Follow by Email

Wednesday, February 13, 2013

Return to growth in 2014. Good news?

In October 2011, one and a half years ago, I wrote a piece titled "Good news! Greece will grow again in 2014!" Here is the key passage of that piece:

Greece should return to growth in 2014, Mr. Reichenbach (Head of the EU Task Force in Greece) said. Perhaps that made some people feel good. Excuse me; feel good?

Another at least 2 years of economic decline? Put differently: another at least 24 months of a development which has already tested social peace quite noticeably every month? By the way, growth after 5 years of decline is not growth; it is only the beginning of getting back to where one already was before.

Now if that is not a final call that something needs to be done urgently to revive a dead economy, then I don’t know what is. Or does anyone really believe that social peace can survive another 24 months the experiences of the last 24 months?
Latest forecasts suggest that return to growth may indeed happen in 2014. These forecasts are announced with a degree of enthusiam. From today's perspective, such enthusiasm may seem justified.

Thinking back of the perspective of October 2011, it is quite incredible that Greece has come as far as it has without a major catastrophe. At that time, I could not envisage that social peace would survive such a prolonged period of depression.

Greeks have proved me wrong!


  1. In fact the majority of Greeks are proving the propaganda wrong....of being a nation of Zorbas. Since most people haven't read the book, they fail to realise that Zorba was written as a hard critique of a rogue character type, showing both his charm and irresponsibility. Yes, it is a type we have (other cultures have their own rogues). But it is also very clear that he is not the typical greek.....

    Given the size of the bloated public sector, supported entirely by the private sector, it should have been obvious that the private sector worked hard and diligently to support it. And not particularly happily, since on top of paying the highest social tranche in Europe we received very little for that money in return, while having to face fakelaki demands in hospitals and multiple financial demands for services that should have been free such as receiving planning permissions. On top of that, all entrepreneurs were faced with the yearly tax nightmare of "assumed income", despite recepts and VAT forms, that were a demand for a bribe.In the end many paid up to get rid of the problem (others went to court) - but after criticising the payee, please ask who created the problem. On top of that, reporting it did not lead to a solution. These tax collectors were not fired but turned up next year with revenge on their minds.

    Basically our public sector was like a huge protection / collection racket of mafiosi who could not be fired. Yet there are also many honest civil servants doing their job correctly too. How else could it have functioned at all?

    It is no secret that we greeks thoroughly despise and distrust our public sector and that it has been the source of 90% of our ills.

    It is also no secret that most greeks thrive when they emigrate to a country with a level playing field.

    Therefore all private sector Greeks - the majority - definitely support a clean-up and restructuring of the civil service! And it is salutory to remember that a public servant is supposed to serve OUR interests, not the other way around, as has been the case for too long here. And at the huge cost of real growth in the economy....

    It can be argued that most greeks don't have a choice now of agreeing or not, since the state has forced salary, pension reductions on everyone while raising taxes, utilities and imposing property taxes. And therefore it shows nothing positive about greeks.

    Well, we did have a choice and still do - voting out this government, and/or revolution.

    Given this, it is a real disgrace that our political class continues to drag its feet on chasing rich tax evaders, breaking up cartels and monopolies, or facing down the oligopoly that is making money on the back of the crisis. We continue to be served badly by shameless, corrupt politicians.

    But even this might eventually change, given the heavy price we are paying.

    1. Dear Tsigantes.... I am very interested in this sentence:

      "In fact the majority of Greeks are proving the propaganda wrong....of being a nation of Zorbas. Since most people haven't read the book, they fail to realise that Zorba was written as a hard critique of a rogue character type, showing both his charm and irresponsibility. Yes, it is a type we have (other cultures have their own rogues). But it is also very clear that he is not the typical greek....."

      What is in your opinion then "typically Greek"?

    2. Interesting that you would mention Zorbas in the context of a morality play. I remember that, some time ago, a commentator here also suggested that Zorbas, the most loved Greek (at least by foreigners), was actually the best example of what's wrong with Greeks.

      Personally, I never saw Zorbas in the context of a morality play. Instead, I saw/see it as an incredibly good battle between the trained/controlled reason on one hand and the uncontrolled, if not wild, emotions on the other. A bit like 'brain against heart'.

      That Zorbas was a rogue never bothered me. What I found most brilliant was the message that reason without heart is a pretty sad condition. Priceless the 'story of the most beautiful green stone' towards the end of the book.

  2. - Eurozone economy shrinks 0.6%
    - Fourth-quarter GDP figure worst in almost four years

  3. Yes, it's interesting to go back to the predictions for Greece. Hans-Werner Sinn (with some of whose work I disagree greatly) warned back in 2010 that "internal devaluation" of 30% would destroy any social peace and probably also greek democracy.

    He argued, understandably enough, from the context of german history (the internal devaluation under Brüning, 1929-32). They managed to reduce prices and wages by 12%. But look at the cost!

    Greek prices haven't come down so much (presumably because of the prevalance of corruption and cartels). But the wages have - and a lot more than 12%.

    Looked at from that perspective, Greek Society has been amazingly enduring. So Golden Dawn is in parliament, and growing slowly? Look at what the 1929-32 internal devaluation did to the vote share of the nazi party!

    1. I am glad to see that you belong to the minority who can accept good arguments from someone whom you might otherwise disagree with strongly. I disagree with quite a few of the views which Prof. Sinn has expressed, particularly with the polemic way in which he often expressed them, but things might be different today if policy makers had listened to some of the points where he was right.

      Yes, I remember how Sinn said as early as spring 2010 that the magnitude of the necessary adjustment would be so large that if it were accomplished through internal deflation, it might lead to civil war. He proposed a, perhaps only temporary, Grexit to allow Greece to make the necessary adjustment through external devaluation. If Greece would manage that and if it were still interested, it could rejoin the Euro later.

      I disagreed with that at the time for one simple reason (and it had nothing to do with 'saving the Euro'): I felt that the one-time damage caused by a Grexit (cutting imports in half almost immedidately, destroying much of domestic financial assets, etc.) could not be handled peacefully by a society. Today, I would say that today's result of internal deflation is possibly worse than the result of external devaluation might have been, even when considering that a Grexit would not only have been a one-time damage but it would have taken a while (Sinn said 1-2 years) until everything had adjusted. BUT: there would have been a perspective!

      So I was against a Grexit but also against strict internal deflation. What, then, was my idea? I attach a link below which explains my idea. The essence is captured in the following paragraph:

      "If a Euro-exit is the worst of all evils and if Greece cannot make it with the present Euro-structure, then Greece must hold on to the Euro and simulate a situation – at least temporarily – as though she had returned to the Drachma."

      To go exclusively via internal deflation without any other measure measures - however unorthodox they may be and I admit that my ideas were quite unorthodox and not totally in line with EU laws - to compensate for the output gap, well, we can see the result of that today.