Tag Archives: Greece

Greece: A Tale of Two Consultations

The IMF certainly wasn’t responsible for Greece’s economic downturn; indeed, Greece only entered an IMF programme (jointly orchestrated with the European Commission and the European Central Bank—the so called Troika) through a Stand-By Arrangement (SBA) agreed in May 2010, 18 months after the collapse of Lehman Brothers in September 2008 (the fulcrum point for the credit crisis).

Nonetheless, the IMF’s track record in both evaluating Greece’s economic risk before trouble hit and in helping craft a set of coherent economic policies that would supposedly build the foundations for renewed growth has been abysmal.

Unfortunately for the IMF, we have a ‘before and after’ comparison in the form of the last two Article IV Consultations (the IMF’s economic health checks) of Greece, the first conducted on July 2009 before the recession bit (here) and the latest conducted in June 2013 after all hell had broke loose (here).

Let’s start with how we always keep score in economics: GDP growth. In the 2009 consultation, the IMF forecast that GDP would contract by 1.7% in 2009, followed by 0.4% in 2010, before seeing a return to 0.6% growth in 2011 and 1.2% in 2012. In their words:

Staff projects negative growth in 2009 and 2010. Greece is feeling the downturn with some delay. Moreover, even with the staff’s weaker outlook relative to the authorities, Greece’s growth decline from peak to trough would still be milder than for the euro-area as a whole.

Milder? The reality was far, far worse: -3.1% for 2009 and -4.9% for 2010. And then far from rebounding, the downturn picked up speed with the economy shrinking an extraordinary 7.1% in 2011. For 2012, the advance estimates have the economy down another 6% plus. This is a stunning forecasting failure: the IMF was off by around 20%—a fifth of GDP! Continue reading

The Remarkable Resilience of Greece

Back in February 2012, I wrote a post entitled “Greece as the Canary in the Coal Mine for Collapse?” in which I wondered whether the harshness of the Greek recession (perhaps better described as a ‘depression’) could unpick the socio-political order so as to push the country into collapse. After a two-week political tour of the country that stretched from the outlying islands to Athens, and took in both the elites and the underclass, the quick answer to my question has to be ‘no’.

It is easy to find examples of poverty and desperation: the photo I took below is of a stray cat sleeping on a homeless woman in the square of Athens’ central cathedral. The blog Zerohedge has assembled similar such photos to create a narrative of a country sinking into a state of impoverishment and despair. But you can play this game in any major city of the industrialised west: London certainly has a similar army of the down-and-out and destitute.


Yet what I saw in Greece was a society showing remarkable resilience. Take George, a bartender on the idyllic island of Samos. George is a live example of the IMF’s prescribed policy of ‘internal devaluation’. By ‘internal devaluation’, the IMF means the domestic resetting of wages and prices to restore the competitiveness of the Greek economy. Unfortunately, and as the IMF admits, most the adjustment has fallen to wages and little to prices. Continue reading

Greece: Contraction or Collapse?

I am currently on a trip to Greece run by Nicholas Wood of Political Tours. The aim of each tour is to get below the skin of a country in the political limelight. In the case of Greece, the critical question is, of course, how the country is coping (going to cope) with its bone-crunching economic downturn, and whether the extent of the recession/depression will lead to an unravelling of its existing political and social fabric.

The chart below (click for larger image) is put together from the International Monetary Fund (IMF) database, updated with the latest projections made for Greece in the IMF’s April 2013 World Economic Outlook. I’ve looked at the data back to 1970 to get some perspective; this period takes in the end of the so called Regime of the Colonels and the return to democracy in 1974, the joining of the European Union in 1981 and the entry into the Eurozone in 2001.

Greek GDP, Constant Prices jpeg

As you can see, four distinct economic phases are visible. First, a period of rapid growth in the wake of democratisation. Second, a period of slow growth stretching through into the early 1990s; this period saw two devaluations of 15.5% and 15% in 1983 and 1985, respectively. Third, an era of turbo-charged growth both before and after euro entry. Finally, a collapse following the unfolding of the global credit crisis and the domestic implementation (at the urging of the Troika: European Commission, European Central Bank and IMF) of an aggressive austerity programme.

Real GDP is now back to the level seen in 2001 when the country entered the euro. Further, while the IMF is forecasting a bottoming out of the economy in 2014, its growth forecasts to date have been woefully optimistic, so we could go lower.

A key concern is whether Greece’s policy of adopting an internal devaluation within a fixed exchange rate mechanism can lead to a stabilisation of the economy, from which growth may return. Or will the austerity being imposed on the country be such as to undermine the social and political fabric of society, with all the dangers that this could entail (as we saw in the 1930s). I am also interested in how Greece’s terrible demographics and complete energy dependency enters into the policy mix.

Nonetheless, I was in central Athens yesterday and it certainly did not look like a city on the verge of collapse (no dystopian images of the type Zerohedge loves to report). Athens most swanky hotel, the Grande Bretagne on Syntagma Square, looked on to bustling cafes rather than rioters last night. Indeed, the upmarket and tourist-dominated Plaka district felt like one giant party. Over the next few days, I hope to find out how much pain is being felt elsewhere.

Hotel Grande Bretagne

Greece as the Canary in the Coal Mine for Collapse?

Much of the western media appears to view Greece as a morality play: hubris coming before a fall. But many of the elements that have brought Greece down have parallels in the larger economies: an ageing population, increased integration into the global economy, hollowing out of traditional industries, reliance on debt to sustain growth, dependence on increasing social transfers to offset inequality brought about by technological change and a widening energy import bill.

Greece joined the EU in 1981 and the eurozone in 2001 (with the  drachma abolished in 2002). This chart of Greece’s GDP growth rates from eurostat shows  the sharp reverse in the country’s fortunes (note that the forecast rates for 2012 and 2013 currently look hopelessly optimistic). Moreover, latest data for 2011, suggest the final figure will come in at around minus 7%.

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