[Insert witty pun about a Greek tragedy]

Hello there

Today I have an interesting article and a book recommendation for you about Greece.


greek-debt

The article comes from Yanis Varoufakis, a Greek political economist. In this insightful piece on the Greek economy he lays out what is really going on. The bottom line is that things are bad, very bad.

The article is best summarised by the last line:

“when one hears buoyant accounts of Greece’s recovery, one has a moral duty to respond with an ironic smile.”

Some of the amazing Greek statistics Yanis details are:

  • 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.
  • pensions are the main source of income for 48.6 per cent of families
  • 34.6% of the population live at risk of poverty or social exclusion (2012 figure)
  • 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.

 

The book recommendation is Micheal Lewis’ (of the Blindside and Moneyball fame) 2011 book, Boomerang: Travels in the New Third World. This NYTimes post best describes the book’s plot:

“a guided tour through some of the disparate places hard hit by the fiscal tsunami of 2008, like Greece, Iceland and Ireland, tracing how very different people for very different reasons gorged on the cheap credit available in the prelude to that disaster.”

The book is a fascinating read, and as vanilla as it may sound, Lewis tells an amazing tale. Greece, rife corruption, tax evasion (like you wouldn’t believe) and a general lack of trust in society got into serious trouble when a Monk’s dodgy deal* (dodgy is a huge understatement) lead to the Government’s books being laid out for the world to see. What was wrong with the government’s books? Well, the previous Government and statistics department (Goldman Sachs helped them out too) were reporting false figures, such as budget deficits of 3% of GDP when they were really 15% of GDP (for non-economists, this is really bad). The outside world either didn’t notice or didn’t care to notice that the Greek government had a huge amount of debt and was in a terrible position, that was, until the new Government laid the books out.

The article and the book have left me sure that Greece is still basically an economic basket case. The Greek “recovery” so far has entailed Greece being lent a lot of of money by the Eurozone (read Germany) and the IMF, and the governments books beginning to be straightened out.  This “recovery” has not dealt with the underlying issues that created this mess. I am not alone in thinking this of course, others agree, such as Wolfgang Münchau of the FT who questions if now could be the time for a Greek default (pay wall). So why is it that Greek Government 10-year bonds are now trading around 6% down from ~40% in 2012?

Yields on Greek Govt 10 year bonds

Yields on Greek Govt 10 year bonds

Source: Bloomberg

Is this a bubble you may ask? I would say yes, investors believe that Greece is going to be be continually bailed out by the Eurozone so they are again piling in even though there has been no debt forgiveness and things are still going to get worse for Greece.

Is the New Zealand economy just a bubble? Well I don’t think so, but more on that in my next post.

Have a good weekend all

Marty

*link is a Lewis article on Greece which is the basis for his book Boomerang.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s