The IMF and the Greek Crisis: myths and realities #LSEGreece - - PowerPoint PPT Presentation

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Dec 23, 2023 603 likes •717 views

The IMF and the Greek Crisis: myths and realities #LSEGreece Welcome: Louis Loizou Chairman of the Hellenic Bankers Association UK. Poul Thomsen Director of the European Department at the International Monetary Fund. Chair: Professor Kevin

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The IMF and the Greek Crisis: myths and realities

#LSEGreece

Poul Thomsen

Director of the European Department at the International Monetary Fund.

Chair: Professor Kevin Featherstone

Eleftherios Venizelos Professor in Contemporary Greek Studies and Professor in European Politics and the Director of the Hellenic Observatory

Hosted by the Hellenic Observatory and Hellenic Bankers Association-UK

Chairman of the Hellenic Bankers Association UK.

Welcome: Louis Loizou

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The IM IMF and the Greek Cri risis: Myt yths and Realities

Hellenic Observatory London School of Economics September 30, 2019 Poul l M. . Th Thomsen Director, European Department International Monetary Fund

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70 80 90 100 110 t t+3 t+6 t+9 t+12 t+15 t+18 t+21 t+24

Real GDP per Capita

(Index, pre-crisis peak = 100 1/) Sources: European Commission; Eurostat; Haver Analytics; and IMF staff projections. 1/ Pre-crisis peaks are: 1929 for Great Depression; 1997 for Asian crisis; 2007 for Greece, Ireland, and Spain; 2008 for Cyprus and Portugal. 2/ Indonesia, Republic of Korea, and Thailand. 2031 U.S. Great Depression Asian crisis 2/ Greece (2010 projection) Other EA crisis 3/ Greece (actual)

Growth projections have been too optimistic and the length of a recovery unprecedented

Greece (EC projection)

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Public pension and income tax reforms remain critical for growth- friendly rebalancing of public finances

20 40 60 80 100 120 LUX LVA SVN BEL IRL ESP DEU PRT FRA AUT SVK EA LTU ITA EST FIN GRC 1/ GRC CYP

Personal Income Tax-Free Thresholds in the Euro Area

(Percent of 2018 average wages and salaries per employment) Sources: Deloitte; Eurostat; the Greek authorities; KPMG; OECD; and IMF staff calculations 1/ Income tax reform pre-legislated in 2017, though subsequently cancelled. Note: national accounts concept of wages and salaries is used. The euro area average excludes Greece.

2 4 6 8 10 12 GRC GRC'18 FRA ITA AUT CYP FIN DEU EA PRT EST MLT SVN NLD SVK IRL LVA ESP LTU LUX Sources: 2018 Aging Report; and IMF staff calculations. Note: State transfer is defined as a difference between pension spending and actual employer and employee pension contributions as defined in the Aging Report, excluding third-party revenues and non-contributory state transfers.

State Transfers to the Public Pension System

(2016, percent of GDP)

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Grexit I Grexit II 2 4 6 8 10 12 14 16 18 20 100 120 140 160 180 200 220 240 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Share of investment (percent of GDP; rhs) Private sector deposit (billions of euros)

Private Sector Bank Deposits Halved and the Share of Investment Declined by a Third During the Crisis

Sources: Bank of Greece; ELSTAT; and IMF staff calculations.

Political crises led to confidence shocks that halved deposits and collapsed investment

Grexit I Grexit II

5 10 15 20 25 30 35 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Sources: Bloomberg Financial L.P.; and IMF staff calculations.

Greece: 10-Year Bond Yield Spread

(Percentage points; against German bond)

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Unbalanced structural reforms undermined credibility and broader support by imposing an excessive burden on labor

Performance under the ESM Program

85 90 95 100 105 110 115 120 125 2003 2005 2007 2009 2011 2013 2015 2017 2019

Wage Flexibility vs. Price Rigidity

(Index, 2003=100; seasonally adjusted) Sources: ELSTAT; Eurostat; Haver Analytics; and IMF staff calculations. Labor cost HICP (constant taxes)

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Unprecedented PSI in 2012 as systemic concerns began to fade

10 20 30 40 50 60 70 80 90 20 40 60 80 100 120 Haircut (percent) Restructured debt (percent of GDP)

PSI – Previous Bond Exchanges

Source: Zettelmeyer, Trebesch and Gulati (2013) Greece (2012)

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PSI and OSI significantly lowered the debt burden

4 8 12 16 20 5 10 15 20 25 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 General government interest payments (billions of euros; rhs) Central government average debt maturity (years, weighted average)

Interest Payments and Debt Maturity

Sources: Eurostat and Public Debt Management Agency (PDMA). 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 EST FIN DEU LUX NLD FRA GRC LVA BEL AUT CYP IRL ESP LTU SVK ITA SVN PRT MLT

General Government Average Effective Interest Rate

(Percent; 2018) Sources: Eurostat; and IMF staff calculations.

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