Eurobank: Consolidation In The Greek Banking Sector

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Consolidation In The Greek Banking Sector by Eurobank from Ben Graham Centre Conference.

Macroeconomic update

Adjustment program achievements & socioeconomic costs

Notable progress in correcting macro imbalances

  • Twin deficits nearly eliminated
  • Price competitiveness restored (Unit Labor Costs in Real Effective Exchange Rates back to pre-Euro entry levels)
  • Average maturity of Greek public debt extended significantly (c. 16.5 years currently vs. 6.3 years in 2011)
  • Effective interest rate on debt stock currently below 3 percent, among the lowest in the euro area
  • Real GDP up 0.7% in 2014 following 25ppts contraction in prior 6 years But, fiscal adjustment heavily front-loaded and progress on structural reforms broadly uneven
  • Adjustment in consumer prices has seriously lagged behind adjustment in wages, putting additional pressure on incomes
  • Current account adjustment mainly driven by imports compression
  • Goods exports performance improving lately, but not yet in line with huge adjustment in relative Unit Labor Costs
  • Unemployment still at very high levels, despite last year’s 2ppts improvement (26% in December)
  • Problem exacerbated by weak social net e.g. limited jobless benefits and health care to long-term unemployed

Twin deficits eliminated

  • Positive current account (CA) balances in 2013 & 2014 for the first time on record (since 1952)
  • CA adjustment mainly due to sharply lower imports and, to a lesser extent, higher services exports (tourism)
  • Fiscal adjustment in last 5 years unprecedented by historical standards
  • Structural primary balance improved by more than 19ppts-of-GDP since 2009
  • Greece’s cyclically adjusted primary balance was the highest in the euro area in 2014

Notable improvement in domestic economic activity in 2014

  • Real GDP up 0.7% in 2014, with strong gains recorded in most expenditure-side components
  • Positive private consumption growth following 5 consecutive years of steep declines
  • Notable improvement of investment activity in 2H 2014 (+11.3% Y-o-Y), mostly reflecting strong gains in investment spending on tools, machinery and transportation equipment

Real GDP Greek Banking Sector

Serviceability of Greek public debt improved considerably

  • Serviceability of Greek public debt has improved considerably following the 2012 debt restructuring (PSI) & debt buyback as well as the relief package decided at the Nov. 2012 Eurogroup
  • Rise in debt ratio since 2009 (by 48ppts-of-GDP) entirely due to the economic recession
  • Snow ball effect to start automatically reducing the debt ratio once nominal GDP growth rises above 2.5 percent

debt ratio Greek Banking Sector

See full slides below.

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