Recovery Meme Spreads to Greece, Yes, Greece

This pie chart has not been updated to reflect the additional capital needs of the Greek banks following the bond exchange.

This pie chart has not been updated to reflect the additional capital needs of the Greek banks following the bond exchange.

Greece not out of woods, must stick to reforms: finance minister | Reuters

Mainstream media outlets have been publishing stories  advancing a recovering Eurozone narrative. It is one thing to claim that Ireland’s performance is improving, because economic indicators have at least stopped cratering. Greece is a basket case, but you would not know this after reading Reuter’s puff piece interview with Greek Finance Minister Yannis Stournaras.

Reuters starts the article by touting that “some economic indicators are showing fledgling signs of recovery” and adds other supposedly good news to the pot to create the recovery stew. Is it a good stew? Let’s see how the ingredients hold up.

Money is returning to Greek banks. This is technically true but omits any discussion of the amplitude of this trend. Greek deposits fell from a peak of about €240bn in 2009 to €156bn in June. Since then they have risen €8.3bn, which means they are at May’s levels. The depository base is still dangerously low.

Bond yields have improved. This is technically true, too, but is presented without context. Greek yields have fallen dramatically because the troika implicitly guarantees Greek debt with bailouts and a printing press. Falling yields do not support a Greek recovery. Greece remains shut out of international bond markets and will not gain access for years.

There will be a primary budget surplus of 0.4%. What this means is that Greece covers it expenses before interest expenses are paid to current bondholders. After accounting for interest, Greece is still running a massive budget deficit, which means its debt pile is growing by the day. Let’s not forget that Greek budget forecasts have missed by the downside each and every year since the beginning of the crisis.

Privatization receipts will hit €2.6bn this year. Since the first bailout, we have been told by officials that Greece would begin raising lots of money by selling state assets. These funds have yet to materialize. Even if they do, Greece has €340bn in debt. Projected proceeds are less than 1% of the debt load. If Greece owed $1oo, privatization would account for about 75 cents. Once again, the amplitude is being ignored.

The banking sector may not need the €50bn in recapitalization money. This statement is made without basis. In fact, one can make a compelling argument that banks will need more recapitalization funds. Greek banks took a large capital hit in December due to the bond buyback. They were forced to recognize losses and lost an income stream. Additionally, bad loans have risen to a record 24%. These factors add billions of euros more to the tab.

To this chef, it appears that someone is using subpar ingredients in their recovery stew. It’s not going to taste too good. Moreover, there are more bad ingredients. Unemployment is still rising hitting a record 26.8% last month. GDP is falling projected to shrink by another 4.5% in 2013. Signs of a civil war have begun appearing with bombings, assassination attempts and shots fired on political headquarters.

The only thing keeping Greece afloat is that the troika has made a cost-benefit analysis and determined that stringing it along is much cheaper than letting it fail. The 3rd bailout of December was meant to support Greece until German elections past, but it is becoming more likely that another crisis will erupt before then.


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