May 4, 2017 / 11:15 AM / 3 months ago

Greek growth, Greek decline: it's all in how you look at it

5 Min Read

FILE PHOTO: A man walks past shop shutters with graffiti at a main commercial street at the Monastiraki area in early morning before shops open in central Athens, Greece, February 27, 2017.Michalis Karagiannis/File Photo

ATHENS (Reuters) - Not far from Athens' central Syntagma Square, home to the parliament, finance and foreign ministries, and the storied Hotel Grande Bretagne, a man scrabbles around some rubbish bins.

He is youngish and not badly dressed. He is looking for scraps of food, clothes or something valuable in the dross.

The sight would not be unusual in many global cities, but it was almost unknown in Athens a few years ago. As was sleeping rough, a sign of Greece's decline evident in many central areas such as Philopappos Hill, where Socrates was gaoled.

Discussions about Greece's economy these days no longer center on whether it will be thrown out of the euro zone, a real prospect just two years ago.

Instead, the focus has turned to such esoterica as primary surpluses, debt repayment schedules and whether the International Monetary Fund will or will not participate financially in the country's third bailout.

Somewhat lost in the shuffle is the pain everyday Greeks are still feeling as the country ever so slowly sees its economy improve.

The reason is that some of Greece's economic numbers do look promising after seven years of bailouts, recession, banking crisis, and bankruptcies.

Economic growth, for example, is projected by the IMF at 2.2 percent this year, a stark contrast with its contraction of more than 9 percent in 2012.

In a similar vein, Greece's budget had a primary budget surplus - that is, excluding debt repayments - estimated at as much as 4.2 percent, depending on accounting procedures. It even had a small surplus including debt repayments.

There are also signs that Greeks are getting better at paying and collecting taxes. The primary surplus was in part put down to an increase in tax revenues.

Some of this can be seen in places like Athens' Ermou Street, the central shopping thoroughfare where the likes of Zara and Massimo Dutti hold court.

On a recent afternoon, it was bustling with shoppers, albeit flanked by walls of angry graffiti and peppered with youths holding signs for watch sales or offering up swatches of perfume.

Pantheon of Pain

Ranged against this seeming improvement are economic numbers so harsh they have driven more than 425,000 Greeks abroad since 2008.

FILE PHOTO: A man sits on a bench at Kotzia square in central Athens, Greece, March 22, 2017.Alkis Konstantinidis/File Photo

Unemployment is still at 23.5 percent. Youth unemployment -- a particularly damaging indicator for future stability -- is a whopping 48 percent.

The impact is seen in changes to the relatively obscure calculation of GDP per capita in terms of purchasing power -- roughly how much people can buy now versus what they could.

Ranked against the European Union as a whole, this fell nearly 27 percent between 2008 and 2015 for Greece. For Germany, it rose around six percent. Translation: Germans richer, Greeks poorer.

Indeed, the latest figures available suggest more than one in three Greeks are at risk of poverty or social exclusion.

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Another twist is that Greece's debt burden has actually got worse. It is at 179 percent of GDP compared with around 109 percent in 2008.

The irony is that most of this is the result of austerity-driven recession and rising debt from the three bailouts: GDP goes down, debt goes up, the ratio gets worse.

Cruel to Be Kind

It is against this background that euro zone finance ministers will meet on May 22 to discuss paying another tranche of bailout funds to Greece and possibly to start talking about changing Greece's repayment terms.

In order to get this, Athens had to accept yet more austerity -- to cut pensions for the 13th time since 2010 and lower the tax-free threshold for all income-tax payers.

Prime Minister Alexis Tsipras, who swept into power in 2015 pledging to stand up to the creditors, will have to get it through parliament. He should manage it, but his failure to end austerity had knocked his popularity rating down to 17 percent.

The new austerity will make some of the poor poorer. But the economic philosophy behind it is that a reformed Greek economy with a tight budget will boost GDP growth over time and solve all its problems.

The trick will be to get there without the debt burden crushing the life out of any GDP improvement. It seems a bit perverse at first glance, for example, that Greece must get a new tranche of bailout loans soon in order to repay 7.5 billion euro ($8.18 billion) in July.

For that reason, Greece's lenders are considering - but a long way off agreeing - capping at 15 percent of GDP any repayments in future years.

That might help. But for Greeks rummaging through bins or sleeping rough, it's just another esoteric number.

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