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15 Jan 2015
EU and Greek government need to focus on sustainability of Greek economy – Nomura
FXStreet (Barcelona) - Richard Koo, Chief Economist at Nomura, notes that EU and Greek government should focus more on sustainability of Greek economy with Greece’s GDP falling to 27.4% from the peak, and both business and household savings declining as income falls.
Key Quotes
“Meanwhile, the key difference between Greece and other eurozone countries is the trend in financial assets. These show that both the household and corporate sectors have been drawing down financial assets in all but a few quarters since 2010. This sustained drawdown of financial assets means people are facing severe cash-flow difficulties.”
“Greece’s GDP has now fallen 27.4% from the peak in real terms, and businesses and households whose incomes have fallen by a similar amount are managing to survive only by consuming past savings.”
“Elsewhere in the eurozone, the household and corporate sectors in Portugal and the corporate sectors in Spain and Italy have intermittently experienced similar drawdowns of financial assets, but their problems are far milder than those in Greece.”
“In other words, private savings appear so small in Greece, with its balance sheet recession, because businesses and households experiencing sharp declines in income are drawing down financial assets to stay alive. This is not a sustainable state of affairs that can continue indefinitely.”
“A situation in which both financial assets and liabilities are shrinking at a time of zero interest rates is the worst possible scenario for an economy.”
“While Greece must pay the price of austerity for its past fiscal profligacy, both the EU and the Greek government need to keep a close eye on the sustainability of this state of affairs.”
Key Quotes
“Meanwhile, the key difference between Greece and other eurozone countries is the trend in financial assets. These show that both the household and corporate sectors have been drawing down financial assets in all but a few quarters since 2010. This sustained drawdown of financial assets means people are facing severe cash-flow difficulties.”
“Greece’s GDP has now fallen 27.4% from the peak in real terms, and businesses and households whose incomes have fallen by a similar amount are managing to survive only by consuming past savings.”
“Elsewhere in the eurozone, the household and corporate sectors in Portugal and the corporate sectors in Spain and Italy have intermittently experienced similar drawdowns of financial assets, but their problems are far milder than those in Greece.”
“In other words, private savings appear so small in Greece, with its balance sheet recession, because businesses and households experiencing sharp declines in income are drawing down financial assets to stay alive. This is not a sustainable state of affairs that can continue indefinitely.”
“A situation in which both financial assets and liabilities are shrinking at a time of zero interest rates is the worst possible scenario for an economy.”
“While Greece must pay the price of austerity for its past fiscal profligacy, both the EU and the Greek government need to keep a close eye on the sustainability of this state of affairs.”