The truth about the Greek economy from UBS: “Greece… received a rating upgrade, and its debt exceeded 657 billion euros”

According to the Swiss UBS, Greece’s public and private debts have risen to 657 billion euros, which is 305.8% of GDP! And despite this, financial institutions and rating agencies like Fitch have recently upgraded the rating of the Greek economy.

UBS believes (in indirect phrases) that the overseas patrons of the ruling New Democracy party in Greece gave the agencies a command to raise the country’s rating and present supposed trends towards reducing the Greek debt, playing with inflation, which nominally increases GDP and, thanks to VAT and VAT, brings ” excess revenues” into the state treasury. This creates the illusion that the debt/GDP ratio is falling, which means everything is going well (which is not the case).

As UBS shows, total debt across all sectors (private, public and financial) has exceeded all precedents. Of this, 64% is public debt (€422 billion) and the rest is private.

Total government debt as a percentage of GDP reaches 196.5%, and private debt stands at 96.6% of GDP, reaching a ceiling of 129.7% of GDP in the second quarter of 2021. In addition, household debt is 43% of GDP, non-financial sector debt is 53.6% of GDP, and financial companies’ debt is 12.7%. So now the Greek debt continues to grow, and the forecast for it is upward.

Never in the history of the country has it been at such levels. Apparently, the government is resorting to accounting tricks with which it presents a different debt situation: due to GDP growth and inflation, the debt-to-GDP ratio falls, while public debt continues to grow in absolute (monetary) terms… True is that the debt-to-GDP ratio will continue to fall as long as inflation remains high and GDP grows above the Eurozone average…

UBS says the surge in inflation has boosted nominal GDP and, thanks to the higher denominator, lowered the Eurozone debt-to-GDP ratio even in areas where nominal debt (in euros) has risen.

“In the second quarter of 2023, the GDP deflator strengthened by 6.3% year on year, which is 0.1 percentage points more than in the first quarter of 2023 and is the highest since the introduction of the euro, but with a large discrepancy between countries with different inflation rates.

In the second quarter of 2023, the deflator change was lower in Ireland and Belgium (3.6/3.7%) and higher in Croatia, Slovenia and Slovakia (9.3-9.7%). In Italy and Greece, where public debt to GDP ratios are higher, GDP deflators were relatively moderate (4.0 and 5.4% per year, respectively).

Of the 22.5 p.p. improvement in the eurozone debt-to-GDP ratio in the second quarter of 2022, compared to the second quarter of 2023 (from 375% to 352.5%), about 22 p.p. was due to the GDP deflator, 5 p.p. – real GDP, and higher nominal debt increased the debt-to-GDP ratio by almost 3 p.p.

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