Tag Archives: Greek economy

An issue of statistical significance in Greece

A Greek flag flies behind a statue to European unity outside the European Parliament in BrusselsThe head of Greece’s statistics agency, Andreas Georgiou, is to face a criminal inquiry. An ex-employee of the Hellenic Statistical Authority (ELSTAT), Zoe Georganta, has accused him of colluding with the European Union’s statistical arm, Eurostat, to inflate Greece’s deficit figure for 2009, thereby justifying Greece’s EU-IMF bailout, signed in May 2010, and  its drastic austerity measures. Georgiou vehemently denies the charges.

Financial prosecutors have referred the matter to a special magistrate and the Greek justice system will have to decide on the validity of each side’s arguments.

Beyond the judicial process, some observations about the case are needed as it goes to the very heart of understanding how Greece’s public finances veered dramatically off course and the country turned to the eurozone and International Monetary Fund for emergency loans.

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Goodbye uncertainty, hello uncertainty

For Greece, the underlying theme of this crisis has been swapping one set of uncertainties for another. In fact, sometimes the uncertainties have been exactly the same, simply repackaged and rebranded. From George Papaconstantinou’s “loaded gun on the table,” to the first bailout in May 2010, from the mid-term fiscal plan in the summer of 2011 to the October 27 haircut agreement last year, from the PSI and second bailout early this year to the European assurances ahead of this summer’s elections: each development has promised stability, continued membership of the euro and better days ahead; each has crumbled into an empire of dust.

Now, hopes are being pinned to the Brussels debt deal agreed in the early hours of Tuesday morning. The immense relief at an agreement being reached is both understandable and justified. The prospect of the eurozone and International Monetary Fund failing to find any common ground on how to make Greek debt sustainable would have led to potentially devastating economic and existential implications for the single currency area and Greece. However, as this relief subsides, it becomes more evident that this deal takes a stab at providing a definitive solution to Greece’s debt problem but falls short, leaving the sword of Damocles dangling over the country. Even if the debt reduction program goes according to plan – and there are doubts whether it will, especially due to questions over the bond buyback scheme – Greece will still have to contend with a debt of 124 percent of GDP in 2020. It is also doubtful whether enough has been done to remove the niggling doubts about Greece’s future in the minds of investors, who are so necessary to helping change the course of the Greek economy. JP Morgan referred to the Brussels pact as a moment of “creative ambiguity.”

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The Greek crisis: an economic problem, not a moral quandary

Like clockwork, crucial talks between Greece and its lenders have been prefaced by a gaggle of European politicians questioning Athens’s commitment to its bailout targets and its place in the eurozone. Accusations have ranged from a Greece being a “bottomless pit,” to the government, in place for about two months, lacking the will to implement the troika’s program. There has even been a suggestion — if reports are correct — that Athens has failed to cut wages and public spending.

Misdirection, misinformation and downright lies have never been in short supply since Greece’s debt crisis began. Some of the recent comments about Greece have slotted into this regular pattern. Greece can be justly criticized about the slow pace of reforms but there is no basis for raising doubts about its efforts to meet — albeit haphazardly — the fiscal targets set by the European Commission, European Central Bank and International Monetary Fund.

To suggest that Greece is in a constant struggle to meet the troika’s fiscal goals because of indifference rather than due to the deteriorating state of the economy or because of the political difficulty of passing unprecedented — by eurozone standards — austerity measures is pure subterfuge. There is little evidence to back up such a claim. Even a cursory glance at the economic indicators proves that Greece has cut both wages and public spending. It may have fallen short in other areas, but in terms reducing expenditure, there can be no doubt that Greece is doing its bit.

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Who will hear Greece’s cry?

European Commission President Jose Manuel Barroso was in Athens on Thursday. It was the first visit to Greece by the head of any of the troika elements since the country agreed its first bailout in May 2010. Greece’s isolation within Europe could not be highlighted or summed up in a better way.

Barroso brought kind words of support and messages about growth, which the Greek government will treat as a useful display of solidarity in these difficult and lonely times. But the EC chief’s visit was eclipsed by the presence of the top troika officials in Athens.

Greece’s immediate fate rests in the hands of these three men. The words this trio includes in their review of the Greek program, due by the beginning of September, is likely to determine whether eurozone leaders and the IMF board approve the release of more loan installments.

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A changing tide to lift Greece

A rising tide lifts all boats, they say. The changing tide in Europe produced by the eurozone leaders’ decisions in Brussels on Friday could certainly help give Greece, sinking deeper into trouble over the last three years, the buoyancy it needs to survive.

Although still far from finalized, the outline deal that emerged somewhere around 4 a.m. in the Belgian capital paves the way for banks in eurozone countries to be recapitalized directly from the European Stability Mechanism (ESM), to which all members contribute money.

If this scheme applies to Greece, there are two key benefits. Firstly, it would reduce the public debt substantially. The current recapitalization of Greek banks involves 48 billion euros being lent to the government via the EFSF and this being distributed to the lenders via a public fund, the HFSF. This means 48 billion euros are being added to the national debt, whereas if the money is lent directly to the banks by the ESM, Greece would avoid this extra burden. Even after the debt restructuring (PSI) in March, Greece is still expected to owe just over 160 percent of its GDP at the end of the year. A direct recapitalization from the ESM would reduce this debt by about 25 percent of GDP. It would also slash the amount Athens pays in interest each year.

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Can Greece and its lenders speak the same language?

Greece’s coalition government appears to be paring down its expectations for any substantial renegotiation of its bailout terms. Athens is concerned about the absence of the necessary goodwill among its eurozone partners to support an overhaul of the loan agreement. Yet, all Greek economic indicators, including the ones that point to another worse-than-expected contraction this year, scream for a substantial reworking of the package.  The government’s only hope is that after almost three years of talking at cross purposes, Greece and the key European players quickly discover a way to speak a common language.

Ahead of this week’s European Union leaders’ summit and the latest visit from the troika inspectors, due to start on Sunday, the nascent coalition was steeling itself for tough negotiations with its lenders. There was a fundamental flaw to its strategy, though. Greece was preparing for political bartering when its partners were only interested in an economic discussion. Continue reading