Contractionary austerity watch — Greek edition

These are really awful numbers (H/T Eurointelligence).

28 replies on “Contractionary austerity watch — Greek edition”

Awful indeed and in particular for the outsiders who are mainly in the private sectors.

In Spain within the private sector it’s young people on contract or temporary employment who have been particularly hit.

The use of the term ‘austerity’ begs the question as to how much of the misery is because post big bubbles, a country like a private firm can go bust and how much is avoidable if external funding could be maintained to ease an adjustment.

‘Youth unemployment at 42.5 percent’
Horrific and terribly sad for the young and old.

Social cohesion may become an issue with direction and figures like that with no relief valve; temporary summer employment take the edge off?

Any information on emmigration figures for the youth in Greece?

@ Kevin

great post and great minds n all that – was just discussing this with a colleague yesterday. The Greek recession is only really starting to show itself in the data in recent months, and with the fresh wave of uber-austerity set to come, we could be looking at another year or so of pain for them before things even start to stabilise if the Irish situation is any example. Given how frothy social unrest is there already, whats odds on something very nasty kicking off in the next year or so?

@ Michael H

i think the problem is that the Greek adjustment could be 5yrs at a minimum. That requires a lot of patience from both official funders as well as domestic politics/social dynamics.

Why should the Greeks (or anyone posting here) automatically assume that the bad figures are due to the EU/IMF program? That’s the easy way out. What about Greek competitiveness?

These are the harmonised inflation rates in Greece, Eurozone and Ireland since December 2007:

between December 2007 and December 2008:

Greece +2.2%
Eurozone +1.6%
Ireland +1.3%

between December 2008 and December 2009:

Greece +2.6%
Eurozone +0.9%
Ireland -2.6%

between December 2009 and December 2010:

Greece +5.2%
Eurozone +2.2%
Ireland -0.2%

cumulative (approx) between December 2007 and December 2010:

Greece +10.0%
Eurozone +4.7%
Ireland -1.5%

In other words, Greece hasn’t improved its competitiveness at all in recent years, unlike Ireland. In fact, its got worse. Their cumulative inflation between Dec 2007 and Dec 2010 was almost 12% greater than in Ireland, and over 5% greater than for the Eurozone.

So, naturally, their exports and industrial output take a hammering. What do they expect?

Greece had a large balance of payments deficit on entry to the global recession. Ireland had one too, but a much smaller one. The solution in both cases was to improve competitiveness. Ireland did. Greece didn’t.

The question is whether this could have been avoided – I don’t think so. Their debt should have been restructured 12 months ago, there would have been more austerity, but a better chance of a recovery.

Any ideas as to why competitiveness slipped so badly.
I think the unchecked flood of credit to the periphery had something to dp with it. They had wage inflation – we had a property bubble.

Edgar Morgenroth asks a good question. The only way Greece could have had less austerity is if the EU/IMF would have lent them more money. Whether or not they should have, it seems that European politics, particularly those of a Germanic variety, would not have allowed an ‘easier’ approach. From a purely pragmatic perspective it seems that austerity is now a given with reprofiling/restructuring the only variable.

Notwithstanding the increasingly shrill comments of this site’s resident confidence fairy, I think the read-across to our own government is clear. Indeed, by their inaction on pretty much everything apart from taxi regulation, they reveal themselves to be rather afraid. The next budget is looming, it’s going to be awful and all we hear is the sound of silence.

I think they will soon be christened the ‘Duvet Coalition’ (as in that is what they are hiding under). When the time comes for the final bail-out/in it will come with a heavy price. Recipients will be told what happens next: for some it will probably be ‘hand over the keys or leave’. Some may take the latter option. I suspect we will ask ‘would sir like us to make a couple of extra copies?’

@simpleton – “it seems that austerity is now a given with reprofiling/restructuring the only variable” – for Greece there is (and was) no way around both. If they were lent more money they would only get into a worse situation further on. They need less debt and not more loans! Indeed I would not be confident that a de-facto lenghtening of terms on Greek loans, as is being discussed, will be enough for their problems to be sorted. This might be yet another kick at the can.

@hoganmahew – you got there before me.

Number of unemployed jumps to 811,340, up 40.2 pct y/y
* Youth unemployment at 42.5 percent

So this is the price of making sure that large lenders get their pound of flesh!. One wonders were these numbers forecast in the Greek MOU.
Horrific. For the Greeks.

There must be air of satisfaction all round at the ECB dining table. There is nothing like a public execution ‘pour encourager les autres’.

@Joseph Ryan

There must be air of satisfaction all round at the ECB dining table. There is nothing like a public execution ‘pour encourager les autres’.

Thousands of helpless professional investors were saved from their own decisions by the ECB Joseph, it is collateral damage,

Let me see:

I borrow $50,000 from a loan shark, which I waste on several months of easy living. As a result, I have become lazy, out of shape and barely employable, with a six month hole in my CV.

The loan shark asks me nicely to pay him back, offering to perform some back and knee surgery on me if I refuse.

So I get the only job that I can find, which is cleaning rain gullies of debris and dead leaves. Truly backbreaking work…

Two weeks into the job and a reporter writes a newspaper article about me in which he observes that I am tired, my back aches and I am hungrier and less happy than I was three weeks previous, when I still had the free money to sit around and ingest junk food in front of the telly.

What conclusion should we draw from this report?

a) Loan sharks are cruel, mean people.

b) Hard work makes you unhappy. An econometric comparison of my happiness pre- and post-running out of free money clearly shows that it is better to sit in front of the telly and eat junk food. If you run out of free money, just go to another loan shark and borrow more.

c) In the long run, we cannot escape the necessity to live within our means. If austerity is painful, it is because you are just paying the price for past sloth. So really it is sloth that is painful.

@Ludwig HE

Loan sharks should have been more careful who they loaned money to. Caveat Emptor.

@Ludwig Heinrich Edler

If we’re going to have sermons, let’s have the real thing:

In the sweat of thy face shalt thou eat bread, till thou return unto the ground; for out of it wast thou taken: for dust thou art, and unto dust shalt thou return.

There is something to be said for a bit of good old-fashioned moralising. But there is something to be said for economic reasoning as well. And this just won’t do: “If austerity is painful, it is because you are just paying the price for past sloth.” Yes, that’s one reason why austerity is invariably painful. But there is another reason why austerity is especially painful right now. When too many countries are trying to practise austerity at the same time we get a severe recession. The desired budget surpluses just don’t materialise. That’s why the EU needs expansionary policies right now, with the ECB and countries with a strong fiscal position fostering an increase in aggregate demand instead of being sanctimonious scolds all the time. It’s in their own interest.


Any ideas as to why competitiveness slipped so badly?

@JTO again:

Competitiveness tends to improve during bad times and get worse during boom times. This is true regardless of the cause of the boom, regardless of whether it was a real boom (like Ireland’s) or an artificial boom. When there is full employment, employees are more likely to seek higher wages, to be much more resistant to changes in work practices designed to improve productivity, and to become generally more bolshie as they are more difficult to replace. They are also likely to borrow more in boom times even though, theoretically, because their incomes are higher, they don’t need to. And banks are more likely to give them loans in boom times. All this tends to send inflation higher when the economy is doing well. In contrast, when jobs are scare and unemployment high, companies can more easily impose wage cuts and force through changes in work practices designed to improve productivity, so competitiveness improves.

In the decade between 1997 and 2007, Ireland and Greece were the two fastest-growing economies in the EU15. Ireland’s real GDP increased by almost 100 per cent and Greece’s by 50 per cent. In contrast, Germany’s only increased by about 10 per cent. However, during this time inflation in Ireland and Greece was higher than the EU average and a lot higher than in Germany. So, Ireland and Greece lost competitiveness, while Germany improved its competitiveness. Harmonised inflation rose by about 10 per cent more in Ireland between 1997 and 2007 than the the Eurozone average. Greece’s inflation was a lot higher still.

In the past few years, this has been reversed. Germany has grown at well above the EU average, while Ireland and Greece have had the two biggest recessions. However, one of the big differences between these two is that, during this period of recession, Ireland has improved its competitiveness a lot, while Greece hasn’t. Ireland is clearly more competitive exiting the recession than entering it. No one disputes that. But, Greece is even more uncompetitive now than when the recession started. This shouldn’t be happening. In 2010 (and probably 2011), Greece had by far the biggest fall in GDP in the EU15, but its inflation rate was the highest. Something is wrong there, possibly the strength of union power in Greece and lack of labour flexibility. In contrast, Ireland has had the lowest inflation in the EU almost every month since late 2007 and has regained nearly all the competitivenes lost against the Eurozone between 1997 and 2007. As a result, and unlike Greece, the export-oriented wealth-producing sectors in Ireland are doing very well. I work in one (although only partly south of the border) and I am run off my feet with work at present. And, almost every day sees new job expansions in this sector in Ireland (I count almost 800 this week alone). Ireland’s overall GDP growth is still being dragged down very badly by the ongoing slump in construction, but the export-oriented wealth-producing sectors are approaching full boom mode, which is the opposite of what is happening in Greece.


by their inaction on pretty much everything apart from taxi regulation

JTO again:

How unsporting of them to be regulating your main source of information on the economy. How are the savings that you moved to the UK doing? With inflation there at 5 per cent, bank deposit rates at 0.8% and the pound sterling falling against the euro, I’m glad that I didn’t take your investment advice.

Spanish UE figures are worse, and it is much bigger economy. But then they say Spain is ‘safe from contagion’.

Methinks the Euro periphery might start to look a bit like the Middle East one of these days. All those young people with no future.


What conclusion should we draw from this report?

My conclusion?

Take the money lending license away from the loan shark. It would help future generations.


You mention investment advice, when Greece goes into a technical default shortly it is very likely your Irish bonds will be downgraded to junk. I would imagine today was not a very chipper one for your portfolio with the 2 year Ire well north of 11%, losing almost 2% of its face value in one day.

I am not one to kick a man when he is down, but sanctimony opens the door.

The Colonels are probably polishing their brass buttons; Greek youth labour market is in a truly horrendous state – and it will become much worse over coming years with present policies. Quite simply, it will explode.

@Jack Watts

Sorry to disappoint you, but I can assure you that I am very far from down. In fact, I have never been so well-off. Thanks to working in a booming GIS export sector, not only is my income approximately 50 per cent higher than in 2007, but, by investing my surplus income wisely and moving it from the UK to Ireland as fast as I earn it, my savings are going through the roof. The ones who are down are those fools who moved their savings from Ireland to the UK in 2007, when the £sterling was worth almost 1.5 euros, and who now find that in 2011 it is worth 1.12 euros. They’ve taken a massive hit. And, during that time the interest they will have earned on their savings in UK banks amounts to next to nothing, since the B of E base rate has been stuck at 0.5 per cent and inflation there has averaged 4.5 per cent. That is why, despite the fact that we know mega-billions have been moved from Ireland to the UK since 2007, no one on here ever admits to it.

The Greeks concern themselves with 42.5% youth unemployment.
Yet some investors concern themselves with the more noble thoughts of their investment returns.
The Greeks would surely be impressed!

@ DO’D

In all sincerity, let’s hope humanity pervails.

But I know exactly what you mean – have the T-shirt.


It has been estimated that Greece’s black economy is more than 20% of GDP.

A feature in the FT yesterday suggested that Spain’s official unemployment stats are a joke.

In 2006, the jobless rate was 8.5% at a time of full employment.

In 2006, the full-employment jobless rate in Tralee, Ballina and Dundalk was about 15% according to Census 2006.

This is not to minimise the misery for tens of thousands of people.

The black economy can be a stabliser. However, in Prato, Italy, more than 30,000 Chinese work in more than 3,000 textile firms in a city of 180,000 people, many apparently in slavery-era conditions in the black economy.

Their lot may of course be no worse than that of ‘rural’ migrants within China who cannot afford the hukou permit to work in an urban area.


re: Chinese in Prato. That is an eyeopener. Maybe they have just four labour inspectors for the whole country, like the Irish labour insectorate under Mary Harney.
With Prato being on the outskirts of Florence, it is not something I would have expected.
I wonder has LBS concerned his fine mind with these serious breaches of contracts, so close to his old Alma Mater.

Michael Fin Facts

Big mistake highlighting the fact that migrant labour is being brought into to do jobs that europeans wont do (in main part because the conditions are abysmal).

Same as in the Irish restuant sector where nearly 45% are paid below min wage. And yet we then hear Irish people wont work there. Well hardly surprising when they want indentured labout and not workers.

But by highlighting this you are likely to get an earful from those reactionaries who believes any discussion on immigration’s downsides (like Prato) is akin to nazism.

Order, order order….

Some facts (Eurostat):

A. Greeks with a job work, on average, about 20% more hours a week than Germans.

B. Greek productivity per hour has increased faster in the 2000-2010 period than in Germany

C. Greek public sector wages are indeed quite high, Greek industry wages are low

D. High Greek unemployment is partly the result of higher VAT rates, which were ordained by the EU. The main economic sector of Greece is tourism, which is (among other things) price sensitive…. But do the math: when VAT goes grom 18 to 20% (i.e. +10%) and turnover goes down with 5% because of this 2% rise in total price, total VAT income of the government (read: German banks) still increases with about 5%… Really, they don’t care about the Greek (compare with the Baltics: even the IMF suggested a devaluation, but the EU didn’t want this, as quite a lot of the debt of these countries was in foreign currencies… The result: the worst slump in any market economy since WW II).

E. The Eurostat data on Spanish unemployment are based on an independent estimate (see: There is no way around it: Spanish unemployment is HIGH (and the Eurostat data also show that Italian unemployment, when we look at the wider ‘U-5’ concept of unemployment instead of the more common u-3 concept, is almost as high as in Spain…)

F. According to todays newspaper, Polish migrant workers are leaving the Netherlands in droves for Germany as (surprise!) working conditions are better there, Dutch employers are grumpy but fail to do the obvious thing – improving working conditions.

Summarized: the Greek work their ass off and high unit labor costs are caused by the public sector, not by industry (by now, industry has of course high ULC too, as turnover and profits are down).

When you look at the U6 equivalent for Ireland too, the unemployment rate is high.

S3 for Q4 2010 stood at 22.6%

It appears not to be in the current qnhs (Quarterly National Household Survey).

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