Greek “Recovery” Is Just More Agony

(Originally published here.)

Financial markets respond more to changes in people’s beliefs than to changes in reality, which helps explain why Greek stocks and bonds have been doing so well recently even as the economy keeps shrinking.

Reuters’s Hugo Dixon makes the optimists’ case, arguing that the troubled Mediterranean country is “undergoing an astonishing financial rebound” thanks to the combination of fiscal austerity, useful reforms of the public sector and relatively generous bailout terms.

Last June, I wrote about the Greek government’s relatively successful efforts to attract foreign investment by offering valuable assets at rock-bottom prices. Even though the Athens Stock Exchange General Index has done much better than the German Stock Index during the past year, Greek equities have a price-to-earnings ratio of just 4.2 compared with 18.3 for German shares. You could make a lot of money buying Greek stocks if valuations ever converge.

Another bullish data point is that the Greek government has just managed to raise billions of euros from private investors by selling five-year notes at an interest rate of only about 5 percent. Part of the appeal of these instruments is that they will be governed by English rather than local law, unlike the Greek sovereign bonds that wereforcibly restructured in 2012. The debt sale comes after a big decline in yields on existing Greek bonds since they peaked in 2011. Yields are still much higher than on German equivalents, which suggests investors demand compensation for the risk of lending to weaker economies in the euro area.

These developments are impressive but they don’t mean Greece’s problems are solved. The best that can be said of the Greek economy is that things are getting worse at a slower pace than they were a few years ago.

And while employment is a lagging indicator, the fact that it’s still falling isn’t particularly bullish either.

The most depressing number, however, is 2025 — the year Greece’s gross domestic product is expected to return to its 2007 level under a relatively optimistic set of forecasts.

Two lost decades would be a catastrophe for a developed country in peacetime far worse than anything experienced since the Great Depression. But by all means, call it a recovery.

(Matthew C. Klein is a writer for Bloomberg View. Follow him on Twitter at @M_C_Klein.)

To contact the writer of this article: Matthew C. Klein at

To contact the editor responsible for this article: James Greiff at


About Matthew C. Klein

I write about the economy and financial markets for Bloomberg View. Before that I wrote for The Economist on a fellowship provided by the Marjorie Deane Financial Journalism Foundation. I have worked at the world's largest hedge fund and read every FOMC transcript since May, 1987.
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