How Is Greece Doing? (Optional)

This is just a follow-up for anyone interested in how Greece is doing.

The current incarnation of this blog goes back to the Spring 2009 class, and there have been about 100 posts mentioning Greece through the years. Trust me, I’m not that interested in Greece, but the country has made itself of interest to everyone covering macroeconomic news. That’s what happens when a country needs to be bailed by international organizations and/or groups of countries not just once, but three times consecutively. So, view this as a follow-up on the last time events flared up in Greece 4 years ago, but not a requirement at this time because things seem fairly calm.

Moody’s recently upgraded the rating of Greece’s government bonds. But the upgrade was from B3 to B1, which is still 4 levels below investment grade, and still described as “highly speculative” (AKA junk bonds).

“The ongoing reform effort is slowly starting to bear fruit in the economy,” Moody’s said in a press release describing its gated report released last week. “While progress has been halting at times, with targets delayed or missed, the reform momentum appears to be increasingly entrenched, with good prospects for further progress and low risk of reversal.”

The European Commission (that’s the name of what is essentially the government of the EU) isn’t quite sure.

Greece must still undertake 16 uncompleted reforms in critical sectors such as energy and labor markets, but the most problematic issues are in the financial sector. The follow-through by the country’s four systemic banks … on their commitment to adopt tools for resolving nonperforming loans lags far behind. One pivotally important reform relates to … restructuring the debt of over-indebted individuals. Called Katseli’s law, it protects the mortgages of primary residences …

Note that last point: in the U.S., getting people out of houses on which they were not making payments was a big problem in the last financial crisis, even though the U.S. is a lot better at doing that than most other countries (admittedly, it is an ugly business, but don’t forget that when you deposit money in a bank you expect that bank to be able to get it back for you when you need it, and Katseli’s law makes that tough).

A big problem is the continuing inefficiency of Greek labor markets. This chart shows Greece doing the worst among the EU countries:

The horizontal axis shows that there are not many Greek workers supporting a lot of people who are not working (for comparison, the employment to population ratio is about 60% in the U.S.).

The vertical axis shows a proprietary variable combining a number of different factors. But roughly, it is measuring the extent to which highly-skilled workers are in high-paying jobs (that is, if a doctor is doing farm labor, your score is low). Do note that no one believes all the skilled people in Greece are doing menial jobs, but rather that they are not doing jobs that can be tracked and effectively taxed  by the government.

Greek politics are still not based on meritocracy but on favoritism and rent-seeking. To make matters worse, the economic crisis has left many people with low or medium skills jobless. Some of those unemployed citizens are now trying to enter politics to make a living irrespective of qualifications and ideology.

Think about what that last quote suggests: in Greece, someone who can’t run a successful doughnut shop, or who isn’t thrilling anyone as a university professor and/or community organizer, might view politics as a viable next step in their career.