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+ Greece and its creditors The unsustainable debt dilemma J ACQUES - - PowerPoint PPT Presentation
+ Greece and its creditors The unsustainable debt dilemma J ACQUES - - PowerPoint PPT Presentation
+ Greece and its creditors The unsustainable debt dilemma J ACQUES S APIR Directeur dtudes lEHESS Director CEMI-EHESS + I. Assessing the general situation + 1. The Greek debt has dramatically increased since the beginning of the
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+
1. The Greek debt has dramatically increased since the
beginning of the 2000’s. But it was with the 2007-2008 world financial crash that it became really unsustainable. By 2009 it was obvious that a massive restructuration was needed. The failure of doing so has damned EU policy since then.
2. So-called “Memorandum policies”, implemented not to the
sake of helping Greece but of helping its creditors (as recently admitted by the IMF) created a disaster on massive scale when it came to evolution of the Greek GDP or the GDP per capita.
3. Average GDP per capita is now under 15 000 euros a year,
something to be compared with the monthly wage of Mr. Pierre Moscovici as European commissioner (24 000 euros/month)
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+ Evolution of Greece’s debt since 1989
(percent GDP)
50 60 70 80 90 100 110 120 130 140 150 160 170 180
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
General government net debt in percent GDP
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+
Evolution of Greece’s debt since 1989 (Billions euros)
60 80 100 120 140 160 180 200 220 240 260 280 300 320
19891990 1991199219931994 19951996 1997199819992000 2001200220032004 20052006 2007200820092010 2011201220132014
Billions Euros
General government net debt
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+
Evolution of Greece GDP
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+
Evolution of GDP per capita (Euros for one year)
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+
4. Quite clearly Greek debt is not sustainable. Haircuts
implemented so far have been too limited.. A solution is to be found:
(a) A massive restructuration but this has been refused by
the German government with the support of French one.
(b) Transformation into a perpetual rent whose interest
would be indexed on the future nominal growth rate.
(c) A default (non-organized restructuration) could also be
contemplated.
5. To believe that things could be going on as they have been
previously is a clear denial of reality.
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+II. The competitiveness issue and the
effect of Memorandum austerity
Had Memorandum austerity led to an actual improvement of
Greece situation?
How would Greece recover its lost competitiveness? What is alternative to internal devaluation?
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+Estimates of competitiveness
- 5%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55%
Dec-1998 déc.-99 déc.-00 déc.-01 déc.-02 déc.-03 déc.-04 déc.-05 déc.-06 déc.-07 déc.-08 déc.-09 déc.-10 déc.-11 déc.-12 déc.-13
Unit Labor Cost
- Gap
with Germany
France Greece Ireland Italy Portugal Spain
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+How have labour productivity evolved?
- 15,0%
- 10,0%
- 5,0%
0,0% 5,0% 10,0% 15,0% 20,0% 25,0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Produc vity gains compared to Germany
Greece Italy Portugal Spain Ireland
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+How have inflation evolved?
0% 5% 10% 15% 20% 25% 30%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Infla on compared to Germany since 1999
Greece Italy Portugal Spain Ireland
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+
1. Greek competitiveness, till the end of 2008, evolved in line
with Southern European countries. Greece did not accumulated a massive lag with these countries. But for Germany, there would be not a specific problem of competitiveness.
2. It seems that policies implemented under the
“Memorandum regime” have actually sharply degraded productivity, contributing then to further degradation of Greek competitiveness. The labour productivity trend is showing that Greece was till 2008 improving its position by comparison to Germany and other SE countries.
3. the so-called “internal devaluation” process, mimicking
1930’s ill-fated “deflation” policies has not solved Greek
- problems. This had to be expected if one remains of
disastrous consequences of German Chancelor Brünning policies in 1930-1932.
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+Another estimates of competitiveness
- 30%
- 25%
- 20%
- 15%
- 10%
- 5%
0% 5% 10%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Compe veness index compared to Germany
Greece Italy Portugal Spain Ireland
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+
4. If one adds inflation and productivity gains compared to
Germany’s ones, we could devise and indicator of the general “Euro-competitiveness” of Southern Europe
- countries. Then we could see that all these countries are still
in troubles. By comparison with Ireland, these countries need an adjustment going from around 12% for Portugal to 25% for Greece and Italy.
Such an adjustment could either come from:
(a) Another turn of “internal devaluation” but one implying a
massive drop of nominal wages. For Greece it could imply lowering wages by at least 20%, in a country where unemployment is over 26%.
(b) An exchange rate depreciation, but then implying an exit
from the Eurozone or a dissolution of the Eurozone.
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+III. What is the actual situation for a possible exit from the Eurozone?.
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+The current account issue
- 14
- 12
- 10
- 8
- 6
- 4
- 2
2
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
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+Investments and savings
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+ Nevertheless, the situation has considerably evolved since
- 2010. To a large extent, Greece is now in a better shape for an
“Exit” strategy.
(a) Greece is now running a small primary budget surplus. (b) Greece have a balanced current account. (c) Internal savings are matching investments.
But, such a strategy would imply defaulting on the debt. The
debt is again on the forefront. Without a viable strategy from the Eurogroup on the Greek debt, the only solution could actually be what has been called “GREXIT”.
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+IV. Is GREXIT to be contemplated?
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+
1. The GREXIT solution is neither “against” or “pro” EU. It is a
fact, which is to be objectively considered.
2. If a GREXIT is to happen the most serious problem will be
the transitional period of time where the new currency (Drachma) is to be stabilized. This call for an agreement between Greece and other countries (either Eurozone ones
- f others like China or Russia) for a swap of around 20 USD
billions.
3. The depreciation of the new currency compared to the
Euro is to be between -15% / - 20%.
4. The impact on the current account balance and on internal
production is to be very positive.
5. If no agreement could be reached for a dramatic change of
Eurogroup toward Greece, then the GREXIT solution is to be seriously contemplated as a viable strategy for Greece.