Archive for April 2013
The Exchange Rate Mechanism (ERM) was initiated in 1979. It was an exchange rate system based on fixed parities with fluctuation bands. Each member had to maintain its exchange rate within narrow fluctuations of all the other countries that were part of the scheme. The first years were rocky with many exchange rate realignments but after 1987 only two realignments took place. There was such a sense of stability in the system that member states began discussing tightening the bands further and moving to the next stage, the adoption of a common currency, with 1997 being the target year.
“Seems to be this assumption that if you accurately report that the data is getting better (in Greece) you’re Olli Rehn”, said to me the other day someone whose opinion I regard highly and got me thinking. The comment coincided with the successful conclusion of the troika’s inspection last week which was followed by a wave of positive publicity efforts by the Greek government which even included Prime Minister Samaras addressing the nation.
Could it be possible that consumed by the crisis we are missing the turn of events and the small signs of improvement that start emerging though unnoticed? Are the good news simply lost as the crisis tests the Greek social fabric?
What follows is a handful of charts of some of Greece’s main macroeconomic indicators and surveys that give a snapshot of the current state of the economy. The shaded area in the charts represents May and June 2012 when the country’s place in the eurozone never looked more precarious from a combination of domestic and foreign factors and players. What followed was a period of intense negotiations with the troika that concluded in the end of November last year. In effect, Greece had a period of relative calmness just in the last four months.
“People have been comparing apples with pears and coming up with oranges,” EU Economic and Monetary Affairs commissioner Olli Rehn said patronisingly in the press conference after the Eurogroup meeting in Dublin last Friday, urging people not to rely on leaked documents. That was part of his response when he was asked how the Cyprus bailout went, within a matter of weeks, from a total of 17 billion euros – as was initially communicated – to 23 billion euros – as the leaked draft document of the financing aspects of the program revealed.
Catchphrases seem to be the only way that Olli Rehn can explain this discrepancy. Yesterday, he gave the same response in the session of the European Parliament where he was battered by MEPs over the handling of the crisis in Cyprus and the damage it inflicted on Cypriots.
The debt sustainability analysis (DSA) along with other documents related to the program for Cyprus was leaked today on the wires first by Reuters and then the actual documents were published in the Brussels blog of the FT.
The DSA is as expected based on massaging numbers and ignoring risks to arrive at a baseline scenario with a debt to GDP ratio that would give the troika the argument to call it sustainable and get everyone to commit to yet another EU bailout program.
Given the extent of the damage that was inflicted on Cyprus there is something that deserves at least a mention.