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Monday, August 29, 2016

The IMF's Ground-Breaking Role In Understanding The Euro-Area Crisis!

The IMF has taken a beating of late, particularly with regard to the Greek financial crisis. A Senior Fellow at the Bruegel Institute, Nicolas Véron, now comes to the support of the IMF with his article "The IMF's role in the euro-area crisis: financial sector aspects". Here is an excerpt:

"The International Monetary Fund (IMF) played a ground-breaking role in understanding the financial-sector dynamics of the euro-area crisis. It was the first public authority, and one of the first more generally, to acknowledge the role of the bank-sovereign vicious circle as the central driver of contagion in the euro area. It was the first public authority to articulate a clear vision of banking union as an essential policy response, building on its longstanding and pioneering support of banking policy integration in the European Union."

Was the IMF really the first public authority to highlight the risky dynamics of the Eurozone? Well, not quite. The European Commission itself, with the Delors Report of 1989, had pointed out the structural insufficiencies of the Eurozone. Karl-Otto Pöhl, a former Bundesbank President and member of the Delors commission, later commented: "When the report was formulated, I did not think that a monetary union would become reality in the foreseeable future. I thought perhaps sometime in the next hundred years. I thought it was improbable that other European countries would simply accept the model of the Bundesbank".

Well, Pöhl was wrong. Very expensively wrong!

Sunday, August 21, 2016

The ELSTAT Case And A Messenger By Name Of Andreas Georgiu

Andreas Georgiu, the former head of ELSTAT, is being tried for having intentionally 'worsened' Greek budget statistics for 2009 so that the EU could impose an extremely harsh austerity program for Greece. The fact that this first harsh austerity program ("Memorandum I") was agreed several months before Georgiu assumed his job at ELSTAT seems to be conveniently immaterial.

Obviously, one always runs 'the risk of not seeing the other side' when one side seems so convincing. In this particular case, however, the views of the 'one side' is entirely convincing that, in Greece, authorities go after those who tried to sort out the mess, not after those who created it.

Of all the commentaries, I find the contributions of the Icelandic journalist Sigrun Davidsdottir the best researched material on the subject. Sigrun's summary is:

"The reason I find the ELSTAT case so interesting and important is that in my view it’s a test case for the willingness of the Greek political class to face the misdeeds of the past, the corruption and all the things that hinder prosperity in Greece. In addition, a country without reliable statistics can’t really claim to be a modern and accountable country.

As it is now, Greece is heading towards a political trial where those who fixed the fraud are being hounded and punished, not the perpetrators. As long as the charges against Georgiou and his colleagues are upheld it is clear that the forces who want to keep Greece as it was – weakened by corruption and unhealthy politics – are still ruling. That isn’t only worrying for Greece but for Europe as a whole."

Below is a series of articles on the subject by Sigrun:

Old and new powers in Greece - and the ELSTAT case
Greek politics and poisonous statistics - an ongoing saga
Greek authorities punish the messenger, not the culprits of fraud
Lies, damned lies and Greek statistics

Greece's Current Account First Half of 2016

Below are the statistics of Greece's current account from January-June 2016, compared with the same period of the previous year. The same comparison is made for the month of June alone. All numbers are in BEUR.









January-June June
2016 2015 2016 2015
Revenue from abroad
Exports 11,6 12,6 2,0 2,2
Services (e. g. tourism) 9,2 12,7 2,9 3,4
Other income 3,6 3,6 0,8 0,3
Current transfers 1,1 1,2 0,3 0,1
------ ------ ------ ------
Total revenue from abroad 25,5 30,1 6,0 6,0
Expenses abroad
Imports 19,9 22,2 3,4 3,6
Services (e. g. tourism) 4,6 6,7 0,8 1,1
Other expense (e. g. interest) 2,5 3,5 0,6 0,6
Current transfers 1,0 1,6 0,2 0,2
------ ------ ------ ------
Total expenses abroad 28,0 34,0 5,0 5,5
Net foreign balance (current account) -2,5 -3,9 1,0 0,5
Trade balance -8,3 -9,6 -1,4 -1,4
Services balance 4,6 6,0 2,1 2,3
Other balance 1,1 0,1 0,2 -0,3
Current transfer balance 0,1 -0,4 0,1 -0,1
---- ---- ---- ----
Net foreign balance (current account) -2,5 -3,9 1,0 0,5


Here is the press release of the Bank of Greece commenting the above results.

At first glance, the figures look dismal: during the first 6 months of 2016, revenues from abroad declined by 4,6 BEUR! The fact that the current account balance registered a healthy improvement of 1,4 BEUR is due to the fact that expenses abroad declined even more than revenues (by 6,0 BEUR).

Much has been written about the poor export performance. Here it must be noted that the above figures are a bit distorted because both, exports and imports, are composed of 3 categories: oil, shipping and "other goods". It is the category of "other goods" which most people mean when they refer to Greece's exports. Below are the statistics for that category:






Exports "Other Goods" 8,9 9,1 1,6 1,7
Imports "Other Goods" 16,0 16,0 2,8 2,8
---- ---- ---- ----
Balance of goods excluding oil and ships -7,1 -6,9 -1,2 -1,1

Both, for the 6 months as well as for June alone, exports declined while imports remained stable. It would obviously be better if it had been the other way around.

Having observed the development of Greek exports for over 5 years by now, I think emphasizing the importance of export growth is a bit like beating a dead horse. It seems unlikely that exports will ever be the growth engine for the Greek economy.

The more I think about it, it may indeed be best for Greece to return to a simple economy à la 1950's and 1960's, i. e. an agrarian economy with simple support manufacturing and an emphasis on exporting the related goods. Of course, that will require investment in food processing plants and the like thereof. And good old tourism and shipping should be the major drivers of growth.

Saturday, August 6, 2016

Lull Before The Storm?

"The relative calm in Greece this summer compared to last year’s chaos may lead outside observers to believe that the country’s financial problems are on their way to being resolved. After all, the national government, led by the far-left Syriza party, seems committed to implementing the bailout program it signed last year. And negotiations are already under way for a deal on debt relief" - writes Yannis Palaiologos in the WSJ.

Well, as an 'outside observer', I would agree with this assessment. Where I used to post an article every other day or so, I am now moving towards every other week or so. The recent change in the electoral law and the planned changes in the constitution have perhaps awakened some interest temporarily but it quickly faded away. And the refugee crisis has become sort of quiet, too.

Luckily, there is still Yanis Varoufakis who is always good for some excitement. His Plan X of the spring of 2015 had hit the headlines again because of what Prof. James Galbraith had written in a book about it. This prompted a letter to the Ekathimerini by 23 'US-educated Greeks' taking this Plan X apart. Which, in turn, prompted a response letter to the Ekathimerini by Prof. Galbraith where he demonstrated that the 23 Greeks had not done their homework. Finally, The Moral Apostle Varoufakis had to sum up the situation with a message from the moral high ground titled "Let's talk about academic-journalistic ethics, shall we?"

Well, that was entertaining and it reminded me how much more fun it was when Varoufakis was around to demonstrate how easy it was to run an economy into the ground (except for those who were run into the ground).

Joking aside, I spoke with my friend Yiannis in Thessaloniki in preparation for our return to Greece later this month. I told him how happy I was to see that things in Greece had seemingly stabilized and become 'quiet'. Yiannis laughed at me and told me it was high time to come to Greece to find out what the situation was really like. Yes, he said, the situation seems stabilized and quiet but he warned that this was only the lull before the storm and that the storm would break out soon.

Well, I look forward to hearing more about the upcoming storm from Yiannis.

Saturday, July 23, 2016

Greece's Current Account - Major Changes!

Below are Greece's current account statistics for the period January-May 2016, compared with the same period of the previous year (source: Bank of Greece).

(in BEUR)

January-May
2016 2015
Revenue from abroad
Exports 9,6 10,5
Services (e. g. tourism) 6,2 9,3
Other income 2,9 3,2
Current transfers 0,9 1,1
------ ------
Total revenue from abroad 19,6 24,1
Expenses abroad
Imports 16,4 18,6
Services (e. g. tourism) 3,8 5,6
Other expense (e. g. interest) 1,9 2,9
Current transfers 0,9 1,4
------ ------
Total expenses abroad 23,0 28,5
Net foreign deficit (current account) -3,4 -4,4
Trade balance -6,8 -8,1
Services balance 2,4 3,7
Other balance 1,0 0,3
Current transfer balance 0,0 -0,3
---- ----
Net foreign deficit (current account) -3,4 -4,4

While the bottom line is encouraging (a 1 BEUR improvement over the previous year), there have been substantial developments in the services balance which the Bank of Greece comments as follows:

"The surplus of the services balance shrank by €1.3 billion in the January-May 2016 period, as net transport receipts registered a significant decline, which is also largely attributable to capital controls. Net travel receipts also recorded a fall. It should be noted that in the first five months of 2016 total non-residents' arrivals decreased by 1.3% and the corresponding receipts by 6.2%. These developments were offset to a small extent by an improvement in the other services balance".

I am not quite sure why the deterioration in the services balance is the result of capital controls because capital controls should affect payments to abroad and not from abroad. Service revenues from abroad declined by a staggering 3,1 BEUR to 6,2 BEUR.

Tuesday, July 19, 2016

Democracy - Carved In Stone Or Work-In-Progress?

Out of (still) 28 EU democratic member states, there are probably not any 2 countries with identical democratic systems. The voting age may differ; the representation rules may differ; there may be winner-take-all or not; etc. etc.

I would like to see this: suppose that there are 28 different forms of democracy in the EU, have each country show the results in each of these 28 variations. Who knows? Maybe there is a democratic scenario where Merkel would not be Chancellor. Or take the most extreme example: in the US, it is quite possible that one becomes President without a majority in the popular vote (happened several times). Is that ok?

Greece, or rather: SYRIZA, is currently attempting to change the electoral rules: where the largest party received a bonus of 50 seats (out of 300) in the past, SYRIZA now wants to eliminate that. True, democracy may be more pure if one eliminates bonuses like that but democratic systems should also make it easy to form a government.

Obviously, SYRIZA's attempt is a play to assure its participation in government even when it is not the largest party. There probably is not a single Greek who doesn't understand that.

On the other hand, and removed from day-to-day politics, it would certainly seem appropriate, if not even desirable, that politicians continually lead debates about how we want to govern ourselves. Be that at the country level or at the EU level.

That’s what the American Founding Fathers (and their successors) did and, yet, Barack Obama still aptly calls American democracy „work-in-progress“.

Sunday, July 17, 2016

TrainOSE - A Good Deal Or A Bad Deal?

The Greek TrainOSE was sold to the Italian Ferrovie Dello Stato Italiane (from state-owned to state-owned) for 45 MEUR. I have not yet read any analysis anywhere of this transaction. Obviously, with a price ticket of 45 MEUR, one is inclined to think that this was a give-away. On the other hand, even 45 MEUR could be a good price for Greece. It all depends...

Some years ago, Austria sold its national carrier to Lufthansa. Not only did Austria not obtain a price for the carrier, instead, they had to give Lufthansa a 'gift' of 500 MEUR in order for the deal to close. In retrospect, that 'gift' of 500 MEUR was cheap compared with what Austria would have lost otherwise.

If the Italian state assumes all liabilities of TrainOSE and all future losses, and if - as commentaries suggest - they make substantial investments in TrainOSE going forward, this might indeed be a good deal for Greece. If, as one of my Greek friend says, the Thessaloniki office of TrainOSE alone is worth more than 45 MEUR and can be sold straight away, then it might not be such a good deal.

One can only hope that it will not take too long until details of this transaction are published.