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How BoomBustBlog Research Intersects with That of the IMF: Greece in the Spotlight

The IMF has recently released the results of their staff consultations with Greece. Some may find it interesting, particularly where it intersects with relevant BoomBustBlog research. Let's not mince words here. Greece is going to effectively default on its debt, one way or another, and it is probably going to do it relatively soon. Shall we walk through the IMF findings from LAST YEAR and how they are actually optimistic compared to the facts that my team and I have dug up?

IMF Consultation: Greece (2009)


  • After joining the EU, the income gap between Greece and the Eurozone fell on lower interest rates and the resulting "demand boom"
  • Through the boom, fiscal deficits stayed at >95% of GDP, fiscal condition continues to aggravate 10 year spreads & contributes to credit downgrades (arguably a lagging indicator)
  • Private Greek debt is below the Eurozone average, as is the case for non-financial corporations (governments and financial services therefore must be the source of Greek leveraging)
  • Even as output has dropped, Greek wages have remained comparably high, and saw a 12% nominal increases in from 2008 - 2009
  • Quality of assets on Grecian balance sheets continues to erode with end of credit based consumption in Southeastern Europe (SEE)
  • Household and corporate credit growth has slowed, probably due to rising interest rates causing the opportunity cost of taking on new debt to be unmanageable (directly causing revenue shortfall at the government level)


  • IMF forecasted uncertain, and potentially negative growth from 2009 through 2010 on stagnant trade and policy based mistakes
  • The EU had a much rosier forecast, citing a rise in tourism, lower dependency on trade, and government based infrastructure projects (that are paid in money taken from bond offerings and paid to construction workers at far greater than average Eurozone wages)

I have sourced the accuracy of both the IMF and the EU's forecasting in "Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!. If your well being relies on this stuff, you would be well served to subscribe to our research services. Let's take a visual perusal of what I am talking about in regards to Grecian GDP, the IMF and the EU.

Greece Real GDP Growth - Actuals versus IMF Estimates

The EU/EC has proven to be no better, and if anything is arguably worse!

Greece Real GDP Growth - Actuals versus EU Estimates

Here are our considerably more realistic forecasts (premiums content: Greece Public Finances Projections).

Buyer Beware:

  • Greek banks have huge exposure to SEE nations, and as credit quality begins to erode, expect loan loss provisions to rise and ratings downgrades to ensue (Greek bank branches in SEE have high loan:deposit ratios)

We have went through this in exquisite detail, both in the public sections of the blog and particularly in the subscriber-only content. See The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious!

Europe Map Showing Depression Areas
Larger Image

Professional and institutional subscribers should carefully reference "Banks Exposed to CEE & SEE" while all paying subscribers should review the "Greek Banking Industry Tear Sheet".

  • Greece's external debt is 147% of GDP (think Domino effect) and 66% of that is public sector debt
  • Given most of the issues facing Greece involve public sector generosity, solutions must come from the public sector in the form of more revenue, less expenditures, or both
  • Banks have become increasingly reliant on ECB for short term liquidity

Bank Support Measures (as of May 2009):

  • Deposit insurance is now €100,000 from £20,000
  • Liquidity assistance of €8 billion in zero coupon bonds eligible for collateral with ECB
  • Guarantees of loans up to £15 billion to fight rising borrowing costs

Banking Stress Tests:

  • Assumed 3% decline in GDP over 2 years, unemployment @ 12%
  • 30% movement in EUR vs other developed currency pairs, as well as 40% decline in equity prices
  • 10% withdrawal in deposits

Strengthening the Fiscal Position:

  • With ECB setting interest rates, and higher than average inflation, loans in Greece have tended toward being accommodative
  • As conditions begin to hit downward trend, Greece wasted any chances to pay down debt and may now add to its debt during a deflationary spiral
  • Current accommodative measures only help to the tune of 1% of GDP, as debt payments and other expenditures are about to spike

Note from BoomBustBlog contributor: Economists and other market researchers have stated Greece's only hope lies in cutting expenditures and increased revenue accountability for years, and for years we have seen half assed "high-wage friendly" measures taken that support government workers. No one is willing to take a wage cut during a deflationary cycle, and that is merely one reason why a debt-deflation collapse of Greece is seemingly imminent.

More related editorial from Reggie Middleton:


  • As the working age population begins to decline in 2010, debt will continue to rise, even as worker output falls (IMF projects long term GDP growth will settle at 1.5% YoY)

Competitiveness (or lack thereof):

  • Greek wages are so high that they are among the least attractive for business operations in the Eurozone
  • The biggest way to correct this inefficiency is intense liberalization of various public sector jobs
  • While some advances have been made in high-tech industry, Greece continues to lose private sector market share and is one of the most difficult places to do business in the developed world
  • Public sector unions are the biggest roadblock in easing business restrictions and restricting outflow of government expenditures


  • A good cliché for describing export growth is, "fallen down the basement stairs, and is still laying on the ground concussed"
  • Even as private non-financial services deleveraged, public consumption and wages still saw positive growth through the crisis
  • Public finances make up 40% of GDP
  • IMF sees private credit increasing in this decade (but how?)

Banking Sector:

  • Tier 1:Risk Capital ratios have deteriorated throughout the previous decade
  • Total debt to equity has nearly doubled over the past decade, even as returns on equity have crumbled

Public Sector Balance Sheet:

  • Financial liabilities are greater than total assets, with projections seeing the Greek government deepening its hole into 2014
  • Liabilities throughout the coming decade will exceed 500% of GDP
  • External debt is surpassing the upper ranges of sustainability


Related Subscriber Content:
Banks Exposed to CEE & SEE (Professional and Institutional subscribers)
Greek Public Finance Projections
Greek Banking Industry Tear Sheet

For the complete Pan-European Sovereign Debt Crisis series, see:

1. The Coming Pan-European Sovereign Debt Crisis - introduces the crisis and identified it as a pan-European problem, not a localized one.
2. What Country is Next in the Coming Pan-European Sovereign Debt Crisis? - illustrates the potential for the domino effect
3. The Pan-European Sovereign Debt Crisis: If I Were to Short Any Country, What Country Would That Be.. - attempts to illustrate the highly interdependent weaknesses in Europe's sovereign nations can effect even the perceived "stronger" nations.
4. The Coming Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western European Countries
5. The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious!
6. The Beginning of the Endgame is Coming???
7. I Think It's Confirmed, Greece Will Be the First Domino to Fall
8. Smoking Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware!
9. Financial Contagion vs. Economic Contagion: Does the Market Underestimate the Effects of the Latter?
10. "Greek Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on Fire!
11. Germany Finally Comes Out and Says, "We're Not Touching Greece" - Well, Sort of...
12. The Greece and the Greek Banks Get the Word "First" Etched on the Side of Their Domino
13. As I Warned Earlier, Latvian Government Collapses Exacerbating Financial Crisis
14. Once You Catch a Few EU Countries "Stretching the Truth", Why Should You Trust the Rest?
15. Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!
16. Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe
17. Moody's Follows Suit Behind Our Analysis and Downgrades 4 Greek Banks

The EU Has Rescued Greece From the Bond Vigilantes,,, April Fools!!!

Premium Subscription research for the following sovereign states and their respective domiciled banks at risk are available for immediate download.



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