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| Greece's Economic Downfall - Scheherazade Rehman | ||||
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o Bruttokansantuotteessa pahin romahdus 90 vuoteen (HS)Suomen talous supistui viime vuonna 7,8 prosenttia, käy ilmi Tilastokeskuksen ennakkotiedoista.
Bruttokansantuote laski viimeksi yhtä paljon viimeksi vuonna 1918 kansalaissodan jälkeen. 1990-luvun lamassakin voimakkain supistuminen jäi 6 prosenttiin vuonna 1991.
Kysyntää vähensi eniten viennin kutistuminen jopa neljänneksellä. Investoinnit laskivat yli 13 prosenttia. Talouden tuotanto väheni voimakkaimmin tammi–maaliskuussa 2009.
Suomen bruttokansantuote oli viime vuonna 171 miljardia euroa.
Kotitalouksien reaalitulot kasvoivat noin prosentin. Palkkatulot kuitenkin vähenivät prosentilla, sillä vaikka ansiotaso kohosi, työttömyys kasvoi.
Suomen julkishallinto oli viime vuonna selvän alijäämäinen. Alijäämä oli Tilastokeskuksen tietojen mukaan 2,2 prosenttia. Euroissa se tekee 8,6 miljardia euroa, eniten vuoden 1995 jälkeen.
Julkisen velan suhde bruttokansantuotteeseen nousi edellisvuoden 34,2 prosentista 44 prosenttiin.
There is a strand in what passes for policy discussion which goes like this:
(i) There is an acknowledged problem in some sector or policy area;
(ii) the Government could do something to ameliorate this problem;
(iii) QED the Government should do something, not always specified.
The result of this line of attack is policies like the Car Scrappage Scheme, of which more anon.
Examples in this morning’s media concern the excess supply of hotels, and the threat of global warming. The Government is being urged to take measures
- to reduce the hotel stock, and
- to support the hydro storage/windpower project called Spirit of Ireland.
Hotel Stock: Hotels are a pure private good. Due to policy-induced capacity expansion, there are now too many. Some are bust, and face receivership/liquidation/NAMA. Room prices are falling. This is the natural market response. Where is the market failure?
It is true that some long-established hotels have seen their business undermined by State-subsidised competition, but this is a routine business risk in an interventionist political culture. Many of these long-established hotels enjoyed State grants for conference/leisure centres when the going was good. The industry is lobbying for some State-run scheme to take out capacity. Doing nothing will cost less and the industry will adjust. Intervening, yet again, will distort adjustment.
Spirit of Ireland: The externality of carbon emissions is addressed by putting a price on carbon, at which point the State can safely adopt a position of technology neutrality. Power generation, once externalities are dealt with, is a pure private good too. Whether these schemes make sense is a matter for the capital market, not for the Government.
Car Scrappage: Car sales have collapsed and some car dealers have gone out of business. The same has happened with €1,000 handbags, and some handbag retailers are struggling. Ireland manufactures neither cars nor handbags. The Car Scrappage Scheme will spend taxpayer money to sustain, temporarily, the retail distribution network for an imported consumer durable. Why not a Handbag Scrappage Scheme? This scheme is plain daft for Ireland. It is not even clear that it makes any sense for car-producing countries - the German scheme appears to have sucked in imports of smaller cars, which Germany does not produce.
These ‘Something Must be Done’ schemes provide harmless entertainment for economists, fodder for the 24-hour news cycle and a playpen for lobbyists. But they contribute nothing to sustainable employment, cost the Exchequer money and hinder the necessary post-Bubble adjustment.
In contrast, the Economics of Doing Nothing is that this is often the best policy, and the cheapest.
o An Underfunded Program For Greece (Baseline Scenario)From Stephen Castle and Landon Thomas Jr. at the NY Times: Europe Union Moves Toward a Bailout of Greece
[T]he European Union is moving toward the first bailout in the history of its common currency, which is expected to involve loan guarantees from the German and French governments to encourage their banks to buy Greek debt.These guarantees and further fiscal cuts are expected to be announced well in advance of the March 16th deadline Jean-Claude Juncker, Luxembourg's prime minister and chairman of the 16 euro-zone finance ministers, discussed two weeks ago.
Even as the negotiations continue, the bloc is insisting that Athens impose further, painful austerity measures ...
During a brief visit, due to start Monday, Olli Rehn, the European commissioner for economic and monetary affairs, will press for more spending cuts and tax increases in Greece as a precursor to an emerging package of financial support.
And from Reuters:Greece may soon announce new steps to cut its budget deficit, a [economy Minister Louka Katseli] said on Sunday, amid signs that Athens might be nearing a deal with European Union governments to ease the Greek debt crisis.It sounds like this debt guarantee package and further cuts might be announced later this week.
...
"If more measures are to be taken, they will be announced soon" [Katseli said]
The EU, led by France and Germany, appears to have some sort of financing package in the works for Greece (probably still without a major role for the IMF). But the main goal seems to be to buy time – hoping for better global outcomes – rather than dealing with the issues at any more fundamental level.
Greece needs 30-35bn euros to cover its funding needs for the rest of this year. But under their current fiscal plan, we are looking at something like 60bn euros in refinancing per year over the next several years – taking their debt level to 150 percent of GDP; hardly a sustainable medium-term fiscal framework.
A fully credible package would need around 200bn euros, to cover three years. But the moral hazard involved in such a deal would be immense – there is no way the German government can sell that to voters (or find that much money through an off-government balance sheet operation).
Alternatively, of course, the Greeks could make much more dramatic cuts to their primary deficit – the government budget balance if you take out interest payments – in order to stabilize their debt-GDP ratio.
But with no significant resurgence of growth in the eurozone coming for a long time, that would really mean moving from last year’s 7.7% GDP primary deficit to around a 6% GDP primary surplus (assuming they face a real interest rate of 5%, i.e., below what they are paying today).
The government won’t (or can’t?) do that. In 2009 Greek wages and pensions rose by 10.5% – an amazing spending spree. In the 2010 budget they are forecast to rise by 0.3%. Where is the austerity? No wonder the prime minister is popular – they aren’t really cutting much.
The bailout package is really just an opportunity for European banks to get out of Greek debt. The Greeks can’t really collapse until they lose access to funding, so the hope is that this prevents the problems from spreading – and the prospects of such a “rescue” will keep bond yields down for Portugal, Spain, and others.
Our baseline view is that Greece enters into quite a bad recession this year, their banks and corporates continue to have trouble raising financing – thus causing broader liquidity issues, and it all comes to a head again as we near the time the government needs to take ever harsher measures next year, when there is again no bilateral funding in place.
This is the new Greek cycle.
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