All forecasts indicate that the Greek economy has suffered a major negative impact due to the measures taken to address the pandemic. Based on measurements and estimates from government bodies, the data at the start of the new year paint the following picture: GDP: down 11.7%. Unemployment: up 10.5%, Current balance of trade: down € 9.4 billion, Budget deficit: down € 13.75 billion, Business balance: down 8%. The balance of trade is up € 3.6 billion and good news stops here because we also have debts to the tax office of over € 106 billion while non-performing bank loans are around € 60 billion while the loans that are being managed (that were formerly non-performing loans) stand at around € 33 billion. However, let us look selectively at some other market indicators. Airport passenger traffic: down 83%, Overnight stays at accommodation: down 73%, Car registrations: down 30.7%, Delays in paying electricity and telecommunications bills: up 64 days.
The results of support measures offering domestic public and European cash have impacts that appear in the market and in society over three times periods: immediately (3-6 months), short-term (12-24 months) and long-term (3-5 years).
Domestic governmental and European support (both in terms of measures and money) along with any cash reserves which households and businesses may have, ensures things are 30%-40% of what they were, thereby avoiding sudden disaster. Over the short term, provided that the vaccination plan is effectively implemented, a partial suspension of lockdown measures will result in things getting back to 60%-70% normality. We cannot make sound predictions over the long term, but according to the forecasts made by the EU, the OECD, the World Bank and large consultancy firms, it will take 3 to 5 years to achieve the same GDP as in 2019.
There is one simple conclusion. Greek households and businesses in Greece have suffered a major drop in their income. Considerable will be time required to restore income to previous levels through production and support. Yet debts to the tax office, social security funds, banks and suppliers continue to accrue. However, the most important problem –especially for households– will be how to deal with monthly inelastic expenditure, such as rent and energy/water/phone and food bills. Here we need to add in one additional very important problem which has not been mentioned anywhere. Long-lasting products such as washing machines, refrigerators, kitchens, air-conditioners, furniture and mattresses are needed by households as replacements (because the old ones break down) or new one have to be acquired (because children go off to study in another town). The average cost of acquiring such items is just below € 1,000. In other words, it’s around 2 times the basic salary and very close to the median of the actual net salary at market terms.
Some will say that the State offers debt repayment plans and the market offers payment by instalments. However, the question is whether these arrangements are viable, especially given the impact of the pandemic. The answer is clearly no. If it were, we wouldn’t need to be having discussions every so often about 120 instalment repayment plans, we wouldn’t have such a large volume and value of non-performing loans and we wouldn’t have any new bad debt for loans and credit.
The response to this challenge is the concept of “tailoring” the plan to the individual.
The Repayable Advance has undoubtedly been a very successful measure, with unprecedented levels of acceptance by Greek standards. Why is it successful? Because the decision was taken to run it using an algorithm that utilises a series of data sets so that the final value of the amount lent is tailored as best as possible to the situation of each and every applicant.
On the contrary, in the past and the present, horizontal proposals made about a specific number of instalments of a specific value have not generated sustainable results and/or favoured poor payers. Any companies in this time of pandemic that have dared to offer tailor-made repayment plans for new household purchases or for paying off old and existing debts achieved what was key. They kept their customers, prevented them from going into hiding, and did not lose them. In a second phase they managed to understand and try to offer a viable solution so that when normality returns they can resume a normal relationship with their customers.
Tailoring the plan to the individual blends empathy with modern technology and is certainly not a “can’t pay/won’t pay” movement.
However, is it possible in Greece today for a creditor, a lender, a seller or even the State –through agreement– to put in place a repayment plan or to facilitate payments effectively, avoiding anachronistic repayment notes and bills of exchange? The answer is clearly yes and the solution is in fact quite simple. When applied with the support of large data processing tools, AI technology can identify different profiles and subsets to which specific persons with the same characteristics belong. For example, for one civil engineer the priority may be making payments to the tax office while for a mechanic who owns a body shop it may be paying the electricity bill. These two transacting parties may not have the same repayment plan when it comes to paying for electricity. One could give countless examples looking at countless parameters. What previously seemed impossible, is now feasible for software that uses AI algorithms and machine learning, which can process structured and unstructured data (e.g. free text records about repayment plan behaviour) and propose solutions tailored to the individual.
We need to immediately stop horizontal plans that are the same for everyone, consisting of 12 or 24 instalments or payment of such and such an amount in euro. Technology can be blended with “empathy” and can generate sustainable results for all.
The results of the Repayable Advance scheme and sporadic corporate (not banking) repayment plans for purchases and debts during the lockdowns has demonstrated this.
Will the State dare, will the banks dare, will the companies dare to go to with personalised tailored plans or will the moribund rationale of placing uncertain bets continue, undermining the future of generations to come in the market and society?