The Guardian, UK proclaims:

Greece’s economy deeper in recession than forecast • Second-quarter GDP in Greece estimated to have fallen by 3.5% year-on-year [Reggie's note: I'd like to bring to your attention that this is a pace that is over 11.5x WORSE than the projections that Greece used to get the austerity package-based bailout!!! It is also much more in line with what we anticipated]

• Record jump in Greek unemployment prompts that crisis could intensify social unrest



Greece’s recession deepened more than expected in the second quarter of 2010 after the country was rocked by its financial crisis and a series of government measures to slash public debt.

Investment dropped and public spending slumped in the three months to June as Greek politicians battled to regain the confidence of financial markets and meet the conditions of a multibillion-euro bailout from the European Union and International Monetary Fund.

On the weekend of March 14th, 2010, ex EU Commissioner Prodi proclaimed the worst of the Greek crisis was over. Many EU, ECB and Greek officials claimed Greeks issues were overblown. I said, “Greek Crisis Is Over, Region Safe”, Prodi Says – I say Liar, Liar, Pants on Fire!“.

There was also a fresh warning sign that the economic crisis could further intensify social unrest, after a record jump in unemployment. The crisis has already led to widespread industrial action and public protests.

With the fiscal squeeze only just starting, Greece is expected to remain mired in recession for the rest of this year.

The country’s ELSTAT statistics office estimated that second-quarter GDP fell by 1.5% during the three months, and was 3.5% less than a year ago. Those were steeper falls than the quarterly 1% and annual 3.3% contractions forecast in a Reuters poll of economists.

The falls were also sharper than in the first quarter. So while many fellow European economies, including the UK, were enjoying a quickening recovery out of recession in the second quarter, Greece’s first-quarter contraction of 0.8% almost doubled. The statistics office said that the deterioration reflected a drop in investment and public spending cuts.

As excerpted from Greek Crisis Is Over, Region Safe”, Prodi Says – I say Liar, Liar, Pants on Fire!“.

The Greek government’s macroeconomic assumptions also seem overstated when compared with EU estimates.

Now, its bad enough that Greece’s projections were more optimistic than the EC’s projections, but if you look at how overly optimistic the EC’s projections have been (actually you can just compare it to last quarter’s results) you begin to see why I have been so bearish on Greece. Let’s excerpt the bombastic piece, “Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!“.

The EU/EC has proven to be no better than the Greek government’s unbridled and highly misleading optimism, and if anything is arguably worse over time!

Revisions-R-US!

and the EU on goverment balance??? Way, way, way off.

Now for those who haven’t picked up on it yet, the entire Greek government austerity program’s success is based upon the highly optimistic (and already proven wrong) numbers forecast earlier this year. This means that even with the IMF/EU/ECB bailout, Greece ain’t gonna make it without more money. They have been over-optimistic on revenue generation and underestimated the drag on the economy from austerity measures, and have been counting by 1/2’s when it came to expenses.

Of course, as the article cites, social unrest is again cropping up…

The economic crisis in Greece has led to widespread protests, including clashes between demonstrators and riot police. Photograph: Louisa Gouliamaki/AFP/Getty Images

This was addressed in our Sovereign Contagion model (Introducing The BoomBustBlog Sovereign Contagion Model: Thus far, it has been right on the money for 5 months straight!, subscribers see Sovereign Contagion Model – Retail (961.43 kB 2010-05-04 12:32:46) and Sovereign Contagion Model – Pro & Institutional) and is woefully under-appreciated in its challenge to the will of governments to follow through on politically unpopular austerity measures. So, what happens if the projections are way off, or social unrest tilts the scales? First restructuring, and defacto default, then…. Economic and financial Contagion, that is what. Restructuring is inevitable, and we have modeled it out for the most likely suspects. See A Comparison of Our Greek Bond Restructuring Analysis to that of Argentina.

Subscribers can download Greece Public Finances Projections for a considerably more accurate and unbiased (yet still probably too optimistic) view of what is going on in Greek finances. Please be aware that we have run REALISTIC public finance analysis and haircut estimations for all of the usual suspects: Greece, Portugal, Spain and Italy – and have summed up the contagion threat for not only Europe but the developed world as well as key emerging markets. Reference…

The BoomBustBlog Sovereign Contagion Model

Nearly every MSM analysts roundup attempts to speculate on who may be next in the contagion. We believe we can provide the road map, and to date we have been quite accurate. Most analysis looks at gross claims between countries, which of course can be very illuminating, but also tends to leave out many salient points and important risks/exposures.

In order to derive more meaningful conclusions about the risk emanating from the cross border exposures, it is essential to closely scrutinize the geographical break down of the total exposure as well as the level of risk surrounding each component. We have therefore developed a Sovereign Contagion model which aims to quantify the amount of risk weighted foreign claims and contingent exposure for major developed countries including major European countries, the US, Japan and Asia major.

I. Summary of the methodology

We have followed a bottom-up approach wherein we have first identified the countries/regions with high financial risk either owing to rising sovereign risk (ballooning government debt and fiscal deficit) or structural issues including remnants from the asset bubble collapse, declining GDP, rising unemployment, current account deficits, etc. For the purpose of our analysis, we have selected PIIGS, CEE, Middle East (UAE and Kuwait), China and closely related countries (Korea and Malaysia), the US and UK as the trigger points of the financial risk dissemination across the analysed developed countries.

In order to quantify the financial risk emanating in the selected regions (trigger points), we looked into the probability of the risk event happening due to three factors – a) government default b) private sector default c) social unrest. The probabilities for each factor were arrived on the basis of a number of variables determining the relative weakness of the country. The aggregate risk event probability for each country (trigger point) is the average of the risk event probability due to the three factors.

Foreign claims of the developed countries against the trigger point countries were taken as the relevant exposure . The exposures of each developed country were expressed as % of its respective GDP in order to build a relative scale for inter-country comparison.

The exposures of each developed country were expressed as % of its respective GDP in order to build a relative scale for inter-country comparison. The risk event probability of the trigger point countries was multiplied by the respective exposure of the developed countries to arrive at the total risk weighted exposure of each developed country.

It is strongly recommended that any and all with an economic interest in Greek and Pan-European affairs review all 50+ articles in The Pan-European Sovereign Debt Crisis series. Those interested in subscribing to our research services should click here.