As the summer rolls on, it is increasingly clear that the depression in the southern Eurozone economies is not going to go away any time soon. Sure, the latest PMI data would suggest that the pace of decline in the Eurozone peripherals is slowing and, overall, the Eurozone may have stopped contracting in Q2 2013.
But the southern states are still deep in depression. The most revealing news came from the latest IMF report on Greece (http://www.imf.org/external/pubs/ft/scr/2013/cr13241.pdf). According to the IMF, Greece is still bust and will not be able to get its huge public debt burden down sufficiently to sustain government finances or repay the loans it has received from the Euro leaders. Despite the largest decline in living standards and real GDP of any European country since the Great Depression of the 1930s and all the austerity measures insisted by the Euro leaders and imposed by the right-wing coalition government, the government budget will still have a shortfall next year and need yet more funding if it is to close the gap. Also, Greece won’t be able to meet the IMF’s target to reduce public sector debt from 176% of GDP this year to 124% by the end of the decade. And remember 124% of GDP would put Greek state debt at a higher ratio than any other European country and way higher than can make debt servicing sustainable.
No developed country going through such a depression has experienced such an increase in taxes and other levies as a percentage of gross domestic product (GDP) in order to close the budget gap. The economy shrank below €194 billion in market prices last year to a level last seen in 2005. This represents a drop of about 17% from the nominal GDP’s peak at €233 billion in 2008. The economy is expected to shrink further to around €184 billion in 2013, representing a drop of 21% since the 2008 peak. In 2005 Greek public debt stood at €212 billion, when the size of the economy was equal to last year’s, before skyrocketing to €355 billion in 2011 and the falling to €304 billion in 2012 thanks to the largest-ever sovereign debt restructuring (PSI).
But that ‘restructuring’ (debt default) has not been enough. And the IMF report admits that more will be needed. The IMF reckons the Euro leaders must provide €11bn more and Greece be relieved of debts already owed to Eurozone governments totalling 4% of GDP, or about €7.4bn, within the next two years. The Euro leaders are avoiding grasping yet again this nettle until the German elections are over in September and have said they will not discuss further debt relief for Greece until April 2014 at the earliest, when Eurostat is due to rule on whether Athens has for the first time reached a balanced budget when debt payments are not counted – a so-called “primary surplus”. EU officials have indicated there may be ways to fill the immediate cash shortage – which the European Commission has estimated at €3.8bn for 2014, though the IMF puts it at €4.4bn – without forcing eurozone lenders to put additional cash into the €172bn joint EU-IMF programme. One EU official said there may be leftover funds intended to recapitalise Greece’s banking sector that may no longer be needed and can be reprogrammed, for example. However, the IMF report makes clear that the funding gap, which opens up in August 2014, goes beyond next year and into 2015, where it estimates Greece will need an additional €5.6bn.
In the meantime, the situation on the ground for Greek households is only getting worse. The government published the names of more than 2122 primary and secondary school teachers who will be transferred to the new mobility scheme, including, (surprise!) the head of the Federation of Secondary School Teachers (OLME), Themis Kotsifakis. A teacher in Larissa, central Greece, reportedly died of a heart attack earlier this week after learning she would be transferred. Next to be published are some 3,000 municipal police officers, 1,500 administrative staff from universities and technical colleges, 1,500 public healthcare workers and 600 staff from various social security funds and the OAED manpower organization. The government has promised the dreaded troika of the IMF, ECB and the the EU that it will have 12,500 civil servants in the scheme by September and 25,000 by the end of the year. The public sector workers will receive 75% of their salary for eight months until another position is found for them. If no position is found for them, they will be dismissed at the end of eight months.
Spain’s depression is also worsening. In another report (http://www.imf.org/external/pubs/ft/scr/2013/cr13244.pdf), the IMF forecasts that Spain’s unemployment rate will stay above 25% until 2018 at least.
In some ways, Italy is in the direst position. Its rate of profit and real GDP growth continue to slide (see my post, http://thenextrecession.wordpress.com/2013/02/28/goodbye-monti-hello-the-three-bs/ for a fuller account of Italy’s economic state).
But the real pressure over the summer has been political. After right-wing media mogul and former PM Silvio Berlusconi was finally convicted of tax fraud and faces imprisonment, fines and, above all, a ban from public office for five years, Berlusconi launched a tirade against the judges and threatened to withdraw from the fragile all-party coalition formed after the paralysing general election. He even talked of the risk of “civil war” if the “injustice” of his sentence is not addressed! So the government remains in power on the whim of a convicted tax fraudster. At the same time, the Democrat party, supposedly on the left, is engaged in a leadership battle between those who lean towards the unions and an openly Blairite, neoliberal wing led by Enzo Renzi, the mayor of Florence, who wants to introduce privatisations and other ‘reforms’. The anti-political Five Star movement that did so well in the elections seems to have disintegrated into faction fighting. So Italy will stumble on until the autumn and then we shall see.
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