Tag Archives: national debt

What is the real cost of the Greek crisis?


Dr. Periklis Gogas
Associate Professor

 

 

Nancy Dimitriadou
MBA
 Student

 

Department of Economics, Democritus University of Thrace
Greece

The Greek debt crisis led to an unprecedented reduction in the country’s real GDP by 26.5%. This recession is one of the largest crises that the world economy has ever seen. For comparison, the Great Depression in the US in the later 1920’s resulted in a GDP reduction between 25% to 30%. Moreover, the Great Depression lasted for four years, while the Greek crisis reaches almost 8.

Simply stating that Greeks lost 26.5% of their income paints a gruesome picture. The true impact of the crisis is even worse. We compare current Greek real GDP to the one in 2009 just before the crisis. By doing so we are not taking into account a very significant stylized fact of every economy: growth. All economies show a strong positive trend in their GDP time series. This is the result of a steady growth in the factors of production, i.e. human and physical capital. The available human-working-hours increase due to population growth and the amount of physical capital stock also increases over time as a result of investment in fixed capital. Last but certainly not least, an additional very important factor for continuous growth is the improvement in technology. Technology significantly increases the productivity of both human and physical capital.

Continue reading What is the real cost of the Greek crisis?

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.

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

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