Last week the International Monetary Fund said it will provide Greece with another installment in the amount of €1.7 billion under the second bailout plan. As the nation complies with troika’s bailout provisions, including dismissing thousands of public-sector employees, economic indicators out of Greece continue to worsen. The latest unemployment rate clocked at 27%, resulting in a spectacular drop in consumer spending.
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| Source: Tradingeconomics (€ million) |
The banking system is nearly frozen, as credit to private sector continues to decline (as old loans mature).
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| Source: Tradingeconomics (€ million) |
Manufacturers struggle to bring product to market because they can’t finance purchases of raw materials. In many cases neither the banks nor the suppliers are willing to provide credit (except for Iran who lends oil to Greek refiners).
On its own, Greece would do what Japan is currently doing – flood the banking system with excess reserves, force the central bank to buy government debt, and devalue the currency. But as long as the nation is part of the Eurozone, it has no control over the monetary system.
Amazingly, in spite of this full fledged economic depression, surveys are showing improvements in business sentiment and future outlook. When in comes to business conditions, Greeks seem to be at least as optimistic as the rest of the Eurozone, if not more.
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| Source: JPMorgan |
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| Source: JPMorgan |
And the latest overall economic sentiment index has spiked to the highest level since 2009.
The Telegraph: – The debt-gripped nation registered a 93.8 reading on the European Commission’s economic sentiment index, putting it above northern European peers Austria, Finland and Denmark, and well above the eurozone average of 89.4.
Greece was among the steepest risers in the survey, which gauges consumer and business confidence, suggesting that pessimism is waning fast as the population pegs hopes on recovery.
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| Source: Tradingeconomics |
Greeks seem to believe that improvements to their nation’s conditions are under way. Maybe the hope is that the recapitalization of banks will result in more credit or maybe the tourist season will bring some much needed cash. Whatever the case, any sign of potential stabilization is welcome news.
In the end it’s going to be all about how much tax the Greek authorities can collect in order to take the government to 4.5% budget surplus by 2016, as per troika’s plan (amazingly, the original plan called for this surplus to to be reached in 2014 – see this article for full discussion). The goal is to one day return to market-based funding. But if the growth trajectory remains anything like it has been and tax receipts stay weak, the earlier tensions with the Eurozone and the IMF will return.
JPMorgan: – If growth remains sluggish, and after the painful fiscal consolidation to date, the question of whether Greece should continue to adjust on the timescale demanded by its European creditors will remain a pointed one.
Let’s hope that the recent business optimism in Greece will spur some stabilization – otherwise we are back to square one.
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