Category Archives: Eurozone crisis

13/7/19: Great Recession in Europe and the U.S. Great Depression


In a one-chart summary, why Euro has been a painfully failing experiment in monetary policy:


The above chart shows the comparative in real GDP levels between the Great Depression in the U.S. (1929-1936) and the Great Recession in Greece (starting from 2008 with data through 2018, and then using IMF estimate for 2019 published in April 2019 WEO, and IMF WEO forecasts from 2020 through 2024, data from 2025 on is taken at a linear trend using 2024 growth forecast). In simple terms, the U.S. real GDP reached its pre-Great Depression levels in the 7th year following the onset of the crisis, although some estimates put this to year 10, depending on the base used.  Greek Great Recession is now in year 11, and counting. By the end of 2019, the IMF estimates that the Greek economy will be 22.1 percent below the 2007 levels, and by 2024 (the furthest IMF forecast we have), it is expected to be 16.2 percent below the 2007 levels.

While one can make the point on Greece's 'unique status' as an economy that should never have been in the Euro in the first place, three arguments stand out against this point:

  1.  Greece is a member of the Eurozone, and if this membership was attained over all rational arguments against it, this very fact shows that the Euro is a poorly structured monetary arrangement; 
  2. As a member of the Eurozone, Greece should have been provided with monetary and fiscal tools for addressing the massive crisis the country experienced. Per chart above, it clearly was not accorded such: and
  3. Greece is hardly the only economy in this situation. Italy is patently in the same boat, and as shown in the chart below, nine out of the EA19 states have experienced longer duration of recovery from the Great Recession than the U.S. from the Great Depression.


20/9/15: Euromoney: "Cyprus almost as safe as Portugal"


"The Cyprus risk score has steadily improved this year in Euromoney’s crowdsourcing survey, rebounding in Q2, and is seemingly on course for further improvement in Q3 as economists and other risk experts make their latest quarterly assessments. Chalking up almost 53.1 points from a maximum 100 allotted, Cyprus has managed to climb one place in the rankings to 56th out of 186 countries surveyed, leapfrogging India and closing in on Portugal into a more comfortable tier-three position:"


Read more here.

Here are my notes on the topic (to accompany the quote in the article):

In my view, Cypriot economy recovery after 3 years of deep recession and banking sector devastation is still vulnerable to growth reversals and deeply unbalanced in terms of sources for growth. Firstly, the rate of growth is hardly consistent with the momentum required to deliver a meaningful recovery. Cypriot GDP rose 0.2% y/y in 1Q 2015 and 1.2% y/y in 2Q 2015. This comes on foot of 14 consecutive quarters of GDP decline. Quarterly growth rate in 2Q came below flash estimate and expectations.

Positive growth was broadly based, but key investment-focused sector of construction posted negative growth. Deflationary pressures remained in the Cypriot economy with HICP posting -1.9% in August y/y on top of -2.4% in July. Over January-August 2015, HICP stood at -1.6% y/y.

Despite some fragile optimism, the Cypriot Government has been slow to introduce meaningful structural reforms outside the financial sector. The economy remains one of the least competitive (institutionally-speaking) in the euro area, ranked 64th in the World Bank Doing Business 2015 report - a worsening of its position of 62nd in 2014 survey. This compares poorly to the already severely under-performing Greece ranked in 61st place.

Thus, in my view, any significant improvements in the country scores relate to the policy-level post-crisis normalisation, rather than to a measurable improvement in macroeconomic fundamentals.