Wednesday, August 22, 2018

The Hellenic tragedy becomes a farce

For the record Greece may be exiting eight years of international bailout programs. But only the most obtuse can celebrate this exit. It is more likely a breather, and a short one at that.

Consider these. Disposable income is 35% below and decline in employment about 20% of 2009 levels, public payroll has shrunk by 150,000 mainly through attrition and hiring squeeze, and real hourly wages are a fifth below the 2010 level. 

The country has achieve budget surplus only through savage cuts in public spending and increases in taxes. But despite the increases in taxes, total government revenues have been stagnant, pointing to declining economic activity. In fact, OECD data for 2017 informs that an average married Greek workers with two children has to pay 39% of income in tax and social security contributions, the second highest among members.
The Prime Minister recently described the country's banks as "zombie-like", an astonishing 48% of the outstanding loans being non-performing, ten times the European average! 
So we have the disastrous cocktail - government pursuing austerity and raising tax rates; consumers groaning under the burden of indebtedness, high tax rates, and declining real incomes; businesses struggling with debt repayments and anaemic long-term economic prospects. And on top of all that, banks with their credit taps shut off. 

And this not even the worst news. The country currently has government debt amounting to 178% of GDP by end of 2017. Assuming a very unrealistic 3.4% budget surplus for a decade and 2.2% thenceforth till 2060, the European Union creditors have forecast an encouraging public debt profile for the country. 
The only problem is that if we make more realistic assumptions, of 2% and 1% surplus respectively, itself highly improbable, here is what the debt profile would look like!
There is no question that the current exit is just a breather and sometime in the foreseeable future, Greece will have to either default or have to undergo debt forgiveness. And with it a return to another round of bailout programs!

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