Sunday, January 21, 2018

cepDefault-Index Declines 6% Over 2016!

The German Welt has published a critical view of Greece's ability to stand alone after the planned exit from the program next year. The article focuses on a study by the Center for European Policy (cep), a think-thank from Freiburg, Germany. cep has developed a so-called cepDefault-Index which measures the creditworthiness not of the state but, instead, of the entire economy (state, enterprises, consumers, etc.). That index showed in 2017 a deterioration of 6% relative to 2016 and it stands at the lowest level since 2012. Principal arguments of cep:

* Greece's capital stock declined 2017 more than ever before, that is: the economy lives off the substance and does not invest sufficiently into factories, machines, equipment, etc.
* the above suggests that the economic framework is still not attractive for domestic and foreign investors.
* Greek consumers live way above their means as indicated by the fact that consumption represents 112% of incomes. Nowhere in the EU is that rate as high.
* Greece is exporting capital, i. e. capital flight is returning.

cep underlines that Greece must become more attractive for domestic and foreign investors. The regulatory framework for investments must improve. At the same time, private consumption should be reduced below 100% of incomes to that more resources are available for investment. Final quote:

"Above all, Greece must implement reforms of which the country is convinced. The best medicine does not work when the patient believes that the doctors are out to poison him."


  1. I guess it answers a question I posed here a couple of years ago. Are the falling imports Range Rovers or vital parts for private companies and state utilities?
    Within or outside of EU, sooner or later Greece will have to tax luxury imports, and stop capital flight.

  2. Mr. Kastner,

    Sorry I can't read German. And anyway it isn't the raw data but a news report with pieces of the report. Without the data of how they come to this conclusion nobody can argue their facts. We just swallow what they say because they are a "think tank."

    It is so funny, so contradictory, as to what i am seeing on the ground. I don't know about the capital flights. Maybe it is happening but when one sees investors buying and investing in the companies bought, i can't help but think, that the "think tank" is not doing its job.

    For example.

    Apivita bought in 2017 by Puig Spain.
    Korres bought in 2017 by an investment group.
    Pharmathen got FDA approval and will soon be sold from the current investment group to a large pharma corp.
    A large Un-named manufacturer will invest 15 million for a state of the art production lines and warehousing.
    An unnamed company will invest 20 million in infrastructure as to further increase output capacity. 2 yr plan. Then another 10 million by 2022 in warehousing.
    Many small unnamed companies all investing in smaller scales. From 500k to 2 million each. I can name 20 just in my field of work. All of these small companies which have had this trend for the last 3 years.

    All the above is relative only to my field. I am aware through forums, that other sectors are following the same steps.

    All investing heavy in infrastructure and human power.

    As for consumption? Well maybe the 1 million home owner, who's homes will be auctioned off and are just having a last blast before they start begging on the streets.


    PS: Topic of F.Y.R.O.M. not interesting?

    1. You are welcome to contribute an article about FYROM. I can't write anything about that because an outsider simply cannot understand what this is all about.

  3. No one cares about german assessments. The only thing that matters are the international credit agencies and Greece's plumetting treasury bond rates which are at historic lows (no other government has ever done any better).

  4. @ V.
    The report from cep for 2018 is not yet out, that is the one the article refers to. All the other reports can be found in English on the net, cepDefault index 2017 is just as enlightening as I suppose the 2018 will be, the methodology is also explained.
    As for the investments you mention, we have been here before. With your own words, you don't see the whole picture, all figures contradict the rosy picture you choose to see.


  5. I have long had the gut feeling that this was the case, but to see the actual figures is scary. I checked cep's methodology and it looks sound, and they have figures from 1999 to dd. A couple of points.
    The 6 point they mention are for the FIRST 6 months of 2017.
    They don't use the traditional gross capital stock, they deduct housing construction as that does not increase the production potential, they then arrive at what they call Capacity Enhancing Stock.
    The short story is that as their net borrowing start to decrease in 2008, their capacity enhancing capital formation start to decrease as well. In 2011 it goes negative.
    They are "eating" their production apparatus in public and private ventures at an alarming rate.