It's The Productive Capacity, Stupid!

Here is an article which, to the extent that I understand the rather sophisticated presentation, focuses on an aspect of the Greek economy which I have tried to emphasize since the beginning of this blog, namely: the importance of production. To illustrate my point in a less sophisticated way:

If a country/economy/society wants to enjoy products & services, it must produce the products & services which it desires. If it doesn't or cannot do that, it must import those products & services from other countries. If it imports those products & services from other countries, it needs to give those other countries something in exchange. Ideally, that would be products & services which those other countries like to have. If it is incapable to give other countries, in exchange for products & services received, those products & services which other countries desire, then it has no choice but to give other countries promissory notes in exchange. Promises to pay later. In short: debt.

Luckily, Greece has a service which other countries enjoy having almost without limitation - tourism. Unluckily, tourism alone is not sufficient to pay for all those products & services which Greeks like to import from other countries. Other countries no longer accept promissory notes in exchange. In logical consequence:

There is no way for Greece to return to prosperity other than by coming up with products & services which other countries like to have!

Foreign creditors could forgive Greece its entire debt and domestic banks could forgive their borrowers all their debt - if Greece does not manage to increase its productive capacity, the standard of living will ultimately sink to the level corresponding to the low productive capacity which Greece has (instead of corresponding to the level which Greece would have with a greater productive capacity).

In short: it's the productive capacity, stupid! That Greeks are willing to work hard and produce has been proven by Greek guest workers all over Central Europe. The guest workers had to travel to places where the productive infrastructure was and send home the money which they earned. What Greece needs to do now is to bring the productive infrastructure to the country, have the Greeks produce in their own country and keep their earnings here.

Joseph Stiglitz Misunderstands European Realities?

It has become chic to predict the demise of the Euro. Particularly progressive economists are competing with one another in their predictions when and how the Euro will fall apart. The latest in the fray was Joseph Stiglitz, an economist whose judgment is demonstrated by his Nobel Prize and by his praise of Hugo Chavez' economic policies in Venezuela.

From that standpoint, it was good to be presented, for once, with a differing view. That differing view came from Guillaume Duval, a French editor of an economic magazine and author of several books. Below is the introductory paragraph of Duval's article on the website Social Europe.

"Joseph Stiglitz, American economist and winner of the Nobel Prize in Economics, has come out with a new book, "The Euro: How a Common Currency Threatens the Future of Europe". In recent weeks Stiglitz has appeared in several features in the press, advocating «a smooth exit» from the euro. Still, he expects «the end of the single currency does not mean the end of the European project.» That position, however, betrays a deep misapprehension of the realities of Europe."

New Car Registrations Grow!

Since the latest figures for new car registrations are only available for July 2016, I will below always comment on the periods January-July (7 months).

Back in 2009, new car registrations for that period were 146.584 units and the comparative figure for 2016 (7 years later) was 54.447 units. That shows the drama of the Greek economic downturn.

The interesting aspect is that new registrations collapsed in the early years of the crisis (until 2013) and, since 2014, they are increasing again. In 2014, they increased 22,5%; in 2015 7,7% and in 2016 12,1%. In fact, in the month of July, new registrations increased by as much as 29,1%!

What is to be made of that?

When a market, despite increases in recent years, is still down -63% relative to the previous peak, the meaning of these increases becomes quite relative. And yet - increases are increases and they do reflect increased car purchases. Perhaps smaller cars and perhaps cheaper cars but still new car purchases.

The nice thing about new car registrations is that the figures cannot really be 'fudged'. Units are units, regardless whether they are partially paid for 'in black' or at different VAT rates.

Secondly, even though the increases are not all that meaningful in the context of previous declines, they do reflect a change in trend. After all, it could have gotten worse back in 2014 and, instead, it got better. So whatever the trend was before, since 2014 the trend is different.

As the crisis continues into its 7th year, I am beginning to wonder how meaningful Greek economic statistics really still are. The Greek economic agents seem to have adjusted well to chaos and a very important aspect of this adjustment is undoubtedly the transfer of economic activity from the official into the shadow economy.

There is no shadow economy for new car unit registrations. They are and can only be official.

So those who believe that new car registrations are a good indicator of the real economy, they will argue that - notwithstanding official statistics to the contrary - the Greek economy is actually developing quite will because the Greek economic agents have well adjusted to chaos.

The Damage Caused By SYRIZA-Independent Greeks Government

"The question is whether the SYRIZA-Independent Greeks coalition will understand when it crosses the line that separates the past from the present, when the excuse that “the others were worse” no longer works and that they will be held responsible for whatever they do or do not do. Instead of bringing a new mentality and better procedures into public life, the government is rushing to control the state machinery, adopting the tactic which played a serious part in bringing disaster upon Greece. With the air of the new, uncorrupted party, it is keeping the failed system alive, causing new damage."

This commentary by Nikos Kostandaras of the Ekathimerini says it all!