Restructuring, Reallocation and
Economic Growth in Greece
Plutarchos Sakellaris
Athens University of Economics and Business
March 2016
Real GDP growth in crisis (from peak to first recovery year)
0%
-5%
-10%
-15%
-20%
-25%
-30%
USA 1929- Greece
Latvia
Argentina Germany Indonesia
1933
2008-2015 2008-2010 1998-2002 1928-1932
1998
Thailand
Iceland
1998
2008-2010
Source: IMF, Angus Maddison Historical Statistics of the World Economy, Author’s calculations
Mexico Korea 1998
1995
Turkey
2001
Russia
1998
GDP per Capita a
25,000
20,000
15,000
10,000
5,000
0
1950
1960
1970
1980
1990
2000
2010
Source: Leounakis, N. and Sakellaris, P. “Greek Economic Growth since 1960”, Athens University of Economics and Business, Working
Paper Series 16-2014
a. Great Expansion (1960 – 1973), Long Stagnation (1974 – 1993), Recovery (1994 – 2007) and Great Depression (2008-2013)
2020
GDP per Capita (1974=100) a
250
200
150
100
50
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
0
Greece
USA
Source: The Conference Board: Total Economy Database
a. In 2014 US$ (converted to 2014 price level with updated 2011 PPPs). 1974- US: $27,658, Greece: $16,487. 2015- US: $55,204, Greece: $26,741
GDP Growth Decomposition
150%
100%
76%
46%
95%
50%
35%
0%
32%
-7%
26%
19%
4%
-21%
-46%
-50%
-58%
-100%
-150%
1961-1973
Great Expansion
1974-1993
Long Stagnation
Labor input
1994-2007
Recovery
Capital Input
2008-2014
Great Depression
TFP
Source: Leounakis, N. and Sakellaris, P. “Greek Economic Growth since 1960”, Athens University of Economics and Business, Working
Paper Series 16-2014
What determines productivity growth?
What determines productivity growth?
• Technical improvement
- new technology, methods and equipment,
new products and services
• Resource reallocation
- entry and exit of firms, contraction of less
productive firms and expansion of more
productive firms
Firm-level evidence
• Scant evidence
• Better institutions => Greater contribution of resource
reallocation
• US manufacturing (1977 – 1996): 90% !
Petrin et al., 2011
• Greek manufacturing (1999 – 2010) : Very Low !
Fakos – Sakellaris (2016 – preliminary)
Banks play a role in productivity growth
Credit is essential for production, investment, technology
adoption, innovation
Back to the present
NPEs in the Eurozone
Post-AQR NPE ratio
Pre-AQR NPE ratio
70
60
50
40
30
20
10
0
CY GR
IE
SI
PT
IT
MT ES AT
LT
LV BE DE EE SK FR LU NL
Source: ECB Financial Stability Review May 2015, based on end-2013 AQR data.
FI
The Evolution of NPLs in Greece a
70
60
50
40
Total
Consumer
Mortgage
30
Business
20
10
0
2008
2009
Source: Bank of Greece
a. % of amounts outstanding
2010
2011
2012
2013
2014
2015
Business NPEs (2015) a
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Incidence of Business NPE's by Sector
Source: Bank of Greece
a. Sectors sorted by Incidence of Business NPE’s
Provisions Coverage for NPE's by Sector
NPE and Coverage Ratios for Business Loans (2015) a
80%
70%
60%
50%
40%
30%
20%
10%
0%
Total
SBPs
SMEs
Non-Performing Exposure (NPE) Ratio (%)
Source: Bank of Greece
a. Sectors sorted by NPE Ratio
CRE & Project
Finance
Corporate
Shipping
Provision Coverage Ratio (Total Impairement/NPEs)
Financial Companies
€ thousand
Collateralization Ratio (2015) a
70,000,000
70%
60,000,000
60%
50,000,000
50%
40,000,000
40%
NPE's
30,000,000
30%
Collateral on NPE's
Collateralization Ratio
20,000,000
20%
10,000,000
10%
-
0%
Total
Source: Bank of Greece
Sectors sorted by NPE
SMEs
Corporate
SBPs
Financial
Companies
CRE & Project
Finance
Shipping
How do NPLs hurt growth?
Supply of credit:
• Banks more risk-averse
• Trapped liquidity in unproductive uses
Demand for credit:
• Debt overhang: Businesses that are over-indebted but with
good prospects for revenue growth do not have incentive to
expand capital and employment.
Source: “A Strategy for Resolving Europe’s Problem Loans”, Technical Background Notes, IMF, September 2015
PWC “Stars and Zombies” study
2015
Source: “Stars and Zombies - Greek corporates coming out of the crisis ”, PWC Executive Summary, September 2015
Source: “Stars and Zombies - Greek corporates coming out of the crisis ”, PWC Executive Summary, September 2015
Source: “Stars and Zombies - Greek corporates coming out of the crisis ”, PWC Executive Summary, September 2015
Source: “Stars and Zombies - Greek corporates coming out of the crisis ”, PWC Executive Summary, September 2015
Source: “Stars and Zombies - Greek corporates coming out of the crisis ”, PWC Executive Summary, September 2015
Institutional Requirements for NPL Resolution
•
•
•
•
•
Active and efficient servicing
Insolvency Procedures: Determining viability of borrowers
Efficiency of judicial systems / Faster foreclosure of collateral
Market for loans / Attracting investors
Appropriate tax incentives to banks for quick resolution (DTC)
Financial restructuring will need to be
accompanied by new management practices
Back to the future
•
•
•
•
Macroeconomic stabilization
Structural reform: product and labor markets, institutions
Business Debt restructuring and new management practices
Restart of lending by banks – Focus on productive businesses
NPL management
GDP per Capita Projection
35,000
30,000
25,000
20,000
15,000
10,000
5,000
Great Recovery
No Crisis
Source: Οwn calculations
ALP growth assumed at 1.43% (its 1974 to 2007 average). Population and Working Age Population projections are taken from Eurostat.
Great Recovery: European Commission (Aut. 2015) forecasts GDP Growth Rate at -1.4% and -1.3% for 2015 and 2016; Unemployment
Rate= 25.7% and 25.8% respectively. We assume reduction of the Unemployment Rate to 8% from 2016 level by 2027. No
Crisis: Employment Rate is assumed constant at 2007 level.
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
-