All posts by Periklis Gogas

Dr. Periklis Gogasis a frequent contributor to The Business Thinker magazine. He is an Assistant Professor of Economic Analysis and international Economics, Department of International Economics and Development, Democritus University of Thrace, Greece

Greek Banks in the Balkans: the big crunch

Ms. Athanasia Dimitriadou, M.B.A. Student – Specialization in Finance

Dr. Periklis Gogas, Associate Professor

Department of Economics

 

Democritus University of Thrace

Mergers and acquisitions are often used as a means of bank expansion both nationally and even more so internationally. Greece joined the EMU in 1999 and was in the first group of EU countries that abandoned their national currencies and adopted the euro in its physical form in 2002. From that point on the Greek banking sector became an integral part of the European monetary and economic union. There were multiple benefits from this integration. On the top of the list was the stability that was guaranteed by the European Central Bank (ECB) and its supervision mechanisms. This stability and the related risk minimization was reflected in the low financing costs of the European banks in general and Greek banks specifically. This fact significantly widened the spread between lending and deposit rates for Greek financial institutions so that profit margins increased. These margins were sufficiently large that Greek banks did not need to invest (at least not greatly) in financial instruments such as Asset Backed Securities (ABS) or other derivative financial instruments that appeared to have high yields. After the crash in the markets were these assets were traded they became widely known as “toxic bonds”.

Greek banks did not have a high exposure to these bonds as they found an alternative source of high revenues: the expansion to neighboring countries in the Balkans. These emerging economies started their financial liberalization process and opened their financial sector to international investors. In Table 1 below we report the most important investments of Greek banks in the Balkans before the Greek Debt Crisis. The five major Greek banks were very active in investing in the Balkans. These were more specifically: the National Bank of Greece, Eurobank, Piraeus Bank, ATE Bank and Alpha Bank. In the first column of Table 1, we present the Greek bank that invested in the Balkans, in the second column we report the acquired foreign bank, in the third column we report the country of the acquired bank and in the final column the percentage stake of participation. In all, fifteen banks were acquired in total or in a major stake by the five systemic Greek banks.

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Greece: Labor Market reforms and their impact on economic development.

gogas

 

Dr. Periklis Gogas, Associate Professor and

Mitrakoulis

 

Mr. Panagiotis Mitrakoulis,

 

Senior Economics Student, Department of Economics
Democritus University of Thrace, Greece

Greece’s debt crisis, that started in 2010, is the longest and most severe in the country’s modern economic history. Since 2010, when Georgios Papandreou as the prime minister signed the first memorandum of understanding (MoU), Greece implements important fiscal adjustment measures combined with structural reforms.

Fiscal adjustment clauses aim to achieve balanced government budgets or primary surpluses that will help reduce the debt to GDP ratio. The complimentary, in the MoU, structural reforms are designed to increase productivity and international competitiveness. It will be very interesting to justify how labor market reforms, which are among the most painful and spark more public debates in Greece, bring the economy back to the road of development.

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Surprising Facts in Greek Export Analysis Dynamics

gogas


Dr. Periklis Gogas
, Associate Professor and

Piskioulis

 

Mr. Orestis Piskioulis
Senior Economics Student

 

Department of Economics, Democritus University of Thrace


The significance of the analysis of the Greek exports’ evolution derives from the fact that exports play an indisputably important role in every small open economy like the one of Greece. It is apparent that exports of goods and services represent the value of all goods and other market services provided for the rest of the world. In effect, exports can have a major influence on the level and speed of economic growth, employment rates and consequently on the balance of payments.

During the course of the previous year, there was a decline in Greek exports by 5.1% to a total of €25.5 billion in comparison to the €26.9 billion a year earlier. However, after excluding the contribution of mineral oils, we have an increase of 7.8 % or to €17.9 billion as compared to the €16.6 billion in 2014.

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FDI: A potential driver of growth for the Greek economy

gogasDr. Periklis Gogas, Associate Professor,
Economic Analysis and International Economics

Stavros
Mr. Stavros Hatzitheodoridis,

Senior Economics Student

Department of Economics, Democritus University of Thrace

Greece in a serious recession for the last 7 years. This is a world record for a developed economy. With the decline in wages, pensions and most significantly government spending the tools to overcome the recession are limited. In this situation, it is imperative to create a positive business environment and put forward the appropriate policies in order for Greece to attract foreign investors. Foreign Direct Investment (FDI) can be used as a shortcut to Greece’s recovery. FDI is essentially a new stream of influx that includes the transfer of capital. This capital inflows may be in various forms: physical capital, business and scientific expertise, new production methodologies, technology, etc. These assets play a significant role and greatly contribute to the economic development. They can enhance the a country’s production base bycreating economies of scale.

In their simplest and more direct form, FDIs create jobs which, in turn, create demand that subsequently leads to profits and new investments, new jobs etc. In the macroeconomics terminology these are called multiplier effects of the FDI on the economy. In a crisis striken country like Greece, domestic capital is limited. Moreover, for Greece, capital controls and the problematic banking sector resulted in a steep decline in domestic savings. These facts limit the ability of the country to start a virtuous cycle of investment, production, demand, consumption and increased income and employment. This is the main reason why FDI is vital, especially in a country like Greece.

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Greece vs EU: the Labor Cost Index

gogas

Dr. Periklis Gogas, Associate Professor

Sofia
Ms. Sofia Christakidou
, Senior Economics Student


Department of Economics,  Democritus University of Thrace


What is the LCI?

In any economy, capital, labor and technology are the most crucial production factors in the supply process of all goods and services. ”The quarterly measured Labor Cost Index (LCI) is a Euro Indicator that measures the cost pressure arising from the production factor “labor”. The data covered in the LCI collection relate to total average hourly labor costs and to the labor cost categories labeled as “wages and salaries” and “employers’ social security contributions plus taxes paid minus subsidies received by the employer”. Data, also broken down by economic activity, are available for the EU as a total and EU Member States” (from the Eurostat website). All sectors of the economy are included with the exception of agriculture, forestry, fisheries, education, health, community and social/personal service activities. The LCI is a Laspeyre index. In other words it calculates the total cost of labor as a rate of change between a base year and the year we examine. For Greece this base year is 2012. The numbers in the Figure below are calculated as the arithmetic mean of the quarterly values. The vertical line shows the rate of change in costs of labor and the horizontal one the time that this change has occurred. The grey line represents the LCI for the Euro area countries and the orange one for Greece. The LCI, except from assisting enterprises in the decision making process, also helps European Central Bank and the European Commission to sense the stability of prices. The U.S. use a similar index, the ECI (Employment Cost Index) that is calculated by the Bureau of Labor Statistics.

What can we conclude from Greece’s LCI?

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Percentage of young people living with their parents

Periklis
Dr. Periklis Gogas
is an  Associate Professor Department of Economics
Democritus University of Thrace

Agrapetidou

Ms. Anna Agrapetidou, is a Ph.D. Candidate
Economics, Democritus University of Thrace, Greece

The map shows the share of young people aged 25-34 living with their parents. As one can see, there are large differences across the European countries. For example, fewer than 2% of Danish young adults live with their parents while more than 50% of their Greek counterparts do. The percentage of young adults still living with their parents ranges from 1.8% to 56.6% across Europe. Slovakia has the highest percentage (56.6%) while Denmark has the lowest (1.8%). These differences may be driven by a combination of cultural and economic reasons.

EU MAP

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Tax Burden on Salaries-OECD Countries

Periklis Dr. Periklis Gogas is an Associate Professor of Economics, International Economics Department, Democritus University of Thrace, Greece Matthaiou

Ms. Maria Matthaiou is a PhD Candidate in Economics, Democritus University of Thrace, Greece

For a typical family, the net salary is usually the main source of its income. Therefore, it determines their ability to consume or save. In the following table we present the net salary in 27 OECD countries. Net salary is the take-home pay that is left after we deduct the income tax and employee’s social security benefits for retirement and health insurance from the gross salary payed by the employer. More specifically: Continue reading

Public Sector Size and Quality

Periklis

Dr. Periklis Gogas is an Associate Professor of Economics, International Economics Department, Democritus University of Thrace, Greece

Matthaiou

 

Ms. Maria Matthaiou is a PhD Candidate in Economics, Democritus University of Thrace, Greece

 

It has been widely thought that the main cause of Greek crisis is the size of the Greek public sector, i.e. both the percentage of government spending in the total GDP and the number of public servants of the Greek government. Nonetheless, the international experience shows that a large public sector (as a percentage of the country’s GDP) is not necessarily restrictive to growth and prosperity. In the following graph, we can see the size of the government in various European countries and their relative effectiveness. We can easily observe that Greece with a 48% share of government spending in total GDP is below the average. Nonetheless, Greek government spending effectiveness in the quality produced is trailing the other countries by far. France, Austria and the Scandinavian countries that are members of the EU sustain a far larger government sector but the quality of the services produced is significantly larger than Greece’s. Moreover, these countries exhibit a higher per capita income and standard of living as compared to Greece.

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Agriculture and Productivity of Labor in Europe

Periklis
Dr. Periklis Gogas
, Associate Professor, Department of International Economics, Democritus University of Thrace, Greece.

Agrapetidou

Ms. Anna Agrapetidou, PhD candidate, Economics, Democritus University of Thrace, Greece

The third column of the Table below, reports the percentage of the labor force employed in agriculture; in the fourth column we present the GDP share of agriculture for each country. Finally, in the last column we produce a Balassa-like revealed productivity index by dividing the share of agriculture in the GDP by the share of agriculture in total employment (column four divided by column three). Thus, the last column provides a comparable measure of the revealed productivity of the agricultural sector in Europe. It measures for each country, the share of GDP produced by a 1% employment in the agricultural sector.

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Greek Governement Debt Decomposition

PeriklisDr. Periklis Gogas, Associate Professor, Department of International Economics, Democritus University of Thrace, Greece.

The issue of the Figure 1 presents the government debt as a % of the GDP of 11 EU countries. Greece tops the list with 175%. This fact is very worrisome by itself. What is also a problem is the percentage of the debt that is held by non-residents. One issue for Greek citizens is of course that the creditors being non-Greeks can afford to be more inelastic and strict in any negotiations. They are only exposed to the default risk and the cost of the capital they borrowed that may be lost. But they have a limited exposure to the country, political and macroeconomic (from the perspective of the Greeks) risk. Another more important, but often overlooked, issue is outflow of that the interest payments. For a principal of €315 billion and a weighted average interest rate of 3%, an amount approximately €10 billion is fleeing the county every year. This represents approximately 6% of the Greek GDP. As a result this is spent outside Greece and provide no increased domestic demand, no taxes for the Greek government and are not deposited in the crisis-stricken Greek banking sector. The picture as we can see in Figure 1 is different in other countries.

Click on the figure below to enlarge it.

BrEcon