Wednesday, May 31, 2017

The Lure Of Grexit - Debunked!

An author by the name of Leonidas Stergiou published an analysis in the Ekathimerini under the title "Why depreciation is the wrong medicine for the Greek economy". It is, for once, an objective discussion of the pro's and con's of a Grexit for the Greek economy. Stergiou takes issue with the premise voiced often by FM Schäuble: Greece should return to the Drachma, adjust its economy and when a new equilibrium is reached, Greece could return to the Euro. Schäuble's argument is that an adjustment of the Greek economy cannot be avoided and, given that, it would be far less painful to make that adjustment with the Drachma as currency instead of the Euro.

Leonidas Stergiou says that Schäuble is wrong, and he makes very good points to support his argument. His key point is:

"Harsh reality together with economics teach that the devaluation of a currency may help, provided that the country does not import more than it exports, and mainly that it does not import a lot of raw materials or intermediate materials that have to be processed. A country with such issues that proceeds with depreciation will be plagued by inflation. ... So in a country with a negative trade balance that imports a lot of raw materials, depreciation raises production costs and creates inflation. The raised production costs annul part of the competitiveness that was achieved by the depreciation. Should the inflation be transferred to salaries, then all the gains from the depreciation will be lost because, in the end, nothing became cheaper."

So for all those who would be hoping that a return to the Drachma would make their lives more comfortable, Stergiou serves a grand disillusionment:

"In other words the measures mandated by the memorandum would be inevitable and would have to be implemented strictly – but without the funding that came with the memorandum. In any case, right now there is internal devaluation taking place within the eurozone. If Greece did not have the euro, a tough economic adjustment program through austerity measures would still be necessary. Otherwise, the inflation due to depreciation would offset the benefits of the competitiveness after the depreciation. Now, Greece in the euro area cannot depreciate its currency in order to make its products and services more competitive. But it could directly reduce the prices of all components of the domestic GDP. To put it simply, if you cannot increase the purchasing power of others, you must decrease your own."

And Stergiou concludes with a condemnation of the Greek government (or rather: all Greek governments since the crisis broke out):

"Greek governments have preferred to accept austerity measures particularly through tax increases and reductions in pensions and wages rather than proceeding to reforms and speeding up the implementation of the MoUs. Instead of this, they entered into long-term and overnight negotiations with the troika in an attempt to postpone the political cost of the reforms for later. Thus, the recession period was prolonged, the debt increased, the financing needs remained unmet. This tactic leads to new MoUs and the prolonging of the recession period and increases the the chances of spiraling into recession and default. On the other hand, without a new MoU, a default can be considered a certain outcome."


  1. Good Summarization.


  2. In the name of God, Kleingut. Are you suggesting that Greece is better off in this gradual devaluation regime a la eurozone which will last for another 25 years? (the so called Schauble's Hell)? What is Stergiou's background? Does his know anything about macroeconomics or is he the usual journalistic clown without an MBA education?

  3. Kleingut:

    What a great disappointment you are sometimes. Is it your Pisces propensity to wallow in misery and negativity? Or is it my Taurean character that appreciates nothing but self-reliance and pure strength willing to take on the entire effing eurozone and then some?

    How many years have we known each other now? seven? And what did I always ask when a random moron's opinion is published? Right, do reasearch on him before you publish.

    Assume for a second that one could brush aside the picture of this peculiar species of Australopithecus with whom most criminilogists would have a field day.

    Let's pretend for a second that he does not resemble the abnormal brain formation of a criminal like the dictator Papadopoulos. And he is based in Zurich? In Zurich Kleinut? Who is he? The cousin of Urs from Lake Zurich the magnificent Rear Admiral of the Swiss Navy who knows how the port of Piraeus works?

    And all this disappointment from you at about the time that I naively thought, o.k. let's help Kleingut to fix Greece. Let's give him some material to work with.

    And the essence of his flawed wisdom is that gradual and perpetual devaluation by the eurozone is preferable to one time currency devaluation? God have mercy on your poor subjects. Take me now; take me away from this luney house.

  4. O.k. Phoevos control yourself and let's try to deconstruct the moron Stergiou's opinion whose ebackground is in manipulating media data. In other words, let's publish some nonsense in the Kathimerini sewer Berlin newspaper so that we can get noticed and thus indicate that we are available for more nonsense of this type. Hire us please, let us do the dirty job for you, sort of thing.

    So dim wit Stergiou is saying that basically the Greek problem is that instead of the government engaging in rapid reform (which by the way at this stage of the Greek economy has minimal results and dividents in 10 years down the road) they opted for high taxation which primarily became the burden of New Democracy and Pasok voters.

    Really? Does it take a genius to understand that the heavy burden of taxation will be born by the Berlin sympathizers or do we need to hire a pschycoanalyst for that?

    And isn't this the exact hypocritical failure that the New Democracy/Pasok experienced themselves before? In other words postpone painful reforms for later and opt for easy solution of high taxation instead and this is why they fell into Berlin's disfavor and promptly replaced?

    Syriza, love them or hate them, is the most reformist government Greece has seen after the liberation from the Ottomans. I am not a friend of Syriza by any stretch of the imagination and I think these poor fellows were thrust into a higher level game for which thet were ill-prepared other than employing motherhood statements of caring for the weak guy (as if the german pig Schauble, whose skin pigmentation exceeds that of a wild boar hunted by Asterix and Obelix, has a soft skin for the little guy). So they were not up to speed, they had to learn a lot and did as best as they could; eventhough their best was far from being enough.

    I have warned a long time ago circa 2014 that whoever wanted to be the next government of Greece only to be squeezed in public by Berlin was either stupid or suicidal. Syriza did not hid my advice because Syriza wanted to be a player before its time. Fine. Life moves on.

    But to have Stergiou here acuse this present government of Greece (which clearly happens to be Berlin's favor when one looks at the alternatives) of fearing political cost when in fact the New Democracy/Pasok was paralyzed by the same fear, is a bit too hypocritical and I dare say way too much BS to swallow.

  5. Tsakalotos shows here why Leftist governments are basically not effective at all. The guy has a brilliant education yet he can't crearly articulate want he really wants. Not a good sign for the end of troubles for Greece. The last thing we need is excessive verbalism trumping substance.

  6. "The last thing we need is excessive verbalism trumping substance". I quite agree.

  7. This is what Stergiou and his brain deformed cousin Schauble don't get about the high debt to GDP coupled with austerity nonsense. It never leads to recovery.

    "Greece has entered a vicious cycle of recession and credit scarcity that has completely undermined competitiveness, and it is highly likely that the upcoming recovery will suffer from a lack of funding.

    This is stated by PwC in a new study titled "from the recession to the anemic recovery", in which it finds that Greece may have an unfunded recovery as it is observed:

    1. Reduced the growth rate of available credit by about 3.5% over the last three years
    2. The decline in the construction sector, mainly driven by the housing market, since between 2007 and 2016 housing investment fell 96%
    3. Extensive credit expansion and bank crisis, which reduced the number of Greek banks to 18 (2007-2017), depressed all their assets and required capital controls to contain the leak of deposits reaching € 120 billion.
    4. Economic squeeze with GDP declining by 22% (2010-2016) and social squeeze with unemployment is in 24% of the population.
    5. Investments in Greece are historically related to GDP growth and after 2009 they collapsed creating conditions of technological and competitive lag.
    6. The Public Investment Program (PIB) remained low due to fiscal problems, while Foreign Direct Investment contributes less than 10% of total investment.
    7. Competitiveness deprivation and investment difficulties abound."

    In other words a recipe for disaster thanks to uber stupid Berlin.

  8. Here is what the uber morons of Berlin don't understand:

    1. Austerity leads to investment penury in other words to an anemic, creditless recovery - the weakest recovery possible.

    Following a recessionary period, there are cases where the economic recovery without the corresponding credit leverage is possible (“Creditless recovery”). Studies show that there are examples of economies that bounced back without the aid of credit and entered a period of creditless recovery, which is however about 40% weaker than a recovery with credit. Greece is likely to experience a creditless recovery as official financial data show.

    2. Investment gap in Greece:
    Investments in Greece are historically connected to GDP and from 2009 onwards they collapsed. So when mindless austerity evaporates your GDP then no investments could be reasonably expected according to the historical record.

    3. Austerity leads mathematically to structural difficulties in realising investments:

    Investment needs for 2017-2022, compatible with rapid economic growth trends, are estimated at around € 270bn, but foreseeable funding flows are not enough to cover them. Greek companies have difficulty in accessing funds. The structural difficulties in mobilising capital consist of low returns, credit squeeze, declining savings, nonperforming loans, and dwindling “soft” financing.

    Conclusion: Hey you effing moron Schauble, I am talking to you a$$hole. When are you going to realize that getting your effing loan money back is directly tied to a robust Greek GDP growth? Why don't you get your a$$ stupid moron off your paralyzed person's chair and restructure the debt you effing performing monkey?

  9. Stergiou uses a lot of words to convince Greeks that they should stay at the cozy bosom of Europe, a fact most of them know instinctively.
    He is not putting up much of an argument for Europe to allow that, and I can't find any. The competitiveness is staying at the level it always was (IMD 2017), so why should investors start investing. To compensate for that lack Mr. Tsipras demand that Europe immediately agree to underwrite Greek loans at "sustainable" rates, regardless, you would have to be out of your mind to do that.

    1. Mamma Merkel's tits? Is that what you mean by "cozy bosom"?

    2. Just in case you missed it gentlemen (you, who rely on statistics to gage the Greek economy like good Schauble's pupils you are) ELSTAT (yes this magnificent and uber accurate statistical service which your Quadriga has created for the sole purpose of not allowing wool to be pulled over your all-seeing eyes) just reported that in Q1 actually the Greek economy grew by almost 0.5%. This was the same statistical service that a few weeks ago and in the middle of tough on-going negotiations considered it its duty to report that the Greek economy was in recession during Q1.

      The uber efficient and Swiss-clock accurate statistical service, truly a European marvel by any standards of measurement, attributed the false alarm to misdiagnosing the Greek economy based on incomplete data.

      Go figure. So the Audi-type ELSTAT had no problem upon receiving a call from Berlin to publish derogatory and fasle data on a Q1 fabricated recession only to find out after the negotiation with the lenders was concluded that Greece had to submit to false pressures which didn't even exist.

      How did we manage without this BundesELSTAT for such a long time?

    3. This is how the useless ELSTAT explains its flip-flop:

      Regarding the difference between the first estimate of the Gross Domestic Product (GDP) in the first quarter of 2017 announced on 15/5/2017 and the provisional data included in the Financial Regulation of 2/6/2017, the following :

      1. The first estimate (flash estimate) is announced 45 days after the end of the reference quarter and necessarily is based on limited data sources. In particular, the only data available for the whole period (ie for the three months) is the industrial production index, the industrial producer price index and the consumer price index. Turnover and volume index in retail trade, imports - exports of goods and services, as well as Labor Force Survey data are available for both of the three months of the period.


      - Final government consumption expenditure is estimated, while cash and non-accruals are available for taxes.

      - The first estimate is not available for short-run turnover indicators of services. Quarterly employment data, quarterly balance of payments data and accruals-based tax information are also not available.

      - Taking these data into account as soon as they become available, it is reasonable to often lead to a significant revision of the estimates at the time of the announcement 60 days after the end of the reference quarter. Especially for the Greek economy, there are important peculiarities that make it difficult to produce forecasting models. These include, inter alia, capital controls, changes in legislation regulating earnings and taxes, and so on.

      Major revisions are often made by other countries. For example, if you compare the flash estimate with the provisional figures for the fourth quarter of 2016 in the EU, it will see deviations reaching up to one percentage point of GDP (Finland), 0.6 points (Latvia ), 0.3 (Lithuania), 0.2 (Czech Republic, UK).

      It is also worth noting the recent revision of US estimates of GDP growth in the first quarter of 2017 on a yearly basis, from 0.7%, which was the first estimate announced in April to 1, 2%.

      The announcement of flash estimates is not required by European legislation and is not included in the transmission program as described in Annex B to European Parliament and Council Regulation (EU) No 549/2013 (ESA 2010). Several EU countries (including Ireland, Luxembourg, Sweden) do not publish such estimates. Currently, ELSTAT remains in the team of Statistical Authorities that publish flash estimates.

      So ELTAST folks: If you are not required to issue flash estimates why do you embarrass yourselves by issuing them only to substantially revise them later? Oh yeah, the Berlin phone call; I forgot about that.

    4. @Lennard:
      Quote: "He is not putting up much of an argument for Europe to allow that, and I can't find any."

      Well, I guess there are none. The arguments for further funding the delusional amateurs that govern Greece are purely political not economical.

  10. We need to change the name this blog to "Observing Phoevos"


    1. It's quite clear you are not a fan of the idea of committing Schauble to a mental institution for intense observation and like highly esteemed Lennard here you would rather prefer lactation from Merkel's "cozy bozom". Don't worry; you fine folk are on our watch list and the minute we have an opening at any of state funded Greek hospitals we will let you know.

    2. In case you want to observe something interesting then observe how the champions play:

    3. Quote: "We need to change the name this blog to "Observing Phoevos""

      Why bother about an uneducated troll.


    4. Urs:

      It is this kind of natural warmth you people of the Alps exude that make you irresistible among barbarians. And what we might ask your education be?

    5. Dear Phoevos,

      Its just tiring to see you bang away your ideas and opinion so much. Scale down a bit.

      Being caustic to others doesn't help your points nor to show what kind of a character you are. Although we do not have the same views, I accept your opinions and respect them. You lose your "weight" when you throw so much, at all of us.

      I as a Greek, am for reform, but that does not mean I side for troika or Germany. In parallel I am quite unhappy with the whole spectrum of our political representation, we have. They all have failed us. Those have taken the helm and those who abstain to take power.

      Whoever we have in power, it is the equivalent of a country that is headless. Until we realize this as Greeks, seek to change, we will be constantly be bullied. Internally & externally. History will properly show the modern atrocities made against Greece and friends of Greece, as a whole. It is needless to point this out now.

      The heads of our political structure need to make one decisive meeting. "Our country men/country, have been run into the ground. We need to put aside our political ideologies and spectrums and reply to the global community as a whole. If we unite as a whole, all 300, whatever we decide, we will have a united populace behind us, regardless of our selected path.

      (Unfortunately, this is not antiquity and is only a Dream).

      Rest of the daily details, leave it to the nanny crats. Because whatever we do, we will always have some negative, number, aspect, forecast, etc etc.

      As an American though, i always have in mind a good'ol saying. "What comes around goes around."