This article is being published on NavInvest Greece. I'm repeating part of it here with commentary simply because it reminds me of the bad old days of Philip Atticus, writing as the Greek debt crisis unfolded in Athens. Where I had a ringside seat.
Public authorities, including the European Commission, the Greek government, and others, are very good at concealing the true picture of a situation by issuing highly fragmented and context-free press releases.
Here's an example from the European Commission:
According to its forecast, Greece’s real GDP is expected to have declined by 10% in 2020.
Fair enough.
As everyone knows, a key challenge confronted by Greece is the high public debt. This public debt is itself is a reflection of a hidebound and inefficient economy characterised by low public and private productivity, a low innovation rate, excessive public sector control over the economy, and declining demographics and a declining workforce.
Public debt is nowhere mentioned in the European Commission's forecast. Nor are any of these other issues. Fair enough: there are other fora and publications for that.
But to simply state that real GDP fell by 10% conceals the real economic situation.
Consider the following:
In the first half of 2020, Greece announced measures equivalent to € 12.2 billion in support of COVID (Bruegel, November 2020). This amount increased with the second lockdown, in the fall of 2020. (We do not have numbers for the second half of 2020 available).
The General Government Debt in 2019 amounted to € 331 bln, whereas by December 2020 it had risen to € 374 bln. (Greek Public Debt Management Agency). That's an increase of € 43 billion.
The fact that we can only see fragments of data therefore belies the true magnitude of the crisis facing Greece.
In the table below, I have assimilated the European Commissions’ GDP forecast together with GDP and public debt estimates from the Greek Public Debt Management Agency.
As seen in these consolidated figures, nominal GDP has fallen to € 165.07 billion, while public debt has risen to € 374 billion. This is 227% of GDP: by far the highest in the Eurozone and the European Union.
At present, Greece enjoys some of the lowest public debt interest rates in the world, thanks to the previous Bailouts and to European and ECB policy. Should this change, the Greek economy will derail almost immediately.
This illustrates how much damage the COVID crisis has done to the Greek economy. Prior to 2020, the Greek recovery was gaining pace, driven by investment approvals and structure reforms made by the Mitsotakis government, as well as structural reforms forced upon the previous Tsipras government by the European Central Bank, the Eurozone and the IMF.
Whatever one believes ideologically, the only avenue open to Greece is to reform its public sector; free up vast sectors of the economy captive to political tutelage; license private sector investments; invest in productivity and innovation; invest in digital transformation; and change mentalities in the public and private sector. The Mitsotakis has been on roughly the right track since its inauguration, and is certainly better than its predecessors.
Today, that progress has been wiped out, and I anticipate the public deficit and public debt overhang will increase significantly in 2021 and 2022.
This in turn will form the root of the next crisis.
Sources:
European Commission. February 2021
Bruegel. November 2020.
Greek Public Debt Management Agency. Undated.
Greek Public Debt Management Agency. 31.12.2020.