Nikos Vettas

1
Growth in Europe?
Greece: Structural Reforms and the Adjustment
Programs
Nikos Vettas
Professor, Athens University of Economics and Business
General Director of IOBE
([email protected], www.iobe.gr, http://www.aueb.gr/users/vettas)
Marseille, September 24 – 25, 2015
Successes and failures of the post 2010 policies

Very significant success in the areas of government budget and
balance of payments.

Very weak performance for investments and exports.

The economy has adjusted primarily via an extremely deep
recession.

Increase in competitiveness mainly via a reduction in labor unit cost.
Successes and failures (cont’d)

Lack of wide enough political support and social consensus for structural
reforms despite some important efforts.

Public sector has been shrinking but administrative burden and
inefficiency remains a key issue.

Accumulated debt remains a significant problem.

Return to growth in 2014 (after a 6-years long recession) mainly based on
increase of revenue from services exports and stabilization in domestic
consumption. Return to recession for 2015, 2016.

Uncertainly and challenges remain significant.
Key Figures – 2014 vs. 2009
GDP change
2,0
Gen. Government Balance
Cur. Account Balance
0,8
0,0
-2,0
-2,2
-3,1
-4,0
-3,5
-6,0
-8,0
-10,0
-12,0
-14,0
-14,4
-16,0
-15,6
-18,0
2009
2014
Sources: IMF-World Economic Outlook October 2014/ European Economic Forecast, spring 2015, European Commission
4
Key Figures – 2013 vs. 2009 – per capita
GDP
General Government Balance
Current Account Balance
General Government Debt
30 000
20 651
20 000
16 505
per capita €
10 000
99
0
-3 232 -2 018
-2 307
-10 000
-20 000
-26 782
-28 933
-30 000
-40 000
2009
2013
Sources: Hellenic Statistical Authority/IMF-World Economic Outlook, October 2014/Bank of Greece
5
Key Macroeconomic and Financial Figures
Key Macroeconomic Figures
2009
2013
2014
2015
2015*
GDP
-3.1
-3.9
1.0
0.5
-2.0
Unemployment
9.5
27.5
26.6
25.6
25.4
General Government Balance1
-15.6
-12.2
-3.5
-2.1
-4.2
Current Account Balance
-14.4
-2.3
-2.0
-1.6
0.8
Inflation
1.3
-0.9
-1.4
-1.5
-1.5
Gross Fixed Capital Formation
-13.7
-9.5
0.8
-3.1
-12.0
1Including State
aid to the banking sector impact on the deficit
* IOBE/FEIR projections
Sources: Eurostat/European Economic Forecast, Spring 2015, European Commission
6
Gross Domestic Product
260
240
220
200
180
160
140
120
100
GDP, 2010 volumes
Sources: Eurostat/European Economic Forecast, Spring 2015, European Commission
7
GDP per person employed (current market prices)
120
100
80
60
40
20
0
Germany
Ireland
Greece
Spain
Portugal
Source: AMECO
8
GDP per capita
35
30
€ thousand
25
20
15
10
5
0
Euro area (12 countries)
Greece
Source : AMECO
9
Total Factor Productivity (% of GDP)
8,0%
6,0%
4,0%
2,0%
0,0%
-2,0%
-4,0%
-6,0%
-8,0%
-10,0%
Germany
Greece
Ireland
Portugal
Spain
Source : The Conference Board - Total Economy Database
10
Investments
Gross Fixed Capital Formation (% of GDP)
30
25
20
15
10
5
0
EA-18
Greece
Sources: Eurostat / European Economic Forecast, spring 2015, European Economic Forecast
11
Foreign Direct Investment
4 500
4 269
4 000
3 500
3 071
FDI
million €
3 000
2 500
1 754
1 692
1 637
1 543
1 354
1 130
822
1 000
500
Mil.
euro
Real estate activities
and private purchases
and sales of real estate
789.3
Trade and repairs
675.6
2 122
2 000
1 500
2013
501
249
0
Source: Bank of Greece
12
Foreign Direct Investment (% of GDP)
8,0%
FDI as a % of GDP
6,0%
2000-2008
2009-2014
4,0%
Greece
0.0%
0.4%
2,0%
Portugal
0.0%
2.2%
0,0%
Germany
0.0%
-1.0%
-2,0%
Spain
-1.9%
0.6%
-4,0%
-6,0%
-8,0%
Spain
Portugal
Greece
Germany
Source: Eurostat
13
Trade balance (Goods and Services)
100
80
billion €
60
40
20
0
-7,0
-4,6
-4,2
-5,5
-6,7
-13,5
-20
-19,4
-25,4
-40
-32,2
Balance
Imports at 2010 prices
Exports at 2010 prices
Sources: ELSTAT/European Economic Forecast, spring 2015, European Commission
14
Unemployment
30
25
%
20
15
10
5
0
Greece
EA-18
Sources: ELSTAT/European Economic Forecast, spring 2015, European Commission
15
Harmonized Inflation
6%
5%
4%
3%
2%
1%
0%
-1%
-2%
EA-18
Greece
Sources: Eurostat/European Economic Forecast, spring 2015, European Commission
16
Budget Balance (% of GDP)
1%
-1%
-3%
-5%
-7%
-9%
-11%
-13%
-15%
-17%
EA-19
Greece
Source: AMECO
17
Budget Primary Balance (% of GDP)
4,0
2,0
% GDP
,0
-2,0
-4,0
-6,0
-8,0
-10,0
-12,0
Greece
EA-19
Sources: European Economic Forecast, spring 2015, European Commission
18
Gen. Government Expenditure (% of GDP)
70%
60%
50%
40%
30%
20%
10%
0%
Greece
EA-19
Sources: Eurostat/European Economic Forecast, spring 2015, European Commission
19
Per capita Net Public Pharmaceutical expenditure (€)
500
450
456
411
404
400
337
350
300
294
308
321
320
282
308
250
256
200
214
183
150
100
50
-
GR
EA
Sources: System of Health Accounts (SHA) 2014, EOPYY 2012, State Budget 2014: Executive Summary, OECD Health Data 2013, Eurostat
20
Pensions Payments (% of GDP)
17,0
15,0
% GDP
13,0
11,0
9,0
7,0
5,0
Greece
EA-18
Sources: Social Budget 2009, Ministry of Labour & Social Security, 2010/Eurostat
21
Defense Spending (% of GDP)
4,0
% GDP
3,0
2,0
1,0
0,0
Greece
Euro Area - 18
Source: Eurostat
22
Spending on Education (% of GDP)
6,0
5,0
% GDP
4,0
3,0
2,0
1,0
0,0
Greece
Euro Area - 18
Source: Eurostat
23
Poverty and social exclusion
40
35
30
% population
25
20
15
10
EA - 18
Greece
5
0
Source : EUROSTAT
24
Gen. Government Revenue (% of GDP)
60%
50%
40%
30%
20%
10%
0%
Greece
EA-19
Sources: Eurostat/European Economic Forecast, spring 2015, European Commission
25
Direct Taxation (% of GDP)
14%
12%
10%
8%
6%
4%
2%
0%
Direct Taxation-TOTAL
Profits -Income
Real-Estate Property
Past Years
* Projection ** Forecast
Source: State Budget, 2005-2014, Ministry of Finance
26
Indirect Taxation (% of GDP)
16%
14%
12%
10%
8%
6%
4%
2%
0%
Indirect Taxation - TOTAL
Transactions
Consumption
Other
* Projection ** Forecast
Source: State Budget, 2005-2014, Ministry of Finance
27
VAT receivable (% of GDP)
7,4
7,2
7,0
% GDP
6,8
6,6
6,4
6,2
6,0
5,8
EA-19
Greece
Source: Eurostat
28
Government Debt (% GDP)
200
180
160
140
% GDP
120
100
80
60
40
20
0
EA-19
Greece
Source: AMECO
29
Privatization Receipts per annum (€ bn)
16
14
12
10
8
6
4
2
0
2010
2011
2012
Initial Target
2013
2014
2015
Actual*
*Forecasts for 2014-2015, Medium-Term Fiscal Strategy Framework 2015-2018, April 2014, Ministry of Finance
•Sources: 1) Targets: Greece, Fourth Review Under the Stand-by Arrangement, IMF, July 2011 2) Actual: Medium-Term Fiscal Strategy
Framework 2015-2018, Ministry of Finance, April 2014
30
Unit Labour Cost* (in real terms)
110
105
100
95
90
85
80
2000
2001
2002
2003
2004
2005
Germany
2006
2007
Ireland
2008
2009
Greece
2010
Spain
2011
2012
2013
2014
2015
2016
Portugal
*Ratio of compensation per employee to nominal GDP per person employed at 2010 prices
Source: AMECO, (2010=100)
31
Current Account Balance
5 000
2%
0
0%
-5 000
-2%
-10 000
-4%
-15 000
-6%
-20 000
-8%
-25 000
-10%
-30 000
-12%
-35 000
-14%
-40 000
-16%
Current Account Balance (mil. €)
% GDP
Sources: Bank of Greece/Eurostat
32
Trade Account Balance
80 000
60 000
40 000
mil. €
20 000
0
-20 000
-40 000
-60 000
-80 000
Source: Bank of Greece
Trade Balance
Trade Balance (fuels)
Exports of Goods
Imports of Goods
33
Real Effective Exchange Rates & Exports
Real Effective Exchange
Rates
110
105
REER (cpi)
100
95
90
85
REER (ulc)
80
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Real Effective Exchange Rate (deflator: unit labour costs in the total economy - 37 trading partners)
Real Effective Exchange Rate (deflator: consumer price indices - 37 trading partners)
Source: Eurostat, ELSTAT
•Significant improvement of competitiveness in terms of labour cost between 2009-2013 (-19.6%)
•Limited results in terms of CPI (-2.8%)
NEER (Nominal Effective Exchange Rates): Weighted geometric average of the bilateral exchange rates against the
currencies of 37 competing countries.
REER (Real Effective Exchange Rates): Country's price or cost competitiveness relative to its principal competitors
34 (37)
in international markets. NEER deflated by nominal unit labour costs (ulc) and consumer prices (CPI).
34
Main Structural Reforms

Removal of barriers to markets - professions
•
Abolition of all regulations in professional activities (excl. pharmacists,
lawyers, notaries, engineers, architects and auditors)
•
Lawers: Abolition of geographic barriers in courts representation, of
minimum - maximum fees, of compulsory representation in contracts
•
Adoption of OECD Competition Assessment 237 recommendations (e.g.
licensing for shopping malls - outlets; removal of restrictions on
pharmacies; abolishment of barriers to entry in the building materials
sector; elimination barriers to investment in tourism).
•
Recognition of professional qualifications derived from franchised
degrees
•
Liberalisation of road freight transport
•
Liberalisation of sea cruising services
•
Adoption of EU Services Directive
35
Main Structural Reforms

Labour Market
•
Reduction of the minimum wage by 22% for workers over 25 / -32% for
younger workers
•
Suspension of clauses which provide for automatic wage increases (incl.
seniority)
•
Reduced severance payments & maximum dismissal notification period
•
Increased adaptability of working hours, following sector and firm specific
needs
•
Reduction of social security contributions by 5%
•
Firm-level agreements prevail over sector and occupational agreements
without undue restrictions
•
Collective agreements on remuneration binding only to signatories
36
WEF Competitiveness Index
100
90
80
70
60
50
40
30
2007
2008
2009
Ranking of Greece*
2010
2011
2012
2013
2014
Average Ranking of Greece 2004-2014
* Rank normalisation based on the average number of evaluated countries for the years 2004-2014
Source: WEF, The Global competitiveness Report, 2004-2014
37
Product Market Regulation Index
3,0
2,5
2,0
1,5
1,0
0,5
0,0
1998
2003
Germany
Greece
2008
Ireland
Portugal
2013
Spain
Source: OECD
• Implementation of reforms with relatively the same rate since the beginning of 2000
•Despite lowering of regulatory barriers during the last fifteen years, Greece remains in distance
from its main competitors
38
Services Market Regulation Index - Legal
6,0
5,5
5,0
4,5
4,0
3,5
3,0
2,5
2,0
1998
2003
Germany
Greece
2008
Ireland
Portugal
2013
Spain
Source: OECD
39
Early-Stage Entrepreneurial Activity
(% population)
16%
14%
12%
10%
8%
6%
4%
2%
0%
2003
2004
2005
2006
2007
Total Entrepreneurship
2008
2009
Female Entrepreneurship
2010
2011
2012
2013
2014
Youth Entrepreneurship
Source: Global Entrepreneurship Monitor; data processing IOBE
40
Unfavorable macroeconomic conditions of period 2008-2012 discouraged the entry of
new firms operating in Knowledge and ICT intensive industries
Structure of innovative enterprises 2000-2007 and 2008-2012
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
Knowledge intensive services
Knowledge intensive business
services
2000-2007
Business services that
use/produce information and
communication technologies
Manufacturing firms that
use/produce information and
communication technologies
2008-2012
Only 6% of those firms that founded during period 2008-2012 belong to
knowledge intensive sectors.
The corresponding percent during period 2000-2007 was nearly 20%
Sources: Hellastat - Financial Statements Database – data processing IOBE
41
But knowledge and ICT intensive firms exhibit lower percentage of
exit during period 2008-2012
16%
14%
12%
10%
8%
6%
4%
2%
0%
Knowledge intensive services
Knowledge intensive business
services
2000-2007
Business services that
use/produce information and
communication technologies
Manufacturing firms that
use/produce information and
communication technologies
2008-2012
Sources: Hellastat - Financial Statements Database – data processing IOBE
42
Domestic business sector
2 field studies 2011 & 2013 on 2,000 firms
Economic Performance
Category A: the “established ones”
Category B: “at stake”
Profits 2010/2011 and sales’
increase in 2011/2010:
573 firms – 28.3% of the sample
Profits 2010 or/and 2011, but sales’
decrease
1052 firms – 52.0% of the sample
55% export-oriented
45% export-oriented
61% expect exports’ increase in 2011
53% expect exports’ increase in 2011
10% bank financing problems
20% bank financing problems
Innovation
Innovation
54% product innovation,
49% product innovation,
37% process,
31% process,
43% organizational
39% organizational
Source: IOBE-LIEE/NTUA field research in 2000 largest Greek firms (funded by SEV)
Category C: The “problematic ones”
Losses in 2010 and 2011:
400 firms – 19.8% of the sample
38% export-oriented
42% expect exports’ increase in
2011
40% bank financing problems
Innovation
42% product innovation,
25% process,
32% organizational
43
2014 picture: important details

Consolidation of public finances (primary budget surplus),
balance in the external sector.

Improved stability in the banking system.

Domestic consumer confidence gradually restored and foreign
demand for goods and especially for services increased.

Shift to new growth model has been slow.

Progress in public administration, justice, education: slow.

Continuing uncertainty (since summer 2014 euro-elections).
44
Broader economic environment

Falling energy prices: falling production costs could allow Greek
output and exports to grow.

ECB policies and euro deprecation favorable for increasing the
competitiveness of Greek products and boost demand.

Juncker investment fund.
45
2014 to 2015 developments

Very extensive delay in reaching an agreement regarding the review of the
Greek Economic Adjustment Program.

Program was supposed to end on 31.12.2014

Since the start of the 2015, decrease in investment, deterioration of
lending terms for individuals and corporations, delays in tax collection and
difficulties with the implementation of the budget.

Economic sentiment, tracked monthly by IOBE for the EC, showed
considerable diversion between households and businesses for 4 months,
now general deterioration.
46
2015 – the political and economic picture

January general elections: Syriza-Anel government, ‘negotiations’

July referendum – 3rd adjustment program in July (ESM), for 3 years

September general elections, again, Syriza-Anel government.
Political risk low (?)

Ability to implement reforms and pro-growth policies is unclear.

Taxation a priority. Continuing fiscal tightening, public vs. private
sector

From 2% growth projected for 2015, now -2%

Severe and long lasting effects of capital controls and closed banks
47
Policy priorities for next two months

Recapitalization of banks

Non-performing loans

Greek public property fund (50 billion Euros)

Social security system

Debt negotiations with partners and creditors

Tax system
48
Prospects

Positive scenario: gradually increased consensus and clarity, new
investment, new growth plan, positive interaction with EU
environment improvements.

Negative scenario: lack of ability to implement reforms, low liquidity
and investment, lingering uncertainty, external effects.

Overall evaluation: significant successes and failures – high
uncertainty deters investment and postpones the start of a virtuous
growth cycle.
49