Consciousness of Sheep
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What have Greece and the UK got in common? In addition to being the two worst performing economies in Europe, it turns out that they also both have politicians who fiddle the data to pretend that they are doing better than is actually the case.
Britain, famously, hides massive underemployment, low productivity and stagnating wages behind a headline unemployment figure that suggests they economy is booming in a manner not seen since the 1960s. As Will Martin at Business Insider cautions:
“Britain’s economy has slowed substantially in 2017 as a result of the uncertainty surrounding Brexit, which has stifled investment, and the fall in the pound since the vote. This has pushed inflation higher and made everyday goods more expensive, which has in turn, dampened consumer spending.
“GDP grew just 0.3% in the second quarter of 2017, with growth in the first three months even less impressive, leaving the UK languishing as the slowest growing economy in the G7.”
Suggesting, however, that Greece – which experienced slightly higher GDP growth during the summer tourist season – has somehow turned a corner is wildly misleading. Despite this, many mainstream media outlets picked up on comments made by European Commission Vice-President Valdis Dombrovskis suggesting that the Greek crisis was at an end:
“The Greek economy is recovering, the economic growth is returning and financial stability is being restored, including the stability of the banking sector. The public deficit is declining, and later in the month Greece will exit the excessive deficit procedure…”
Maybe now would be a good time to think about investing in Greek banks once again… or perhaps not. As the more sober Miles Johnson in the Financial Times points out:
“Generally, when a country emerges from a protracted recession one of the main beneficiaries will be economically sensitive sectors such as banks. Yet today, largely ignored by long-departed sellside analysts and viewed with suspicion by previously burnt international investors, Greece’s lenders are still to react to the good news…
“This is clearly not for the faint hearted — shares in Greek banks fell sharply on Wednesday on renewed concerns over bad loans. Piraeus Bank alone shed 10 per cent. But there are reasons to revisit a trade that may have been four years too early.”
Even in the deepest economic crises, some people manage to make money. This, perhaps, is where a bold investor might indeed make some money out of a banking system that continues to require the life-support of regular bailouts from the EU and the IMF. However, to read into this that things have improved for the wider Greek economy is to simply bury ones head in the sand. As political economist C J Polychroniou writing for Al Jazeera notes:
“Greece remains entirely dependent on international bailouts (three bailouts involving the European Union and the International Monetary Fund have been arranged since 2010), has lost a quarter of its GDP with no realistic expectations of recovering it for decades to come, experiences unemployment levels which have oscillated between a high 27.8 percent (in July 2013) and a low 21.2 percent (in June 2017), and has seen the standard of living decline to 1960s levels.
“Worse, Greece’s debt-to-GDP ratio has exploded since the start of the bailout programs, rising from 128 percent in 2010 to over 185 percent in 2017, and, with no debt relief in sight, the small Mediterranean nation has become truly a permanent debt colony inside the world’s richest region. In the meantime, a mass exodus of young and educated people has been in motion for several years now (youth unemployment rate in Greece stands currently at 43.3 percent), a process that is bound to have long-term effects on demographic trends and a significant impact on future economic developments.”
The failure of the pseudo-socialist Syriza government to stand up to the EU-IMF-World Bank troika at the start of the debt crisis has impacted the lives of ordinary Greek people in precisely the way former Finance Minister Yanis Varoufakis warned. In order to pay off the first bailout, they had to sign up for a second; and then a third, and a forth. But the money itself went back to European banks, with the Greek people paying the price through an austerity programme of increased taxes and cuts to services and pensions.
This is austerity in practice. The difference in the UK is that we still enjoy our own currency. This allows the government to print currency (through quantitative easing) and to borrow money to underwrite some of its spending. For all of the Tory rhetoric here, George Osborne was able to increase the debt in order to take the edge off an austerity programme that has still seen public services struggle and in-work poverty explode. Greece by contrast got austerity-heavy, and will never recover. Britain still has some leeway to change course.
