Stephen Says...

Stephen Says...

This is my blog

sharing occasional thoughts about things that interest me

Greece on the face of it

the state of the countryPosted by Stephen Mon, June 29, 2015 01:13:23
In the end I just couldn’t help trying to make some sort of sense of the Greek economic crisis for myself because I have by now completely lost trust in the reporting of economics by news media. I’ve used published statistics from the IMF and the OECD, and I’ve adjusted the presentation and made some supplementary calculations of my own where necessary. The full tables and commentary are available here. My conclusion based on this analysis is that even though Greece was relatively poorly placed to weather the economic storm of the great global financial crisis (2007-2010) it had actually managed not too badly in the circumstances. In fact it’s been the events of the aftermath (2010-2015) that have done the damage; and in particular the absolute collapse of wage-payments (down by 20%) and the explosion of unemployment (the rate has doubled to over 25%). These twin developments, accounting for the 19% decline in Greek GDP, set Greece apart from other countries at the weaker end of the Eurozone where unemployment rates and pay have tended simply to stagnate. They do not seem to justify a punitive refusal to countenance further financial support or debt rescheduling on the part of multi-national agencies.

Although in the years before the global financial crisis Greece’s public sector or government debt was, in relation to government revenue, relatively high, it was not much different from Italy’s. And at the end of the crisis in 2010 Greece, Italy and Belgium, which had started out with the highest debt relativities, had controlled their debts better than many other countries. Then in the aftermath years up to 2015 several other countries’ debts grew proportionately as much as Greece’s did (and in the case of Spain by much more). And no other country’s debts approach the scale of Japan’s!

Regarding the budget deficit, although Greece was not particularly well positioned prior to the global financial crisis its 2005 deficit was much the same, relatively speaking, as in Portugal, the USA and Japan. And at the end of the crisis in 2010 there were several other countries in much the same situation as Greece, with deficits greater than 20%. Nor in the aftermath, in 2015, is the Greek budget deficit (7.5% of government revenue) exceptionally large; France and Ireland (both 7.1%) and Portugal (6.5%) are not dissimilar; the UK (10.2%), Spain (11.8%), the USA (11.9%) and Japan (19.7%) are all much worse cases on the face of it.

Although, in the years before the crisis, Greece’s aggregate expansion (+41% between 2000 and 2005) was not exceptional, Ireland (+57%) and Spain (+44%) exceeded it, and despite Greece maintaining expansion at the end of the crisis in 2010 to much the same extent as the other European countries considered here, in the years of the aftermath Greece has experienced a collapse in GDP (-19% to 2015) quite unlike any other country. And it is this special circumstance that justifies giving special attention to Greece’s situation.

Before the global financial crisis Greece’s unemployment rate, whilst quite high (10.8% in 2001; 10.0% in 2005) was not exceptional (Germany had a higher rate, 11.3%, in 2005). And even after the crisis in 2010 Ireland (13.9%) and Spain (19.9%) had higher rates than Greece (12.7%). But in the years of the aftermath, to 2015, the unemployment rate in Greece grew much more rapidly than anywhere else, reaching 25.2%. Certainly unemployment rates did rise in other countries, including other countries identified as economically weaker members of the Eurozone (in terms of government debts and deficits), but not so swiftly as in Greece.

In addition, Greece experienced a further exceptional development: workers’ pay fell continuously across the years of the aftermath; this caused a cumulative reduction in pay of almost 20% by 2015. In the other weaker countries of the Eurozone workers’ pay was stagnant but it did not cumulatively fall. On the face of it, this continuous fall in workers’ pay is a classic Keynesian unvirtuous spiral of economic depression: a self-reinforcing reduction in economic activity.

The resolution of 'the Greek Crisis' requires the same thing as the rest of Europe needs: an expansion of demand in the outside world or a co-ordinated programme of public sector expansion across Europe as a whole. Unfortunately neither of these desirable events is visibly on the horizon. This is tragic: a condemnation of the western political process. Singling out Greece for punitive sanctions rather than co-ordinating a programme of debt rescheduling across Europe (and maybe beyond) is a failure of imagination against which protests are entirely justifiable. Greece’s problem is just the most obviously painful instance of a situation that, in the absence of good fortune in terms of external circumstances (overseas economic expansion), will blight other weaker economies in their turn. On the face of it the crisis belongs to Greece. But in reality it’s a crisis that faces us all. Picking on Greece is a distraction.

The full tables and commentary are available here