Where on earth is growth in Greece going to come from?

It's not going to come from people working more. Excerpt from the IMF's latest Debt Sustainability Analysis for Greece, just released:

Oh dear. Quite apart from the negative contribution to growth, the prospect of unemployment taking 44 years to return to something approaching normality is simply appalling for Greece's population. I've looked in more detail at this here (Forbes).

Well, if labour isn't going to drive growth, there's always investment, yes?

Er, not really. The outlook for capital investment doesn't look too good either:

Yeah, about that financial sector.....Greek banks are still in crisis, it seems. The IMF thinks they will need another 10bn Euros on top of the 43bn they have already received, and even with this, they aren't going to lend. And they aren't worth anything, so can't even be sold to raise money. Greek banks are zombies, and like all zombies, they drain the lifeblood of their victims. They are a serious obstacle to Greek economic recovery.

So if people aren't going to work more, banks aren't going to lend, and there isn't going to be much in the way of investment, where is the growth going to come from?

Aha. Structural reforms, of course!

So the IMF doesn't believe Greece can deliver the pace of structural reforms that would be needed to deliver TFP growth much above 1 percent. No-one should be surprised by this. The remarkable thing is that anyone ever thought it could.

And that means that the outlook is poor - for the foreseeable future. A long-run growth rate of 1.25 percent - or more likely less - in an economy that has shrunk by 27 percent in the last seven years, means that Greece effectively faces decades of depression.

Whatever fiscal sins successive Greek governments may have committed, I find it hard to believe that the Greek people deserve such hardship.

Related reading:

Debt Sustainability Analysis, Greece, May 2016 - IMF
IMF predicts unemployment in Greece will fall to 12 percent...by 2040 - Forbes
The Economic Consequences of the Eurozone - Forbes
Morality in the Greek crisis


  1. When you follow the wrong leaders you'll always pay the price. If peoples were more aware of that fact maybe they'll choose more carefully and they would avoid to listen to fairy tales saying that you could get money easely and that debts are of no consequences. We are all going to learn this lesson very soon not just the greek.

    1. I agree that people should recognise they are accountable for the way they vote. I also agree that decision making in Greece was poor in the run up to the crisis. But it does not follow that decades of depression for Greece is either just or even sensible for Greece's creditors. Have a debt write off and an honest appraisal of what happened before the financial crisis. Get it fixed!

  2. So what’s the alternative? One alternative is fiscal union, but the idea that Germans will be happy to subsidise Greeks is unrealistic.

    The options are: 1. Continue with austerity. 2, quit the EZ. 3, write off Greece’s debts. 3 is unrealistic: other Euro countries won’t accept that. Plus Greeks have a long history going back 200 years of cheating their creditors. If the debt was written off, they’d probably just go on a spending spree and get back into debt with a view to cheating their creditors again. Plus they fiddled the books to get into the EZ in the first place.

    The UK, Switzerland and sundry other European countries are doing OK outside the EZ. What’s the problem with quitting the EZ?

    1. Nice try. Greece didn't exist 200 years ago, so it would have been hard to cheat its creditors.

    2. Very few 'countries' existed 200 years ago.

  3. There will surely be very little growth in Greece. Greece is just one of many small peripheral nations who were late to industrialisation, suffered lousy politics, are too hot for heavy industry or call centres, too chaotic for semiconductors or phone-making. The money spent on Greece was like a bribe, we like them in the club and they'd be noisy outside it.

    As said Europe needs to decide if it is to become a mutual support club - to prevent worse problems. The difficulty is balancing the money, just how poor can members be kept and still remain in? because it seems impossible that all can be rich.

    But the question remains - is Greece less of a nuisance poor and heavily indebted but wanting to be in the club, or would it and countries like it be more of a nuisance out of the club. Poor and indebted suits just fine, a bit harsh but true.

  4. So the IMF writes off Greece. Decades to recover the lost output - historically unprecedented in any era. So should we conclude:
    A. The IMF is signalling to the rest of the troika to change course, but leaving it between the lines.
    B. Believes that Greece should remain a sacrificial pyre, burning for eternity to the gods of the euro zone.
    C. Doesn't care less.

    Let's hope it's A

  5. I haven't read all the way through the document but there are some truly laugh out loud assertions in what I've read so far. Typical IMF figure fudging and incoherence.

    The Greeks need to leave the Euro asap but they have no organised structure or party that could lead the move.

    1. Whilst this would be a good move >in the long run<, in the short run it would rapidly crush imports and would intensify poverty in Greece. This is probably why Tsipras didn't do it last year.


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