Greece economic update 09.2012

Greece Economic Update
September 2012
Navigator Consulting Group
www.navigator-consulting.com

2008
2009
2010
2011
2012
7 mo 2012
Net Revenue – Target*
54,140
59,287
55,124
54,042
51,409
30,438
Net Revenue – Actual*
51,660
38,368
51,187
50,091

27,637
Net Expenditure - Target*
60,456
65,978
69,796
70,225
62,998
45,267
Net Expenditure - Actual*
60,925
71,802
66,432
70,135

40,852
Interest - Target
11,300
12,000
13,017
16,002
13,050
10,293
Interest - Actual
11,210
12,325
13,223
16,348

10,133
Total Deficit - Target
-10,836
-11,791
-18,691
-19,808
-13,215
-4,563
Total Deficit - Actual
-13,911
-40,981
-20,620
-22,882

-3,083
Primary Deficit - Target
464
209
-5,674
-3,806
-1,089
-4,536
Primary Deficit - Actual
-2,701
-28,656
-7,397
-6,534

-3,083
PIB Expenditure - Target
9,650
8,800
9,200
7,550
7,300
4,259
PIB Expenditure - Actual
9,624
9,588
8,447
6,608

2,282
Actual Expenditure
2008
2009
2010
2011
2012
7 mo 2012
Central Govnt Operations
49,715
59,477
53,209
53,787
30,719
Interest
11,210
12,325
13,223
16,348
10,133
PIB Expenditure (Investment)
9,624
9,588
8,447
6,608
2,282
Total
70,549
81,390
74,879
76,743
43,134
Central Government Budget Indicators: 2008-2012
Source: Hellenic Ministry of Finance Monthly Budget Execution
Updates and Monthly Public Debt Records
* Targets refer to: 2008-2009: Stability and Growth Agreements; 2010: Initial MOU; 2011: Mid-Term Fiscal Consolidation
© Navigator Consulting Group, 2012

0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
2008
2009
2010
2011
Central Govnt Operations
Interest
PIB Expenditure (Investment)
Central Government Expenditure: 2008-2011
Central government operating expenditure rose from EUR 49.7 bln in 2008 to EUR 53.8 bln in 2011. The
main increase has been payments to hospitals and social security organisations, contributions to the Hellenic
Financial Stability Fund, and provision of guarantees. The Public Investment Budget fell from EUR 9.6 bln to
6.6 bln in 2011. Interest costs rose from EUR 11.2 bln in 2008 to EUR 16.4 bln in 2011. These ﬁgures do not
include spending by state pension funds, public hospitals and semi-governmental organisations, which add
another EUR 40 billion to total public expenditure.
Expenditure, EUR mln
Source: Hellenic Ministry of Finance Monthly Budget Execution
Updates and Monthly Public Debt Records

0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
GDP, Current Prices (Eurostat)
Public Debt, Year-end (ELSTAT)
Greek Debt and GDP Growth, 2002-2011
Source: Hellenic Statistics Authority (ELSTAT)
Eurostat, Navigator Consulting Group

2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
156,615
172,431
185,266
193,050
208,893
222,771
232,920
231,642
227,318
215,088
GDP Change

10%
7%
4%
8%
7%
5%
-0.5%
-1.9%
-5.4%
166,117
177,812
201,244
215,416
226,218
239,658
262,071
298,524
340,286
367,978
Debt:GDP
106%
103%
109%
112%
108%
108%
113%
129%
150%
171%
Greece has been in recession since 2009. GDP is forecast to contract by a further 6% in 2012, and 3-4% in 2013. It is
highly likely that the GDP decline will reach 20% between peak and trough before stabilising and growing. Public debt has
increased from 106% of GDP in 2002 to 171% of (current price) GDP in 2011. Unlike other countries, Greece now has a
fully-consolidated public debt ﬁgure, including central and national governments, semi-governmental organisations and
other public entities. The same cannot be said of Spain, Italy, the United States and other countries.
EUR mln

0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
Greek Public Debt Stock, 12/2007-06/2012
Date
EUR mln
31.12.07
239,658
31.03.08
247,434
30.06.08
251,946
30.09.08
257,203
31.12.08
262,071
31.03.09
282,071
30.06.09
292,306
30.09.09
297,921
31.12.09
298,524
31.03.10
310,384
30.06.10
316,955
30.09.10
336,807
31.12.10
340,286
31.03.11
354,541
30.06.11
353,693
30.09.11
360,379
31.12.11
367,978
31.03.12
280,292
30.06.12
303,527
Total government debt rose from EUR 239.6 bln on 31/12/2007 to EUR 368 bln on 31/12/2011 before PSI occurred.
Although PSI imposed a “haircut” of EUR 100 bln; it added EUR 60 bln in bank recapitalisations which are currently driving
the debt increase. These includes a EUR 20 bln “sweetener” for international banks, and a EUR 40 bln recap of Greek
institutions. The Greek component has not been fully released and is therefore not recorded in Greek government debt.
Public Debt, EUR mln
PSI
Source: Hellenic Ministry of Finance
Monthly Public Debt Records

Greek Unemployment Rate
Unemployment has risen from 8% in QIV 2008 to 23% in QI 2012 and 24.4% in June 2012. Unemployment insurance in
Greece lasts for 12 months and provides a monthly payment of about EUR 485. Most forecasts place unemployment at
25% by QIV 2012. The situation is compounded by a low employment rate (53% of the workforce), with the female
employment rate comprising one of the lowest in the European Union. As unemployment rises, GDP and consumer
spending will fall even further.
Source: Hellenic Statistics Authority
Unemployment in 2012 is QI 2012
000 inhabitants
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Population
8,867
8,930
8,984
9,033
9,082
9,122
9,179
9,216
9,246
9,282
9,321
9,355
9,362
Workforce
4,609
4,565
4,689
4,749
4,832
4,854
4,891
4,916
4,946
4,991
5,011
4,959
4,958
Employed
4,105
4,052
4,213
4,278
4,331
4,383
4,462
4,519
4,554
4,477
4,299
3,933
3,838
Unemployed
505
513
476
471
500
471
429
396
393
514
712
1,026
1,120
Economically Inactive
4,257
4,365
4,295
4,284
4,251
4,268
4,288
4,300
4,300
4,291
4,309
4,396
4,404
Unemployment Rate
11%
11%
10%
10%
10%
10%
9%
8%
8%
10%
14%
21%
23%
Employment Rate
52%
51%
52%
53%
53%
53%
53%
53%
53%
54%
54%
53%
53%
Unemployment Rate
11%
11%
10%
10%
10%
10%
9%
8%
8%
10%
14%
21%
23%
0%
5%
10%
15%
20%
25%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

Key Forecasts – 1st MOU
Source: IMF Country Report No 10/110
The forecasts in the 1st Memorandum of
Understanding (MOU) were incorrect. In 2012,
the Troika forecast a GDP growth of 2.1%;
actual GDP decline will be over 6%.
Unemployment in 2012 was forecast at 14.8%:
the actual rate in June 2012 is 24.4%.
Moreover, the impact of unemployment, pension
and wage cuts will depress GDP growth and
government revenue for years to come.
-7.0%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
Nominal GDP - 1st MOU
Current GDP - Actual*
Nominal GDP Growth
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
Unemployment - 1st MOU
Unemployment - Actual*
Unemployment Rate
2009
2010
2011
2012
2009
2010
2011
2012

Greek Interest Costs are over 2x Fiscal Adjustment
Source: IMF Country Report No 10/110
Hellenic Ministry of Finance - Monthly Budget Execution Reports
EUR mln 2010 2011 2012 2013 2014 Total
MOU 1 Total Savings
5,800
9,150
5,575
4,775
4,700
30,000
Interest Costs - MOU 1
11,900
13,000
14,900
17,100
18,900
75,800
Interest Costs- Actual*
13,223
16,348
13,050
na
na
na
* 2010 & 2011: Actual Amounts Recorded. 2012: Budgeted Amount after PSI
An inexplicable factor is failure to understand the high costs of interest in the first Memorandum. Between 2010 and 2014, the
total impact of the MOU 1 was supposed to deliver EUR 30 billion in additional revenue and lower expenditure. Yet the interest
costs budgeted in this same Memorandum were EUR 75.8 billion: well over twice the “savings”.

The failure to purchase Greek government debt at market prices (25-30% discount) or via negotiated purchases is one of the
greatest policy errors thus far. Instead of taking advantage of lower market prices, the Troika refinanced Greek government
debt at full nominal value plus interest. It can be no coincidence that the main beneficiaries of this decision were French and
German banks.
EUR mln
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
2010
2011
2012
2013
2014
MOU 1 Total Savings
Interest Costs - MOU 1

2008
2009
2010
2011
2012
2013
232,920
231,642
227,318
215,088
202,183
196,117
GDP Change
5%
-0.5%
-1.9%
-5.4%
-6.0%
-3.0%
Public Debt, Year-end (ELSTAT; Navigator)
262,071
298,524
340,286
367,978
323,527
338,086
Debt:GDP
113%
129%
150%
171%
160%
172%
Interest Paid (Actual)
11,210
12,325
13,223
16,348
14,559
15,214
Average Interest Rate
4.3%
4.1%
3.9%
4.4%
4.5%
4.5%
Interest:GDP
4.8%
5.3%
5.8%
7.6%
7.2%
7.8%
Central Government Expenditure
60,925
71,802
66,432
70,135
62,998
60,000
Interest:Central Govnt Expenditure
18%
17%
20%
23%
23%
25%
Greek Debt Sustainability: Optimistic Case
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
2008
2009
2010
2011
2012
2013
Assuming a GDP decline of 6% in 2012 and 3% in 2013, a stable average interest rate, a small primary surplus and limited
privatisation income, debt:GDP will reach 172% at the end of 2013. Interest costs will comprise 25% of central government
expenditure and 7.8% of GDP. Debt sustainability is highly questionable, even under a relatively conservative scenario.
EUR mln

Base Case
2008
2009
2010
2011
2012
2013
232,920
231,642
227,318
215,088
202,183
194,096
GDP Change
5%
-0.5%
-1.9%
-5.4%
-6.0%
-4.0%
262,071
298,524
340,286
367,978
323,527
338,086
Debt:GDP
113%
129%
150%
171%
160%
174%
Interest Paid (Actual)
11,210
12,325
13,223
16,348
17,100
17,921
Average Interest Rate
4.3%
4.1%
3.9%
4.4%
4.6%
4.8%
Interest:GDP
4.8%
5.3%
5.8%
7.6%
8.5%
9.2%
Central Government Expenditure
60,925
71,802
66,432
70,135
64,000
62,000
Interest:Central Govnt Expenditure
18%
17%
20%
23%
27%
29%
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
2008
2009
2010
2011
2012
2013
Greek Debt Sustainability: Base Case
A GDP decline of 4% in 2013 (highly probably due to unemployment, higher taxes and pension/salary cuts), together
with an increase in average interest costs to 4.8% (reﬂecting high treasury bill loans), renders a debt:GDP ratio of
174%; an interest:GDP rate of 9.2%; and an interest:central govnt expenditure rate of 29%.
EUR mln

Greece economic update 09.2012

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