The elephant in the room

The elephant in the room

In a pre-election period, sober assessments in general – and regarding economic developments in particular – do not prosper. Each party must present them in a light that favors its own narrative to voters, with a certain one-sidedness. The drop in unemployment in Greece is one side of the story. The other is that unemployment in Greece is the second highest in the European Union, after Spain, while we rank first in unemployment among women. The slowing of inflation to 6.5% is a positive development; however, prices continue to rise, particularly for food. Furthermore, inflation in Greece, more than other countries, is due to the increase in business profits.

It sounds nice when the government says that foreign direct investment has increased, by about 6 billion or 3% of GDP in 2022. But the picture changes if we look closer and see that foreign capital is buying mainly apartment buildings and other high-end properties, and operating businesses is their second choice. They do this with our domestic savings, with loans they get from Greek banks, without improving the country’s production potential one iota. The truth is that investments in new production units decreased by 14% in 2021 and, according to provisional data, even more so last year.

In absolute terms public debt increased by 44 billion euros from 2019 to today, jumping from 356 billion euros to 400 billion

Speaking of the banks: It sounds good to hear that they have reduced their bad loans to 8.2% of their total. But that’s half the truth. The other half is, firstly, that the burden on the banks remains high, as the average percentage of bad loans in total loans in European Union banks is only 1.79%. Secondly, those bad loans did not disappear – they came off the banks’ balance sheets and were transferred to related funds and servicers, burdening borrowers and the economy.

Thankfully, the productive fabric of the Greek economy was not destroyed again (as with the internal devaluation of the past 10 years) and so the economy has been rapidly recovering its losses since the pandemic. Last year, it achieved growth of 5.9%. But in the same year, the current account suffered a serious deterioration, its deficit jumping to 10% of GDP, or 20.1 billion euros, from 12.3 billion euros in 2021 and just 2.7 billion euros in 2019. Imports of intermediate goods and consumption are growing at a much faster pace than exports. Thus, despite the recovery of GDP losses, the Greek economy’s traditional structural weaknesses have not gone away.

Finally, there is the elephant in the room: our debt. As a percentage of GDP it is declining, mainly from nominal GDP growth due to inflation. In absolute terms – and this is the serious part – public debt increased by 44 billion euros from 2019 to today, jumping from 356 billion euros to 400 billion. This could have been avoided if the state aid of the last two years (which exceeded 55 billion euros) had been dispersed sparingly, fairly and selectively, instead of according to the carelessness and clientelistic criteria of the old days. Unfortunately, the allure of a magic money tree burgeoning thanks to inflated tax revenues and further debt growth – which some other government will be called upon to manage in the future – prevailed. Thus, today, the Greek economy has 400 billion euros of public debt accumulated on its foundations. Next to that, there is another 250 billion euros of private debt.

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