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Wednesday, April 11, 2012

Greece - three holes in a barrel!

Just picture the Greek economy like a bucket, or rather like a barrel, which has 3 holes at the bottom, about 5 cm from the bottom.

The water level in the barrel represents economic activity (=living standard) and the water being poured into the barrel represents foreign funding. Finally, the 3 holes represent the budget deficit, the current account deficit and capital flight.

If no water is poured into the barrel, the water level will remain rather stable at about 5 cm from the bottom. In practical terms: a low level of economic activity and/or living standard.

If a lot of water is poured into the barrel, the water level will rise to perhaps 10 cm, i. e. substantially increased economic activity and/or living standard. However, there is now more pressure in the barrel and more water will flow out of the 3 holes.

If Greece wants to have a sustainable living standard, it must repair the 3 holes. Once that is done, a lot less water needs to be poured into the barrel in order to increase the water level.

3 comments:

  1. Too many Henry's in Greece, not enough Liza's

    Wenn der Beltz em Loch hat -
    stop es zu meine liebe Liese
    Womit soll ich es zustopfen -
    mit Stroh, meine liebe Liese

    In the original it's Liese who's the dummkopf. More recently it's Henry who knows not how to fix it, and Liza who suggests the remedies.

    The Greek Parliamentary elections are on the same day (6th May) as the 2nd round of the French Presidential elections.

    Design, good luck or misfortune I wonder.

    But by then I suspect all attention will be on Spain - 10yr bonds are nudging 6% and rising. How many more rabbits does Draghi have in his hat - 1 if he's lucky, surely no more than that.


    CK

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  2. I guess that Greece is not the only country with 3 holes in a barrel, don't you think? True, other have more cm above (for now). But only Greek bucket fixed is not enough for the whole EU.

    And greeks are in short supply of miracles now.

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  3. No, Greece is not the only country with 3 holes in the barrel. Italy, Spain and Portugal are the first other ones which come to mind but there are many others.

    I consider Greece to be different from the others because it is structurally such a hopeless economy (Italy, in contrast, is a highly industrialized economy). Only very significant structural reforms can bring back some hope for Greece and your guess is as good as mine whether this will ever happen.

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