What you should know about Greece’s present state of affairs – an update

“It takes a passionate disregard for the truth to suggest that Greece is recovering.” That was my verdict last December upon being asked to comment on Greece’s rumoured recovery. Almost three months later, it is time for an update. The gist of today’s update is depressingly simple: Still, no sign of Greek-covery whatsoever. Indeed, every single indicator (including the ones that are presented as evidence of light at the tunnel’s end) points in a sadly negative direction…

For ease of distribution, this post can be downloaded as a pdf here. (Hungarian readers can read it in their language here.) Or just read on…

Below I round up the official data (extracted from the Bank of Greece and Greece’s National Statistical Office reports), up to December 2013, with some glimpses into January 2014. I begin with the real economy (GDP, investment, employment etc.), then discuss the money market (money supply, loans to the private sector etc.), re-state the obvious about Greece’s public debt, allude to the sorry state of the privatization drive and, lastly, conclude with some less conventional statistics; statistics that one does not encounter in any ‘normal’ country. 

The Real Economy: The contraction accelerated in 2013

According to the government and the troika, 2013 was the year the recession decelerated. It did no such thing. While it is true that, in real terms, the rate of shrinkage declined (see following diagram), the reality is less heroic.

Greece - Annual Growth Rate

If we look at nominal GDP, a far more poignant statistic than real GDP in times of recession,[i] we shall be horrified to discover that the recession picked up speed in 2013, compared to the abysmal years 2012, 2011 and 2010. Indeed, as you can see from the figures below, whereas nominal GDP fell from 2011 to 2012 by a modest 1.1%, between 2012 and 2013 it shrank by a walloping 14%! In this sense, the Greek economy’s performance in 2013 was even worse than that of 2010 and 2011 – the first two years after Greece’s implosion.

Year               Nominal Annual GDP ‘Growth

  • 2010                           -7.5%
  • 2011                           -8.9%
  • 2012                           -1.1%
  • 2013                           -14%
  • 2009-13                 -27.08%

None of this is surprising if we look more closely at what was going on in the guts of the real economy. Manufacturing output was shrinking at between minus 4% and minus 15% for the first two and a half years of the Memorandum (2010-12). Once the ECB announced its OMT (summer of 2012), steadying the markets’ nerves, and Mrs Merkel confirmed that Greece was not to be booted out of the Eurozone (September 2012), there were some quarters when Greek manufacturing stopped shrinking further (see below the blips between August 2012 and July 2013). However, since last Fall, manufacturing output has started shrinking again. Indeed, the latest figures for January 2014 confirm this ‘incredible shrinking’ act: we are in minus 5% territory again.

 Greece - Manufacturing Production

 What of industrial production more generally? No good news there either, I am very much afraid. As the following figure shows, Greece’s industry is continuing to shrink also by around 5% annually.

Greece - Industrial Production

Might the government’s, and the troika’s, optimistic verdict that Greece’s economy is stabilising be due to good news on the investment front? A brief look at the diagram below confirms that nothing of the sort is in train. Gross fixed capital formation has flat-lined at 0%, leaving net investment firmly in negative territory.

Greece - Gross Fixed Capital Formation

What about employment? Any good news there? Did the huge reduction in minimum wages perform its magic, causing employers to take on a few more workers instead of investing in machinery? Is labour-capital substitution favouring labour over capital goods given the latter’s ‘cheapening’? As the following figure demonstrates, employment is continuing its downward slide, confirming that wage cuts in the midst of a multi-dimensional, cruel recession is bound to fail to instill the ‘confidence fairy’ in employers’ hearts and minds. The lower the minimum wages the more pessimistic Greek employers became that they can find paying customers for the wares that freshly hired employees might produce.

Greece - Car registrations

Lastly, you may have heard it being said that Greek car dealers registered a substantial increase in new car registrations in January 2014: up by more than 10% since the previous January. This is true. And simultaneously irrelevant. All that happened was that January 2012 had seen a 35% reduction in registrations (in relation to January 2011). Celebrating the fact that January 2013 was not as catastrophic for car dealers as January 2012 smacks of genuine desperation…

 The Money Market

Another source of optimism for the Greek government and its EU-IMF supervisors was the banking system’s recapitalisation. Having borrowed €41 billion from the European Stability Mechanism (ESM) to hand over as capital to the bankers (without daring to demand that the Boards of these bankrupt banks are cleared of the bankers that saw the banks fail), the powers-that-be proclaimed that liquidity was about to hit the markets. Indeed, the Greek PM, Mr Samaras, made it his crying call in early 2013: “Once the recapitalisation is complete, by the Spring of 2013”, he kept repeating like a stuck vinyl record “businesses will regain access to loans and Greek-covery will be ours.”  This, of course, was never going to happen – for the simple reason that the bankers were hiding the true capital needs of their banks, clinging on (with the government’s and Central Bank’s shameful aiding hand) to their majority stakes. Only a few days ago, the IMF and the ECB began frantically to signal that Greece’s banks need at least another €20 billion. (Click here for a recent report in the Financial Times.) And since the proof of the pie must be in the eating, the following diagram makes for interesting reading: Not only has liquidity to the private sector not returned but, in addition, the rate of its decline has risen sharply throughout 2013. Indeed, according to the Bank of Greece, credit fell 3.9% in December 2013 and, even more ominously, fell again by another 4% in January 2014.

Greece - Loans to Private Sector 

We are now in the ludicrous situation that the Central Bank of Greece is hailing the banks’ recapitalisation as a success story, criticising the IMF for exaggerating the banks’ capital black holes and invoking Blackrock’s recent report which only found the Greek banks’ asset books to be short of the latest data from the Bank of Greece show a further contraction in bank lending during January, reflecting net deductions from households and corporations. Does the Governor not know that Blackrock did not take non-performing loans into account when making these calculations? Has he not read his own Annual 2013 Report which reports (in admittedly hidden sections) that the rate of non-performing loans has increased from 29.3% in the second quarter of 2013 to 31.2% in the third? Of course, the less is said about the current Governor of the Bank of Greece, and his cosy relationship with the bankrupt bankers (whom he served as an employee until he was appointed Governor), the better. (But do see here and here two excellent articles in the New York Times about his murky role.)

Turning now to the money supply, the following diagram confirms the lack of élan in the Greek marketplace. The supply of M2 money was falling steadfastly from the moment the Greek state was found to be insolvent, and the economy embarked on its never-ending recession, until the summer of 2012. Around election time, when the establishment parties were investing in fear of Grexit in order to maintain their hands on the levers of power, money disappeared in boxes, under mattresses etc. Some of that liquidity returned by early 2013, alongside with a fraction of the bank deposits that had fled the country. For the rest of the year, however, M2 has been flat when even a modicum of growing economic activity would have caused M2 to rise. It did not. Why? Because economic activity has not picked up (as I argued above).

Greece - Money Supply M2 Privatisations

2013 was a disastrous year for the privatisation program. The spectacular failure to sell a public monopoly to Gazprom (which refused to buy at almost any price, citing the deflationary forces raging in the Greek economy as the reason for its withdrawal), left the government with a single success story: the sale of the state lottery OPAP to a shadowy consortium at a low, low price and under conditions that will prove, undoubtedly, to be detrimental to the government’s long term benefits.

Perhaps the most distressing news from the privatisation front is that it seems impossible to stage an auction; not even for supposedly valuable assets. Once Gazprom walked away from the energy market, the privatisation of the public energy company just fell through – for here was no other bidder. OPAP too was, in the end, sold to the only bidder. The fact that a goose laying golden eggs (i.e. a monopolistic lottery) was not only sold at a knock-down price but was also incapable of drumming up competitive bidding is quite telling. The latest of this trend is perhaps the greatest real estate deal Greece has to offer: The old Athens airport site at Hellinikon. Even though Hellinikon is a prime sea-side plot more than twice the area of London’s Hyde Park, and located next to the most upmarket suburbs of Athens, once more only one bidder[ii] appeared during the privatisation process.

Public Debt and Bond Yields

The Greek government is celebrating that Greek government bond yields have fallen to less than 5%, from 30% eighteen months ago. Is this not cause for some celebration? It is, but only for those ignorant of the state of Greece’s public debt structure!

Following two massive official loans (one in 2010, another in 2012), Greece’s debt remains more or less what it was when the country imploded in early 2010 – north of €310 billion (while GDP is 27% lower, of course). So, what did these official loans achieve? They simply shifted Greece’s public debt from the private sector to the official sector. In combination with the PSI (haircut of bonds held by the private sector) of the Spring of 2012, this substitution meant that only 10% of Greek government debt remains in the hands of privateers – primarily hedge funds. Also, and this is important to the hedge funds’ calculations, the bonds remaining in private hands are all English Law contracts, which make it hard for Greece and Europe to haircut them again.

The gist of this is simple: It is now common knowledge that, while Greece’s public debt is spectacularly unsustainable and will be haircut again (one way or another), the bonds still in private hands will not be touched. It is simply not worth fighting the vulture funds over them in the courts of London or New York as they represent a small portion of the total debt. This common knowledge inspires confidence in the bond markets about these few, remaining post-PSI Greek government bonds. Thus the paradox: Everyone knows that Greece’s debt will be restructured and yet no one really fears that the bonds still with the private sector will be haircut. Is it any wonder that their yields have fallen? No, of course not. Is that fall a sign that Greece’s creditworthiness has risen? None whatsoever. (For that, we would need to observe the yields of fresh issues of Greek government bonds. Only there haven’t been any fresh issues since… 2010.)

Looking forward, Berlin’s Plan A for Greece’s public debt is that:

(1) The Greek debt will only very mildly restructured in the summer of 2014 (with no haircut to the principal, a long extension to the repayment schedule and a small reduction in interest rates; i.e. with a haircut of its present value, but not its face value)

(2) The ad-infinitum-bankrupt Greek state will be allowed to return to the markets, by the third quarter of 2014, under the oversight of the ECB whose OMT threat will ensure that investors are prepared to lend, at interest rates around 4% to 5%, to a state that they know is bankrupt (and which they are prepared to lend to only because of the ECB’s OMT); and

(3) The above will be conditional on another troika-administered Memorandum of Understanding.

In summary, new bonds will be issued when steps (1), (2) and (3) have been taken, and Athens proves that it can acquiesce fully and reliably to such a plan, even after the present government has folded its tent. The essence of Berlin’s plans for a third Greek ‘bailout’ is that it will not be funded by Europe’s taxpayers through the ESM but which will, instead, be funded by privateers under the pressure/guarantee of the ECB’s OMT – assuming, of course, that the latter remains a credible threat following the googly that the German Constitutional Court threw toward the OMT’s wicket recently. But that’s another story…

Current Account

Have you heard the news? Greece is now a surplus nation! At least in current account terms. Is this not good news? If it were due to a significant rise in exports, and some strong import substitution (with domestically produced goods and services edging imported competitors out), it would have been good news. Only this was not the reason Greece has a current account surplus today. The sorry reason for this surplus is that the deepening recession shrunk imports by a further 11% while tourist income last summer rose a little as Turkey’s and Egypt’s political troubles diverted tourists to Greece’s shores. What about exports? I am afraid that they were lower in 2013 than they were in 2011, when they were much lower than in… 2008.

Still, the news media were only too quick to hail the miracle of a Greek current account surplus. Foolish as they tend to be, they added that “Greece has not posted a current account surplus for many decades.” That’s quite so. What they, however, failed to add is the year when Greece’s current account was positive last. Let me reveal it for you: It was 1943 – under the Nazi occupation, when Greeks could not afford to eat (let alone import goods from abroad) but still managed to export a few oranges, a few apples etc. Today, once more, the collapse of domestic demand, even in the absence of an export drive (due to the lack of credit to export-oriented businesses), has produced a 1943-like situation. Not a cause for celebration; at least not in my book.

Epilogue: Still a failed state

Europeans must grasp a simple fact: Greece has been, and remains, a failed social economy. Rumours of its recovery are just that: ill-motivated rumours![iii]

Besides the wretched diagrams and data above, there are other facts on the Greek soil that corroborate the characterization of Greece as a failed nation-state. Here are some:

  • There are 10 million Greeks living in Greece (and falling fast due to migration), ‘organised’ in around 2,8 million households that have a ‘relationship’ with the Tax Office. Of those 2,8 million households, 2,3 million have a debt to the Tax Office that they cannot service.
  • 1 million households cannot pay their electricity bill in full, forcing the electricity company to ‘extend and pretend’, thus ensuring that 1 million homes live in fear of darkness at night while the electricity company is insolvent. Indeed, the Public Power Corporation is disconnecting around 30,000 homes and businesses a month due to unpaid bills.
  • For 48.6% of families pensions are the main source of income, expected to be cut even further. The €700 pension has been reduced by about 25% since 2010 and is due to be halved over the next few years.
  • The minimum wage shrunk (on the troika’s orders) by 40%.
  • Social transfers have been cut by more than 18%
  • 40% saying they will not be able to meet commitments this year
  • Unemployment has risen 160% so that now 3.5m employed people have to support 4.7m unemployed or inactive
  • Of the 3 million people constituting Greece’s labour force, 1.4 million are jobless.
  • Of the 1,4 million jobless only 10% receive unemployment benefits and only 15% any benefits.
  • The rest must fend for themselves. E.g. of the self-employed who have no business, none receives benefits
  • Of those employed in the private sector 500 thousand have not been paid for more than three months.
  • Contractors who work for the public sector are paid up to 24 months after they provided the service and pre-paid sales tax to the Tax Office.
  • Half of the businesses still in operation throughout the country are seriously in arrears vis-à-vis their (compulsory) contributions their employees’ pension and social security fund.
  • 34.6% of the population live at risk of poverty or social exclusion (2012 figure)
  • Household’s disposable income contracted 30% since 2010
  • Health care cuts of 11.1% between 2009-2011 – with a significant rise of HIV infections, tuberculosis, still births.

Nothing further needs to be added here to convey the true picture of today’s Greece. Except, perhaps, to suggest that, when one hears buoyant accounts of Greece’s recovery, one has a moral duty to respond with an ironic smile.

NOTES


[i] It is so for two reasons: First, during recessions the GDP deflator overestimates the price drops that affect the majority of people. Secondly, in an economy with gigantic debt (private and public) overhang, nominal output and income is crucial, since the nominal value of the debts remain constant. The diagram below confirms, for those that have no seen it before, that Greece is in the clasps of deflation.

[ii] A consortium called Lambda Development, a vehicle for Global Investment Group which in turn comprises Abu Dhabi company Al Maabar, China’s Fosun Group and several smaller European investors.

[iii] Indeed they are malicious the purpose of which is to disguise the truth in a bid to further the interests of those who have invested heavily in a failed stabilisation program – e.g. the Greek bankers who stand to make significant profits from their ill gotten warrants, vulture hedge funds that have invested in Greek shares and the few remaining government bonds (at rock bottom prices), the Greek political class which is hanging on power, the Brussels Euro-crats that are keen to deflect responsibility for the debacle, German politicians who dare not tell German voters the truth about Greece, etc.

48 thoughts on “What you should know about Greece’s present state of affairs – an update

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  4. Hi,
    My math skill do not get around these two statements:

    * Unemployment has risen 160% so that now 3.5m employed people have to support 4.7m unemployed or inactive
    * Of the 3 million people constituting Greece’s labour force, 1.4 million are jobless.

    How many people can work and how many of those do hold a paying job now?

  5. Yannis,
    I am most likely to the right of you in the political spectrum, that being said I have, and still continue to agree with many of your observations. It has been tragic to see the way our politicians (but also others in the southern bloc) have been allowing themselves to get squeezed by Berlin time and time again. I really hope that we will muster up some courage to seriously propose and argue for some proper restructuring. All that being said, I would like to shift the subject slightly and get your views on REFORMS.
    I do believe that one of the reasons why the EU (and primarily Germany) has shown such aversion to debt relief (besides the negative impact on domestic German politics) is that the prevailing view in Germany (and the north) is that if “we give more money to the Greeks, they will just squander it”, I.e. our state-apparatus is not equipped to deal with a proper capital infusion (be it via debt relief). The EZ therefore want to keep up the pressure on us to keep reforming our economy, hence further assistance will come with conditionality, mostly around reforms. I for one am for that, as I believe that the country really need to change and no political party is strong enough to push through these necessary reforms without having the “excuse” of the Troika behind it.
    What are your views on the reforms and what needs (in your mind) to be done in order to get our country to work properly POST debt relief or whatever the outcome is. The reason why this is so important (in my mind) is, because these things are about us, it is about what we can and should do, in order to regain the power over our own destiny and not relying on every whim of the EZ and Berlin. Most of your articles, although appreciated, are around Greece’s relationship with the EZ and the economics (figures) that drive that. I would like to hear from you what, in your mind needs to be done for us to go beyond debt relief etc and with us in charge of our own destiny. I am convinced that we need to change the state apparatus, tax collection, education, closed professions open up the labor market etc etc. I am not some Milton Friedmanite, but having seen how our country has operated the recent decades I can’t help thinking pretty much all has to change ….I would be interested to hear your view.

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  7. A couple of thoughts around some of the topics;
    Although it is difficult to dispute the dire situation in Greece, I wonder if there are a couple of things to note.

    Unemployment; Nobody is disputing the severity of the situation but one should bear in mind that the Greek labor markets still operates to a large extent with black labor.
    This is very much prevalent in the tourism sector where lots of positions never get reported (think all the small enterprises like tavernas etc) and the construction industry.
    Nobody leaves you with a receipt and nobody claims it (in order to save the VAT).
    If it was not for these aspects of how our economy works, we would have had a revolution already.

    Furthermore, with regards to the selloff of the Greek assets.
    Nobody is happy to see state assets being sold off too cheap, but I for one am happy to see them go in to private ownership.
    If the Greek state-apparatus was a well oiled machine with European standards you could perhaps see how the state could still go on and administer the myriad of state enterprises that the Greek state has its hand in. Its not only the OPOP or gas monopoly that the state has its hands in, those are the things that we see and read about, unfortunately the ownership of the Greek state goes all the way down to petty little enterprises like cafés on tourist sites. The Greek state is not equipped to deal with this.
    Its record in maintaining and extracting the real value of these assets has been a constant disappointment and the people that ultimately pay the price are we, the Greeks.
    You have to ask yourself what the reason is for why these enterprises not being fought over by foreign investors? Is it because they are well run, effective, competitive, or is it because they are badly run where a potential owner would not even understand what they have bought until they start to operate. This is why the prices are too low (together of course with the general outlook for the Greek economy and the purchasing power of the Greek citizen), but even with all that said, I am still happy to see these assets switch hands and go to private ownership. The Greek state has had 40 years to prove otherwise and they have failed time and time again.
    Take the case of Pireus, everyone was shouting about the Chinese coming in and taking over, was it really that bad?
    In order to save something we have to be prepared to face some harsh realities. We have to change.

  8. Nice job, Yannis. We may be at loggerheads politically that I want to see the EU powers severely reduced back to the European Community and the Eurozone downsized to Germany and a few Northern Europeans with revaluation and the Periphery set free with all the bad debts on the ECB where they belong, turning the ECB into a bad bank, but on basic economic analysis of the Greek economy, we agree!

  9. Pingback: Punish the Periphery: the Greek Crisis continues | Radical Blues

  10. When will the time arrive when the Greek people finally decide to renounce all debt and restart as a free people? This is the only real solution that will produce 2-3 years hardship after which time the structural changes (incl. their own currency) have been implemented and the country will be able to build a new future. I have great difficulty that this way is seemingly not explored to a greater degree. It may require the change of the political system by introducing a direct democracy and shorter one-time terms for politicians so that it is really is the people who are the sovereign and not some puppets in the hands of lobbyists or foreign bureaucrats.

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  12. Pingback: What you should know about Greece’s present state of affairs – an update | Yanis Varoufakis | lwpa

  13. Thank you for this. Will send this pdf to some german fans of (preacher) Gauck, who talks the usual, well, blurb (“there will soon be success” type), as he visited Greece now. Horrible, that man, but 90% of our parties in Germany wanted him as president.

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  15. Greece it seems is the new Detroit. Alas, so goes Detroit, so goes our future. Isn’t the troika’s behavior to Greece just typical of the bourgeoisie towards commodities, that is, when they have no use for something anymore, they just throw it out?

  16. What is is missing in the graphs is what the level was in 1990-2010. There is no way a country can live forever in a articifial bubble financed by others forever… It is not nice, but that is the way it is….

  17. “Of the 3 million people constituting Greece’s labour force, 1,3 million are jobless.”
    The situation is certainly dire but the labour force is certainly not that low; if it were, we would be already dead, in population dynamics terms. Unless you’re redefining the term…

    The latest official data (November 2013, cycl. adjusted, found here: http://www.statistics.gr/portal/page/portal/ESYE/BUCKET/A0101/Other/A0101_SJO02_TS_MM_01_2004_11_2013_01A_F_EN.xls) are:
    A.3,550,679 employed
    B.1,376,364 unemployed
    i.e.
    C. A+B = 4,927,043 labour force
    b1. 28% unemployment rate
    and finally
    D.3,376,643 inactives

  18. “If you want to help them, you should begin by acknowledging the crime committed by the troika and the Greek government against the Greek people.”

    Hey Yanis,

    In a recent interview on German television, Edward Snowden expressed how he wondered who the US government was representing in the name of national security. Who is the Greek government specifically representing if it is not the Greek people?

    Recently, I’ve been given a leave from my teaching position and this has given me the time to closely study your work. I read a lot books and I really enjoy how you poetically explain political economics. I have found that too many economists or poets write in a language that isn’t intended for a general audience. I do find when I’m reading your books that I’m right in your classroom and you anticipate on the next line, paragraph, or page, questions I may have.

    Finally, most of my Greek relatives and friends living in a few villages outside of Sparti have expressed to me that there is no hope and that it is only a matter of time. Matter of time for what? Golden Dawn? I used to think most Greeks were too educated for that none sense but the rhetoric coming from the liberal or socialist talking heads is bankrupt. Like Odysseus, Greeks know how to tell a good story but they are even better at distilling the lies from them.

  19. (Trying to be the “devil’s advocate”…)

    In the GDP growth rate diagram we see that there is a tendency for the rate to become positive inside 2014, in the gross fixed capital formation diagram the tendency is towards 2008 positive values, also the car registrations seem to have stabilised.

    Why do you believe that the above will not be sustained in the near future.

  20. Interesting comments. Yanni, in the past when Greece was spending money like there was no tomorrow, what were you saying during those good years? I always wondered why no serious economist wondered where all this money was coming from? Even my cousin, a truck driver in the USA wondered who paid for all those 30 day vacations, free medical, and unending revenue streams of Greece from a country who did not generate revenue through their government?

  21. Maybe you should one day explain what is Greek industry. I have the impression that many people tend to think that Greece is only feta cheese and olive oil, and never heard of viohalko or titan.

  22. Mr Varoufakis,

    I’ve really been enjoying your commentary for quite some time. One thing it’s led me to do is to try to find some kind of microfinance operation in Greece and Cyprus. I’ve been a lender through Kiva and Kiva Zip for several years and have recently signed up for Zidisha. Heck…even a Kickstarter or Indiegogo operation in Greece and Cyprus would be a start. I’ve been frustrated in my attempts to find any kind of operations of either kind (microfinance or crowdfunding). It just astonishes me that countries like Kenya have more options for peer-to-peer lending than does a member country of the EU!

    The only thing I’ve managed to track down was the following website – http://ec.europa.eu/social/main.jsp?langId=en&catId=89&newsId=1153&furtherNews=yes

    The link in the article takes you here > http://www.pancretabank.gr/cms/createpage.aspx?pageid=70

    Unfortunately I can’t read Greek and the English information is mainly for some PDFs about their yearly financials, etc. It’s as if this EU backed Microfinance operation doesn’t want to take any one’s money unless they read/write Greek.

    Over all I wish it were something like Kiva Zip or Zidisha running the operation instead of the EU as I don’t have much faith in the Official EU Machinery that oversees such operations. Still it would be better than nothing at all (Or at least I’d like to think it would be but who really knows…).

    Has Greece/Cyprus collapsed so much that even microfinance and crowdfunding are nowhere to be found?

  23. Να’σαι καλά Γιάννη που μπαίνεις στον κόπο και στον προσωπικό γολγοθά να αναλύεις τα οικονομικά εγκλήματα που γίνονται σήμερα στη χώρα μας ενώ θα μπορούσες και εσύ να τα παίρνεις και να είσαι ο πρώτος του χωριού back home…

  24. Pingback: John Ward – Same Old Same Old: How The Strategy Is Wearing Thin Re Greece, NHS Data-marketing, Press Collusion, And Ignored Paedophilia – 3 March 2014 | Lucas 2012 Infos

  25. Yanis –

    Another terrific article on the unfolding Greek disaster! The situation is super-critical, IMO, and cannot wait for conventional or complicated answers. Here is a simple fix to the deflationary depression:
    Increase demand by sending every man, woman and child, a check for the equivalent $10,000 in – critically – debt-free money. The way to counter deflation is with inflation. This would, by definition, stimulate demand, which would lead to employment and even new businesses, and ultimately a boost to the economy and a shrinkage of the output gap (which must be even worse in percentage terms than the U.S.’s trillion/year – according to the Fed).
    Where will this money come from? It can come from the ECB if it is finally willing to make a grant, but with Germany controlling the ECB, I doubt that will happen. So, instead it could come as a new issuance of the Greek Drachma directly into the economy (and/or via public works projects). Even the mere threat of this might be enough to dislodge the ECB from its predatory and too-comfortable perch.
    But, the financiers have taken over the Greek government, so this might not happen either (their ultimate goal seems to be to gut Greece of all its public land and structures and create the world’s first 100% privatized country (will it even be a “country” then, or just a subsidiary of some new conglomerated company?)). So, perhaps Greece could serve as a laboratory for actual American debt-free money – direct from OUR Treasury, in the Lincolnesque model of United States Notes.
    Failure to do this, and soon, and failure to haircut the debt, will leave Greece only one option – a slide into third world status, maybe permanently, or to become the world’s largest “company town.”

    P.S. Your video debate with me and Andy Mazzone is online here:

    http://www.opednews.com/populum/diarypage.php?did=22970

  26. Dear Yanis
    My sister inlaw is one of 5000 doctors and dentist to become unemployed by the medical insurance company EKA. She has an office and apartment mortgage to pay, as well as two young children. More stories from real people should be made available to the MSM. 99% do not understand M3/GDP etc, thats not to say that I didn’t think your article excellant. The Greek economy is the tip of the iceberg, or even a window to the future on the irrationality of the present state of world finance

  27. Pingback: Same old same old: how the strategy is wearing thin re Greece, NHS data-marketing, press collusion, and ignored paedophilia | The Slog.

  28. Yanis

    As a lover of Greece and the Greeks beyond the elite, I admire your work so much. But this piece is I think easily one of your best. It is exemplary, in that it demonstrates precisely what the Resistance to neoliberal bullsh*t everywhere should be doing: demolishing the frontal lobe claptrap with calm reason and an avalanche of data.
    You are an example to us all. I rely upon your posts for the Truth. There is no higher compliment I can pay.
    Efkaristo

    John Ward aka The Slog

  29. Yanisv, an excellent and well written article. Does anyone really believe Samaras and the Troika? Greece will never be able to repay her debts. I’ve lived here (Crete) for the past seven years and one of the biggest problems, apart from the corruption at every level but particularly the top, is the bureaucracy (red tape) that prevents your enterprising young people from starting up their own businesses. In the UK the biggest employer is SMEs and the Government there realises this and encourages entrepreneurial people to set up a company and, if successful, hire other people. Here in Greece the politicians seem to do everything in their power to stop entrepreneurs being successful. They are so scared of tax evasion that they make it almost impossible for anyone to have a successful, legitimate business.

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  31. Hello Mike,

    This is troubling reading but will come as no shock to you.

    Looking forward to seeing you on Saturday.

    Love Charles Xxx

  32. Pingback: Yanis Varoufakis: What You Should Know About Greece’s Present State of Affairs – An Update | naked capitalism

  33. “Greece has been, and remains, a failed social economy”

    That’s *exactly* what I wrote here already several times, since years. Also that Greece will (can) never repay her debt. Nice to see I am not alone anymore with this assessments.

    A question regarding the loans to the private sector: I understand this is a sign of reduced lending to businesses. But is it not also a sign of ongoing deleveraging of the households – which causes what some call a balance sheet recession?

  34. Pingback: What you should know about Greece’s present state of affairs – an update | Yanis Varoufakis | Arjen polku

  35. This analyzis does not take into account the black econocomy which does not show up in official statistics.
    Do you have any idea of the growth of the black econocomy in Greece?
    Black econonomy is growing in France where i live and i expect the same in Greece.
    I was in Athens a few weeks ago and was impressed by the quality of the infrastructures (airport, roads, buildings).and quality of people.
    Those infrastructures investments for the fututure do not refelect in GDP figures and cannot be taken away by creditors of Greece except thru privatization. They can be reclaimed by the people of Greece as you cannot move them with a mouse click to a fiscal paradise.

    • I appreciate your sentiment. Only it is besides the point. The infrastructure that you mention is part of the nation’s wealth. But not of the state’s income stream, which had been fully privatized long ago. As for the people, you are right: they are wonderful and educated to the highest level. But to no avail when there are no jobs, no investment, no hope – all courtesy of the misanthropic policies imposed by the troika. If you want to help them, you should begin by acknowledging the crime committed by the troika and the Greek government against the Greek people.

    • The figures presented above would look even more horrific should have be presented in real numbers. The Greek economy faces deflation and this can be drawn by using the official BoG figures. Keep in mind that this is deflation as presented by the official/public communication strategy while simultaneously is followed by reduction and indirect inflation of commoners’ disposal income. Some analysts would call the later “wealth stealth”.
      The Greek economy is entering a terminal state. Mr. Sinclair’s phrase of “terminal state of broken” could be fully applied to the Greek “case” followed by an ever expanding government/public sector along with their incompetent management skills and thirst for control – with whatever the later implies.
      One interesting statistic would have been the size of direct and indirect development of Government spending, since 2008. I am quite certain that we would not see the decreases that we see in both GDP and M1-M3. There is, therefore, no business case to be formed (for future cash-flows sourced in modern infrastructure) nor any application of game theory as there is no long-term rationale (or short-term policies) that can lead economic agents.
      Here we are talking about pure, albeit brutal, application of economic monopolies (which more often than not are imported ones) applied under geopolitical pretence and fear of further break down of the power equilibriums that exert control. Just pick up any period of history across any nation and indeed you will find lots (and full) parallels applying the same principles.

  36. Is there any academic economic theory that could be applied critically to the facts about the Greece economy that would lead to an alternative conclusion?

    • There is no shortage of misanthropic economic theories… Nevertheless, there is no theory that can simultaneously accommodate the facts reported here and the view that Greece can repay its public debt, without a major haircut of the latter.

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