Presentation at PMI-GREECE Event | 22.3.2012                                  ΙΔΡΥΜΑ ΟΙΚΟΝΟΜΙΚΩΝ & ΒΙΟΜΗΧΑΝΙΚΩΝ ΕΡΕΥΝΩΝ   ...
Presentation at PMI-GREECE Event | 22.3.2012                      The Problems:1. GreeceA.   Fiscal derailmentB.   Loss of...
Presentation at PMI-GREECE Event | 22.3.2012                                       Fiscal Derailment: The lost decade     ...
Presentation at PMI-GREECE Event | 22.3.2012                                   Fiscal Derailment                      Main...
Presentation at PMI-GREECE Event | 22.3.2012                                   Fiscal Derailment                      Main...
Presentation at PMI-GREECE Event | 22.3.2012                                                                              ...
Presentation at PMI-GREECE Event | 22.3.2012                                     Fiscal Derailment                        ...
Presentation at PMI-GREECE Event | 22.3.2012                                                                              ...
Presentation at PMI-GREECE Event | 22.3.2012                    Greece has lost ground in Structural Competitiveness      ...
Presentation at PMI-GREECE Event | 22.3.2012                                          Structural Competitiveness problems ...
Presentation at PMI-GREECE Event | 22.3.2012                          Greece has lost cost competitiveness (relative unit ...
Presentation at PMI-GREECE Event | 22.3.2012                               EU-17 GDP Structure (Demand side)              ...
Presentation at PMI-GREECE Event | 22.3.2012                                                    Current Account Balance   ...
Presentation at PMI-GREECE Event | 22.3.2012                                                                              ...
Presentation at PMI-GREECE Event | 22.3.2012The Economic Policy Program – Medium-Term Fiscal Scenario
Presentation at PMI-GREECE Event | 22.3.2012                          Medium Term Fiscal Strategy Framework               ...
General Government Deficit (% of GDP)                                Presentation at PMI-GREECE Event | 22.3.2012         ...
Stournaras-pmi-greece-march-2012
Stournaras-pmi-greece-march-2012
Stournaras-pmi-greece-march-2012
Stournaras-pmi-greece-march-2012
Stournaras-pmi-greece-march-2012
Stournaras-pmi-greece-march-2012
Stournaras-pmi-greece-march-2012
Stournaras-pmi-greece-march-2012
Stournaras-pmi-greece-march-2012
Stournaras-pmi-greece-march-2012
Stournaras-pmi-greece-march-2012
Stournaras-pmi-greece-march-2012
Stournaras-pmi-greece-march-2012
Stournaras-pmi-greece-march-2012
Stournaras-pmi-greece-march-2012
Stournaras-pmi-greece-march-2012
Stournaras-pmi-greece-march-2012
Stournaras-pmi-greece-march-2012
Stournaras-pmi-greece-march-2012
Stournaras-pmi-greece-march-2012
Upcoming SlideShare
Loading in...5
×

Stournaras-pmi-greece-march-2012

668

Published on

Παρουσίαση καθηγητή Γιάννη Στουρνάρα και Γ.Δ του ΙΟΒΕ | Εκδήλωση του PMI-GREECE στις 22.3.2012

Published in: Economy & Finance, Technology
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
668
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
0
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Transcript of "Stournaras-pmi-greece-march-2012"

  1. 1. Presentation at PMI-GREECE Event | 22.3.2012 ΙΔΡΥΜΑ ΟΙΚΟΝΟΜΙΚΩΝ & ΒΙΟΜΗΧΑΝΙΚΩΝ ΕΡΕΥΝΩΝ FOUNDATION FOR ECONOMIC & INDUSTRIAL RESEARCH Τ. Καρατάσσου 11, 117 42 Αθήνα, Tηλ.: 210 92 11 200-10, Fax: 210 92 33 977, www.iobe.gr 11 T. Karatassou Str., 117 42 Athens, Greece, Tel.: (+30) 210 92 11 200-10, Fax: (+30) 210 92 33 977 The Greek Economy under Reform: Turning a problem into an opportunity Yannis Stournaras Professor of Economics, Dept. of Economics, University of Athens & General Director IOBE Nicholas Ventouris Economist – Research Associate IOBEMarch 19, 2012
  2. 2. Presentation at PMI-GREECE Event | 22.3.2012 The Problems:1. GreeceA. Fiscal derailmentB. Loss of Competitiveness2. EurozoneA. “Currency without a state”B. Deflationary Bias: Fiscal discipline needs a Growth counterpart 2
  3. 3. Presentation at PMI-GREECE Event | 22.3.2012 Fiscal Derailment: The lost decade Gen. Government Revenue / Expenditure / Deficit (% of GDP)55% 54% Euro accession period Revenues fell despite dynamic growth rates (above EZ average) – collapse of tax collection mechanisms 51% 50%50% 48% 48% 15.8% 47% 47% 47% 46% 46% 46% 46% 9.9% 10.7% 45% 45% 45% 45% 45% 44% 44% 44% 3.7% 9.0%45% 44% 6.8% 5.0% 4.4% 5.5% 4.4% 4.9% 3.8% 3.1% 5.7% 6.0% 3.9% 5.9% 7.5% 43% 5.6% 6.7% 42% 9.0% 42% 42%40% 41% 41% 41% 41% 41% 41% 40% 39% 39% 40% 39% 39% 39% 38% 38% 37% 37%35% The objective is to return to Gen. Government Deficit (% of GDP) Excessive historically ‘viable’ levels of spending government expenditures & revenues Gen. Government Revenue (% of GDP) Gen. Government Expenditure (% of GDP)30% 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 * * * * * 11 12 13 14 15 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 3* Estimate. Sources: AMECO database, ELSTAT, 2012 Budget, Ministry of Finance, November 2011
  4. 4. Presentation at PMI-GREECE Event | 22.3.2012 Fiscal Derailment Main characteristics on the expenditure side Expansion of the state: General Government Employees: Numbers and Compensation as share of Total Economy  Increase in the number of civil servants (x2 since (2007) 1980)  Provision of special privileges to social groups – Safeguarding status quo  The average spending on public sector wages increased by 100% during the last decade, employment in public sector climbed over 10%. • Public Sector: Lack of planning & measurement – transparency – incentives– quantification of results. Civil servants account for a larger share of total employment Over the past decade, public payroll has grown faster, and in Greece (17%) than the OECD average (15.3%) is now higher as % of GDP than the eurozone average 4* Sources: Greece at a Glance, Policies for a Sustainable Recovery, OECD,March 2010 – OECD Economic Surveys: Greece, AUG 2011
  5. 5. Presentation at PMI-GREECE Event | 22.3.2012 Fiscal Derailment Main characteristics on the expenditure side Pension Replacement Rate (before the reform) The social security system was not viable Pensions (% of GDP) 2009 2010* 2060 2060**Germany 10.4 12.7Greece 11.7 13.2 24.1 13.9Spain 8.4 15.1France 13.0 14.0Ireland 4.7 11.1Italy 14.0 13.6 6.00 Pharmaceutical Expenditure of Social 2.5%Portugal 11.4 13.5 EUR bn Security Funds 2.2%Finland 10.0 3.3 5.00 1.9% % of GDP 5.09 2.0% 1.8% 1.9%Cyprus 6.3 17.7 1.7% 4.53 4.00 4.25 1.5% 4.04 1.5%Poland 11.6 8.8 +12% -17% 1.5% 1.3% 3.51 +12%EU-27 10.2 12.6 3.00 3.22 2.87 +15% -24% 1.0%Euro Area 11.1 13.9 2.43 +22% 2.00 +18% 0.5% 1.00 0.00 0.0% 04 05 06 07 08 09 * * 10 11 20 20 20 20 20 20 20 20* Estimate, Ministry of Labor & Social Solidarity (Nov 2011) ** Following Social Security System reform in June 2010Sources: 2009 Ageing Report: Economic and Budgetary Projections for the EU-27 Member States (2008-2060), European Commission - Greece at a Glance, Policies for aSustainable Recovery, OECD, March 2010, OECD Economic Surveys: Greece, AUG 2011 / General Secretariat of Insurance Funds and Pharmaceutical Department of Naval 5Insurance Fund
  6. 6. Presentation at PMI-GREECE Event | 22.3.2012 Fiscal Derailment The paradox of social policy 30% 30% While total expenditure on social protection has Social Protection Expenditure vs. 28% 28% Poverty Line in Greece 28% increased, the at-risk-of poverty rate has remained the same. Why? 26% 26% 25% 24% 24% 24% • Waste in pension spending 23% 22% • High pensions without corresponding contributions 22% 22% • Wasteful pharmaceutical drug prescription 20% 20% 20% • State hospitals lacking accounting standards / system (+under- 20% 20% 20% capacity) 18% 18% Total Social Protection Expenditure (% of GDP) • Overpricing of medical supplies & equipment At risk of poverty rate (% of total population)* 16% 16% • Lack of expenditure monitoring • High profit margins of pharmacists 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 Sweden Denmark Luxembourg Finland Netherlands Relative effectiveness of social protection Germany expenditure to the poverty rate (Index) Ireland (avg 1995-2009) Austria Belgium Spain EU-15 France Italy Greece Portugal UK* (cut-off point: 60% of median equivalised income after social transfers) 6Sources: Eurostat, INE GSEE – Observatory of Social-Economic-Fiscal Developments: Poverty & Inequality, University of Athens – Department of Economics1.6 0.0 0.4 0.8 1.2 2.0
  7. 7. Presentation at PMI-GREECE Event | 22.3.2012 Fiscal Derailment Main characteristics on the revenue side The size of shadow economy (% of GDP) High tax collection inefficiency2 2 Tax efficiency, calculated as the ratio between effective (potential revenue from value added taxes on private consumption) and statutory ratesThe most acute problems of efficiency & evasion relate to personal incometax: Measured as a proportion of• Revenues from personal income tax were 4pps of GDP lower than the household disposable incomeeurozone average for 2005-2009 (despite comparable tax rates) plus personal income taxes per capita• For 2009, 94% of tax payers reported annual incomes of less than EUR30,000• Personal income tax evasion: 2.5% - 3.8% of GDP1 (also related to thelarge share of the income of self-employed: 24% of GDP on avg. 2005-2009 vs.12.5% of GDP in EZ).Sources: Greece at a Glance, Policies for a Sustainable Recovery, OECD, March 2010. Schneider, F. (2009), “The Size if the Shadow Economy in 21OECD Countries Using MIMIC and Currency Demand Approach”. - OECD Economic Surveys: Greece, AUG 20111 National Bank of Greece (2010), Matsaganis & Flevotomou “What are the margins for increasing PIT revenue in the Greek Economy?”, Monthly 7macroeconomic Outlook, May 2010
  8. 8. Presentation at PMI-GREECE Event | 22.3.2012 Debt dynamics190% 181% no PSI170% 163% 145%150% 146% General130% 129% Government Debt 107% 107% 113% with PSI (% of GDP)110% 104% 105% 103% 100% 100% 101% 98% 97% 95% 98% 95% 88% 90% 86% 90% 80% 72% 74% 73% 73% 72% 69% 68% 68% 69% 70% 70% 69% 70% 66% 70% Greece Eurozone-17 50% 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 * * 11 12 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 20 400% 18% 350% 62% Private Debt Public DebtPrivate Sector – Public 300% Sector Debt 2010 250% 97% (% of GDP) 64% 83% 65% 70% 140% 200% 119% 342% 84% 70% 293% 83%The private sector debt in 150% 76% 99% 49% 41%Greece remains relatively low 183% 181% 173% 100% 165% 165% 123% 48% 42% 120% 116% 115% 104% 99% 96% 96% 50% 79% 0% 6 e ta ce us ia y al nd n ly ia g d m ia s -1 c an ai ur nd an I ta ug r al ak iu en an pr ee la st EU Sp bo M rm la lg nl ov rt Au Ire Cy Fr ov Gr Be er Fi Po em Ge Sl Sl h et x Lu N 8* Estimates. Sources: AMECO, ECB, 2012 Budget, Ministry of Finance, November 2011
  9. 9. Presentation at PMI-GREECE Event | 22.3.2012 Greece has lost ground in Structural Competitiveness Overregulated product marketsLoss of Structural Competitiveness Composite indicator of product market regulation in• IMD World Competitiveness Yearbook : the EU (1998-2008) 56th position in 2011 (out of 59 countries) – 37th position in 2004.• World Economic Forum: 83rd position in 2010 (out of 139 countries) - 35th in 2004• Doing Business Report (World Bank): 100th position among 183 countries in 2011 - 80th position in 2006 Restrictions in Service sectors As a result of the overregulated market Barriers to entry in Services: composite indicator (1998-2008) framework and the various restrictions in entrepreneurship and investments, the average profit margin in the non-tradable goods & services sector is 15% higher than the relevant eurozone margin, while in the labor market the margin is 10% higher (vs. eurozone) Source: OECD, from European Economy, Occasional Papers, no. 68, August 9 2010, European Commission
  10. 10. Presentation at PMI-GREECE Event | 22.3.2012 Structural Competitiveness problems Barriers to entrepreneurship (2008)1 Index scale of 0-6 from least to more restrictive Regulation of professional services (2008)1 Index scale of 0-6 from least to more restrictiveSources: OECD Economic Surveys: Greece, AUG 20111 The reference year is 2008 for all countries. The product market regulation & indicators for Greece for 2011 are based on an intermediate updateconducted in the context of the OECD survey, thus accounting for the recent reforms towards improving business environment and opening closed 10professions
  11. 11. Presentation at PMI-GREECE Event | 22.3.2012 Greece has lost cost competitiveness (relative unit labor cost) - but it is not aloneRelative unit labor cost has increased by 19% during 2000-2010, but this is broadly in line with the performance of theperiphery of the EU. 30% 25% 22% 19% 19% 20% 16% 12% 11% 10% 10% Increase in relative unit labor cost 0% (performance relative to the rest 35 industrial countries) -5% -10% -13% -20% -22% -30% -30% -40% ly 7 nd SA e m n y n l K e ga an -1 pa ec ai nc Ita U iu la rt u U Sp EZ re Ja m lg a Ire Fr Be er G Po G 15.0% Relative unit labor cost (% y-o-y change) Greece 11.4% (performance relative to the rest 35 industrial countries) 10.0% 10.1% In 2010-2011 cost EZ-17 competitiveness has 5.0% 3.2% 4.2% 4.8% 4.2% improved significantly. 1.1% 2.7% 0.7% 1.8% 3.2% 4.0% 1.7% 2.4% -0.7% 1.6% 0.0% Relative Unit Labor Cost: -0.3% -2.2% -3.2% -2.4% -5.0% -6.7% -3.0% -3.9% 2005-2009: -4.5% +7.5%, 2010-2012f: - -10.0% -7.6% -10.4% 6.8% -15.0% f 00 01 02 03 04 05 06 07 08 09 10 11 12 20 20 20 20 20 20 20 20 20 20 20 20 20Note: we account for the nominal unit labor cost 11Source: European Commission Statistical Annex, Autumn 2011
  12. 12. Presentation at PMI-GREECE Event | 22.3.2012 EU-17 GDP Structure (Demand side) (2001-2010 avg.) Greece consumes too much (91% of GDP) and exports too little (22% of GDP). Final Consumption Investments Exports Imports (% of GDP) (% of GDP) (% of GDP) (%of GDP) Εurozone-17 77,4% 21,2% 41,6% 40,3% Belgium 74,0% 21,7% 88,0% 83,9% Germany 75,6% 19,5% 44,0% 39,2%• Chronic general Esthonia 73,8% 33,7% 79,2% 90,3% government Ireland 63,1% 21,7% 101,6% 85,0% imbalances Greece 90,7% 22,3% 22,4% 35,3% Spain 78,9% 27,2% 29,5% 35,9% France 80,8% 19,7% 29,3% 29,9% Italy 79,5% 21,0% 26,7% 27,2% Cyprus 86,2% 19,9% 51,9% 57,1%• Private sector Luxembourg 54,0% 23,6% 170,0% 147,8% Malta 85,3% 16,4% 91,4% 93,1% imbalances since Netherlands 72,8% 20,3% 78,0% 71,0% euro entry: rapid Austria 72,4% 22,8% 55,2% 50,5% private sector Portugal 85,3% 24,4% 32,9% 42,8% Slovenia 73,8% 27,9% 65,2% 67,1% leverage through Slovakia 74,0% 26,8% 86,4% 86,8% bank credit Finland 70,8% 20,1% 46,4% 38,5% Sweden 72,4% 18,5% 50,8% 41,4% United Kingdom 84,4% 17,5% 28,5% 32,1% Source: Eurostat 12
  13. 13. Presentation at PMI-GREECE Event | 22.3.2012 Current Account Balance (% of GDP) Result: a high Current Account Deficit: Nobody paid attention! 10.0% 7.5% 6.3% 5.1% 6.2% 5.8% 5.8% 4.7% 5.1% 5.0% 4.4% 2.0% 0.0% 1.9% 0.8% 0.6% 0.1% -0.1% 0.4% 0.1% 0.0% -0.1% 0.0% -0.7% -0.1% -1.7% -5.0% -6.5% -6.6% -5.8% -7.9% -7.2% -7.8% -7.6%-10.0% -9.9% -11.3% -12.3%-15.0% -14.6% -14.3% Germany Ireland Eurozone Italy -17.9%-20.0% Spain Portugal Greece * * 00 01 02 03 04 05 06 07 08 09 10 11 12 20 20 20 20 20 20 20 20 20 20 20 20 20Sources: Eurostat/European Economic Forecasts, European Commission, Autumn 2011 13
  14. 14. Presentation at PMI-GREECE Event | 22.3.2012 Problems with the current policy mix Ανταγωνιστικότητα και ανεργία Competitiveness & Unemployment • Despite improvement compared to ο δρόμος προς τη σύγκλιση 2009, recent large deviations from fiscal 200 the road to convergence targets 180 SS 160 • Liquidity squeeze, credit crunch due to Competitiveness 140 5th MoU (December 2011) banking problems DD 120 100 O • Large increases in indirect taxation instead of drastic reduction in current expenditure 80 60 • Drastic cuts in public investment to meet 40 1st MoU (May 2010) the deficit target 20 EL • Very limited structural reforms 0 (product, services, professions and labor 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 markets still overregulated) Unemployment Rate Inflation & Output gap • Very limited progress in removing barriers Πληθωρισμός και παραγωγικό κενό to private investment & entrepreneurship 6 (out of 250 barriers, less than 10% have Real Effective been removed) 4 Exchange Rate 2 Inflation CPI Labor Cost • Very limited privatizations and no 0 Output Gap κενό παραγωγικό 2010 -0.3 -7.0 development of state lands -2 2011 0.9 -3.5  Price rigidities despite wage flexibility -4 -6  Recession larger than expected -8-10 2005 2006 2007 2008 2009 2010 2011 14
  15. 15. Presentation at PMI-GREECE Event | 22.3.2012The Economic Policy Program – Medium-Term Fiscal Scenario
  16. 16. Presentation at PMI-GREECE Event | 22.3.2012 Medium Term Fiscal Strategy Framework 2011-2015 Baseline Macroeconomic Scenario % y-o-y change 2011 2012 2013 2014 2015 2009 2010 MinFin IOBE MinFin IOBE EC IOBE EC IOBE EC IOBEGDP -3.3 -3.5 -6.5 -6.7 -4.2 -4.0 0.7 -0.3 2.4 0.8 2.9 1.4Private Consumption -1.3 -3.6 -6.2 -7.1 -4.1 -6.8 -0.9 -1.1 0.6 -0.2 0.7 -0.2Public Consumption 4.8 -7.2 -8.0 -7.1 -7.5 -8.3 -7.0 -7.4 -4.0 -6.2 -1.0 -3.3Gross Fixed Capital Formation -15.2 -13.3 -15.0 -17.6 -3.6 -5.3 6.3 1.6 8.6 5.7 8.4 6.4Imports of goods & services -20.2 -7.2 -5.9 -6.8 -2.8 -6.6 0.6 0.0 2.7 3.1 3.0 3.4Exports of goods & services -19.5 4.2 4.5 4.2 6.4 5.2 6.5 4.8 7.0 5.5 7.0 6.0HICP (%) 1.3 4.7 2.8 3.2 0.6 1.5 0.8 0.6 1.0 0.6 1.1 0.8Unemployment Rate (%) 8.9 11.7 15.4 17.4 17.1 19.4 17.5 19.6 16.9 19.7 16.3 19.2Current Account Balance (% of GDP) -14.3 -12.3 -9.9 -10.6 -7.9 -9.1 -6.8 -8.7 -5.8 -8.3 -4.5 -8.1Primary Balance (% of GDP) -10.6 -5.0 -1.8 -2.6 -1.0 -1.2 0.5 0.9 1.7 2.8 2.1 4.2General Government Budget Balance (% of GDP) -15.8 -10.8 -9.2 -9.5 -6.3 -6.4 -6.1 -5.3 -5.1 -2.9 -4.2 -1.1General Government Budget Balance (% of GDP) (target) -5.3 -2.9 -1.1General Government Debt (% of GDP) 129.0 144.9 162.8 166.3 145.5 145.7 146.7 154.2 139.2 152.1 125.6 143.7 Note: The estimates for 2012 take into account the PSI effect Sources: Eurostat / 2012 Budget / Medium-Term Fiscal Strategy (Update), Ministry of Finance, November 2011/ The Economic Adjustment Programme for Greece – 5th 16 Review (draft) , Directorate-General for Economic and Financial Affairs, European Commission, Occasional Papers 82, October 2011
  17. 17. General Government Deficit (% of GDP) Presentation at PMI-GREECE Event | 22.3.2012 Significant progress in fiscal consolidation which is largely underestimated An unprecedented fiscal adjustment is occurring General Government Deficit Fiscal adjustment in 2010-2011: reduction in 2010-2011 reached c. 40 EUR 16.6bn, exceeding the target From 15.8% of GDP in 2009  9.3% of GDP in 2011 (i.e. 6.5% of GDP) 18.0% set in the initial MoU (EUR 15.3bn) !!! 15.8% vs. 36.3 Initial target of: 13.6% of GDP in 2009 7.9% of GDP in 2011 (i.e. 5.7% of GDP) 16.0% 35 (we remind that the deficit figures were revised upwards in November 2010, and therefore the starting point of the fiscal adjustment process was higher). 14.0% 30 The 2010-2011 fiscal adjustment amounts to c.51% of total fiscal adjustment needed by EUR bn 2014, in order to reduce deficit at 3% of 12.0% 10.8% 25 GDP. There is progress being Target 9.9% made, which is largely underestimated. % of GDP 23.1 24.1 10.0% 9.0% It is noted that this is the largest deficit 20 Target reduction ever observed in the Eurozone. 19.7 8.0% 6.8% 7.0% Without 15 6.1% PSI 6.1% 14.5 14.9 6.0% 5.1% 5.3% 12.1 5.4% 13.2 With 11.4 4.2% 10 PSI 11.4 11.3 9.6 4.0% 2.9% 5 6.4 2.0% 1.1% 2.6 0 0.0% 06 07 08 09 10 11 12 13 14 15 20 20 20 20 20 20 20 20 20 20Sources: Eurostat/2012 Budget Draft, Ministry of Finance, October 2011/The Economic Adjustment Program for Greece – 5th Review , Directorate-General for 17Economic and Financial Affairs, European Commission, Occasional Papers 82, January 2012

×