Sunday, 5 February 2012

Whats A Greek Urn?

There are four reasons why the Greek bailout will fail and Greece will leave the Euro:
  1. After joining the euro in 2001, the Greek unit labour costs (a measure of wage competitiveness) have risen 32% compared with for example Germany i.e. They are paid like Germans but work like Greeks (which is the wrong way round).
  2. The Greek current account deficit - which is a broad measure of its trade deficit - is still  running at 10% of GDP (total economic output) in the middle of last year i.e. The Greeks are buying 10% more than they sell and can't borrow to finance the shortfall.
  3. Greek households and companies withdrew 28% of the deposits they held in Greek banks in the three years to November last year, and this withdrawal rate has been accelerating. i.e. The Greeks are having a slow run on their own banks, as companies - and increasingly ordinary Greeks - take their money out in cash, or move it to the safety of a bank account in Germany or Switzerland.
  4. The Greek economy shrank 5.5% last year, and has shrunk a cumulative 12% since 2008. its predicted to shrink another 2.8% this year.
What this tells any analyst is two really big things:
  1. That not only are things not getting better, but that even if they were, its not fast enough, and
  2. The Greek public are pulling out of their own economy, to put their money into Germany's (whilst also dodging even more Greek taxes, thus making the situation worse).  
Only A Greek Hero Can Get Them Out Of The Mess!

In even starker terms, the Greeks have only one option in order to be able to compete within the European or world markets ..... massive wage cuts.

I remember at the time of entry into the Euro that the Greeks all hiked up their wages, and lost their competitiveness. The locals told me that they were entitled to be paid 'like Northerners' once they entered the Euro Zone.  In the past, devaluations of the Drachma had always compensated for local wage inflation and brought competitiveness back, but now that didn't happen as the Euro was supported by the Germans.

By the time that they default, the Greeks may well have abandoned their own economy and banks to the foreigners who lent them money, and be the only people not hurt in the fallout ..... now that will be a trick worthy of Odysseus himself if they pull this off.

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2 comments:

  1. Dubliner Abroad9 February 2012 at 12:36

    According to newspapers and websites today, the Greeks can't agree to take any more austerity measures.

    BBC: Greece bailout: Coalition fails to agree cuts

    Lets face it, they haven't privatised even one single state asset in over 3 yrs of promising to do so. They are just pulling the german chain as hard as they can, and then will run off with the money.

    I'm Irish, and we are suffering to get back in to shape, but we will look like fools after the Greeks lose more than half their debt to defaults and write-offs while we struggle to pay back every cent.

    ReplyDelete
    Replies
    1. No PC21 January 2014 at 11:58

      Apologies for the very late reply, but it does allow for hindsight ..... Irish debt is no longer 'junk' on the markets, and the country is on its feet again ..... The UK also took the cuts road, against advice of many analysts of the left, and the IMF's chief economist Olivier Blanchard, who warned that George Osborne would be "playing with fire" unless he eased the pace of UK budget cuts.

      But today, the IMF is now set to raise its growth forecast of 1.9% for the UK this year, to 2.4%, with IMF chief Christine Lagarde ironically declaring 'optimism is in the air' .... and with not a word of apology for their earlier forecasts.

      But both Ireland and the UK played the right cards .... while Greece did its 'restructuring', not by bailing out of the Eurozone, or by reforming the economic model, but by impoverishing its people for decades to come by simply collapsing the economy through lack of demand. Greece still hasn't privatised anything meaningful, or even made many real redundancies that I am ware of ..... its debts are still junk. It has said that it will emerge from recession in 2014, but not many believe that, as the economy has shrunk by 23% since 2008.

      With the unemployment rate standing at a record of almost 28%, most analysts think the Greek economy will contract further at a rate of between 0.8% and 1% in 2014. I think that the Greeks, in not doing what should have been done when the crisis started, have actually made the pain longer and harder to fix .... but I guess time will tell.

      Delete

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