These last few days, the media would have us believe that Greece is doing better, that the country is on its way back up, and two irrefutable proofs are brought in for that demonstration : Greece is now experiencing a primary budgetary surplus, and it has regained access to financial markets. Let’s see what the reality is.
Let’s start by this so-called primary surplus. It is defined by revenue exceding spending, without taking into account the interests to be paid on the debt. Such a surplus is a sign of a relatively sound situation because it means that the country’s spending is auto-financing and that only the interests on the debt are putting the country in the red. France is not there yet, Italy just about, and now Greece, with 0.8% of GDP. But, in order to obtain this result, the Troïka (via its European Commission representative in Athens) did not account for the « exceptional » bailout plan for the greek banks! In total, Greece’s budget deficit for 2013 is at 12.7% of its GDP; without accounting for the bailout plan, it falls to 3,2% of the GDP and, finally, it shows 0.8% of GDP by taking out the interests on the debt.
In fact, the situation in Greece is worsening. The budget deficit went from 8.9% of GDP in 2012 to 12.7% in 2013, as we’ve seen, while public debt went from 157.2% of GDP in 2012 to 175.1% in 2013. This rapid increase along with untenable rates will definitely force another restructuration plan, because a near-zero growth isn’t enough to face these terms. The banking sector is near bankruptcy, due to the first debt restructuration that was very costly, with the economy crumbling (and credit default rates exploding), with savings escaping the country and, let’s not forget, with the default in Cyprus, where it was quite involved. Without a doubt, the 2013 « exceptional » bailout plan shall be renewed. But this will not be mentioned before the european elections on May 25...
Another so-called « good news » : Greece is back in the bond markets with a placement of 3 billion euros on five years, at a rate close to 4.95%. But when one looks at who the buyers of those bonds are, one notes the absence of any european financial institution (burned once, not twice!). The buyers are mainly foreign investors, certainly some hedge funds looking for risk (and they’ll get it...), and... greek banks. It’s getting almost comical : Greece re-monetizes its failing banks (with european money) that, in exchange, buy sovereign bonds. It’s like the blind leading the disabled.
In reality, Greece is still sinking without any possibility of getting back afloat, but these two annoucements just serve the purpose of entertaining the illusion before the European elections and maintain the hope of recovery in Europe, the thinking being that, if Greece is doing better, it should bode well for the other european countries to start growing, right? Well, no, there is no recovery, and we shall hear more about Greece soon, in less favorable terms.
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Philippe Herlin Finance Researcher / Doctor in Economics
Philippe Herlin is a researcher in finance and a doctor in economics of the Conservatoire National des Arts et Métiers in Paris. A proponent of extreme-risk thinkers like Benoît Mandelbrot and Nassim Taleb, and of the Austrian School of Economics, he will be bringing his own views on the actual crisis, the Eurozone, the public debts and the banking system. Having written a book on gold that has become a reference (L’or, un placement d’avenir, Eyrolles 2012), he wishes to see gold play a growing role in our economies, all the way to its full re-monetization.