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Thursday, November 27, 2014

Nicholas Gage Warns of "Troubles Ahead"

"So a lot more is riding on the selection of a president next February than who will be the new head of state. If the members of Parliament make a choice and avoid premature elections, a new sense of responsibility in the country may have a chance to take root and lead the Greek people to a promising future. If they don’t, the recent hardships Greeks have faced will pale in comparison with the troubles ahead".

This is the conclusion which Nicholas Gage draws in his article "A Sea of Change in Greece?" published today in the New York Times. I owe Gage some of the best reading hours of my life. His most famous book even prompted me to trace the footsteps of Eleni Gatzoyiannis in Epirus' 'most famous hamlet'.

Given his childhood experiences, Gage is obviously no friend of the left. If "Eleni" were the only book one read about Greece's Civil War, one would be convinced that there were only 'good guys' and 'bad guys' from 1946-49. When Gage visited Greece in the late 1970s, he was stunned to see that the 'bad guys' had successfully come back.

Still, the above is an assessment which I would be inclined to share. The Greek economy is far from being in a position of being able to make it on its own. Greece will require the financial support of foreigners for years to come, be that in the form of loans and/or foreign investment. And based on everything which SYRIZA has declared so far, that financial support is likely to evaporate once SYRIZA comes to power.

However, the current Greek government must understand one key point: the fact that 'the recent hardships Greeks have faced will pale in comparison with the troubles ahead' if SYRIZA comes to power IS NOT a sufficient argument to stay in power. That does not give the current government the right to act as though they are not even interested in the moods and spirits of the Greek people.

If I were a supporter of the current Greek government, I would be desperate for them to finally act in a way that I could wholeheartedly support instead of only supporting them by default. If the 'troubles ahead' will indeed occur, then it will be less the fault of those who caused them then the fault of those who were incapable of preventing them from happening.

Supreme Nonsense From SYRIZA's Economic Leadership!

Yiorgos Stathakis (SYRIZA's top economist) and Yiannis Milios briefed investors in the City of London about the plans they would implement when SYRIZA comes to power. Protothema published an email which Joerg Sponer of the Capital Group sent out after having attended the meeting. I take the liberty of publishing it below.


"Yes, I was at Stathakis (ca. 15 investors) and a separate one mit Mr. Yiannis Milios, Chief Economic Advisor (ca. 20 investors).

Overall summary
* Everyone coming out of the meeting wants to sell everything in Greece.
* The program is worse than communism (at least they had a well thought-through plan). This will be total chaos.
* I expect if SYRIZA get to 36,5% and thus absolute majority given the +50 seats, you will see a Cypriot scenario --- massive run on deposits, corporate clients moving everything they can abroad and a complete stop of foreign direct investments.
* They believe that Samaras will not get more than 174 MPs in March; they have written statements from several MPs not to follow Samaras.

If they weren't that serious when talking, I thought this was a theater play / joke.
* "We feel most connected to 'Podemos' in Spain and 'Die Linke' in Germany. However, they are too liberal".
* "We will stop austerity. We told people on the street to stop protesting as we will come in an take care of them".
* 5 cornerstones of their program:
-- (1) stop humanitarian crisis by providing free electricity, food, shelter and healthcare to all in need.
-- (2)  increase wages for everybody to a minimum of EUR 750/month x 14, and for pensioners EUR 750/month x 13. Start to hire several thousand employees into government positions.
-- (3)  primary surplus of 1% through a sudden stop of the black economy. There is no more incentive for black economy as people now have a minimum of EUR 750/month (what a joke!). No more property taxes (costs 2 BEUR). Cut all taxes to 20% except high incomes (costs 2 BEUR). All being paid for by collecting 70 BEUR in unpaid taxes. They expect GDP growth post-SYRIZA taking over of 3-5% as SMEs can now invest with confidence (LOL). They expect huge FDI.
-- (4) renegotiate sovereign debt.
---- (a) ECB to buy entire Greek sovereign debt for 60 years and forfeit any interest (Germany got in 1952 a 62% debt haircut so Greece should get one, too).
---- (b) I mentioned that Germany also embraced huge structural reforms at the same time. Both sides said that the structural reforms had gone too far already.
---- (c) Greek debt/GDP to go to 20% by 2080 (hahahaha - what a joke!).
---- (d) further increase of deserved subsidies from Bussels by 5 BEUR.
---- (f) nobody in Brussels gains if Greece leaves Euro so Greece has a lot of leverage. Tsipras made the mistake of agreeing with Merkel that Greece is to stay in the Euro.
-- (5) debt moratorium of private debt with a maximum debt service of 20% of disposable income above EUR 750/month.
---- (a) create 2.000 FTI credit bureaus to intermediate between banks and borrowers. They decide who pays what and how much debt is forgiven.
---- (b) HSFS will recap banks with 3 BEUR (cost of year 1 losses of above). In year 2 write-back's (both of them said that seriously!) as the Greek GDP will grow strongly and investmens will flow.
---- (c) banks are too strong, creditors are too weak. They will reverse that.
---- (d) they will exchange 100% of senior management at 3 large Greek banks (ex Eurobank as no more majority)
---- (e) they will order judges to be more productive

Couldn't have made it up, even if I wanted".

So much about Joerg Sponer's email. So far, I have always been very constructive about every plan which has been announced by Tsipras/SYRIZA. In case of doubt, I have read constructive intentions into their announcements. If the above is a correct report of what Stathakis/Milis said at those meetings, then one cannot but consider SYRIZA's economic plans as supreme nonsense!

Thursday, November 20, 2014

Greece's Current Account: January-September, 2014

Below are the numbers for Greece's current account for the period January-September 2014, compared with the same period of the previous year. Also compared are the numbers for the 3rd quarter alone.

(in EUR billions)


January-September
3rd Quarter









2013 2012
2013 2012
Revenue from abroad





Exports 17,6 16,8
6,1 5,8

Services (e. g. tourism) 25,2 22,6
12,9 11,5

Other income 2,6 2,6
0,9 0,9

Current transfers 5,1 6,3
0,9 2,5


---- ----
---- ----

Total revenue from abroad 50,5 48,3
20,8 20,7







Expenses abroad





Imports 31,1 29,7
10,6 10,4

Services (e. g. tourism) 8,4 8,3
2,8 2,8

Other expense (e. g. interest) 4,9 5,2
1,6 1,7

Current transfers 2,3 2,7
0,6 0,8


---- ----
---- ----

Total expenses abroad 46,7 45,9
15,6 15,7














Net foreign deficit (current account) 3,8 2,4
5,2 5,0







Account balances




Trade balance -13,5 -12,9
-4,5 -4,6
Services balance 16,8 14,3
10,1 8,7
Other balance -2,3 -2,6
-0,7 -0,8
Current transfer balance 2,8 3,6
0,3 1,7


---- ----
---- ----
Net foreign deficit (current account)3,82,4
5,25,0


1. The YTD current account improvement was actually greater than the 56% shown above because the previous year included one-time revenues of about 2,5 billion. Either way, a very substantial improvement!
2. Revenues increased both in the YTD period as well as in the 3rd quarter even though both periods included the extraodinary item for 2013.
3. Particularly noticable is the increase in 'services', much of which presumably goes on the account of record inbound tourism.
4. Imports increased at about the same rate as exports. The ratio of imports to exports is now 1,77. That is for every EUR 1.000 worth of exports, EUR 1.777 are imported. A staggering improvement over only several years ago, but still.
5. Overall, the trade balance is deteriorating, possibly reflecting the bottoming-out of the recession.

Press release of the Bank of Greece.

Crush the Greeks! Versailles All Over Again?

It all began with a short comment I made to an article by Prof. Yanis Varoufakis titled "Crush the Greeks! The Greek bailout revisited in the light of the Geithner revelations". Instead of leaving my comment buried among all other comments, Prof. Varoufakis made a separate post of it: "Klaus Kastner responds to the Geithner revelations, and my Versailles Treaty allegory". This was then followed with an article by Prof. Varoufakis "Was Maastricht another Versailles for the German nation? A reply to Klaus Kastner". And it was then finished off by my clarification "Klaus Kastner replies - On the Versailles Treaty parallels".

Happy reading! Particularly happy reading of the numerous comments!

Monday, November 17, 2014

Alexis Tsipras - Convert 7 Key Aims Into Just One!

The French blog LaTribune published an article about Tsipras/SYRIZA in which it hyperlinked a post which I had written just about one year ago: "Alexis Tsipras - Convert 7 Key Aims Into Just One!" After re-reading it, I decided to reproduce it below.


November 23, 2013
This article reports the answers which Alexis Tsipras gave when asked by the newspaper Avgi what his key aims would be during his first 100 days of governing (the bold emphasis is mine): 

* Cancelling the EU-IMF memorandum and replacing it with a national reconstruction plan.
* The plan will include bringing back collective bargaining laws and restoring the minimum wage to the pre-crisis level of 751 euros, from which it was reduced by 22 percent in 2012.
* The creation of an assets register to help with taxation, and the drafting of a new tax system.
* The renegotiation of Greece’s loan agreement.
* Increasing social welfare.
* Reopening public broadcaster ERT and legislating for the awarding of digital licenses.
* The overhaul of Greece's banking system, providing greater state control of lenders and the creation of small, regional development and cooperative banks.

I would suggest that the way Tsipras formulates his first key aim (in bold) may have as a consequence that his government won't last for 100 days. I would recommend to rephrase that key aim as follows: 

"Negotiate with our EU-partners to consensually transform the current EU-IMF memorandum into a long-term economic reconstruction and development plan for the Greek economy. The plan’s objective will be to transform, within one generation, Greece into a self-sustaining, value-generating economy on the basis of a sound, market-based private sector supported by an efficient and modern public administration, adequate in size and competency. A major pillar of the plan will be a focus on direct foreign investments in Greece’s productive sector, thus bringing not only financial resources but also know-how in all areas to Greece; thus enabling Greece to increase its productive capacity, to increase employment and to import less; thus enabling Greece to make products which other countries will want to buy. The primary responsibility for developing such a plan will be with Greece but we seek active participation of and know-how contribution by our EU-partners. We are confident that, once that comprehensive plan is on the table, our EU-partners - seeing that the plan has our unequivocal support - will willingly assist with financing it because such financing will be a good investment”. 

I would further suggest that if Tsipras were to focus on the above key aim, all his other key aims would fall into place naturally (because they would be part of a long-term economic reconstruction and development plan for the Greek economy).

Sunday, November 16, 2014

Who Says Things Have Not Improved in Greece???

One of my recent pieces on reforms in Greece triggered a lively debate about the question whether, despite all the talk, there have been reforms in the first place. Whether anything at all has improved since 2010. I quote below a commentary which an anonymous reader of my blog had posted. I think it is a very remarkable listing of hard facts (and some great soft facts, too!). Something which I have not seen elsewhere. 

"Public sector lay offs (or, as requested, public sector cost reduction): How they did it was their (the government's) choice. Layoffs may not have been many, but there were layoffs, be they directly or indirectly. What did you expect to hear? Government laying off 50,000 workers in one day? Not going to happen. In any country. Public sector was reduced by wage cutting and drastically reducing benefits. Not health but the unbelievable benifits we both know about. Such a 75% off for this and that public service. Also retirement. Yes many had to be retired, outdated dinosaurs who do not know what a computer looks like. I like seeing so many young and eager faces in the public sector don't you? See anyone smoking in public buildings? No!

I am aware of many services which have improved in performance and their budgets have been cut, quality of their services improved and the time to action. Police, Fire department, KEP, Ministry of Taxes (of course they are taxing the hell out of us but at least they have been modernized). I can do everything online without having to be on line for 5 hours and interigated at the end. Department of transpotation has improved its services. IKA or health system is still behind but they always were. At least they reduced the cost of drugs plus allowed quality generics drugs into the system. This has in parallel contributed to the increased production of Greek pharmaceutical businesses. A business sector in Greece that is booming and has both local and exports. Generics is the future and Greece already has a strong pie in the local balkan region.

Road system. Our major highways, although private and expensive, are the best in Europe. I have been all over Europe and we have nothing to be jealous of versus Germany, Italy or France. In contrary they should be jealous of us. It is expensive, yes, but Turkey, a major exporter to the EU, uses our roads now as a necessity to get goods safely to their destination. Konstandinoupouli to Igoumenista to Italy and so on.

Free market? Pharmacies? No this is not a monopoly. Have you not seen how many pharmacies have popped up everywhere? Are you aware that super markets can now have pharmacies? This will change the landscape alone in this sector. The difference is that we choose to go to our local pharmacy because we want an expert opinion from "our own" phamacists. It is a personal issue. Law is there. But companies have not come yet. They will. The invester who brings CVS to Greece will make a pile of money. Drive in pharmacy like the USA. It is all coming. The only reason it has not happened yet is that commercial companies do not choose to sell to non pharmacies because it is a strong sector. It will change though.

Sunday opening? That is an American idea which simply cannot be implemented in Greece. Firstly, it is an idea which costs more for a business in Greece to open on Sunday because nobody goes. In America it works because America has a larger population and people go to shop on Sunday. It is a cultural thing. Greeks will not go on Sunday. The idea is a disaster and there are already discussions in stopping this. Nice idea, didn’t work.

Transportation? OSE I assume? I pray for the day that either Cosco or the French bidder buys OSE. In my Masters of Logistics Managment in 1997 I studied the logistics changes of the 80's in the USA. Imports from ASIA would go through the Panama canal to service EAST coast USA. That ended with the idea of train piggy back. Containers would be dropped off at west coast and onto rails and be shipped by trains to the east coast. The costs of shipping were halved in one night.
 
.....

Now imagine Greece. We are the first major port or can be the largest port into EU coming out of the Suaze or outgoing to Asia and Mid Asia. Piggy back to Europe and compete directly with all the northern european ports EASY. Increased turnover, increased infrastructure, more jobs, reduced costs for local goods, increase in exports for local companies. The handling of containers by Cosco has greatly increased since it was a public port. Thank God! Why on earth do you think Cosco bought our port? For Greece and the local market? No because they see the oppotunity to own and serve Europe through Greece. Very wise our Chinese friends. As a public port we would never be able to aspire to this. This will be a great thing if this happens. I believe it will.

ERT: Although this smells from the top to bottom, I am sorry to say I am glad they closed ERT. Yes nice programs and good reporting but I am not going to pay 30-40 euro monthly for this. NO WAY. I can get Nova with 30 channels with the same money. As a news source the private channels were propaganda machines anyway. They simply removed the balanced opinion. It was not worth the money. Especially for once a week shows who the presenter was making XXX,000 euro? per show to get piss drunk and have fun with his friends.

Don't look at things as we normally see things. With our negative attitude or our disbeliefs. Things are happening and things will change. I also get discouraged with many things in our country, but we must have faith and strength within ourselves to all help move foward. Together. Nobody can ever stop us if we were togther and you know this.

Although I am not a Keynesian, I do admire one of his most well noted quotes: "The difficulty lies not in the new ideas but in escaping from the old ones."

Change is happening and we need to embrace it. Even if an idea is wrong, we need to find the positive in it.

Like Socrates said, "know thyself." Do you know what our biggest problem is? We are 9 million greeks in greece and for every issue or aspect of our society, we have 9 million opinions.

We have incredible diversity. This is a good and intrinsic value of character. nobody has it like us. But it must not be in our way to grow. So when we see something new, we should not bash it but embrace it and try to improve it if it has flaws. 

And rethinking the above I would say we are on a better track than what most people think".

Saturday, November 15, 2014

Greece's Return to Growth

In October 2011, that is over 3 years ago, I wrote an article titled "Good news! Greece will grow again!" I was being sarcastic because Horst Reichenbach of the EU Task Force had predicted that Greece would return to growth in... 2014. My question was: "Another at least 2 years of economic decline? Put differently: another at least 24 months of a development which has already tested social peace quite noticeably every month?" My implication was that this couldn't possibly end well.

Well, Reichenbach was right and I was wrong; fortunately!

It now definitely looks like the Greek economy will close 2014 with a positive sign in front of GDP development. And Greek society, despite all the hardships, has not revolted. Not yet, that is.

Since Reichenbach seems to be a rather good forecaster, I quote one of the forecasts which he made at a recent LSE discussion group when he referred to the current social hardships in Greece: "This is really a dramatic situation in which the activities of extreme parties can prosper by offering part of the solutions to these problems and if Greece is not, as a state, and in solidarity with Europe, is not able to address these problems head-on, there will be a very difficult situation".

We now know that the next 3 months will determine the future of Greece. Or so everyone seems to be saying. Which reminds me that I have heard several times in the past that Greece's national fate would be determined 'in the next few months'. So far, the national fate has miraculously survived all those fears. So if I had to bet money, I would extrapolate from the past and predict that the national fate will not be decided in the next 3 months. Hopefully not!

Thursday, November 13, 2014

Has Greece Reformed Since 2010?

"So we ended with half-hearted reforms, which in some cases were not implemented or were eradicated after being approved. The biggest crime of all was that the political system relinquished reform ownership and blamed everything on the memorandum and the troika. Greeks despised the troika and the memorandum as they saw their salaries and pensions being slashed while taxes skyrocketed. There was little, however, in terms of reforms. Schools, universities, hospitals, red tape and justice, among others, remained more or less the same. Fiscal reform was carried out in the same way in which a dentist pulls out a tooth without using anesthesia. In the absence of other policies, lowering labor costs became the easy way to increase competitiveness. This failed to translate into exports and real production, however, as the entire system is anti-entrepreneurship".

This would be the major critique of Greece which foreigners make off-the-record when they are being blamed for 'having destroyed the Greek economy'. I was surprised to read it in an editor's commentary in the Ekathimerini. And I was even more surprised that quite a few of the readers of the article expressed agreement with it.

Personally, I am at a loss to judge this. On one hand, when I read reports by the EU Task Force, the Troika or the IMF, I always read that "Greece has made substantial progress...". Sometimes they include listings of all the items where Greece has made progress with reforms. On the other hand, the people who I meet in day-to-day life tell me the opposite. They tell me that they have to wait as long as before to get things done with public offices; that things are as complicated as they were before; and - sadly - that public officials are as corrupt as they were before.

One thing is certain: only if and when everyday people notice in their day-to-day lives that things are getting better will they start believing that things will get better.

Piraeus Bank: David Einhorn vs. ViennaCapitalist (cont'd)

"This is a very weak investment thesis. The quality of the analysis is disappointingly low. Both his (David Einhorn's) macro and his micro arguments are overly superficial, as he takes all figures at face value without trying to understand the drivers behind them. This makes him blindly trust the coverage ratios presented by management (or Piraeus Bank), or ignore the effect of known regulatory changes. He doesn’t touch the management topic at all, although there clearly are some issues such as a cosy relationship with regulators/politicians – in my experience not necessarily evidence of shareholder value driven ethics. Worst, however, is the fact that he does not demand a “margin-of-safety” from this investment, but prefers to speculate on how much people might be willing to pay in the future".

I have previously published Part I of ViennaCapitalist's analysis of Piraeus Bank and above is the conclusion of Part II.

I have written quite a bit about Piraeus Bank, particularly its relationship with the Marfin Investment Group. To me, Piraeus Bank is a classic example of the weaknesses in the Greek banking system. Under the pretext of wonderful headlines and with the help of creative accounting, crony business deals are pursued and falsely described as efforts to turn-around the Greek economy. 

"You can fool some of the people all of the time and you can fool all of the people some of the time, but you can't fool all of the people all of the time" (Abraham Lincoln). Whether this statement will also apply to some of the Greek business elite, such as Piraeus Bank, remains to be tested.

David Einhorn on Piraeus Bank: Now I know what he thinks (Part I)
David Einhorn on Piraeus Bank: Now I know what he thinks (Part II)

Monday, November 10, 2014

Greece 2.300 years ago. And Today?

I am presently reading a book about Alexander the Great by Robin Lane Fox and I came across the paragraph which I cite below. It comments on Greek society around 330 BC, or about 2.300 years ago. In brackets, I put today's equivalent of the terms applicable 2.300 years ago. Sort of striking; isn' it? 

"War [political conflict] was the natural state of every Greek city [Greek society]. In theory, they were considered to be at war [in conflict] with each other, except for particular cases where they had sworn a temporary alliance and theory was usually born out in practice. Greece … was a society obsessed with instability and poisened with revolution … It was a living proof that the Greeks had failed to produce any political and economic form which could hold a community together".

Greek Media - Corruption, Clientelism and Censorship

Michael Nevradakis has compiled an 8-part series about corruption, clientelism and censorship in Greece's media landscape in the blog truthout. I take the liberty of linking these articles below.

Nr. 1: Corruption, Clientelism and Censorship in Greece's Media Landscape