Monday, March 16, 2020

Corona And The Greek Economy

Corona is a health drama which is already turning into an economic drama as well. Countries will have to spend billions in order to protect their economies from meltdown. Austria, for example, has just approved a 4 BEUR package to support the economy, roughly 1% of GDP. The government has called this "a first step" with the indication that further packages will have to follow. This could well reach the dimension of 5% of GDP or more.

There is no alternative so such spending. There is a seemingly endless number of businesses, large or small, even entire industry sectors, which have lost their economic base: expenses keep accruing while revenues have disappeared. Liquidity crises would speedily lead to insolvencies.

That is not necessarily a threatening scenario because Austria, due to its credit standing, will have no problem raising 5% of GDP in new debt, probably at interest rates close to zero.

But what about a country like Greece? Will Greece be able to raise the new debt which it requires in order to prevent an economic meltdown?

There is one comforting factor. Greece has allegedly built up very significant cash reserves. Some say up to 30 BEUR. If new debt cannot be raised, those cash reserves will have to be used. The only problem is: those cash reserves were meant to be a financial cushion to assure future debt service, not to be spent on the economy. If they are spent on the economy now and if the economy still shrinks, there will be no further cushion for debt service.

ADDENDUM per March 18, 2020
The above-mentioned 4 BEUR package was announced by the Austrian government on March 14 and described as "a first step". Today, only 4 days later, a "second step" was announced: the 4 BEUR was increased to 38 (!) BEUR! We are now talking about roughly 10% of GDP. Since the original budget had called for a slight surplus, we are now talking about a budget deficit of 10% of GDP.

Extrapolating this on to the Greek situation, a 10% package would amount to about 20 BEUR. That would be an enormous challenge for Greece's finances. Extrapolating it on to the USA, it would amount to a package of about 2 trillion USD (as of this writing, the US are discussing a package of 850 BUSD).


  1. This crisis is another opportunity to abolish the abomination that is the Eurozone. The Northerners keep saying no to every meaningful solution of making the monetary-union function smoothly. If we waste this opportunity, then we deserve everything we get.

  2. Be well,
    hoping you and your wife are. Families and friends too.

    the rest would be superflous babbling. Although, to show I am watching:

    Will I look at the leaks that once and for all times prove Yanis was: "the only adult in the room"? I doubt.

    But curiously enough, his idea that the ECB could give 1,000 € directly to every not so well off German citizen or family, I forget, now surfaced in a variation in the US of A. Although there it turned into 1.200$.

    LeaNder cum serial aka's elsewhere

  3. Hi Mr Kastner,
    I hope you are health and safe. Stay Home.
    I agree a global meltdown is coming but we will all survive it. As for Greece, we are certainly much more structured and the government is doing a great job. They will take whatever measures to assure we survive both the virus, economic issues and the geopolitical issues.

    Be Well,