans (NPLs). More specifically, at end-March 2019, NPLs amounted to €80 billion, down by about €1.8 billion from end-December 2018 and by around €27.2 billion from their March 2016 peak



17 thoughts on “What economic situation faces the new Greek government?

  1. We were told last year, with great fanfare, that Greece had turned the corner and was well on the way to recovery and would need no more bailouts. No body believed that, except the MSM, who reported it without challenge.
    So Greece is in the same position as it always was, basically bankrupt, unable to grow its way out of huge debt burden. Instead of admitting it and finding solutions, the EU just trumpet their “success” and ignore the issues. Unfortunately, it’s the Greek people who are suffering for the this mess.
    Wait a minute, we will be having a new head of the ECB, Christine Lagarde, I am sure she will be able to sort this out. Just look at her experience, head of the IMF – oh no she was part of the Troika that screwed Greece in the first place!

    • Foxy, your last point sends a shiver down my spine. How can the EU admit that its bailout was not perfect if one of the main architects has just been promoted and will now be in charge of agreeing any changes. The pain for Greece will continue until a new generation of politicians arrive in Brussels and don’t feel bound to defend the stupid decisions and announcements made during the crisis.

      As Shaun said, “so sad”.

  2. I spoke to many Greeks, during a recent visit, who have basically given up on politics – which is quite something as they were always ready to debate endlessly in the past. The poor turnout at the last elections would appear to confirm this as many no longer bother to vote. I thought the position was nicely summed up by one Greek gentleman who said that all that will happen after the election is that we will get rid of one bunch of malakas and install another load of malakas. Malakas is not a very complementary description of anyone by the way!!
    The other point made to me is that the unemployment situation is worse than official figures indicate due to the fact that only those who have been actively seeking work in the last four weeks are included in statistics. Many of the long term unemployed have simply given up trying and take odd jobs for a few days as and when they can find them.
    The sad thing is that the majority of Greeks have lost their will to fight the system and just accept the current mess as their lot.

    • Have only got one thing to say and that is the unemployed are not really unemployed due to the BLACK ECONOMY which is huge in Greece.

      • If only that were the case. The black economy is indeed huge but it relates more to tax avoidance than employment creation. The few days of employment per month i refer to are often in the black economy doing menial jobs and very poorly paid. If only the black economy was the answer then I would feel a lot more optimistic for the average Greek.

  3. Great article as always Shaun.

    The way Greece has been treated fills me with shame. Its now a third world country with a massive black economy and no hope of recovery. And yet the cognitive dissonance in this country greatly puzzles me. People who constantly oppopsed the faux austerity in this country are happy to see true austerity inflicted upon another and yet wish to remain part of the organisation which carries this out.

    Truly perplexing.

  4. Hello Shaun,

    if we take CO2 emissions as a ruler gauge then in 2007 109.2 (million metric tons) and I don’t have a 2019 figure but lowest was 2016 with 71.9 with 2018 at 76.2 , drop of 30% . So oil consumption went from 440.x to a low of 301.x and is back to 323 ( 2018) a drop of 26/27% .

    So , in accordance with carbon reduction targets I guess the Greeks are doing well, shame about the economy and the people. When again the oil consumption grows back to the same level then perhaps so will GNP /GDP go up for Greece ( no, there is a direct connect between fossil fuel use and the health of an economy – why do you think China ignores the “green debate” ?). Yes you can fiddle a bit at the margins but any recovery with their main drivers , tourism, shipping, and industrial products ( they make a lot of cement apparently ) , will put up coal,gas and oil consumption.

    I mention this on a day that here in the UK that E.ON reports that it will supply “green” only electricity . As I type this our 20GW capacity windmills are putting out 0.7 GW , truly this shows the issues with wind . I guess they’ll be counting French Nuclear as “green” .

    God knows what the conservative government will do , as the socialist one got such a poor deal I cannot see Socialist Europe giving a so called right wing government any slack at all – sorry Shaun I know that ‘s politics but the Greek economy is entwined in it!

    I hope this year an next is better for them


    • As of 2019-07-09 12:10:00 GMT we are generating more energy through Solar than Wind at the moment although the wind is now up to 1.35 GW. We really could have done with that tidal lagoon near Swansea/Abertawe. Tidal in nice and predictable and more suited for base load.

      • Hello Bootsy,

        yes I agree we could do with more tidal power in the UK but both the Severn Estuary and Swansea got canned because of other environmental reasons. Capacity , not a good way to measure for intermittent sources , was estimated to get 285 TWh theoretical compared with the 2233 TWh actually used, in a 2017 report by HMG.

        The Greeks have a mountainous country so they could benefit from hydro over tidal lagoons ( little tidal level change) .

        interesting times


        • It’s ironic that the reason to adopt tidal power is to reduce emissions and hence benefit the environment and yet it was thrown out because of environmental issues!

          The Greeks burn lignite to produce electricity – not very environmentally friendly. The power company is owed millions and is bankrupt; propped up by the state. Another problem facing Mitsotakis.

          • Hi Pavlaki

            The power company did have a use though because its database was used for the emergency property tax back in 2012. So presumably it had better records than the state of who owned what….

  5. I think I posed the question the question last time an article on Greece (import/export) appeared here what effect the Piraeus C.O.S.C.O. (China) terminal has on the statistics (probably unanswerable).
    1. 2010 1.5 mil T.E.U s (containers)
    2. 2017 3.7 mil T.E.U
    3. last. 4.9 mil T.E.U. (wiki approx.)
    Just curious. Any thoughts?

  6. As Shaun pointed out for the surge in Irish GDP 6 -7 years ago, it was merely several corporations running their books through there for tax reasons (the median Irish man/woman was not suddenly wealthier). I point out the surge in COSCO trans shipments through Greece so the new politicos don’t
    erroneously use the import surge for instigating a new round of austerity. It’s a false indicator in some respects.

    • Hi Canuckistinian

      As I had to look it up others might be wondering what a T.E.U is. From dedola.com

      “TEU stands for Twenty-Foot Equivalent Unit which can be used to measure a ship’s cargo carrying capacity. The dimensions of one TEU are equal to that of a standard 20′ shipping container. 20 feet long, 8 feet tall. Usually 9-11 pallets are able to fit in one TEU. Two TEUs are equal to one FEU (forty-foot-equivalent unit).

      Example – The world’s largest container ships can carry in excess of 14,000 TEUs.”

      So we have a more than trebling which should be subdivided into what is for Greece ( counted) and what isn’t ( not counted). In the latter case only what is relevant to Greece should be counted such as port fees and maybe shipping costs. Or we would have a case of what is called the “Rotterdam Effect”

      Back from theory to the real world I too wonder if this is all properly counted….

  7. Hi Shaun

    Greece had problems well before the Euro: corruption; cronyism; poor educational standards and a litany of other things. So progressing from this to what might be termed the European mainstream was always going to be difficult.

    Unfortunately the Euro, with its grossly deficient architecture is driving divergence not only between countries in the EZ but within them as well. Greece doesn’t set its own interest rates; it can’t devalue and its fiscal policy is subject to the Stability and Growth Pact. It has no tools apart from the painful “internal devaluation” so beloved of the austerity school. This traps it within a low growth, low productivity, high unemployment situation which tends to lead to hysteresis which cripples its efforts to grow even more. This tends to widen divisions within the country and make it very difficult to achieve a political consensus as a basis fro progress.

    If the financial architecture of the EZ were to admit fiscal and banking union then there might be some hope but this step is very doubtful. So greece is left to stew in its own juice.

    The only sensible thing is of course for Greece to leave the Euro. However, and despite the fact that Greece only accounts for around 2% of EZ GDP, this would be very difficult, not only for Greece, but for the EU project generally.

    Economically Greece would probably only be able to redenominate some debts into Drachma; the rest would stay in Euros and, against a depreciating Drachma and an appreciating Euro, would increase the debt burden. This could, in the short term make its problems worse.

    Politically for the EU project it would not be at all welcome as it would accept that not only that one can leave the EZ but it would highlight the fatal pathologies of the Euro itself and cast even more doubt on its sustainability.

    The Euro should never have been introduced and Greece should never have joined the EZ.

    • “redenominate some debts into Drachma; the rest would stay in Euros and, against a depreciating Drachma and an appreciating Euro, would increase the debt burden”

      well they could default or just declare a 1 to 1 exchange ….. actually that would make it an issue for the Euro zone so perhaps the Greeks should do it .

      The “Argentine” method for Greece,

      Drops out of Euro
      denominates all debt , inc Euro as 1 to 1 to new drachma
      devalue drachma
      or default and then devalue drachma

      the only looser in the medium to long term is the euro zone


  8. The way the EU has treated ITS OWN (Greek) CITIZENS was my primary, but not sole, motivation for voting Leave in the referendum: I don’t ever want the bastards to have the opportunity to do the same to me; nor do I wish it ever to be done to others in my name.
    Hopefully, we get a WTO-Brexit, because, when EU goods have to compete on equal terms with those of the rest of the World, (We often hear about average tariffs, but that hides the biggest ones, like, the top tariff for some beef is 146%!!!), the EU will either have to forego £400bn in trade, or lower its prices in UK. When EU goods are far cheaper in the UK than in EU, then, as has happened in reverse with the tobacco & alcohol trade, there will be huge volumes of “round-tripping”, which will destroy the Common External Tariff, and lead to the disintegration of the CAP etc, leading to the end of the EU.
    The EU knows this, and that’s why it demands the Irish backstop; to try to prevent UK leaving CU & SM.
    If a new PM is really prepared for “no-deal”, the EU will have no choice but to capitulate & re-negotiate Withdrawal Treaty.
    Frankly I hope it tries to call that PMs bluff.

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