Greek Economy Keeps Shrinking

Greek Economy Keeps Shrinking

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Greek EconomyWith the government for a glimmer of a glimpse of a hope for the start of a recovery next year, the Greek economy shrank by 4.6 percent of Gross Domestic Product (GDP) in the second quarter of the year as it had for every quarter of the previous five years.

The results came from the Hellenic Statistical Authority (ELSTAT) and followed a shrinkage of 5.6 percent in the quarter before that, showing how deep and long lasting the country’s recession is.

Last week, Finance Minister Yannis Stournaras predicted the overall contraction for the year would be 4 percent but that he expects growth next year although he didn’t say how.

The government pointed to another statistic it said was more optimistic. Alternate Finance Minister Christos Staikouras said a primary budget surplus of 2.6 billion euros, or 1.4 percent of GDP, was achieved  in the first seven months of 2013 against a target for a primary deficit of 3.1 billion euros.

That, however, doesn’t include interest payments and the budgets of local governments and social security funds which would have pushed the numbers into the red if counted.

  • worldarts

    This corrupt Government of PASOK & ND is completely lying to the People as usual after 37 years of the same old B.S.

  • thes8niki

    maybe more bailouts for foreign banks using Greece as the pass-through conduit vehicle should work?

    http://www.ft.com/intl/cms/s/0/c2c17b10-0100-11e3-8918-00144feab7de.html#axzz2bfTe1eU7

    “Eurozone banks need to shed €3.2tn in assets to meet Basel III.” In other words, not only has Europe not fixed anything in the past year, but the liquidity tsunami injected by the central banks merely taped over the epic capital shortfall that just got epic-er, increasing from €2.8 trillion to €3.2 trillion, an increase of half a trillion to over $4 trillion in one short year.

    Sadly, just like back in April 2012, so now, Europe has no hope of actually addressing this much needed deleveraging and so the can kicking will continue until the number rises to $5 trillion, $6, $7 etc until one day the market’s “head in the sand” strategy finally fails and every emperor around the world is found to be naked.

    Europe’s biggest banks will have to cut €661bn of assets and generate €47bn of fresh capital over the next five years to comply with forthcoming regulations aimed at reducing the likelihood of another taxpayer funded bailout.

    The figures form part of an analysis by the UK’s Royal Bank of Scotland – which singles out Deutsche Bank, Crédit Agricole and Barclays as the banks most in need of fresh capital – highlighting that five years on since the financial crisis, Europe’s banks are still “too big to fail”.

    Overall, the region’s banks need to shed €3.2tn in assets by 2018 to comply with Basel III regulations on capital and leverage, according to RBS.

    The burden is greatest on smaller banks, which need to shed €2.6tn from their balance sheets, raising fears that lending to the region’s small and medium size enterprises will be sharply reduced as a result.

    “There is too much debt still across Europe’s economies and the manifestation of that is on bank balance sheets,” said James Chappell, an analyst at Berenberg bank. “The major issue is that the banks still don’t have enough capital to write down those loans.”

    Eurozone banks have already shrunk their balance sheets by €2.9tn since May 2012 – by renewing fewer loans, repurchase and derivatives contracts and selling non-core businesses – according to data from the Frankfurt-based European Central Bank.

    Deutsche Bank recently said it would seek to cut its assets by about a fifth over the next two and a half years. Barclays, which announced a £5.8bn rights issue last month, said it wants to shrink its balance sheet by £65bn-£80bn.

    Europe’s banking sector assets are worth €32tn, or more than three times the single currency zone’s annual gross domestic product.

    Of course, if Europe’s banking sector actually does take its deleveraging obligations seriously, what will happen to Europe’s economy, where private sector loan creation is already at a record low level, will be nothing short of a stunning contraction, unlike anything seen in the past 5 years. And yet, that is precisely the path Europe most take in order to emerge on the other side with a healthy beating financial heart. That it won’t is a given because doing the right thing would mean a complete wipe out for the banker oligarchy. And, as always, it will be the common man who will suffer when the forced deleveraging day finally comes.

  • Dean Plassaras

    Why is this a surprise? It’s a direct result of Merkeloid politics.

  • Dean Plassaras

    Merkeloid politics = mongoloid economic results.

  • thes8niki

    she’s not the only bad actor here.

    the blame first and foremost should be placed at the feet of our germanotsolia politicians who collude with the EU overlords.

  • Dean Plassaras

    Yes, but the banktocrapcy label is false. The german lethargocracy label is correct.
    Even if you had a different class of politicians how would you deal with german lethargy?
    The minute you raise an objection they cut off ECB funding. Then your government collapses within one hour.

  • thes8niki

    and so do their banks and they know it

    someone needs to grow some apxidia and call them out on their bluff

  • Dean Plassaras

    The reason you can’t do that is because every other country in Europe has a different problem/agenda. Banking liquidity maybe a common denominator but what France wants and what Spain wants are 2 different things. So is what Italy and Ireland want.

    Look Thes. To hope for a different Greek government is utopian. This is the government you will have for the next 3 years. You either support them or you don’t.

    If you don’t support them at least don’t undermine them. If you think there is a better way then take Tsipras on a plane and go to Berlin and make sure Merkel loses by a land slide.

    To complain about German policies on Greek soil is the same as complaining to a Greek dealer about the defects of your german car. It’s easy: don’t buy german. That’s far better than exhausting yourself speaking to other Greeks about the message you want to deliver to Germany yourself but for some reason you refuse to do so because it is far easier to complain to your own people than to strangers.

  • thes8niki

    this is not a liquidity problem. it’s a solvency problem.

    it doesn’t matter what the other countries want. at the heart of the matter is insolvency for all countries involved.
    this isn’t necessarily about hoping for a new government. there’s always a possibility of new elections, but more importantly these are suggestions for the current govt to change their current path which has done nothing to help the greek economy. it is not admirable nor courageous to support a government’s current destructive path because the alternatives are horrible.

    i’ve boycotted all german goods.

    it is easier to complain to your own people because in the end they are responsible for the decisions and path the country takes no one else, not even Germany. i don’t view them as German policies but Greek policies.

  • Dean Plassaras

    Greek banks had never had a solvency problem. They were on of the most conservative and better run in Europe. Even now broken, because Merkel wanted to do her thing and avoid her obligations, are still better than any other banks in Europe.
    Time to move on from this archaic debate about banks. That’s 2008 stuff and it smells from the head.
    As far as the policies are concerned it’s only convenient to view german policies as Greek policies because that’s the familiar Olympaikos-Panathinaikos thing. That’s the only game you have have any chance of scoring. The minute you move your debate outside Greek borders you get outclassed.
    I don’t think we have time for appearances and issues of comfort any longer. This is hard stuff. Either you got the European connections to be effective or you don’t.

  • thes8niki

    that is not correct at all. in addition to losses on their govt bond holdings, their private bonds/loans have suffered heavy losses and default rates. all greek banks suffered billions in losses and their equity holders were heavily diluted by ongoing capital raises to support the balance sheet holes caused from the private and public holdings.

    and what exactly is Merkel’s obligation? does it supersede our government’s obligation?

    it’s not archaic at all and I don’t understand why you dismiss it so easily considering that you know most Greek and other PIIGS “bailout” funds go to foreign banks. it is front and center of what’s happening in Europe. see Cyprus for the most recent debacle.

    are you not moving the debate outside Greek borders by constantly criticizing Merkel et al?

  • thes8niki

    if it’s archaic, besides the points I’ve already made about the real beneficiaries of bailout funds not to mention who stands to lose the most upon a default, then why have we witnessed a 20-30 year period where world wide banks continually get bailed out (s&l crisis, 2008, europe 2009-present, asia financial crisis etc)

  • thes8niki

    i don’t understand what Tsipras has to do with anything, but Merkel is going to win in September Tsipras or not.

  • Stavros

    Greece has become Third World country! Nothing can change it.
    If I was smart I would have saved money and now be somewhere nice like many of my friend did.

  • Dean Plassaras

    That’s my intent. To move it outside Greek borders because in Greece we eat our own flesh and engage in constant cannibalism.

  • thes8niki

    so your intent is to get outclassed?

    “The minute you move your debate outside Greek borders you get outclassed.”

    we’re playing semantics. this is a Greek issue all the way through. without colluding politicians who have wrecked the country, we wouldn’t have this situation

  • Dean Plassaras

    Thes:
    The whole point is to promote a culture in Greece that enhances our national interests.

    You can’t do that by putting neophytes in key positions and expect them to perform better. They can’t. They have neither the training or experience to do so. All the got is a loud, populist, laicist big mouth that makes for entertaining TV in Greece.

    You can’t score like that in Europe. The minute the “unprepared” come in power they will collapse. They have zero network of European support other than some soft connections with ideological similar who are not in power. They are all marginalized parties.

    Why do want Greece to undergo the humiliation of an out-of-depth government experience.
    Who do you envision in Stournaras’s place? Stathakis?

  • thes8niki

    national interests like 30% unemployment and an economy that has shed 25% of its value among other miserable statistics.

    insanity is doing the same thing over and over again, and expecting different results. and what the current situation is not humiliating? that is exactly what supporting ND/PASOK over and over again does. I don’t know who or what is the answer, there are a plethora of other parties to choose from, but to lay down all arms and continue to support those who got us here and continue to dig our own grave because the alternatives are unprepared is ridiculous. that is called surrender. we’ve done so much already having given the EU sovereignty of nearly everything.

  • Dean Plassaras

    O.k. the statistics are grim. But what exactly you think a new government can do any different?
    You can’t announce a new plan by causing your own government’s collapse.
    Tell me the mechanical steps assuming you are the new government and then let’s discusss.

  • thes8niki

    say no to europe and the invaders just like on october 28, 1940. Oi Ellhves leve OXI

    again this isn’t necessarily about a new govt but advice to the current one (assuming there is anyone even listening)

    no to asset sales under others’ terms and manufactured firesale prices

    no to austerity especially when there is not a strong private sector to absorb the job losses or at least on our own terms with a free market mechanism like the drachma or a debt default

    no to interest/principal payments over “spending” that will actually produce a real result in the Greek economy and middle class

    no to the Dublin treaty

    no to export restrictions on a plethora of goods

    and on and on

    you regard the invaders’ skills at game theory too highly. europe has handled this crisis horribly. what makes you think they won’t bend over as soon as we call out their BLUFF which is what it is exactly. they will because, as mentioned before, they know full well what will happen in the event of a default and/or return to the drachma. they will pay a bigger price, especially in the med-long term. you want us to stay in your club, then act like its a club and focus on growth in productive sectors that benefit everyone instead of the paper shuffling sectors that benefit no one except for a select few. this applies to our germanotsolia politicians more than anyone.

    we will never agree on this matter especially since I’m pro-drachma and thus pro-free market and pro-sovereignty. why people are so scared of letting the system clear itself of bad debt and horrible capital mis-allocation is beyond me. let the free market work. the current euro structure is not the solution. the statistics speak for themselves.

  • thes8niki

    it’s funny that you keep stournaras who is on the board of governors of the IMF in such high regard………

  • Dean Plassaras

    Because the germans have had 4 full years to erect defenses. The time to have called their bluff was pre-PSI.

  • Dean Plassaras

    Yes, but the whole thing is whether she will have enough for the 50%. So far she does not.

  • thes8niki

    which defenses?

    i don’t think so. 72.8 trillion in derivatives many of them interest rate related vs deposits of 575 bln (eu)

    https://www.deutsche-bank.de/ir/en/download/FDS_1Q2013.pdf

    only recently, has DB begun to de-leverage.

    over the past year, the nominal net exposure of the bank’s positive and negative derivative market values has collapsed from a combined total of €1.678 trillion to just €1.253 trillion,with consecutive declines over each of the past 4 quarters for a cumulative net deleveraging of €425 billion.

    Furthermore, as the chart shows, over the same time period the bank’s excess deposits over loans initially rose to a two year high of €204 billion and has since declined to just €166 billion: the lowest in two years. Finally, looking merely at DB’s total assets, these too peaked in June of 2013 at €2.24 trillion and have since declined by €1.91 trillion.

    if Europe is so “fine” and on the verge of a “recovery” as its politicians repeat day after day, why is the biggest bank in Europe, and also the biggest bank in the entire world in terms of gross derivative exposure, deleveraging at the fastest pace since Europe’s near-death experience in the summer of 2011?

    http://www.reuters.com/article/2013/06/14/us-financial-regulation-deutsche-idUSBRE95D0X620130614

    A top U.S. banking regulator called Deutsche Bank’s capital levels “horrible” and said it is the worst on a list of global banks based on one measurement of leverage ratios. “It’s horrible, I mean they’re horribly undercapitalized,” said Federal Deposit Insurance Corp Vice Chairman Thomas Hoenig in an interview. “They have no margin of error.” Deutsche’s leverage ratio stood at 1.63 percent (61x leverage), according to Hoenig’s numbers, which are based on European IFRS accounting rules as of the end of 2012.

    this is why this is a bank problem and why Germany et al will bend over if/when Greece calls their bluff

  • Dean Plassaras

    Same movie with german subtitles:

    http://www.nytimes.com/2013/08/09/opinion/krugman-phony-fear-factor.html?ref=paulkrugman&_r=0

    BTW, the german bank exposure to Greek sovereign debt today must be below 1 Bil. euros. Meaning peanuts. It used to be 45 Bil. when the germans started dumping back in 2010.

  • thes8niki

    right so the Greek politicians and Germany are doing the opposite of what Krugman is saying about austerity and growth.

    the fear mongering comes from those who say that a default/drachma path will be devastating.

    i’m not really a big krugman fan as I think many of his keynesian policies are focused more towards the banks (qe, the trillions in bailouts as “necessary”) etc but I don’t really disagree with him here

    http://www.independent.co.uk/news/world/politics/interview-with-economist-paul-krugman-greece-will-leave-eurozone-within-12-months-7804753.html

    http://seekingalpha.com/article/592771-why-paul-krugman-is-right-about-greek-exports

    http://krugman.blogs.nytimes.com/2012/05/14/exit-and-exports/

  • thes8niki

    “BTW, the german bank exposure to Greek sovereign debt today must be below 1 Bil. euros.”

    source? you’re forgetting the various derivatives and credit default swaps that are written against said debt that don’t require underlying debt ownership (see DB’s gross derivative exposure which is the largest in the world). this is where the real problems come from as evidence from the US financial system implosion back in 2008.

    this also isn’t purely a German bank problem (it’s a northern euro bank problem + the ECB holds the debt at par) and is also a PIIGS (not just Greece) issue that we’re talking about in terms of the first domino to fall…

  • Dean Plassaras

    The conversion to drachma is not doable. You need about 6 months to convert properly. During these 6 months the ECB will cut off all support which means your economy will collapse before converting.

    And after you convert it means that you can’t buy fuel, medicaments and other necessities.

    All of that should have been done pre-PSI. Considering such post-PSI is like after you are robbed you look for ways to let the robbers go unpunished by removing all claims to the stolen goods.

  • Dean Plassaras

    The source is DEr Spiegel. Go back to their articles in the 2011-2012 period (either under Euro crisis or under Greece and you will find all the stats there very nicely documented).

  • Dean Plassaras
  • thes8niki

    fear mongering

    anything is possible and all the more reason to become self sustainable in those areas. it’s never too late

    not to mention there will be another psi-esque type restructuring

  • thes8niki

    current source would be nice. someone still owns the 300 bln in debt

    but the underlying debt is not the true issue. what truly matters, as was demonstrated in the US financial collapse in 2008, are all the derivatives and credit default swaps tied to that. and with DB having the largest gross derivative exposure and one of the worst capitalized banks in the world, we and the other PIIGS have the leverage

  • Dean Plassaras

    Yes but why Greece should be concerned about DB? That’s a German mess.

    I can assure you today DB holds very little Greek debt to make any difference.

    The time to have hit Germany was when German banks held upwards of 40 Bil. euros of Greek sovereign debt. Today they hold practically zero.

    I don’t think your strategy of calling a bluff would amount to anything beneficial other than making your own life extremely complicated because at that point you will have zero friends and everybody in the world would be against you.

    What you are suggesting is a supreme act of selfishness and the end result would be to drag Greece’s name in the mud. Again.

  • Dean Plassaras

    It is not fear mongering.
    It’s a mere realization that you have given your aces away when you decided to participate in the PSI nonsense.
    This is the exact moment of no return for Greece. Up until then Greece had some pretty good negotiating leverage. Not any more. There is now total dependency on the ECB system and they can pull the rug under you faster than you can say “why?”.

  • thes8niki

    if you can assure me then show me the source, but most importantly, given DB’s massive gross derivative exposure, even if we assume they hold 0 debt, it is a certainty that many of their derivatives are tied to Greek/PIIGS debt both public and private.

    who holds the debt then?

    you need to take into account derivative exposure not underlying debt

    doesn’t seem like we have any friends now or that Greece’s name means anything. this is a game. you have admitted that much. this is where we strike if we are to get them to change course.

  • thes8niki

    the ECB holds their Greek debt at par (mark to market fantasy), they won’t want to be in a situation where they see their holdings go to 0 and their liabilities increase massively because all of their member banks are experiencing stresses.

    take a look at the Target 2 imbalances in the euro system to see what Germany truly stands to lose on and underlying basis (all derivative exposure aside)

  • Dean Plassaras

    Certainly none of the debt is owned by private hands (or insignificant little). The debt is now owned by the EU-17 states and the ECB (through the ESM mechanism) plus a small portion by the IMF.

    That’s why Germany refuses to talk about debt relief. Because you need parliaments of all countries to agree. And if you threaten to stop payments at this point you will have not a single friend in Europe because the point of the European states is that they are forced to hold your debt as lenders of last resort. So, if you want to do them harm then you are on your own about the wrath of God reaction that you will almost certainly going to get.

    If you follow up on your plan it would be Greece against the World. Not very smart, huh?

  • thes8niki

    it already is us vs the world and has been. not like we haven’t been in this situation before.

    but they are not the lenders of last resort, certainly not like the Federal Reserve in the US.

    here is a breakdown from december 2012

    http://www.economicsinpictures.com/2012/12/greek-debt-composition-2012.html that obviously does NOT take into account derivative exposure.

  • Dean Plassaras

    Yes, this shows the same thing. That the majority of debt is owned by public holders (meaning European states + IMF).

    And these are the states they supported Greece to avoid their own implosion.

    So what are you threatening them about? to them witting off the Greek debt is nothing, a drop in the bucket.

    Obviously if you default you give them the chance to apply severe measures against you. If you play along they will write off the debt anyway but not at high political season; maybe later.

    What I don’t understand is what sort of relief do you expect after default? To be able to be self-sufficient Greece certainly needs to keep all reforms and salary cuts to date plus do more as a safety margin.

    So what is that you gain from default other than the realization that you need to keep austerity for a long, long time otherwise you need market access to cover your new deficits which access you no longer have?

  • Dean Plassaras
  • thes8niki

    “So what are you threatening them about? ”

    who do you think is responsible for the (il)liquidity and solvency of its member banks upon a stress caused by a default? what do you think will happen to the trillions in derivative exposure tied to such debt and other debt w/in the PIIGS? what more sever measures can they apply? could it really be that much worse than now not to mention they will suffer greatly. you keep focusing on debt and completely ignore the bigger

    the relief would be that you have no interest principal payments to make. a clean slate. you have a new currency to cover the deficits. it won’t be long term. it will be a brief period (2 yrs max) of high inflation and chaos followed by a free market solution. free market is always the way to go.

    you are too scared of Greece’s overlords

  • thes8niki

    ty will read later. i will send a bloomberg screenshot of the current holders shortly as well

  • thes8niki

    Interest per year:

    48,850,089,830€

  • Dean Plassaras

    Thes:

    You need to look at the big picture.

    To have a primary surplus in the middle of the summer means very little. Tourism always adds revenues during the summer months. Then later on in the year you (as a Greek state) you begin to pay through the nose for your energy needs.

    To make the claim for default you have to think like this:

    1. Wait until the year’s end to see the picture because the winter months of 2014 will also create more deficits due to energy spending.

    2. The state has payments in arrears of about 6 Bil. So those must be paid. So you got to have about 10 Bil. set aside to do that.

    3. Once you default the brutal austerity regime must be maintained because the minute you deviate from it you fall into deficits again with no ability to finance in the global markets.

    4. Defaulting means that you will be on your own for at least 10 years or more. Which also mean that ordinary people would get no relief for at least that much.

  • thes8niki

    where has Greece’s negotiating leverage been anywhere in the last 4 years? it has been non-existent because people are fear mongered into believing that Greece can’t go on without EU funding. better to have austerity in a free market scenario where one has control of their sovereignty and monetary policy than forced down its throat in a non-free market scenario.

    primary surplus means nothing because it has not been accomplished via a rise in exports and more importantly it strips out some very large obligations and real expenses such as interest costs (50 bln a year) and other govt obligations. it’s funny that everyone says that default and/or drachma is not a serious proposition, but the current reality as evidenced by the grim statistics is evidence that the current situation is not a serious proposition whatsoever.

    sorry you fear the ECB. “Finally the ECB will make your life miserable” who cares. they will have much bigger problems to worry about when they realize the contagion will decimate their “firewalls” 10 years is fear mongering and is not based on any real world example of similar situations.

    as you alluded to, default should be done sometime between october – february.

  • Dean Plassaras

    o.k. let’s look at it from another perspective because I think you are not willing to consider something important. Which is that despite its primary surplus Greece very large holes in its social security + healthcare (hospitals and such) + payments in arrears which the state owes to suppliers.

    Yesterday the Bank of Greece showed that the deficit on a cash basis for the 7 months ending July was close to 8 Billion euros. Which means that by the end of the year such cash deficit will be in the 12Bil. range.

    Granted, some of it is for interest payments, but such has shrunk over the years to a very small amount considering a state budget.

    So if you switch now to bankruptcy/default you are going to have the maintain austerity as well as cover up those holes (no one knows from where). So I think you are entering desperate ground (per the Art of War).

  • thes8niki

    if you default you have no more interest payments (50 bln a year according to your national debt clock link) and no principal payments that you have to roll over

    by having your own currency, you can cover up the holes al-be it in a short term very inflationary environment, which is still multiples better than the med-long term high deflationary high unemployment environment we are going through now. not to mention all the added benefits of having control of your own monetary policy. austerity will happen either way it’s just a matter of wanting it forced down your throat by others (current situation) or via inflation

  • Dean Plassaras

    no, no. The debt payments(i.e. interest) is much less than this. The Debt Clock probably uses standard interest rates for impressionist purposes. Let me find it and post it. The total debt for the 7 months was about 5 Bil. so 1/10th of what you think it is.

    According to the table below the 7 month total interest was 4.6 Bil. And I was wrong. The total cash deficit for the 7 months was 9.4 Bil. Which means that if you take interest out, Greece has a 5 Bil. hole you need to plug which by the end of the year could be 7-8 Bil.

    http://www.bankofgreece.gr/BoGAttachments/12.08.2013%20Central%20Government%20Net%20Borrowing%20Requirement%20on%20a%20Cash%20Basis%20-%20July%202013%20-%20Table.pdf

  • thes8niki

    yes it seemed high at ~ 15%/yr on 350 bln