rockdoc, did the Greek economy collapse because of $147 petroleum, or was it a result of the bad mortgages in Cincinatti, USA? I'll bet you will try to explain how it was the Socialists in the Greek Parliament? Norway and Holland have socialists also. But those countries have have their own magic water also. Why has Spain, Italy and 100 other world economies (without their own significant supplies of oil/NG) remain mired in Depression?
Well first off there are not 100 other economies who remain mired in in Depression. When you make a statement like that then you need to back it up with data. I’ve had a long look at the World Bank data and the only countries that have not recovered from the 2008 global financial crisis are Greece, Italy, Spain, Hungary, Croatia and the Czech Republic. A simple look at the economy of those countries explains the situation and it isn’t related to oil prices.
Greece’s economic problems have very little to do with energy prices, they began in the ‘80s when Greece’s fiscal policies resulted in soaring inflation, trade deficits and a number of exchange rate crises. Greece gained acceptance to the EU but did so with deficit and debt that wasn’t anywhere near what was required by the Maastricht Treaty guidelines. Because of entry into the EU Greece was able to borrow at a much cheaper rate than previously…. akin to giving a drunk free booze. Greece was spending well beyond their means with very little in the way of any new revenues. Tax invasion was rampant in Greece with the wealthy class self-employed under reporting income and over reporting debt payments. As a consequence, Greece’s revenue stream continued to flounder. This is all background to what happened in 2008 with the global financial crisis. The recession further weakened Greece’s revenue stream and their deficit worsened. In 2010 Greek bonds were ranked as junk grade and with capital drying up Greece faced a liquidity crisis and bailouts. These bailouts further increased Greece’s plight…no revenues and increasing calls by IMF and European creditors to fulfill financial obligations.
So where other countries were able to build their way out after the financial crisis of 2008 Greece’s situation worsened, it didn’t get better when prices dropped in 2008 to $40 Brent and it hasn’t gotten any better when prices again dropped to $40 Brent in 2016. In fact Greece’s GDP was much higher from 2004 through 2008 when oil prices where higher than the low of 2016. It’s problems are independent of oil price.
Italy’s GDP had steady growth from 2000 through 2008 until the financial crisis after which it has steadily declined. Italy has a huge amount of bad loans in their banks ¾ of which are to Italian companies and there hasn’t been enough capital to clean these loans off their balance sheets. The also suffer from the lowest productivity in the whole Eurozone with the myriad of small businesses unable to achieve any scale of growth. Corruption and weak rule of law have also stymied new businesses. Add to that the fact that about 15% of Italy’s economy is hidden in the shadows (no taxes). The picture of oil consumption in Italy has no direct relationship given it has steadily decreased since the late nineties while GDP continued to increase up to the global financial crisis.
In Spain the economic failure was set up by entry into the EU with the access to very low interest rates. Spain’s banks, property developers and normal home buyers borrowed and fueled a huge property bubble. From 1996 to 2007 Spanish property prices had tripled. With the onset of the global crisis that bubble popped and Spaniards have been fighting to pay off their debts ever since. Spain internal spending also got out of control with regards to Labor prices, rising to some of the highest in Europe which meant their exports were expensive and uncompetitive. But because they are in the Euro Spain doesn’t have the luxury of devaluation, they are stuck. Spain’s economy continues to overspend the GDP to date. Oil consumption is a miniscule porton of that spending.