Is Greece growing more quickly than the UK?

Today we return to a long running and grim saga which is the story of Greece and its economic crisis. However Bloomberg has put a new spin on it as follows.

Greece is growing faster than Britain and is outperforming it in financial markets.

Okay so let us take a deeper look at what they are saying. Matthew Winkler who is the Editor-in-Chief Emeritus of Bloomberg News, whatever that means, goes on to tell us this.

In a role reversal not even the most prescient dared to anticipate, Greece is growing faster than the U.K. and outperforming it in financial markets. ……..Now that Europe is leading the developed world in growth, productivity and job creation after the euro gained 14.2 percent last year — the most among 16 major currencies and the strongest appreciation since 2003 — Greece is the biggest beneficiary and Britain is the new sick man of Europe.

This is really quite extraordinary stuff isn’t it? Let me just mark that the author seems to be looking entirely through the prism of financial markets and look at what else he has to say.

In the bond market, Greece is the king of total return (income plus appreciation), handing investors 60 percent since the Brexit vote. U.K. debt securities lost 3 percent, and similar bonds sold by euro-zone countries gained 7 percent during the same period, according to the Bloomberg Barclays indexes measured in dollars. Since March 1, 2012, when the crisis of confidence over Greece was at its peak and its debt was trading at 30 cents on the dollar, Greek bonds have returned 429 percent, dwarfing the 19 percent for euro bonds and 10 percent for the U.K., Bloomberg data show.

Also money is flowing into the Greek stock market.

ETF flows to Europe gained 15 percent and 13 percent to the U.K. during the same period. The Global X MSCI Greece ETF, the largest U.S.-based exchange-traded fund investing in Greek companies, is benefiting from a 35 percent increase in net inflows since the 2016 Brexit vote.

Finally we do actually get something based on the real economy.

The same analysts also forecast that Greece will overtake Britain in GDP growth. They expect Greece to see its GDP rise 2.15 percent this year and 2.2 percent in 2019 as the U.K. grows 1.4 percent and 1.5 percent.

Many of you will have spotted that the Greece is growing faster than the UK has suddenly morphed into people forecasting it will grow quicker than it! This poses a particular problem where Greece is concerned and can be illustrated by the year 2012. Back then we had been assured by the Troika that the Greek economy would grow by 2% on its way to an economic recovery and the UK was back then enmeshed in “triple-dip” fears. Actually there was no UK triple dip and the Greek economy shrank by around 7% on the year before.

GDP growth

According to the Greek statistics office these are the latest figures.

The available seasonally adjusted data
indicate that in the 3rd quarter of 2017 the Gross Domestic
Product (GDP) in volume terms increased by 0.3% in comparison with the 2nd quarter of 2017, while in comparison with the 3rd quarter of 2016, it increased by 1.3%.

Thus we see that if we move from forecasts and rhetoric to reality Greece has some economic growth which we should welcome but not only is that slower than the UK in context it is really poor if we look at its record. After the severe economic depression it has been through the economy should be rebounding rather than edging forwards. I have written many times that it should be seeing sharp “V Shaped” growth rather than this “L Shaped” effort.

If we look back the GDP at market prices peaked in Greece in 2008 at 231.9 billion Euros but in 2016 it was only 175.9 billion giving a decline of the order of 24% or 56 billion Euros. That is why it should be racing forwards now to recover at least part of the lost ground but sadly as I have predicted many times it is not. Even if the forecasts presented as a triumph above come true it will be a long long time before Greece gets back to 2008 levels. Whereas the UK economy is a bit under 11% larger and to be frank we think that has been rather a poor period.

Job creation

You may note that there was a shift to Europe leading the world on job creation as opposed to Greece so let us investigate the numbers.

The number of employed persons increased by 94,071 persons compared with November 2016 (a 2.6% rate of increase) and decreased by 9,659 persons compared with October 2017 (a 0.3% rate of decrease).

I am pleased to see that the trend is for higher employment albeit there has been a monthly dip. Actually if we look further the last 3 months have seen a fall so let us hope we are not seeing another false dawn. Further perspective is provided by these numbers.

The seasonally adjusted unemployment rate in November 2017 was 20.9% compared to the upward revised 23.3% in November 2016 and the upward revised 20.9% in October 2017. The number of employed in November 2017 amounted to 3,761,452 persons. The number of unemployed amounted to 995,899 while the number of inactive to 3,242,383.

The first issue is the level of unemployment which has improved but still has the power to shock due to its level. The largest shock comes from a youth unemployment rate of 43.7% which is better than it was but leaves us mulling a lost generation as some seem set to be out of work for years to come and maybe for good. Or perhaps as Richard Hell and the Voidoids put it.

I belong to the Blank Generation, and
I can take it or leave it each time.

Before I move on I would just like to mark the level of inactivity in Greece which flatters the numbers more than a little.

Bond Markets

Last week there was a fair bit of cheerleading for this. From the Financial Times.

Greece has wrapped up the sale of a seven-year bond after a 48-hour delay blamed on international market turbulence, raising €3bn at a yield of 3.5 per cent. The issue marked the first time since 2014 that the country has raised new money. A five-year bond issue last July raised €3bn, about half of which involved swapping existing debt for longer-dated paper.

The problem is in the interest-rate as Greece has got the opportunity to borrow at a much higher rate than it has been doing! Let me hand you over to the European Stability Mechanism or ESM.

The loans, at very low-interest rates with long maturities, are giving Greece fiscal breathing space to bring its public finances in order……..Moreover, the EFSF and ESM loans lead to substantially lower financing costs for the country. That is because the two institutions can borrow cash much more cheaply than Greece itself, and offer a long period for repayment.

As you can see the two narratives are contradictory as we note Greece is now choosing to issue more expensively at a considerably higher interest-rate or yield. This matters a lot due to its circumstances.

They point to the debt-to-GDP ratio, which stands at more than 180%.

Comment

I would be more than happy if the Greek economy was set to grow more quickly than the UK as frankly it not only needs to be growing much faster it should be doing so for the reason I explained earlier. As someone who has consistently made the case for it needing a default and devaluation I find it stunning that the Bloomberg article claims this is a success for Greece.

 the euro gained 14.2 percent last year — the most among 16 major currencies and the strongest appreciation since 2003

After all the set backs for Greece and its people what they do not need is a higher exchange rate. Finally the better prospects for the Euro area offer some hope of better days but they will be braked somewhat by the higher currency.

The confused narrative seems to also involve claiming that paying more on your debt is a good thing. Awkward in the circumstances to be making the case for sovereignty! But the real issue is to get out of this sort of situation which is sucking demand out of the economy. From Kathimerini.

 It is no coincidence that the “increased post-bailout monitoring” is expected to end in 2022, when the obligation for high primary surpluses of 3.5 percent of gross domestic product expires.

So in conclusion there is a lot to consider here as we wish Greece well for 2018. It badly needs a much better year but frankly also more considered and thoughtful analysis as those who have suffered through this deserve much better. The ordinary Greek was mostly unaware of what their establishment was doing as it fiddled the data and let the oligarchs slip slide away from paying their taxes.

 

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Let us continue to remember what has been inflicted on Greece

Yesterday the Financial Times revealed the results of an intriguing poll in Greece,

More than half of all Greeks agreed it was a mistake to have joined the euro. Barely a third of Greeks thought the euro wasn’t a mistake. Even among those who wanted to remain in the euro area at the end of 2015, fewer than half would have chosen to join again if given the chance to go back in time and warn their fellow citizens.

That survey took place almost two years ago. Since then, Walter finds that support for the euro has dropped by 10 percentage points.

Frankly I find it a bit of a surprise that even more Greeks do not think that joining the Euro was a mistake! But in life we see so often that some support the status quo again and again almost regardless of what it is. After all so many in the media and in my profession have sung along to Blur about Euro area membership for Greece.

There’s no other way
There’s no other way
All that you can do is watch them play

Regular readers will be aware that I have been arguing there was and indeed is another way since 2011. One of the saddest parts of this sorry saga has been the way that those who have plunged Greece into a severe economic depression accused those suggesting alternatives of heading for economic catastrophe.

If we look at the current state of play we see this.

The available seasonally adjusted data indicate that in the 2nd quarter of 2017 the Gross Domestic Product (GDP) in volume terms increased by 0.5% in comparison with the 1 st quarter of 2017, while in comparison with the 2nd quarter of 2016, it increased by 0.8%.

So economic growth but not very much especially if we note that this is a good year for the Euro area in total. So far not much of that has fed through to Greece although any signs of growth are welcome. To put this in economic terms this is an L-shaped recovery as opposed to the V-shaped one in my scenario. The horizontal part of the L is the fact that growth after the drop has been weak. The vertical drop in the L is illustrated by the fact that twice during its crisis the Greek economy shrank at an annual rate of 10% leaving an economy which had quarterly GDP of 63 billion Euros as 2008 opened now has one of 46.4 billion Euros. By anyone’s standards that is quite an economic depression.

Some good news

Here I would like to switch to what used to be the objective of the International Monetary Fund or IMF which is trade. In essence it helped countries with trade deficits by suggesting programme’s involving reform, austerity and devaluation/depreciation. The French managing directors of the IMF were never going to be keen on devaluation for Greece for obvious reasons and as to reform well you hear Mario Draghi call for that at every single European Central Bank press conference which only left austerity.

This was a shame as you see there was quite a problem. From the Bank of Greece.

In 2010, the current account deficit fell by €1.8 billion or 6.9% in comparison with 2009 and came to €24.0 billion or 10.5% of GDP (2009: 11.0% of GDP).

Even the improvement back then was bad as it was caused by this.

Specifically, the import bill for goods excluding oil and ships fell by €3.9 billion or 12.6%,

The deficit improvement was caused by the economic collapse. Now let us take the TARDIS of Dr. Who and leap forwards in time to the present.

In the January-August 2017 period, the current account improved year-on-year, as the €211 million deficit turned into a €123 million surplus.

This was driven by a welcome rise in tourism to Greece.

In August 2017, the current account showed a surplus of €1.8 billion, up by €163 million year-on-year………The rise in the surplus of the services balance is due to an improvement mostly in the travel balance, since non-residents’ arrivals and the corresponding receipts increased by 14.3% and 16.4%, respectively.

The Bank of Greece is so pleased with the new state of play that it did some in-depth research to discover that it is essentially a European thing.

In January-August 2017, travel receipts increased by 9.1%, relative to the same period of 2016, to €10,524 million. This development is attributed to a 14.5% rise in receipts from within the EU28 to €7,117 million,

I am pleased to note that my country is doing its bit to help Greece which with the weaker Pound £ might not have been expected and that Germans seem both welcome and willing to go.

as did receipts from Germany, by 29.0% to €1,638 million. Receipts from the United Kingdom also increased, by 17.7% to €1,512 million.

So finally we have some better news but there are two catches sadly. The first is that it has taken so long and the second is that Greek should have a solid surplus in terms of scale after such a depression.

Money Money Money

A sign of what Taylor Swift would call “trouble,trouble,trouble” can be found in the monetary system. The media world may have moved onto pastures new but Greece is still suffering from the capital flight of 2015.

On 26 October 2017 the Governing Council of the ECB did not object to an ELA-ceiling for Greek banks of €28.6 billion, up to and including Wednesday, 8 November 2017, following a request by the Bank of Greece.

The amount of Emergency Liquidity Assistance is shrinking but it remains a presence indicating that the banking system still cannot stand on its own two feet. This means that the flow of credit is still not what it should be.

In September 2017, the annual growth rate of total credit extended to the economy stood at -1.5%, unchanged from the previous month and the monthly net flow was negative at €552 million, compared with a negative net flow of €241 million in the previous month.

Also in a country where the central bank has official interest-rates of 0% and -0.4% we see that banks remain afraid to spread the word to ordinary depositors.

The overall weighted average interest rate on all new deposits stood at 0.29%, unchanged from the previous month.

Also we learn that negative official interest-rates are not destructive to bank profits and how banks plan to recover profits in one go.

The spread* between loan and deposit rates stood at 4.26 percentage points from 4.28 points in the previous month.

Comment

There is a lot to consider here but we can see clearly that the “internal devaluation” economic model or if you prefer the suppression of real wages has been a disaster on an epic scale. Economic output collapsed as wages dropped and unemployment soared. Even now the unemployment rate is 21% and the youth unemployment is 42.8%, how many of the latter will never find employment? As for the outlook well in the positive situation that the Euro area sees overall this from Markit on Greek manufacturing prospects is a disappointment.

“The latest PMI data continue to paint a positive
picture of the Greek manufacturing sector, with the
headline PMI signalling an improvement in
business conditions for the fifth month in
succession……….There was, however, a notable slowdown in output growth, which poses a slight cause for concern
going forward.

A bit more than a slight concern I would say.

Meanwhile I note that the media emphasis has moved on as this from Bloomberg Gadfly indicates.

Greece is taking a step closer to get the respect it deserves from Europe.

It is how?

Yields on the country’s government bonds, which have already taken great strides lower this year, hit a new low last week on news the government is preparing a major debt swap.

I have no idea how the latter means the former but let us analyse the state of play. Lower bond yields for Greece are welcome but are currently irrelevant as it is essentially funded by the institutions and mostly by the European Stability Mechanism. There are in fact so few bonds to trade.

So Greece will have an opportunity to issue debt more expensively than it can fund itself via the ESM now? Why would it do that? We come back to the fact that it would get it out of the austerity programme! Not quite the Respect sung about by Aretha Franklin is it?

 

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.

Comment

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.

 

The claims of Grecovery turned into a continuing economic depression for Greece

Today has started with something that has become all to familiar over the past 7 or so years. From Kathimerini.

Greek farmers protesting against bailout-related income cuts are clashing with riot police outside the agriculture ministry in central Athens.

Police fired tear gas to prevent farmers from forcing their way into the ministry building, while protesters responded by throwing stones.

This is of course the human side of the austerity regime which has been applied to Greece again and again and again.

Protesters are angry at increases in their tax and social security contributions, part of the income and spending cuts Greece’s left-led government has implemented to meet bailout creditor-demanded budget targets.

Yet sadly there is also a theme where some as in those at the higher echelons of society are more equal than others. From Keep Talking Greece.

Greece’s ministers, lawmakers, mayors and other high-ranking public officials are able to enjoy generous tax reductions reaching up to 2,000 euros per year.

Even worse this was tucked away in a 2016 bill which did this.

The provision was included in the law to decrease or even cut the poverty allowance to thousands of low-pensioners.

Many of the problems could have been avoided if Greece had found a way to tax the wealthy. Yet they seem to continue on their not very merry way.

It appears that the former head of gas grid operator DESFA, Sotiris Nikas, granted himself a promotion that boosted his retirement lump sum by 100,000 euros to 258,000 euros, ( Kathimerini)

What about economic growth?

There was a familiar pattern to those who have followed the Greek economic depression as  From Keep Talking Greece.

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.

Reality was not a friend to Mr. Tsipras as soon after the Greek statistics office released this.

The available seasonally adjusted data1 indicate that in the 4th quarter of 2016 the Gross Domestic Product (GDP) in volume terms decreased by 1.2% in comparison with the 3rd quarter of 2016, against the decrease of 0.4% that was announced for the flash estimate

Which meant this.

In comparison with the 4th quarter of 2015, it decreased by 1.1% against the increase of 0.3% that was announced for the flash estimate of the 4th quarter.

If we look at the pattern then it has turned out to be what economists call an “L” shaped recovery or in fact no recovery at all. What I mean by this is that the Greek economy as measured by GDP (2010 prices) peaked at 63.3 billion Euros as the output for the second quarter of 2007 and then fell to  46 billion Euros per quarter as 2013 started and is still there. Remember all those who proclaimed that so-called “Grecovery” was just around the corner? Well it was a straight road and in fact had a gentle decline as the latest quarter had a GDP of 45.8 billion Euros. Thus the Greek economic depression over the last decade has involved a contraction of economic output of 28%.

If you prefer that in chart form here it is.

Yet the Institutions as the Troika are now called stick their collective heads in the sand.From Amna on the 7th of February.

The recent IMF report saying that Greece’s debt load is unsustainable was “unnecessarily pessimistic,” Eurogroup President Jeroen Dijsselbloem said on Tuesday.

The banks

Where an economy is really in trouble then we can find a banking system which has had a type of heart attack and the Greek banking system did as Kathimerini points out.

the huge pool of NPLs ( Non Performing Loans) in Greece that now add up to 107 billion euros after their increase by 1.5 billion in the first couple of months of 2017.

As to the deposits in the banks they have yet to regain the losses of 2015. Care is needed about the many claims that bank deposits have plunged again as the numbers has seen some ch-ch-changes with the order of 6 billion Euros removed. Any way the recent peak at 179.1 billion Euros for domestic residents the the summer of 2014 compares with 130..9 billion Euros in January.

The main growth industry for Greek banks seems to be this.

Eurobank Financial Planning Services (FPS), is the second bad-loan management firm to obtain a license from the Greek authorities to operate in the local market. It follows the permit issued to Cepal, a joint venture by Alpha Bank and Aktua.

On my way to looking at past house prices I found the Bank of Greece 2008 Interim Report which told us this.

the Greek banking system remains fundamentally sound, safe and stable.

Oh and this.

In the euro area, the situation is less worrying than in the United States as far as financial stability is concerned; however, risks of a deterioration do exist.

House prices

It was only yesterday I was looking at the central role of house prices in the UK economy but in spite of a barrage of measures the ECB ( European Central Bank) has failed to influence them much at all.

According to data collected from credit institutions, nominal apartment prices are estimated to have declined marginally on average by 0.6% year-on-year in the fourth quarter of 2016, whilst in 2016 as a whole apartment prices fell on average by 2.2%, compared with an average drop of 5.1% in 2015. ( Bank of Greece )

Ironically that is the sort of medicine which would benefit the UK but for Greece there has been another feature of the economic depression where “apartment prices” have fallen by 40% since 2007.

The shadow economy

The shadow or unrecorded economy has seen a few name changes in recent times but I have been trying to find out more about it in Greece since the crisis began. Yesterday there was a flash of light from Bloomberg.

When Maria’s employer, a large communications company in Athens, gave her additional tasks at one of its new units, it told her she wouldn’t be paid for the work in euros.

“I was informed that this extra payment of 150 euros per month would be in coupons that I can use in supermarkets,” said the 45-year-old, declining to provide her last name for fear of losing her job.

So as the austerity grip tightens more slips through the net.

Payments in kind are among practices companies are using in Greece as they seek to cap payroll costs, undermining efforts to balance the books of the country’s cash-strapped social security system………By some estimates, the so-called black market already accounts for as much as a quarter of Greece’s economy.

What we would like to know is how much the size of the shadow economy has grown. The fact that it has grown seems beyond doubt but how much?

Comment

As the Greek economic depression heads towards the decade mark where even “lost decade” simply does not cut it there have been many themes. A sad one I found in the 2008 Bank of Greece report which told us about structural reform, yes the same structural reform that is still being promised now.

Some time ago I wrote about the “Roads To Nowhere” in Portugal which were empty because of the high tolls charged. Well here is a view on Greece.

It’s often cheaper to fly to Berlin than pay the road tolls for a small car from Thessaloniki (Greece’s 2nd city) to Athens…….The insanely priced and ever growing road toll network in Greece is a major drag on economic development.Roads too expensive for many to use (h/t @teacherdude )

International Women’s Day

Let me mark this with the exchange between Sarah Jane of Sky News and Lord Heseltine.

Lord Heseltine: ‘She’s got a man-sized job to do’ : ‘It’s a woman-size job now’ ( about Prime Minster Theresa May)

This led to some humour from Charlie Reynolds

If I was Michael Heseltine’s mother’s dog I’d watch my step today

 

 

 

 

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.

Trouble,Trouble,Trouble

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.

Comment

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.

 

 

 

 

The Greek economic depression continues to the sound of silence

Today it is time again to look at what has been in my time as a blogger a regular and indeed consistent contender for the saddest story of all. This is of course the issue proclaimed as “shock and awe” by Euro area ministers such as Christine Lagarde back in May 2010 as they sent Greece spiralling into an economic depression from which it shows little sign of returning. This was accompanied by a media operation where those who argued for a different course of action were smeared with claims that they would damage the Greek economy. How shameful that was!

Instead we got austerity and claims of an internal devaluation instead of the old IMF strategy where the austerity was ameliorated by a currency devaluation. Oh and promises of reform which remain in the main just that promises. Eventually there was a default but by then it was not enough partly because the official creditors refused to take part. Drip by drip we have had confessions of failure as the IMF first decided its sums were wrong and more recently has become a fan of fiscal stimulus rather than austerity. Just as a reminder Greece was supposed to return to growth in 2012 (1.1%) and then 2.1% for two years before growing at 2.7% until the end of time.

An economic depression

How do we measure this? Well the first signal is that Greek GDP was 19.5% lower in the second quarter of this year than it was in the second quarter of 2010 when “shock and awe” was proclaimed. So that is a severe depression or Great Depression. There is no other way of putting that.

If we move to the present position then we see this.

Available seasonally adjusted data indicate that in the 2nd quarter of 2016 the Gross Domestic Product (GDP) in volume terms increased by 0.2% compared with the 1st quarter of 2016 against the increase of 0.3% that was announced for the flash estimate.

Sadly even this brief flicker of candle light gets sucked up by the gloom when we look at the annual comparison.

In comparison with the 2nd quarter of 2015, it decreased by 0.9% against the decrease of 0.7% that was announced for the flash estimate of the 2nd quarter on August 12, 2016.

We have other signs of a depression here. Firstly the fact that so far there is no rebound. Ordinarily however bad things are economies eventually rebound in what is called a V-shaped response but here we have a much grimmer L shape as in a collapse and then no recovery. Also numbers in such a situation are mostly revised upwards but as you can see it has in fact been downwards.

Wages

An important signal of these times has been the behaviour of wages and especially real wages well we have seen nothing like this. There is an index for Greek wages for different sectors so let us start with manufacturing which at the start of 2010 was at 95.9 and at the start of 2016 was at 45.5 and had fallen by over 9% in the preceding year. It is not the worst example as the wages of the professional and scientific sector fell from 100.8 to 45.9 over the same time period.

Just so you see both sides of the coin the best number was for the information sector which only and by only I mean comparatively fell from 89.8 to 80.9.

Retail Trade

This sadly is one of the worst examples of the economic depression. You may wish to make sure you are sitting comfortably before you read that on a scale where 2010=100 then Greek retail trade was 69.8 in June. Grimmest of all is that food is at 78.1.

Is it getting any better or Grecovery as some were proclaiming in 2013? Take a look for yourself.

The overall volume index in retail trade (i.e. turnover in retail trade at constant prices) in June 2016, recorded a decrease of 3.6% compared with the corresponding index of June 2015, while compared with the corresponding index of May 2016, recorded an increase of 3.7%.

May must have been dreadful mustn’t it?

The Monetary System

We see regular proclamations of recovery but regular readers will recall the situation last year when Greece saw capital flight on a large-scale. Capital Greece sums it up like this.

Greece΄s banking sector saw a 42 billion euro deposit outflow from December to July last year.

They try to put a positive spin on the data but it tells a rather different story.

Greek bank deposits dropped slightly in July after a rise in the previous two months………Business and household deposits fell by 160 million euros, or 0.13 percent month-on-month to 122.58 billion euros ($138.3 billion), their lowest level since November 2003.

That means the credit crunch is ongoing.

Export Led Growth

One of the ways that the “internal devaluation” was supposed to benefit Greece was via foreign trade. This should impact in two ways. Firstly exports would be more price competitive and rise and secondly imports would fall in sectors where Greek producers can replace them. How is that going? From Kathimerini.

exports of Greek products dropped to their lowest point in the last four years in the first half of 2016, posting an annual decline of 8.1 percent to 11.8 billion euros, against 12.8 billion in January-June 2015. Excluding exports of oil products, the annual decline came to 1.4 percent.

So the oil price fall has had an impact except care is needed here if it was counted when we were being told this was getting better. Especially troubling considering the efforts of the ECB to reduce the value of the Euro came from this.

There was a notable decrease in exports, including oil products, to non-EU countries, where they fell by 14.6 percent compared to June last year.

An area which had shown signs of hope was tourism where I recall better numbers and hope for the future but sadly the Bank of Greece has another tale.

In January-June 2016, the balance of travel services showed a surplus of €2,991 million, down 6.7% from a surplus of €3,205 million in the same period of 2015…….The decrease in travel receipts resulted from a 1.6% decline in arrivals and a 4.9% fall in average expenditure per trip.

Just in case someone wants to deploy the scapegoat of 2016 which is of course Brexit that has so kindly given the poor much abused weather a rest. well see for yourself…

Receipts from the United Kingdom increased by 24.8% to €388 million.

Actually it is people from outside the European Union who have stopped going to Greece for a holiday it would appear.

while receipts from outside the EU28 dropped by 21.9% (June 2016: €469 million, June 2015: €601 million).

Any thoughts as to why?

Comment

As we review the scene there is a familiar austerity drumbeat.From Kathimerini.

Tens of thousands of pensioners will see their auxiliary pensions slashed by between 10 and 12 percent on Friday morning, while in some cases the cuts will even exceed 40 percent…..This second wave of cuts will affect 144,000 pensioners, after a first one hit just under 67,000 retirees in August.

Odd that because we have been told so many times that reform has been completed. Oh and we have been told so many times that the banks are fixed as well.

Greece’s four systemic banks increased their provisions for nonperforming loans by a total of 1 billion euros during the second quarter of the year

By systemic they mean toxic under the Britney definition.

I’m addicted to you
Don’t you know that you’re toxic
And I love what you do
Don’t you know that you’re toxic

Meanwhile the Greek depression continues to the Sound of Silence.

Hello darkness, my old friend
I’ve come to talk with you again
Because a vision softly creeping
Left its seeds while I was sleeping
And the vision that was planted in my brain
Still remains within the sound of silence

 

The economic problem that is Italy

Today is ECB ( European Central Bank) day and the struggles and problems of the Italian economy will be on the mind of its President Mario Draghi each time he thinks of his homeland. Actually as both the ECB and OPEC decamp to Vienna in Austria there can only be one musical accompaniment which is from Ultravox.

The feeling has gone only you and I
It means nothing to me
This means nothing to me
Oh, Vienna

The song itself also became famous for reaching number 2 in the UK charts and being kept off the top spot by Shaddap Your Face as we note that life is often not fair.

Economic Growth

The update from earlier this week told us this.

In the first quarter of 2016 the seasonally and calendar adjusted, chained volume measure of Gross Domestic Product (GDP) increased by 0.3 per cent with respect to the fourth quarter of 2015 and by 1.0 per cent in comparison with the first quarter of 2015.

The good news is that this is a much improved performance on the -2.7% of the same quarter in 2013 as we note that annual economic growth did not become positive until the first quarter of 2015 and barely (0.1%) at that. So any growth at all is welcome. However in spite of the chorus of claims from official sources and the media about an Italian economic renaissance I note that annual growth is only 1% and that it has just edged lower from 1.1%.

Whilst Italy has a solid trade position the changes in it will not be welcome as after all its economic growth rate is lower than its main trading partners.

imports (increased) by 1.2 per cent, while exports decreased by 0.4 per cent.

The problem of perspective

If we look back we can again briefly have some good cheer. Back on the 12th of February I pointed out this from Nick Kounis of ABN Amro.

The ‘good’ news is that this is above ‘s trend growth rate of zero.

However the cheer is bittersweet as we mull numbers like this.

between 2001 and 2013 GDP shrank by 0.2%. (The Economist)

That is hardly an advertisement for Euro area membership! In fact whilst the situation has improved slightly since I posted this back in February there is still a shock effect from this.

https://twitter.com/jsblokland/status/698090118192762880/photo/1?ref_src=twsrc%5Etfw

Here we get a direct link to the current situation as you see in the better times Italy has raised itself from its economic topor to a growth rate of around 1%. Well right now is a better time for the Euro area and Italy has managed only 1% again. This is in spite of all the promises of changes and reform. It seems to be trapped in its own version of groundhog day.

It is also helpful to consider the individual position because it is significantly worse than the aggregate one. If you look back to the 0.2% decline in 12 years above well the population did this.

That statistic gets even worse when you allow for the fact that the Italian population was expanding over that period by around 7% so per person the situation was even worse.

I have taken a look at the annual numbers and in the year it adopted the Euro (1999) Italy had a GDP per capita of 26,353 Euro’s and in 2015 it was 25,479 Euro’s or 3.3% lower (2010 prices).

Interesting even the Governor of the Bank of Italy referred to it this week.

that Italy has the potential to recoup the growth gap it has accumulated in the last twenty years.

Looking Forwards

We know that official denials are troubling to say the least so this from the economy minister Padoan yesterday poses its own question.

PADOAN SAYS ‘NOT WORRIED’ ABOUT ECONOMIC GROWTH IN ITALY ( @advdesk )

Italy was apparently “turning a corner” which would be great news as it seems to have been at that same corner since 1999. Perhaps he has already forgotten that he told us of “extraordinary circumstances” as the Wall Street Journal reported this back on April 8th.

Prime Minister Matteo Renzi’s government sees the Italian economy growing by 1.2% this year and 1.4% in 2017, down from the previous forecasts of 1.6% for both years.

Even manufacturing sentiment appears to be fading according to the Markit Purchasing Manager’s Index.

Italy’s manufacturing sector remained in growth territory mid-way through the second quarter, although the latest respective increases in output and new orders were the slowest in three months…….However, the index sank to its second-lowest level in the past 15 months, as the rates of expansion in output, new orders and employment eased.

Unemployment

This is an ongoing problem as Tuesday’s numbers reminded us.

In April 2016….Unemployed were 2,986 million, +1.7% over the previous month…. unemployment rate was 11.7%, +0.2 percentage points over the previous month……Youth unemployment rate (aged 15-24) was 36.9%, +0.2 percentage points in a month,

This is not the “turning the corner” that economy minister Padoan presumably meant. There was a little solace to be found in the fact that employment rose but unemployment and in particular youth unemployment do not seem to be responding much. Actually the past was worse too as the March unemployment rate was revised up from 11.4% to 11.5%.

National Debt

The address by Bank of Italy Governor Visco at its Annual Report on Tuesday pointed out this.

The increase of the ratio of debt to GDP, from just under 100 per cent in 2007 to almost 133 per cent last year, is largely a consequence of the crisis..

He also explained why this has happened.

If during that period real GDP growth had been in line with that of the previous decade and the deflator had evolved in keeping with the inflation target for the euro area, the debt burden would have risen by only 3 percentage points,

You may note in their why he is so keen on inflation! Of course workers and consumers in Italy would have the opposite view. Also he was unsure about the plans for debt reduction this year.

The way in which the macroeconomic context will evolve could hinder the achievement of this goal in 2016.

This is a familiar theme for the national debt for Italy which follows part of the Mad Hatters Tea Party.

“The rule is, jam to-morrow and jam yesterday—but never jam to-day.”
“It must come sometimes to ‘jam to-day,’” Alice objected.
“No, it ca’n’t,” said the Queen. “It’s jam every other day: to-day isn’t any otherday, you know”

With Mario Draghi and the ECB such enthusiastic buyers of Italian debt (117.8 billion Euro s so far)  the interest cost of this is remarkably low but this hides two problems. Firstly the fact that the capital burden gets ever higher and secondly that politicians will move to fill the “spending gap” created which means that the ECB is as Coldplay put it.

Oh, no, what’s this?
A spider web, and I’m caught in the middle,
So I turned to run,
The thought of all the stupid things I’ve done,

How could it stop QE now?

The banks

Apparently they are doing really well and supporting the economy.

Banks are actively seeking to use the abundant liquidity at their disposal, above all by lending to firms in a stronger financial position ( Governor Visco)

You may note that “actively seeking” is different to doing and wonder how strong a firm’s financial position has to be to get bank lending?! Anyway we have a claimed triumph if we switch to economy minister Padoan.

Italy banking system avoided crisis due to Atlante

Ah the bank rescue fund! How is that going? Credit & Macro PM helps us out.

*VENETO BANCA: NO SUFFICIENT INTEREST EMERGED FROM PRE-MARKETING *VENETO BANCA SAYS ATLANTE TO SUB-UNDERWRITE BANK’S SHARE SALE

On the 11th of May I looked at the problems use of Atlante caused for the other Italian banks but a practical example of this can be seen by the share price moves in response to the Veneto Banca news. The Google Translation of Ilsole24ore is clumsy but the gist of it is clear.

Milan Stock Exchange, with the increase of Veneto Banca at great risk, collapsing the Popular Banco Popular which closes at -7.3%, -5.1% and BPM Bper to -5.47%; Unicredit leaves on the ground 4% with Equita who judges the inevitable increase in capital (follow the industry trends).

Comment

This tale is a sorry one for a beautiful country with much to commend it. I understand why it wanted to join the Euro as in essence it seems quite happy to bypass its own establishment in the hope of finding more luck in a Europe wide one. Sadly in economic terms that has created its own “lost decade” concept which has lasted all of this century. You are in a bad place when a longer-term perspective puts you in a worse position than Greece as we return to the “girlfriend in a coma” theme.

Perhaps some solace can be found in the size of the shadow economy. A research paper by Friederich Schneider estimated it at 20.8% of GDP in 2014 which was a little higher than the European average of 18.3% and well below Bulgaria at 31%! In January Business Standard reported this.

Italy’s black is worth at least 540 billion euros ($752 billion), or around a third of its gross domestic product (GDP), research agency estimated in a report.

The Italian accounted for around 270 billion euros in dodged taxes, Eurispes highlighted…..In addition, more than 200 billion euros were generated by the criminal economy, according to Eurispes.

I note the wide variation and cannot avoid the thought that some of what we used to count as the shadow economy ( Prostitution and illegal drugs) are counted these days.

Just after I posted this came this news from @creditmacro.

*ITALY SAID TO CONSIDER TAPPING BANKS AGAIN FOR RESOLUTION FUND *MAY TAP LENDERS TO BRIDGE GAP BTW SALE PRICE/DEBT

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