Greece released a bit of amusing econ data on Thursday, as the country’s statistical authority claimed GDP grew by 0.8% in Q2, well ahead of estimates of a 0.5% contraction. While we suppose it’s feasible that things weren’t as bad in Q2 as they have been since (capital controls weren’t in place during the quarter), we think you’d be hard pressed to find anyone in Greece who thought things were looking up for the economy heading into the referendum. In any event it doesn’t matter, because as WSJ notes [7], the fiscal retrenchment enshrined in the country’s third bailout program combined with the generally poor outlook means Greece faces a two-year recession - at least:
Greece faces two years of recession amid sharp budget cuts and overhauls mandated by its €86 billion ($95 billion) bailout agreement, European Union officials said, as Greek Prime MinisterAlexis Tsipras expressed confidence that the deal would be completed.
The country’s economy is expected to shrink 2.3% this year because of the recent months of turmoil and the cuts required by the bailout, the officials said, citing the latest estimates from the institutions that have been negotiating Greece’s new aid program. Next year, it is projected to contract 1.3%.
Miraculously, the Greek economy is expected to rebound sharply in 2017, when it will supposedly grow at 2.7%. Clearly that’s optimistic to the point of being largely meaningless, but that’s the story Athens and creditors are sticking to for now and on Thursday, Greek lawmakers will be herded into parliament where they’ll be pressured to pass some 40 new laws which will serve to plunge the country even further into depression than it already plunged during the first two months of Q3.
Expect some MPs in Tsipras’ coalition government to vote against the deal (incidentally, Panagiotis Lafazanis announced the formation of a new "political movement" today), but between the PM’s call for an end [8] to Syriza infighting earlier this month and the support of opposition parties, the bailout will likely pass.
At that juncture, EU finance ministers will determine whether the humiliation of the Greeks has gone far enough to justify disbursal of the first tranche of aid, €3.2 billion of which will almost immediately be sent straight to the ECB in Frankfurt. Although the expectation is that the funds for the ECB payment, due August 20, will come from the new ESM program, but according to the EU Commission, the door is still open to tapping the remainder of the funds in the EFSM in the form of a bridge loan. This was likely included in the documents submitted to the ESM at the behest of Germany which, you're reminded, isn't quite prepared to sign on the dotted line yet, especially if it means interupting MP vacations with an emergency Bundestag vote.
Meanwhile, Greeks are increasingly turning to alternative payment systems amid a scarcity of hard currency. The most established system is TEM, which is in its fifth year of existence. Here’s WSJ [9]:
TEM—a sophisticated form of barter whose name is the Greek acronym for Local Alternative Unit—was founded in 2010 in the early months of Greece’s debt crisis with less than a dozen members. Now it includes dozens of participating local businesses that use the system to sell goods and services, including prepared food, haircuts, doctor visits, or even for renting an apartment.
One of the larger and more established alternative payment systems in Greece, TEM has given Greeks living under the strain of wage cuts and tax increases a supplementary way to trade. Instead of dealing with a physical currency, members have an online account that starts at zero when they join. They can opt to take payment for goods and services in TEM, and then use those to buy products from others.
On the network website, users can post ads on what they can offer and what they want. Mr. Papaioannou, for instance, accepts TEM as payment for the computer repairs he does and says he uses the alternate currency in transactions several times a week.
It is a localized version of what Greece might have to turn to if a tentative bailout agreement reached this week is derailed, or ultimately fails.
This is of course quite similar to the system former finance minister Yanis Varoufakis intended to create as part of a "cloak and dagger" parallel payments infrastructure he claims Alexis Tsipras pressed him to create as a contingency plan. And TEM isn’t the only system operating in Greece. The Journal goes on to list [9] three additional schemes:
- Ovolos: This alternative currency was founded in 2009 by a group of entrepreneurs in Patras, Greece’s third-largest urban area. Named after an ancient Greek currency, its membership is in the thousands. Unlike TEM, Ovolos covers the entire country.
- Monada: This smaller program based in the city of Chania on the island of Crete was set up in 2011, and is one of several popping up on Greece’s islands. Every other Sunday, its registered members hold an open market where they can use the alternative currency.
- Athens Time Bank: The Athens Time Bank was created in 2011 during the height of anti-austerity demonstrations in Athens’s central Syntagma Square. The unit of exchange is an individual’s time. Members earn a time unit for every hour they give to someone using their skills, which can include anything from psychotherapy sessions to a Spanish lesson.
This is all in addition to the classic barter system, wherein citizens simply trade goods and services directly and as we detailed late last month [10], many Greeks have found that transacting in clover, hay, and cheese is the most straightforward way of doing business in an economy that faces total collapse.
So while the Greek populace simply abandons the euro as a payment method, their elected officials will huddle together and legislate away the country's last vestiges of sovereignty on Thursday in exchange for €86 billion, the vast majority of which will be immediately credited electronically to the very same people who just disbursed it. If that sounds completely ridiculous to you, that's because it is and we suspect that sometime over the next six decades of debt servitude some enterprising politician will wake up and realize precisely what Christos Papaioannou, a Greek computer engineer and TEM user who spoke to The Journal, came to understand a long time ago when it comes to the euro. Namely that "you’re used to a method of doing things and suddenly, you realize there are other ways too."
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Full bailout documents
Greek Bailout Draft [11]
