Later today we get the policy announcement from the ECB or European Central Bank but I am not expecting much if anything. Perhaps some fiddling with the monthly purchases of the emergency component ( called PEPP) of its QE bond buying scheme. They have been buying around 80 billion Euros a month. But no big deal. So let us look at a strategic issue for the ECB and one which has its fingerprints all over it. We get a perspective from this.
Greece's never-ending depression in one picture: Nominal GDP per quarter, 2007 to the first quarter of 2021. Lest we forget… pic.twitter.com/rkkU0MmVsW
— Yanis Varoufakis (@yanisvaroufakis) June 10, 2021
If anyone had doubts about why I keep calling it a great depression the graph explains it. In the west we had got used to economic growth but Greece has replaced that not only with a lost decade but a substantial decline over 14 years. Back in 2007 people might reasonably have expected growth and indeed we have kept receiving official Euro area projections of annual growth of 2% per annum. Including one which (in)gloriously metamorphosed into a 10% decline. Along the way we get a reminder that economic output in Greece is far from even throughout the year.
It is intriguing that Yanis has chosen nominal rather than real GDP for his graph of events. Perhaps it flatters his period in office. If he replies to me asking about that I will post it. But it does open a door because it does provide a comparison with the debt load as most of it ( Greece does have some inflation -linked bonds) is a nominal amount. Of course Greece does not have control over its own currency as it lost that by joining the Euro. Along the way it has seen its debt soar as its ability to repay it has reduced.
National Debt
According to the Greek Debt Office this was 374 billion Euros for central government at the end of 2020 or up some 18 billion. It was more like 150 billion when this century began and really lifted off as a combination of the credit crunch and then the Euro area crisis hit. In 2012 some 107 billion Euros or so was lopped off by the Private Sector Involvement. or haircut although in a familiar pattern debt according to the official body only fell by around 50 billion. The ECB was involved here as it essentially was willing for anyone except itself to see a haircut ( regular readers will recall it insisted all bonds were 100% repaid).
This has meant that the debt to GDP ratio has soared, Initially a target of 120% was set mostly to protect Italy and Portugal but that backfired hence the PSI. Then there was a supposed topping out around 170% but now we are told it ended 2020 at 205.6%.
There is a structural difference in the debt because so much is in what is called the official sector as highlighted below.
The majority (51%) of Greek debt is held by the European Stability Mechanism and this ensures low interest rates and a long repayment period.
Whilst it has exited in terms of flow the IMF is still there and with the various other bodies means the official sector now holds 80% of the stock.
That 80% is both decreasing and increasing. What do I mean? Well Greece is now issuing bonds again and here is this morning’s example.
The reopening of a 10-year bond issue by Greek authorities on Wednesday attracted 26 billion euros in bids and the interest rate of the issue was set 0.92 percent (Mid Swap + 82 basis points), down from an initial 1.0%. (keeptalkinggreece )
The actual issue is some 2.5 billion Euros and for perspective is much cheaper than the US ( ~1.5%) and a bit more expensive than the UK ( ~0.75%). A vein which the Greek Prime Minister is keen to mine.
Another sign of confidence in the Greek recovery and our long-term prospects. Today we issued a 10-year bond with a yield of approximately 0.9%. The country is borrowing at record low interest rates.
If only record low interest-rates were a sign of confidence! In such a world Greece would soon be surging past the US. Meanwhile we can return to the factor I opened with which is the ECB.
When it comes to ECB QE, Greece is different. The ECB has bought €25.7bn in GGBs under the PEPP so far, which is about €24bn in nominal terms, or 32% of eligible debt securities (GGB universe rose by €3bn in May, and by €11bn ytd). So, what happens next? ( @fwred )
As you can see Greece has been issuing new debt but overall the ECB has bought more than it has issued. There are two ironies here as its purchases back in the day were supposed to be a special case and here it is back in the game. Also Greece is not eligible under its ordinary QE programme. Probably for best in technical terms because if it was it would be breaking its issuer limits.
Austerity
This is a really thorny issue because this remains the plan for Greece.
Achieve a primary surplus of 3.5% of GDP over the
medium-term.
That is from the Enhanced Surveillance Report of this month. That is the opposite of the new fiscal policy zeitgeist. Not only is it the opposite of how we started this week ( looking at the US) but even the Euro area has joined the game with its recovery plan and funds. The catch here is that everything is worse than when the policy target above was established.
The Greek economy contracted by 8.2% in 2020,
somewhat less than expected, but still considerably more than the EU as a whole, mainly on
account of the weight of the tourism sector in the economy……Greece’s primary deficit monitored under enhanced surveillance reached 7.5% of GDP
in 2020.
In terms of the deficit more of the same is expected this year and then an improvement.
The authorities’ 2021 Stability Programme
projects the primary deficit to reach 7.2% of GDP in 2021 and 0.3% of GDP in 2022.
Comment
There is a clear contradiction in the economic situation for Greece. The austerity programme which began according to US Treasury Secretary Geithner as a punishment collapsed the economy, By the time the policy changed to “solidarity” all the metrics had declined and the Covid-19 pandemic has seen growth hit again and debt rise. The debt rise does not matter much these days in terms of debt costs because bond yields are so low and because so much debt is officially owned. The problem comes with any prospect of repayment as the 2030s so not look so far away in such terms now. That brings us back to the theme I established for the debt some years ago, To Infinity! And Beyond!. But for now the Euro area faces a conundrum as the new fiscal opportunism is the opposite of the plan for Greece.
We can find some cheer in the more recent data such as this an hour or so ago.
The seasonally adjusted Overall Industrial Production Index in April 2021 recorded an increase of 4.4% compared with the corresponding index of March 2021……..The Overall Industrial Production Index in April 2021 recorded an increase of 22.5% compared with April 2020.
Although context is provided by this.
The Overall IPI in April 2020 decreased by 10.8% compared with the corresponding index in April 2019
Plenty more quarters like this would be welcome.
The available seasonally adjusted data
indicate that in the 1st quarter of 2021 the Gross Domestic Product (GDP) in volume terms increased by 4.4% in comparison with the 4th quarter of 2020, while in comparison with the 1st quarter of 2020, it decreased by 2.3%.
For a real push tourism would need to return and as we are already in June the season is passing. But let us end on some good cheer and wish both their players good luck in the semi-finals of the French Open tennis.