Wednesday, April 28, 2010

Economics 28/04/2010: More on Greece contagion

Contagion from Greece is clearly a problem for the EU at this stage. Looking back into some older data, February 2010 note from Credit Suisse (linked here)
Spot Ireland at position number 7? That was then. The figures refer to 2009, which means that since then, pressures on Iceland, Hungary and Latvia have receded. In addition:
  • Our 2009 deficit has been revised to 14.3%
  • Our CA deficit has worsened (as imports are falling at a lower rate and exports are now performing less robustly)
So re-weighting the score in the right hand column of the table, Ireland gets closer to 38.1-38.3, Portugal moves to 39.4-39.5, Greece to 45. We are number 3 on the list...

PS: If you want to see an example of absolutely and even alarmingly distorted logic - read this. One of the best examples of bizarre ramblings that pass for 'analysis' in Ireland. I mean what else can you call a note that:
  • Admits that Ireland has record deficits of all EU countries;
  • Admits that debt levels are very high;
  • Admits that we are close to Greece;
  • Admits that Greece is deep trouble, and then
  • States that "The Greek recesion [sic] had been milder than the EU average, and recovering, before austerity measures were adopted" and thus
  • Makes an implicit claim that the spectacular collapse of Greek economy witnessed by the entire world and threatening contagion to all of the EU has been caused by Greece not running enough deficits!
  • And concludes that: "By contrast, other EU countries adopted fiscal stimulus measures [without identifying which states did so, what were the implications of these, etc]. Their debt has stabilised along with economic activity [a mad claim, given that stimulus measures were financed out of debt increases] and they have been rewarded with much lower bond yields than Ireland [absolute groundless claim, as none of the countries that adopted stimulus had the same fundamentals as Ireland going into the recession or during the recession and furthermore, none of the countries, other than PIIGS experienced similar bond yields dynamics to Ireland]"
I mean this stuff is actually factually incorrect and logically inconsistent!


Michael Burke said...

Dr Gurdgiev

Thank you for engaging with debate, even if there a small inconveience to me from trying to participate in the same debate now in 3 different fora.

You assert that my analysis is both factually incorrect and logically inconsistent.

However, of the 7 points you make, the first 4 you note 'admissions' of mine. So, implicitly, we are agreed on these facts, whether they were admitted or simply stated by me.

To deal with the next 2 points of criticism. My contention that Greece was initally facing a milder recession than the EU average is derided. Yet there is a link to 4 charts from Reuters in the post which includes the Greek and EU GDP and PMI data, showing precisely that.

The subsequent double-dip in the Greek economy is entirely a function of the fiscal contraction policy that as been adopted, as the Bank of Greece has noted.

Similarly, the point is questioned that virtually all the EU member states who now enjoy much lower deficits and bond yields than Ireland adopted fiscal stimulus. I would have thought anyone acquainted with economics would be aware of that, especially the 'true' variety.

Here is one official estimate of the average fiscal measures in the Euro Area and EU as a whole for 2009. EU Commission, European Economic Forecast, Autumn 2009,

In the Euro Area the 'automatic stabilisers' were equivalent to 2.4% of GDP, increased discretionary spending was 1.1% and other deficit measures amounted to 0.9%, for a total 4.4% of GDP. In the EU the total was 4.6% of GDP, with the the difference accounted for by increased discretionary measures (Table I.3.2). As we know, Ireland engaged in a simultaneous fiscal contraction of 6.4% of GDP.

Since it was published in Autumn 2009 there were in fact further large increases in the stimulus measures in both France and Germany.

In my original post, the average deficit profile of the Euro Area is shown, where the deficit initally rises for one year and has now begun to stabilise. These are EU Cssn. data. Ireland's increasing deficit profile was also shown.

Therefore, my argument remains that the EU fiscal stimulus has worked and Ireland's slash&burn hasn't. It is an argument that is open to challenge. But it is based on facts, referenced in the post. I think criticism of any argument should also be evidence-based.

Unknown said...

After reading that comment, all I can say is that Europe is f*%ked if this actually passes for serious analysis these days....thank god I left the country a few years back...

I would make a serious response, but the argument presented in this comment is not worthy IMHO.

Unknown said...

Sorry...I was referring to Michael Burke....not Gurdgiev...