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Monday, September 19, 2016

It's The Productive Capacity, Stupid!

Here is an article which, to the extent that I understand the rather sophisticated presentation, focuses on an aspect of the Greek economy which I have tried to emphasize since the beginning of this blog, namely: the importance of production. To illustrate my point in a less sophisticated way:

If a country/economy/society wants to enjoy products & services, it must produce the products & services which it desires. If it doesn't or cannot do that, it must import those products & services from other countries. If it imports those products & services from other countries, it needs to give those other countries something in exchange. Ideally, that would be products & services which those other countries like to have. If it is incapable to give other countries, in exchange for products & services received, those products & services which other countries desire, then it has no choice but to give other countries promissory notes in exchange. Promises to pay later. In short: debt.

Luckily, Greece has a service which other countries enjoy having almost without limitation - tourism. Unluckily, tourism alone is not sufficient to pay for all those products & services which Greeks like to import from other countries. Other countries no longer accept promissory notes in exchange. In logical consequence:

There is no way for Greece to return to prosperity other than by coming up with products & services which other countries like to have!

Foreign creditors could forgive Greece its entire debt and domestic banks could forgive their borrowers all their debt - if Greece does not manage to increase its productive capacity, the standard of living will ultimately sink to the level corresponding to the low productive capacity which Greece has (instead of corresponding to the level which Greece would have with a greater productive capacity).

In short: it's the productive capacity, stupid! That Greeks are willing to work hard and produce has been proven by Greek guest workers all over Central Europe. The guest workers had to travel to places where the productive infrastructure was and send home the money which they earned. What Greece needs to do now is to bring the productive infrastructure to the country, have the Greeks produce in their own country and keep their earnings here.

Wednesday, September 14, 2016

Joseph Stiglitz Misunderstands European Realities?

It has become chic to predict the demise of the Euro. Particularly progressive economists are competing with one another in their predictions when and how the Euro will fall apart. The latest in the fray was Joseph Stiglitz, an economist whose judgment is demonstrated by his Nobel Prize and by his praise of Hugo Chavez' economic policies in Venezuela.

From that standpoint, it was good to be presented, for once, with a differing view. That differing view came from Guillaume Duval, a French editor of an economic magazine and author of several books. Below is the introductory paragraph of Duval's article on the website Social Europe.

"Joseph Stiglitz, American economist and winner of the Nobel Prize in Economics, has come out with a new book, "The Euro: How a Common Currency Threatens the Future of Europe". In recent weeks Stiglitz has appeared in several features in the press, advocating «a smooth exit» from the euro. Still, he expects «the end of the single currency does not mean the end of the European project.» That position, however, betrays a deep misapprehension of the realities of Europe."

Monday, September 12, 2016

New Car Registrations Grow!

Since the latest figures for new car registrations are only available for July 2016, I will below always comment on the periods January-July (7 months).

Back in 2009, new car registrations for that period were 146.584 units and the comparative figure for 2016 (7 years later) was 54.447 units. That shows the drama of the Greek economic downturn.

The interesting aspect is that new registrations collapsed in the early years of the crisis (until 2013) and, since 2014, they are increasing again. In 2014, they increased 22,5%; in 2015 7,7% and in 2016 12,1%. In fact, in the month of July, new registrations increased by as much as 29,1%!

What is to be made of that?

When a market, despite increases in recent years, is still down -63% relative to the previous peak, the meaning of these increases becomes quite relative. And yet - increases are increases and they do reflect increased car purchases. Perhaps smaller cars and perhaps cheaper cars but still new car purchases.

The nice thing about new car registrations is that the figures cannot really be 'fudged'. Units are units, regardless whether they are partially paid for 'in black' or at different VAT rates.

Secondly, even though the increases are not all that meaningful in the context of previous declines, they do reflect a change in trend. After all, it could have gotten worse back in 2014 and, instead, it got better. So whatever the trend was before, since 2014 the trend is different.

As the crisis continues into its 7th year, I am beginning to wonder how meaningful Greek economic statistics really still are. The Greek economic agents seem to have adjusted well to chaos and a very important aspect of this adjustment is undoubtedly the transfer of economic activity from the official into the shadow economy.

There is no shadow economy for new car unit registrations. They are and can only be official.

So those who believe that new car registrations are a good indicator of the real economy, they will argue that - notwithstanding official statistics to the contrary - the Greek economy is actually developing quite will because the Greek economic agents have well adjusted to chaos.

Friday, September 2, 2016

The Damage Caused By SYRIZA-Independent Greeks Government

"The question is whether the SYRIZA-Independent Greeks coalition will understand when it crosses the line that separates the past from the present, when the excuse that “the others were worse” no longer works and that they will be held responsible for whatever they do or do not do. Instead of bringing a new mentality and better procedures into public life, the government is rushing to control the state machinery, adopting the tactic which played a serious part in bringing disaster upon Greece. With the air of the new, uncorrupted party, it is keeping the failed system alive, causing new damage."

This commentary by Nikos Kostandaras of the Ekathimerini says it all!

Monday, August 29, 2016

The IMF's Ground-Breaking Role In Understanding The Euro-Area Crisis!

The IMF has taken a beating of late, particularly with regard to the Greek financial crisis. A Senior Fellow at the Bruegel Institute, Nicolas Véron, now comes to the support of the IMF with his article "The IMF's role in the euro-area crisis: financial sector aspects". Here is an excerpt:

"The International Monetary Fund (IMF) played a ground-breaking role in understanding the financial-sector dynamics of the euro-area crisis. It was the first public authority, and one of the first more generally, to acknowledge the role of the bank-sovereign vicious circle as the central driver of contagion in the euro area. It was the first public authority to articulate a clear vision of banking union as an essential policy response, building on its longstanding and pioneering support of banking policy integration in the European Union."

Was the IMF really the first public authority to highlight the risky dynamics of the Eurozone? Well, not quite. The European Commission itself, with the Delors Report of 1989, had pointed out the structural insufficiencies of the Eurozone. Karl-Otto Pöhl, a former Bundesbank President and member of the Delors commission, later commented: "When the report was formulated, I did not think that a monetary union would become reality in the foreseeable future. I thought perhaps sometime in the next hundred years. I thought it was improbable that other European countries would simply accept the model of the Bundesbank".

Well, Pöhl was wrong. Very expensively wrong!

Sunday, August 21, 2016

The ELSTAT Case And A Messenger By Name Of Andreas Georgiu

Andreas Georgiu, the former head of ELSTAT, is being tried for having intentionally 'worsened' Greek budget statistics for 2009 so that the EU could impose an extremely harsh austerity program for Greece. The fact that this first harsh austerity program ("Memorandum I") was agreed several months before Georgiu assumed his job at ELSTAT seems to be conveniently immaterial.

Obviously, one always runs 'the risk of not seeing the other side' when one side seems so convincing. In this particular case, however, the views of the 'one side' is entirely convincing that, in Greece, authorities go after those who tried to sort out the mess, not after those who created it.

Of all the commentaries, I find the contributions of the Icelandic journalist Sigrun Davidsdottir the best researched material on the subject. Sigrun's summary is:

"The reason I find the ELSTAT case so interesting and important is that in my view it’s a test case for the willingness of the Greek political class to face the misdeeds of the past, the corruption and all the things that hinder prosperity in Greece. In addition, a country without reliable statistics can’t really claim to be a modern and accountable country.

As it is now, Greece is heading towards a political trial where those who fixed the fraud are being hounded and punished, not the perpetrators. As long as the charges against Georgiou and his colleagues are upheld it is clear that the forces who want to keep Greece as it was – weakened by corruption and unhealthy politics – are still ruling. That isn’t only worrying for Greece but for Europe as a whole."

Below is a series of articles on the subject by Sigrun:

Old and new powers in Greece - and the ELSTAT case
Greek politics and poisonous statistics - an ongoing saga
Greek authorities punish the messenger, not the culprits of fraud
Lies, damned lies and Greek statistics

Greece's Current Account First Half of 2016

Below are the statistics of Greece's current account from January-June 2016, compared with the same period of the previous year. The same comparison is made for the month of June alone. All numbers are in BEUR.









January-June June
2016 2015 2016 2015
Revenue from abroad
Exports 11,6 12,6 2,0 2,2
Services (e. g. tourism) 9,2 12,7 2,9 3,4
Other income 3,6 3,6 0,8 0,3
Current transfers 1,1 1,2 0,3 0,1
------ ------ ------ ------
Total revenue from abroad 25,5 30,1 6,0 6,0
Expenses abroad
Imports 19,9 22,2 3,4 3,6
Services (e. g. tourism) 4,6 6,7 0,8 1,1
Other expense (e. g. interest) 2,5 3,5 0,6 0,6
Current transfers 1,0 1,6 0,2 0,2
------ ------ ------ ------
Total expenses abroad 28,0 34,0 5,0 5,5
Net foreign balance (current account) -2,5 -3,9 1,0 0,5
Trade balance -8,3 -9,6 -1,4 -1,4
Services balance 4,6 6,0 2,1 2,3
Other balance 1,1 0,1 0,2 -0,3
Current transfer balance 0,1 -0,4 0,1 -0,1
---- ---- ---- ----
Net foreign balance (current account) -2,5 -3,9 1,0 0,5


Here is the press release of the Bank of Greece commenting the above results.

At first glance, the figures look dismal: during the first 6 months of 2016, revenues from abroad declined by 4,6 BEUR! The fact that the current account balance registered a healthy improvement of 1,4 BEUR is due to the fact that expenses abroad declined even more than revenues (by 6,0 BEUR).

Much has been written about the poor export performance. Here it must be noted that the above figures are a bit distorted because both, exports and imports, are composed of 3 categories: oil, shipping and "other goods". It is the category of "other goods" which most people mean when they refer to Greece's exports. Below are the statistics for that category:






Exports "Other Goods" 8,9 9,1 1,6 1,7
Imports "Other Goods" 16,0 16,0 2,8 2,8
---- ---- ---- ----
Balance of goods excluding oil and ships -7,1 -6,9 -1,2 -1,1

Both, for the 6 months as well as for June alone, exports declined while imports remained stable. It would obviously be better if it had been the other way around.

Having observed the development of Greek exports for over 5 years by now, I think emphasizing the importance of export growth is a bit like beating a dead horse. It seems unlikely that exports will ever be the growth engine for the Greek economy.

The more I think about it, it may indeed be best for Greece to return to a simple economy à la 1950's and 1960's, i. e. an agrarian economy with simple support manufacturing and an emphasis on exporting the related goods. Of course, that will require investment in food processing plants and the like thereof. And good old tourism and shipping should be the major drivers of growth.