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Commentary & analysis with a focus on European economic policy

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Is the troika responsible for the Greek fire tragedy?

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The horrific forest fires near Athens, with terrible loss of life, have led to claims that the austerity measures imposed on Greece by the troika damaged the capacity of the Greek fire-protection services. Part of the blame for the horrific deaths and property damage in the Greek fire tragedy is therefore to be borne by the troika.

Is this true? It is a complex question which, I understand, is to be part of a formal investigation. That is right and proper. A crucial issue is clearly to what extent decisions on the mix of fiscal measures, for a given amount of fiscal consolidation, were taken by the Greek authorities or the troika. But given that the claim of troika responsibility is already circulating in the media, it is worth looking at the data that are currently available. Eurostat has detailed breakdowns of public spending data that can shed at least some light on the question.* [Read more…]

Debt rescheduling and the power of exponential growth

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The agreement to reschedule Greek debt has been in the news recently. Frequently it is pointed out that Greek debt has not been forgiven, but “merely” rescheduled. While economists and some journalists argue that this distinction is not really important in an economic sense, I am not sure that this is widely understood. It may therefore be helpful to present a few back-of-the-envelope calculations that show the power of rescheduling debt servicing, which essentially means pushing payments into the future. It brings into play what can be called the “power of exponential growth”, which is like the inverse of the “power of compound interest” that can make debt burdens snowball.

I am going to take two time periods, based on an assessment that the recent Greek debt deal extends “the average loan maturity to over 40 years from 32.5 years currently”.  To keep things simple we’ll use 32 and 40 years. [Read more…]

Unemployment in the Euro Area passes a milestone

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With the latest unemployment figures from Eurostat, for November 2017[1], the Euro Area has passed a milestone: for the first time the unemployment rate, at 8.7%, is below the average of the “normal times” prior to the economic crisis. This provides a good occasion to evaluate the current state of the labour market, as far as unemployment rates are concerned, in the Euro Area and its member states. To what extent have the scars of the crisis healed? Where do the most serious challenges remain?

Figure 1 shows the labour market recovery from the double whammy of the global financial and then the Euro crisis: it begins in the spring of 2013, in the wake of the belated “whatever it takes” announcement by the European Central Bank. Unemployment fell from its peak of 12.1% and by January 2017 it was below its average for the entire history of the common currency to date (9.6%). By November the continued improvement had brought the figure down below the average recorded up to the crisis (8.8%). Over the last 12 months the unemployment rate has fallen at an average of almost 0.1 percentage point – around 130 000 persons – a month. [Read more…]