This is a most interesting report coming out of Eurostat. It compares minimum wages in 20 out of 27 EU-countries in terms of absolute figures and in terms of purchasing power. Finally, it ranks the countries it terms of the percentage which minimum represent of the average mean earnings in each country.
Everyone is invited to draw his/her own conclusions about these statistics.
Everyone is invited to draw his/her own conclusions about these statistics.
Hi Klaus
ReplyDeleteMy take away from this (and please correct me if I have got it wrong) is that the Greek internal market cannot or will not "get real" to the degree that it needs to: in Bulgaria, 148 Euros gets you an equivalent of 291 Euros worth of goods; in Greece, 684 Euros translate to 719 worth of goods.
If my assumption is correct, the Greek market is unable to find a seriously lower point of equilibrium after 4 years of heavy austerity!! This could be due to its reliance on imports (hence less flexibility); or maybe because a lot of prices/products are still being "protected" and being kept artifically high; or maybe because the Greek people still "don't get it". For instance, house prices are only falling by 20%-25% year on year after massive increases in the early and mid 2000s.
In any case, this looks like a sclerotic market, unable to respond to loud and clear market signals.
I would really appreciate your thoughts.
First, I have come to the conclusion that key economic indicators of the Greek economy cannot be considered the same way as key economic indicators of Switzerland, to take an extreme example. If such a large part of the economy is outside of official statistics, it becomes questionable to what extent one can manage an economy based on official statistics.
DeleteSecondly (and to prove this point), with the kind of recession/depression Greece has officially recorded in the last years, prices in the economy should have tanked. They didn't, really. My wife tells me that prices at the Gran Masoutis are at least the same as 3 years ago. At Lidl's, they are lower but still higher than in Germany.
The restaurants where we frequently go to have at least the same prices as 3 years ago. Supposing that their costs have gone down (wages paid), someone is making a killing.
Commentators in this blog have explained this with the existence of certain cartels and other vehicles common to Greece. Maybe yes, maybe no. But I would hate to be a Greek who has seen income go down by 30% plus while prices have remained the same or gone up.
Even if the Greek people were not to "get it", if they run out of purchasing power the way official statistics indicate, reality would tell them that they have to "get it" and, again, prices would go down.
The Greek banking sector has lost about 100 BEUR of deposits in the last 2-1/2 years. The Central Bank says that about 30 BEUR of that was transferred offshore, which leaves another 70 BEUR that stayed in Greece. Perhaps part of that was brought offshore in cash. Whichever way, a lot of Euro cash must have ended up under pillows. Some say those deposits were withdrawn to pay for increased taxes and to compensate to the reduction in income. If that had been the case, tax revenue would have had to jump and aggregate demand could not have declined as much as it did.
I see full cafés with young people. Standard equipment per person: a coffee, a pack of cigarettes and a smartphone (mostly iPhones). When I tell that my Greek wife, she says I would have to understand. They are unemployed. They get from their parents 3 Euros for a coffee which they sip all they long and they are among friends instead of being depressed at home. I think that's great. I also calculate that when adding up the daily cost of coffees, cigarettes and smartphones, one quickly gets to a couple of hundred Euros per month. So when families have to live on 1.000 Euros a month or less, as I read, then a couple of hundred Euros is no chickenfeed. So somehow the numbers do not add up to official statistics.
You tell me how all of this works. I can't explain it.
Good points, Klaus, even though we have to be careful with "anecdotical" evidence, of course. But I wouldn't be surprised at all if the reality isn't adequately refelcted in the statistics. One idea for an explanation: There's numerous studies about the extent of the shadow economy in Greece, and they typically estimate (based on more or less convicing data) it to be at about 25-30% of GDP. But most if not all of these studies are based on pre-crisis GDP! What if the extent of the shadow economy hasn't shrunk together with the official GDP, and has remained rather stable instead ( a "sticky" black market, so to speak)? Then it would represent a much higher share of the economic activity now, maybe 50% or even more (don't forget the increasing share of barter trade, too). This could explain why the "look and feel" of the Greek economy seems to be so out of sync with the statistical numbers. What do you think?
DeleteObviously, what is not in official statistics is in the shadow economy. 25-30% shadow economy doesn't even scare me all that much. My own country, Austria, is said to have a shadow economy about that size. The only possible difference: the Austrian shadow economy works like the prototype of a laissez-faire free market - you have to work to get paid and you get paid what you are worth; period. The Austrian shadow economy does not save! And, in a way, since even the shadow economy is an "economic agent" in the official economy, one can assume that at least parts of it trickle down into the official economy (certainly not the taxes...).
DeleteWhat the Austrian shadow economy doesn't have but the Greek one has a lot of is hoarded cash. There is exactly zero incentive for an Austrian to hoard cash. The are extreme incentives for a Greek to do so.
Let's just guess that the official Greek GDP is presently around 200 BEUR (probably not too far off). Hoarded cash must be at least 20 BEUR after all this deposit flight of the last 3 years. So you have over 10% of the economy's financial resources outside official statistics. That can make a HUGE difference as regards the government's ability to "steer" price levels.
Admittedly, our apartment is in a well-to-do suburb of Thessaloniki but still: if I didn't know that there is a terrible crisis, I would definitely not notice it in day-to-day life. Yes, we know people who have lost their jobs or a good portion of their official income but I don't see any noticeable change in their living standard. But when I see one of my wife's nephews who is a self-employed civil engineer whose revenues have tanked, I would normally wonder how he can still support his family of four. And I continue to marvel at the fact that they still have 3 cars in operation and live a rather good life (I don't think they have debt).
Such economies can be rather dangerous places for sophisticated financial analysts like Troika-staff, etc. They don't know how the economy "really" works and they base their decisions on how they legitimately think it works (official statistics).
At the front door, they push the letter A because they want to visit A and expect him to open the door. Instead, the resident of Z responds and is mad at the disturbance. They apologize, explain that they actually wanted to reach A and they are now told that, for this, they should have pushed Z. If they ask how they should have known that, the answer would be "everybody knows that around here!"
Greeks, for sure, know that you have to push Z if you want to get to A, in my hypothetical example.
Dear Klaus
ReplyDeleteI also wish that I knew what is going on...
So your hypotheses are that either (a) people are eating into their savings to finance a "business as usual" lifestyle; or (b) that people are using their withdrawn savings to fuel a "parallel" "grey" economy which is operating outside the Greek Treasury's remit.
Honestly, I don't know which hypothesis is worse for Greece's future! If (a) is correct, then we are sitting on the biggest bomb in history: the savings will eventually go. Greek GDP is in a death spiral so there will be no "new money" entering the system. On top of that, in 30 years' time, we will have a whole bunch of 60 year olds who have spent most of their lives unemployed, trying to draw a pension from non-existent funds (to which they have never contributed).
If (b) is correct, then Greece is officially a failed state! Government receipts will decline until the Greek state becomes either non-viable (North/South break-up?) or we revert to the 1950s (close down borders and grow potatoes under the watchful eye of Golden Dawn supervisors/"benefactors").
I don't mean to be a doom-sayer, but neither of these futures look remotely tolerable. What are your thoughts?
I have already offered all my thought. There ain't no more. I always hear "people are living on reserves".
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