We need to talk about unemployment

AFP

AFP

At the Organization of Economic Cooperation and Development (OECD) Council of Ministers in Paris on Wednesday, Greek Finance Minister Yannis Stournaras challenged the institution’s forecast that Greece will remain in recession next year, which would mean a seventh straight year of contraction. Stournaras thinks the OECD will be proved wrong. There isn’t a Greek in the world who doesn’t hope  he will be proved right.

The OECD’s recent Economic Outlook contains some alarming messages for Greece, messages that are in  contrast with the recent wave of positivity from the government and upbeat  assessments from the media domestically and abroad. The Paris-based organisation  does not see a return to growth in 2014 but predicts a further economic contraction of 1.2 percent, a gap from Stournaras’s projections that translates into about 3.6 billion euros of economic output. It goes as far as suggesting that additional financing from the EU/IMF program will be required for Greece so automatic stabilizers are allowed to kick in if the recession turns out to be deeper than initially anticipated.

As much as Stournaras was quick to challenge the OECD’s projections on growth, he did not comment on the devastating projections for unemployment. The finance minister has designed Greece’s medium-term fiscal strategy based on average unemployment of 22.8 percent for 2013 and a lower figure of 21.4 percent for 2014. The OECD and the Bank of Greece, which also gave its forecast this week, think otherwise.

The differences in the forecasts are as stark as they are vexing. The OECD sees unemployment at 27.8 percent this year and a higher rate of 28.4 percent in 2014. Equally, the Bank of Greece in its monetary policy report published Wednesday sees unemployment “stabilizing” at 28 percent this year and does not foresee a reduction before 2015, which suggests the rate will hover at 28 percent – not far from OECD’s projections.

Considering the unemployment rate in February reached 27 percent, unless there is surge in seasonal hirings over the next four months, when the tourism season hits its peak, the chances of the Finance Ministry’s unemployment projections being met seem remote.

The situation would be even direr if the OECD’s projections for next year materialize as it would defy any macroeconomic logic to expect that even the modest growth that the Finance Ministry expects would lead to a reversal of the current trend and unemployment falling to 21.4 percent.

In a labour force of approximately 4.9 million, the differences between what the Greek government is predicting and what the OECD forecasts translate into 244,000 jobs for 2013 and 342,000 for 2014. In a country where over 60 percent of the unemployed (or 17 percent of the country’s workforce) have been out of employment for over a year, these figures carry an extra urgency and demand to be studied more carefully.

If the OECD proves accurate, close to a quarter of a million more unemployed Greeks than the Finance Ministry has anticipated will remain out of contact with the labor market and could see their skills further deteriorate. They are in danger of joining the ranks of some 800,000 people that have lost eligibility for unemployment benefits and health coverage or the 400,000 families that do not have a single bread winner. This threat of poverty and social exclusion cannot be taken lightly.

The government has announced a number of short-term job schemes in an attempt to combat the worst effects of the terrifying dimensions that unemployment has taken. The programs, assisted by EU funding, aim to provide tens of thousands of people with a small income and, perhaps, a sense of purpose. These are worthwhile gestures but not an overarching solution for the much wider problem. A bumper year is expected in Greece’s tourism sector. This will also help create jobs but, again, does not constitute a panacea. The social dimension that Greece’s runaway unemployment has taken on means it cannot be regarded in purely numerical terms, as we have done with almost everything else in our lives over the last few years of spending reductions, tax hikes and debt
haircuts.

Numbers, however, are important. In this respect, it must be noted that it is a brave man who takes on the OECD’s predictions these days. It is worth remembering that in the International Monetary Fund paper on “Growth Forecasts and Fiscal Multipliers” by Olivier Blanchard and Daniel Leigh earlier this year, the IMF’s economists compared their projection errors with those of the European Commission, the Economist Intelligence Unit and the OECD. According to their findings, the OECD had the lowest error coefficient, meaning it came closest to the actual outcome in its projections. The European Commission also published a report recently looking at its macroeconomic forecasts between 2004 and 2011. Its authors, Laura Gonzalez Cabanillas and Alessio Terzi, found that the Commission was more accurate than the IMF but that the OECD beat both of them.

If the OECD proves to have the most accurate projection on the Greek economy, the devastating implications are clear. One can only hope that Stournaras proves the most precise of all. In the meantime, though, we really need to talk about unemployment.

Nick Malkoutzis & Yiannis Mouzakis

Yiannis Mouzakis works for a global content supplier and blogs at The Prodigal Greek.

17 responses to “We need to talk about unemployment

  1. I don’t get it. First we allow European flawed policies to create out of control unemployment in Greece and then we spend our time debating whose projection would be the closest?

    What is this? a betting gig or something?

    Instead of debating the unemployment figures why don’t you hit the evil at its source? Who is responsible for the unemployment? Whose policies Greece is implementing?

  2. Firstly the youth unemployment figures are not correct as we all know that Greek youths do not start work at 16 as they do in many European countries but unless employed in family concerns, early twenties. Secondly out of my small circle of friends and close acquaintances nine are working without paying taxes or insurance. Of these two are teachers giving private lessons, one working in a shop, another night security, another as an accountant, three have finished their employees, and either closed their companies or attempting to close them, due to debts and simply operating as self-employed electricians and electrical engineers and one as a Nanny. Here I must add that these people were all law abiing citizens that lost their employment and either they are no longer entitled to unemployment benefits as the year has expired or were operating their own companies and therefor not entitled to any severance or unemployment benefits. I am sure that now with the summer hirings, this is common all over Greece.

  3. The IMF puts the unemployment squarely on Greece.

    “But Greece is adjusting mainly through recession, not through productivity-enhancing reforms. Beyond the labor market, broader structural reforms have fallen well short of the critical mass required to transform the investment climate and boost potential growth.

    With fiscal adjustment set to weigh on demand for several more years, growth must come from private investment and exports. Thus, restoring growth and reducing unacceptably high unemployment will require full and timely implementation of ambitious reforms that firmly puts to rest uncertainty about the authorities’ willingness to
    tackle vested interests.”

    http://www.imf.org/external/pubs/ft/scr/2013/cr13154.pdf

  4. Instead of unemployment we ought to be talking about the economy. It’s the fixing of the economy that would reduce unemployment:

    http://www.mckinsey.com/locations/athens/GreeceExecutiveSummary_new/pdfs/Executive_summary_English.pdf

  5. “Like the Spartans, Thebans, and Thespians at the Pass of Thermopylae, the Greeks were sacrificed to buy time for the alliance.

    Instead of applause, they were then vilified for their heroic efforts by ill-informed and self-interested Dutch, Finnish, Austrian, and German politicians. A squalid episode.”

    Ambrose Evans-Pritchard, The Telegraph

    http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100024771/ollie-rehn-should-resign-for-crimes-against-greece-and-against-economics/

    • Well yes, that is how scapegoating works. The louder one accuses and vilifies the more effectively one’s own misdeeds are obscured. In psychotherapy, in these instances, the spotlight goes on the accuser, rather than the accused: at the simplest level it is a case of subconscious projection, at an international level it is conscious framing.

  6. It is worth noting here that the IMF report was a staff assessment that stated clearly that it did NOT reflect the opinions of the IMF’s top administration.

    When DSK was removed from his post, Sarkozy’s finance minister – the non-economist lawyer Christine Lagarde – replaced him. French banks had the biggest exposure to Greece and still do.

    Putting aside questions of the IMF’s historical track record, the fact that IMF staff have broken ranks with its management is a first: reflecting not only intense pressure from its non-EU contributing members but frustration and fear towards the EU’s [mis]handling and politicisation of the crisis – from an economic point of view. It could and probably is [also] a piece of theatre to provide an exit for the IMF now, so as to avoid upcoming financial losses through greek/EU exposure.

    The elephant in the room is the behaviour of the EU, in which the lie of country equality has been completely exposed, and which has done absolutely nothing to help 15 of its members. Instead realpolitick boils down to the old Coal Community of France / Germany.

    Our attention should be (1) on saving ourselves at home and internationally (2) on the now proven valuelessness of the EU Commission. The Eurogroup is just politicians doing what they are paid to do by big interests.

  7. The IMF has a political dimension(harmful to Greece) but its observations about the Greek economy are correct. Only foreign investment and export growth would save the economy.

    For the moment, foreign investment is not feasible due to the political situation. No sane investor would ever invest in a country governed by a fragile coalition of the unwilling and only a hair away from the radical leftist nonsense. The only way foreign investment could come to Greece is after a true, stable and openly pro-business government is established. And since such is not doable today then please scratch foreign investment as a credible option in our present condition. That FDI is a theoretical option yes, realistic option no.

    Which leaves us with exports as the only positive lever. I think the latest 1st quarter Greek export figures of 2013 tell a particularly explicit story. Whereas Greece is scoring impressive improvements with significant export partners, Germany again is dropping the ball on Greece. Check it out here:

    http://www.hepo.gr/deployedFiles/StaticFiles/Pages/100first-countries-jan.-march.2013-2012.pdf

    Turkey leads the pack as the number 1 export market for Greece with an impressive 39% increase over the same period last year. So is Italy as the number 2 Greek export market with a 26% increase over the same period last year. And where is Germany (the 3rd largest export market for Greece)? The answer is a disappointing minus 2%.

    But there is recession in Europe you might say. Therefore it makes sense for Germany to have a negative import increase of Greek products.

    Then how come Greece is able to have an 11% increase of its exports to France and 41% increase of its exports to Spain during the same period? Aren’t these two countries suffering more than Germany? Yet their purchase of Greek products is beyond a healthy increase.

    And how about a 37% increase of Greek exports to Libya, 100% to Egypt and 50% increase to Algeria? Not to mention a 1300% increase of Greek exports to Brazil as an example. Even Austria (which is a mini Germany) shows a 29% increase of Greek imports.

    The bottom line is this: in the only meaningful category (exports) for an immediate positive impact in the Greek economy, Germany disappoints again big time. Instead of being a reliable trade partner, Germany fails to step up to the plate and do what everybody else is doing in spades: buy more Greek products. Not only Germany fails to meet its quota of the solidarity trade (if you wish) but it keeps flooding the Greek import market with overpriced German products at the unheard of ratio of 3:1 (for each euro Germany imports from Greece, Germany has the audacity to sell 3 euros to Greece at this hour of need).

    Therefore here is the practical step to improve the Greek economy immediately. Demand a trade ratio of 1:1 with Germany. Either Germany ups its Greek imports, or Greece brings down its German imports to the balanced 1 to 1 level.

    • I agree.

    • Dean, as I said in my mail to you, I cannot believe what I see you are writing. You suddenly are starting to hit on those issues which count: bringing economic value creation back to Greece (export expansion, import substitution). When economic value creation returns to Greece, more people will find employment, more income taxes and social contributions will be paid and the state will have more revenue. Since Greece does not have sufficient financial resources to finance the necessary investment for the above process, Greece will need money from abroad. Since the rest of the world doesn’t fancy sending more loans to Greece, Greece will have to get that money from abroad in the form of foreign investment. The wonderful thing about foreign investment is that it not only brings money but it also brings know-how in all areas, not only technological know-how. For example, corporate governance for middle-market companies is probably one of the greatest benefits which Greece could derive from foreign know-how.

      Again, congrats on your new approach!

  8. Speaking of statistics, here are the latest from ELSTAT on the import/export front (refer to page #3)

    http://www.statistics.gr/portal/page/portal/ESYE/BUCKET/A0902/PressReleases/A0902_SFC02_DT_MM_04_2013_01_E_EN.pdf

    It would appear that Greek exports for the first 4 months of the year totaled:

    Jan-April 2012: 8.353, 60 Mil. euros
    Jan-April 2013: 9.015, 70 Mil. euros

    And the imports for the same period:

    Jan-April 2012: 16.497.50 Mil. euros.
    Jan-April 2013: 15.668.20 Mil. euros

    • Be aware that export/import figures of ELSTAT are quite different from those of the Bank of Greece. I believe it has to do with the fact that when ELSTAT talks about exports/imports, they mean “exports/imports from goods AND services”. The Bank of Greece differentiates between the two. However, my contact at the Bank of Greece once explained to me that ELSTAT follows a different methodology when calculating exports/imports. Be that as it my, for a layman it would be wonderful to have only one figure for exports/imports.

      • You mean the ELSTAT figures are more optimistic?

        Because the “Invest in Greece” figures are also consistent with ELSTAT for 2012.

        http://www.investingreece.gov.gr/default.asp?pid=56&la=1

        I thought the difference was due to a petroleum products recalculation which by now is over.

      • Klaus:

        At the bottom of the page for the “Invest in Greece” figures there is the following footnote:

        “* In 2012, data of external trade were revised and adjusted for the period 2004-2012.”

        I think from 2013 onwards there shouldn’t be anymore differences on the reported figures. But let’s wait for the BofG to confirm.

  9. Is this a new Dean? How come we are suddenly on the same side?

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