Tag Archives: national debt

Greek NPL’s: Is there light at the end of the tunnel?

Dr. Periklis Gogas Associate Professor

 

Dimitrios Karagiozis

Ph.D. Candidate

Department of Economics Democritus University of Thrace, Greece

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The year 2018 is a milestone for Greece, as it moves towards to the completion of the third economic adjustment program. That means that after the official end of the program in August 2018, Greece must take fate into its own hands, and try to borrow from the markets to meet its future debt obligations. As the country leaves behind the 8-year long memorandum era, the two main concerns for the Greek government and the banking sector are: a) a decision on the debt relief measures that should follow and b) a solution to the Non-Performing Loans (NPL’s) problem.

The International Monetary Fund openly declares what anyone with basic training in economics can see: Greece requires substantial debt relief from its European partners to restore debt sustainability. The main issue here is that the resolution of this problem mainly depends on political decisions from Greece’s EU partners that are hard to sell to their voters-tax payers. This is of outmost importance for the medium to long term stability of the Greek economy. On the other hand, the NPL’s problem is urgent and imperative.

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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

Shooting ourselves in the foot

Alexis Papachelas (2)Mr. Alexis Papachelas is a guest editorial writer to The Business Thinker. He is currently the Executive Editor of the long standing and highly respected daily Greek newspaper “Kathimerini

I wonder if Prime Minister Alexis Tsipras and his close aides have ever seriously questioned their strategy vis-a-vis international leaders and officials. Tsipras may be enjoying sky-high popularity in the opinion polls and he may strike a chord with our collective subconscious, but he is doing things wrong. 

Take for example his Sunday op-ed in Le Monde. The article did not win him any friends or allies in Paris, Brussels or anywhere else. In it, Tsipras was either playing the blame game in the event of an impasse with Greece’s lenders or was exclusively addressing the audience at home.

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