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Tuesday, January 15, 2019

Interest Expense In the Drachma Age vs. Interest Expense In The Euro Age

With all the challenges/problems which the Euro brought for Greece, there were also benefits which are often overlooked. One of the principal benefits was the significant reduction in interest expense. One way to measure the burden of interest expense is to put the latter in relation to the financial resources available to pay interest, i. e. tax and other government revenue. In theory, one could argue that every billion which is saved on interest expense would enable the government to make a billion of investments elsewhere. In reality, this is not the case because the government could do both at the same time when financing the 'other' billion with new debt.

Greece's debt increased dramatically from 2000 (the last year of the Drachma) to 2017, from 141,0 BEUR to 317,4 BEUR (this after a haircut of approximately 100 BEUR). A layman might assume that Greece's interest expense would have increased dramatically, too.

In fact, Greece's interest expense declined from10,2 BEUR in 2000 to 5,6 BEUR in 2017.

In 2000, the last year of the Drachma, interest expense absorbed 32% of tax revenue whereas in 2017, interest expense absorbed only 11% of tax revenue. This was due to a combination of higher tax revenue and lower interest expense.

In 2000, the last year of the Drachma, interest expense absorbed 17% of total government revenue whereas in 2017, interest expense absorbed only 6% of total government revenue. This was due to a combination of higher government revenue and lower interest expense. The statistics are below (in BEUR).

Interest Expense vs. Government Revenue
2000 2017
Taxes on income, property, etc. 13,2 18,1
Taxes on production, imports, etc. 18,5 30,8
-------- --------
Total revenue from taxes 31,7 48,9
Social contributions 17,0 26,0
Capital transfers, etc. 9,9 11,8
-------- --------
Total non-tax revenue 26,9 37,8
Total government revenue 58,6 86,7
Total debt 141,0 317,4
Interest expense 10,2 5,6
Interest expense as % of tax revenue 32% 11%
Interest expense as % of total revenue 17% 6%

What conclusions can be drawn from the above?

First, had Greece stayed with the Drachma, the interest expense would have remained high because Greece could not have taken advantage of lower Euro interest rates. Secondly, the interest expense would in all likelihood have increased because it is safe to assume that Greece's debt would have also increased. Whether government revenue would have increased substantially under a Drachma regime is anybody's guess. Probably not by much (this statement had to be revised. See the below addendum).

Put differently, interest expense as % of tax revenue, already a staggering 32% in 2000, would in all likelihood have increased. Markets might not have been concerned as long as that percentage increased to 35% or a even a bit more but once that percentage would have hit or crossed the 50% level, there would have been panic in markets. Could interest expense have hit or even exceeded 50% of tax revenue? If debt had continued on a rapid growth path and if tax revenue had remained flat, that could definitely have happened.

My conclusion is that, had Greece stayed with the Drachma, it could not have accumulated as much debt as it did with the Euro. This for the simple reason that markets would have determined long before 2010 that Greece had hit or exceeded its borrowing capacity.

Secondly, the Euro not only brought Greece lower market rates but also two additional advantages: Greece could avoid a sovereign default and, following the implementation of the programs, Greece was offered extremely below-market interest rates on the loans from its Euro partners. With a debt load of about 180% of GDP, it is miraculous that the government would only have to allocate 11% of its tax revenue and 6% of its total revenue to interest expense. Those are percentages which one finds in the strongest Euro countries. Countries like Portugal, Spain, Italy or Ireland have to allocate much more of the revenue to interest expense.


I have added the years 2008 and 2009 to the chart. The interesting point is that until 2008/09, i. e. as long as the economy was booming, tax revenue and government revenue in general had increased substantially. For example: revenue from taxes increased from 31,7 BEUR in 2000 to 50,1 BEUR in 2008, and total government revenue increased from 58,6 BEUR in 2000 to 98,4 BEUR in 2008. That seems to be a nice proof that a booming economy increases government revenue (even if it is all financed with debt).

 Interest Expense vs. Government Revenue
2000 2008 2009 2017
Taxes on income, property, etc. 13,2 19,7 20,3 18,1
Taxes on production, imports, etc. 18,5 30,4 27,8 30,8
-------- -------- -------- --------
Total revenue from taxes 31,7 50,1 48,1 48,9
Social contributions 17,0 30,6 29,3 26,0
Capital transfers, etc. 9,9 17,7 15,1 11,8
-------- -------- -------- --------
Total non-tax revenue 26,9 48,3 44,4 37,8
Total government revenue 58,6 98,4 92,5 86,7
Total debt 141,0 264,8 301,0 317,4
Interest expense 10,2 11,7 12,0 5,6
Interest expense as % of tax revenue 32% 23% 25% 11%
Interest expense as % of total revenue 17% 12% 13% 6%

Tuesday, January 8, 2019

New Goals For The Future

For Ekathimerini, the New Year has begun with exhortations regarding the future.

In an op-ed by Yiannis Manuelides, the author argues: "Years of proud Greek exceptionalism, followed by years of passive-aggressive acceptance of memoranda, need to be followed by something radically different. The world today is interconnected in complex ways. It will continue to evolve in challenging ways. For Greece to break free of its current isolation, it needs to engage with the world. The means of this engagement is a better and marketable Greek product. The actors who can bring this about are the residents of Greece working better together and becoming bona fide members of the global community. Rising to this challenge will see the return of lasting prosperity and legitimate national pride."

Alexis Papachelas argues that "it is high time for Greece to set new goals for the future, to make a plan: "Today we are looking at the future divided and with a clear leadership deficit. The asymmetry with Turkey, notwithstanding its internal problems, is a cause for concern. It’s time we hammered out a plan that will help the country restore its strengths and play a leading role in the region, taking advantage of untapped potential. Looking back at the big picture, it may not appear that bad, but if we want to halt the decline we need to set goals for Greece and the diaspora, which has also played a key part."

And then there is an obituary about Nikos Mouyiaris who is quoted: “I’ve been in America for over 50 years. I saw many of us succeed in what we chose to do. Professionals, academics, scientists, businessmen. Some also excelled in politics. As persons we succeed. Regretfully, however, I see that organized Hellenism is declining. Associations and federations are in danger of extinction. They are not capable of attracting our youngsters, our many incredible young professionals."

One of the wonderful traits of Greeks which I have learned to admire is their competency in making diagnoses. I have been with taxi drivers who would explain to me, during a 1/2 ride from the airport, everything that is wrong in Greece and why. It makes for wonderful conversation. What is lacking across the board, however, are specific proposals and action plans. Not sophisticated macro-economic dissertations but, instead, pragmatic goals and measures which the population at large can absorb and identify with (if they only hear them often enough).

Suppose a Prime Minister made the following speech on prime time TV: "We - the government - propose a New Deal to the Greek people: going forward, we will, unequivocally and irrevocably, pursue 4 obsessions in our daily lives: we will be obsessed with export promotion, thereby creating growth in the economy; we will be obsessed with substituting imports through local production wherever we can, also adding to economic growth; we will be obsessed with attracting foreign investment as a source of foreign capital, provided that such investment adds value to our economy and society; and - we, the government - will seek to build a modern and prosperous Greece: a Greece characterized by economic opportunity and social equity, and served by an efficient administration with a strong public service ethos."

If nothing else happens, that speech will go down into the history of beautiful soundbites. What else must happen? Each of these soundbites must be supported by specific action plans with milestones. During the last 10 years of crisis, there has been a multitude of proposed plans for the turn-around of the Greek economy. To only name my favorite: the Greece Ten Years Ahead Report submitted by the Athens office of McKinsey in 2011. And regarding the building of a modern and prosperous Greece, I refer to the former EU Task Force for Greece.

It really would not take all that much but what it will definitely take is Greek leaders who step forward and display civil courage and disinterested conduct. Does Greece have such leaders? A plenty, in my judgment. The eternal question I have about Greek society is why such leaders do not step forward and display civil courage and disinterested conduct.

Saturday, December 1, 2018

A Manifesto For A New Greek Political Governance

A guest commentary by Konstantinos (Dean) Plassaras.

As a Greek American who followed closely the painful re-arrangements of Greek life post 2008 and had to endure unusual humiliations in the process stemming from revelations about the mismanagement of the country of his birth and the behavioral patterns of its people, I wish to offer a plan of political action for the upcoming 2019 Greek Parliamentary election which is expected sometime during the fall of 2019.

It is often repeated in the Greek public dialogue that the best political outcome would be a government of national unity in order to implement a series of painful compromises and reforms promised to the European Union, an institution which also faces its own turmoil and existential issues of considerable depth. In other words, whether one looks at Greece from an internal/domestic point of view or external/international prism, there are some rough seas ahead and certain practical decisions/actions need to be undertaken in completing safely a challenging voyage.

As every mariner will tell you, when he/she sees the storm clouds gathering, the first reaction is neither to change the sea captain of the vessel nor to wish having a different type vessel to survive the upcoming waves. Rather one readies the ship as best as possible, fortifies crew unity and focuses on the task at hand. It is the sense of impending danger that galvanizes everyone on board into a cohesive response on the basis of the same shared fate.

Unfortunately, modern Greeks in the face of danger and/or  external challenges tend to divide rather than unite. To further exasperate this enduring Greek political trait, the existing Greek political class tends to be of rather low quality compared to US or core European standards which leads to the usual accusation that Greek politicians are not so much concerned about improving the life of their fellow citizens but rather more concerned to secure a position of privilege at public expense. In addition to the flaws inherent to all political parties everywhere around the world, Greek politicians tend to be arrogant, opinionated and rather unfocused to the hard task of good governance.

There is an old saying that if someone gives you lemons, you make lemonade. So given the shortcomings and inherent flaws of the Greek political class what is one to do? Do the best with the material you have, might be a good answer rather than constantly trying to reinvent the wheel.

In early 2015, the Greek voters elected a new party, not so much by choice but rather due to lack of credible alternatives. The two traditional systemic parties had experienced a spectacular failure and having tried to achieve European approval in co-governance came up short in the process. A new political coalition was created, sort of a fusion between traditional Left (Syriza) and traditional Right (ANEL, aka Anexartitoi Ellines, translated in English to Independent Greeks). This new government was not an optimal choice on the grounds of professional skill in governance or experience yet it tried its best and scored a few points. This governing coalition, which its opponents refer to in a pejorative way as SyrizAnel (a Greek adaptation of the Merkozy phenomenon of European indecision and incompetence) is, however, heavily tilted towards Syriza (90% Syriza, 10% ANEL). So, even though it achieved something unheard of in modern Greek politics (a unity government of both the Left and the Right), it is seriously lopsided towards the Left and as such not truly a representative party of all Greeks.

Before I deliver my observation, which by now some of you suspect what it might be, let me reveal my personal bias which is that I am tone deaf towards ideology of any kind and I am rather a seeker/admirer of talent in others. I do not wish to engage in a discussion of whether the Right or Left promotes the correct approach because to be quite frank, I have heard the arguments of both sides and they are both lacking. Therefore, I am more interested in picking talent from both sides and allowing them the space to work together with an extreme tolerance towards their ideological differences which I find worthless. The idea here is to pick the right team for Greece and not a political dogma to live by.

Hence, my proposal to the Greeks: keep what you got but take a page out of the book of the ancients and perfect it. To do so, the conservative representation in the future coalition government needs to increase, let’s say to a 50/50 ratio. In order to achieve such a ratio, conservative Greeks who are considering voting for the failed New Democracy party need to instead direct their vote towards increasing the ANEL representation for the following reasons:

* The two governing parties, despite profound ideological differences, know by now how to work together which is good as a foundation towards national unity.
* Tsipras has earned some European appreciation and his governance (so to speak) is a known commodity by now in European circles. Europe can work with someone they know and indeed are working with the Tsipras government on a variety of fronts.
* There are certain ministers who have been exceptional in discharging their duties: (a) Euclid Tsakalotos, a product of Oxford who truly speaks the European language and relates flawlessly to his counterparts outside Greece; (b) Elena Kountoura, the Tourism minister who has experienced successive years of breaking records in both the number of tourists and state revenues. Because success begets success, I would like these two ministers to stay because they have a lot more to offer and by now they are fluent in the performance of their duties.
* Kammenos, the head of ANEL, even though a controversial figure and a dedicated eurosceptic, nonetheless he manages the highly sensitive defense department which is a different world of its own; an amalgam of egos, excessive national pride and lofty expectations. It takes a certain person (even some false bravado) to do this job well and Syriza, which is a dedicated anti-militarism party, could not perform this function very well; the risk here being a serious division or schism on a national basis compounded by ever-present religious matters.
* The existing coalition has gained experience in governance and it would be best to build on such experience for optimal outcomes.

What of the New Democracy and Pasok political parties, you might ask? Pasok was clearly annihilated and what survives today is its more radical part reconstituted under Syriza. The mainstream ex-Pasok centrists remaining faithful today are not convincing at all. Mitsotakis is a talented guy and a future leader of Greece but he needs to spend another four years in the benches getting rid of New Democracy’s old wood which is considerable, indeed. He is a reformer but his party is the most sclerotic anti-reformist party one could possibly imagine. So, New Democracy needs to reconstitute itself in more credible ways which currently are lacking. What is also lacking in any attempt to re-introduce this old party so soon back to power is the proverbial reasoning that "trying the same old thing expecting a new outcome is a form of madness”. To see a party of failure so soon back from exile would be a clear sign that nothing has changed in Greece or ever will change. A cynical outcome indeed. I also fear the hatred and division sown by ND and Syriza which might plunge Greece into a protracted period of political stagnation. So the idea here is to let the conservative representation grow without the agency of the usual ND broker.

Having said all this, I am fully aware that the Greeks will not follow my proposal. The existing voting habits would seriously prevent such. Therefore, why am I giving this advice which has such low likelihood of acceptance? Well, I was born a Greek and the burden of care for my own would only leave me with my last breath. I also wish future generations that might read these ideas to know that there were alternatives proposed towards a better national equilibrium.

Finally I wish to thank all who participate in this blog for the rigorous debate platform provided. Even though at times I pretended to be indifferent to the ideas presented here, the truth is that what was said followed me for a long time and urged me to think and reformulate my approach. Is free thinking better than following the safety of the majority? I guess this is something we will all find out or maybe future historians will eventually tell us if it had a good ending.

Dean Plassaras is a Greek-American living in the Western United States.

Saturday, November 17, 2018

Beware Of Greeks Bearing Bonds --- Or Perhaps Not?

In October 2010, Vanity Fair published Michael Lewis' classic piece titled "Beware of Greeks Bearing Bonds." One of the major parts of the piece was the story about land exchange deals between the Athos monastery Vatopedi and the Greek government. Needless to say, the article - although not written in an accusing but, instead, entertaining way - was a condemnation of Greeks affairs in general and of the financial empire building of Vatopedi in particular.

There are always two sides to a story. By accident, I only now found out that shortly after Vanity Fair published Lewis' article, Father Matthew of Vatopedi was given the opportunity for a rebuke by Vanity Fair. And that rebuke is quite surprising. Still, Lewis was then given the chance to rebuke the rebuke and at the end of this exercise, it still boils down to a judgment of whom one believes. Still, I decided to publish the below links for the benefit of those who, like myself, may only have seen one side of the story.

Incidentally, for good order's sake it should be noted that, in 2017, all 14 defendants in the land exchange trial were acquitted.

Beware of Greeks Bearing Bonds
Rebuke by Father Matthew and Rebuke of the Rebuke by Michael Lewis

Tuesday, November 13, 2018

The Evaporation Of The Greek Banking Sector

The below statistics (source: Bank of Greece) show the development of the aggregate balance sheet figures of the Greek banking sector (all banks except the Bank of Greece) since the beginning of the financial crisis. Aggregate means that the figures are simply added up and not consolidated, i. e. there may be overstatements in some categories. For the years 2010 and 2015, the figures are as of June. For 2018, the figures are as of September (in BEUR).

2018 2018
vs vs
2010 2015 2018 2010 2015
Claims on domestic financial institutions 19,1 2,1 5,6 -13,5 3,5
Claims on foreign financial institutions 107,4 26,0 13,5 -93,9 -12,5
Domestic loans 273,9 217,1 181,2 -92,7 -35,9
Foreign loans 7,0 4,8 3,1 -3,9 -1,7
Domestic securities 42,9 13,6 11,6 -31,3 -2,0
Foreign securities 35,3 56,2 13,8 -21,5 -42,4
Domestic equities 7,0 4,8 3,6 -3,4 -1,2
Foreign equities 11,7 9,1 4,1 -7,6 -5,0
Remaining assets 40,4 52,8 54,8 14,4 2,0
Total assets 544,7 386,5 291,3 -253,4 -95,2
Debt to Bank of Greece 96,1 126,7 12,2 -83,9 -114,5
Debt to domestic banks 7,5 0,3 1,1 -6,4 0,8
Debt to foreign banks 63,8 7,6 23,2 -40,6 15,6
Domestic deposits 223,1 130,5 147,5 -75,6 17,0
Foreign deposits 25,5 9,8 6,9 -18,6 -2,9
Remaining liabilities 98,6 42,7 33,2 -65,4 -9,5
Total liabilities 514,6 317,6 224,1 -290,5 -93,5
Capital & Reserves 30,1 68,9 67,2 37,1 -1,7
Total liabilities & equity 544,7 386,5 291,3 -253,4 -95,2

In 2018, total assets (291 BEUR) were only a little over half the total assets of 2010 (545 BEUR), i. e. a decline of 47%. Put differently, almost half of a most important sector of the Greek economy evaporated.

When banks' assets decline, one of two things can have happened: cash was received in exchange for those assets or assets were written off (i. e. no value received in exchange; instead, losses incurred). It is safe to assume that the 2018/10 decline in domestic loans (93 BEUR) and domestic securities (31 BEUR) included substantial write-off's. On the other hand, the declines in claims on foreign financial institutions (94 BEUR) and foreign securities (22 BEUR) undoubtedly represents a chase for liquidity.

A key statistic is the 'debt to the Bank of Greece'. In classic theory, a central bank is a lender of last resort, i. e. banks borrow from the Central Bank when they have difficulty obtaining liquidity elsewhere. Until mid-2008, last resort borrowings from the Central Bank had been minimal (below 10 BEUR). In the second half of 2008, foreign banks began reducing their loans to Greek banks and the Greek banks had to revert to the Bank of Greece (and the Bank of Greece, in turn, reverted to the ECB). By June 2010, last resort borrowings had increased to 96 BEUR and at the peak of the drama, in June 2015, they had reached 127 BEUR. Since then, last resort borrowings were reduced by 115 BEUR!

Positive news are that, since 2015, both funding from foreign banks (+16 BEUR) and domestic deposits (+17 BEUR) increased again even though the increases were far less than the declines in the period 2010-15.

An uninformed reader might be very surprised by the fact that aggregate capital & reserves in the Greek banking sector more than doubled since 2010 and now stand at 67 BEUR. One has to point out that these are book values and book values of equity are a direct function of book values of assets. If it is true, as many commentators have pointed out, that half of total loans are non-performing, then the book value of capital & reserves could quickly be wiped out. For reference, the market value of the current 67 BEUR book value of capital & reserves is currently below 1 BEUR.

In summary, these are figures which one probably has not seen ever in an economy of the First World. If the current book value of assets represented the true value of those assets, one could conclude that the Greek banking sector is in rather good shape but one must have reasonable doubt about that. On the other hand, there can be no doubt whatsoever about the fact that the book value of liabilities ALWAYS reflects the true value of liabilities.

Tuesday, November 6, 2018

WWII Reparations - Does Greece Have A Claim Against Germany?

The media have reported that the Tsipras government will begin during the month of November with its efforts to involve Germany in negotiations about finally settling - hitherto allegedly unsettled - WWII reparations. Greece will allegedly claim a sum of 280 BEUR based on a research report put together by the Greek parliament, of which 10 BEUR relate to WWI claims.

My personal interest in researching the subject, which now led to this article, was to finally obtain some clarity about the validity of Greece's claims. My research efforts were hampered by the fact that only very little original documentation can be found on the internet regarding the history of this issue. Neither could I find an English version of the above research report by the Greek parliament. Instead, one has to rely on authors who have allegedly seen such original documentation (like Götz Aly, Hagen Fleischer & Co.) and a multitude of true and/or alleged experts who have published on the subject.

It seems that 4 dates are of particular relevance as regards Greece's claims:

1946 - Paris Agreement on Reparations
1953 - London Debt Agreement
1960 - Bilateral Agreement Germany-Greece
1990 - "Two-plus-Four" Treaty

A. Paris Agreement on Reparations (1946)
The Paris Agreement started as an understanding among the war Allies (the US, the UK and the Soviet Union; France joined after the war) at the Jalta and Potsdam conferences that war reparations from Germany should be limited to 20 BUSD.  The idea was to learn from WWI and not to overburden Germany with war reparations beyond reason. The Soviet Union was awarded 25% of the total, with 75% to be divided among the Western war victims (18 countries), i.e. the signatories of the Paris Agreement. The Agreement provided only for the distribution of anticipated German reparations. It left their absolute size and nature to later determination, thus allowing for wide interpretations and later haggling. Put differently, the size of each slice was determined without determining the size of the cake. With the increasing significance of the Cold War, and due to pressure from the US, the overall amount allocable to Western war victims was continually reduced by the 3 Western Occupying Powers. The Petersberg Protocol of 1949 finally settled on a total reparations amount for Western war victims that was only a fraction of what these war victims, including Greece, had expected when concluding the Paris negotiations.

Strictly technically, one could argue that the Paris Agreement on Reparations settled all German war reparations once and for all. The line or argument would be: all 18 war victims had signed the Agreement allocating their respective shares. The fact that the overall allocable reparations amount declined over the years was a consequence of the times.

The text of the Paris Agreement suggests otherwise because it included provisions that the Agreement was without prejudice to "the determination at the proper time of the forms, duration or total amount of reparation to be made by Germany" or "the right which each Signatory Government may have with respect to the final settlement of German reparations". These issues would have to be settled, according to the Paris Agreement, by separate peace treaties between Germany and individual war victims (i. e. Greece).

Greece's share under the Paris Agreement was determined in the form of 30.000 tons of well functioning industrial equipment which was valued at 30 MUSD, a far cry from the original claims which Greece had made (7 BUSD by one account, 10 BUSD by another). The equipment was delivered to the port of Hamburg in 1948 and responsibility was passed over to the Greek Reparations Commission in Germany. The first shipment of 11.500 tons left Hamburg for Piraeus in 1950. A second shipment was sold to the UK as scrap. The rest was either sold in Germany as scrap or disappeared. There is no evidence how much of the 30.000 tons ever reached Greece (not even of the first shipment of 11.500 tons which had left Hamburg for Piraeus) nor is there evidence of payments received by Greece for equipment sold as scrap. The then head of the Greek Reparations Commission, George Lavdas, came under significant fire by Greek media at the time.

Unrelated to the above, the Paris Peace Conference of 1946 led to the signing of peace treaties between the 5 war allies of Germany (Italy, Finland, Hungary, Rumania, Bulgaria) and 7 war victims (Yugoslavia, Czechoslovakia, Greece, Soviet Union, Ethiopia, Albania), thus allowing the 5 war allies of Germany to resume their responsibilities as sovereign states. Under the Paris Peace Treaties, Greece was awarded reparations of 105 MUSD from Italy and 45 MUSD from Bulgaria. Put differently, Greece received more war reparations from each, Italy and Bulgaria, than it received from Germany under the Paris Agreement on Reparations.

B. London Debt Agreement (1953)
This Agreement was a relief treaty between the Federal Republic of Germany (West Germany) and creditor nations. It was not a negotiation of war reparations because those, technically speaking, had been settled under the Paris Reparations Agreement of 1946. And yet, the London Debt Agreement of 1953 included several paragraphs alluding to unsettled war reparation claims against Germany, suggesting a general awareness that war reparations had not yet been fully settled. The most important paragraph, for Greece, is:

"Excluded from this Agreement are claims arising out of WWII by countries which were at war with or were occupied by Germany during that war, and by nationals of such countries, against the Reich and agencies of the Reich, including costs of German occupation, credits acquired during occupation on clearing accounts and claims against the Reichskreditkassen, all of which shall be deferred until the final settlement of the problem of reparation". 

Greece was a signatory to this Agreement which unquestionably recognized that there was not yet a final settlement of war reparations. While the Agreement did not set a time limit for a final settlement, it was understood that a final settlement would eventually have to come and that German Re-Unification would be the starting signal for settling WWII reparations and for concluding peace treaties.

C. Bilateral Agreement Germany-Greece (1960)
Between 1959-64, Germany concluded 12 Bilateral Compensation Agreements for Victims of the Nazi Regime to compensate individual victims of Nazi persecution. In the bilateral agreements Germany settled on paying 972 MDEM in what Germany considered voluntary compensation, without any legal obligation. The Agreement with Greece was concluded in 1960 for an amount of 115 MDM. The Greek state as recipient of the funds was responsible for passing them on to the individual victims. Under this Agreement, all claims by individuals against Germany were settled once and for all. Notwithstanding this, there continued to be national court judgments against Germany on behalf of further individual victims. Germany took the matter to the International Court of Justice, claiming immunity. In 2012 the International Court of Justice ruled in Germany's favor on the grounds that private individuals cannot sue states.

D. "Two-plus-Four" Treaty (1990)
The full name was Treaty on the Final Settlement with Respect to Germany. The term 'final settlement' clearly referred to the 'final settlement' as stipulated in the Paris Agreement on Reparations (1946) and the London Debt Agreement (1953). It was a treaty between the Two (East and West Germany) and the Four (US, UK, France, Soviet Union). No other war ally or war victim of Germany was party to the treaty. The treaty had the function of a WWII peace treaty but for it to be called a peace treaty, it would have required the participation of all countries which Germany had been at war with. To make a multi-lateral peace treaty would not have been in Germany's interest 'for financial reasons', according to the German State Secretary Friedrich Voss at that time (i. e. the open question of German reparations for World War II, especially in the case of Greece).

The treaty's primary objective was "to conclude the final settlement with respect to Germany. Recognizing that, thereby, and with the unification of Germany as a democratic and peaceful state, the rights and responsibilities of the Four Powers relating to Berlin and to Germany as a whole lose their function". There is no reference in the treaty to other countries nor is there any implication that the treaty would also apply to other countries.

Still, it was recognized that any final settlement with regard to Germany required the involvement of other countries. If not directly as parties to the treaty, then indirectly. This was achieved by the Paris Charta ("Charta of Paris for a New Europe") which was adopted by 32 European countries (including Greece) and the US and Canada only one month after the Two-Plus-Four Treaty had been concluded. The Paris Charta did not reference the subject of war reparations but it included the following paragraph:

"We note with great satisfaction the Treaty on the Final Settlement with respect to Germany signed in Moscow on 12 September 1990 and sincerely welcome the fact that the German people have united to become one State in accordance with the principles of the Final Act of the Conference on Security and Co-operation in Europe and in full accord with their neighbors."

There are 2 ways of interpreting this paragraph. One is that, by signing the Charta, the signatories joined the Four Powers in "waiving the rights and responsibilities relating to Berlin and to Germany as a whole". Put differently, all signatories waived all rights and claims which they may have had before against Germany. The other way of interpreting this paragraph is that all it means is that the signatories noted "with great satisfaction the Treaty on the Final Settlement with respect to Germany." No more and no less.

What can be concluded from the above?

Two aspects appear near-certain: First, Greece, by signing the Bilateral Agreement Germany-Greece in 1960, waived any and all future rights to make further claims against Germany on the part of private individuals. And, secondly, there is no evidence whatsoever that Greece ever waived its rights to make additional claims against Germany as war reparations (the German government confirms this). On the contrary, reference is made in various places that, over the years, Greece presented on several occasions formal notes to Germany outlining its position that there were still open war reparation claims. The last formal note was presented shortly after the conclusion of the Two-plus-Four Treaty. Germany's position that the Greeks should have made their demands in 1990 and, by not making them, they accepted that the issue was closed, does not appear valid because neither the Paris Agreement on Reparations of 1946 nor the London Debt Agreement of 1953 stipulated a time limit for presenting such claims. "Noting with great satisfaction the Treaty on the Final Settlement (Two-plus-Four Treaty) with respect to Germany" can hardly be considered as consent by Greece to that Final Settlement when Greece was not party to the Final Settlement.

Germany has repeatedly stated that, in total, they have made reparation payments in multiples of the 20 BUSD which the Allies had considered as appropriate at Jalta and Potsdam. That may be true overall but with respect to Greece, reparations have totaled only the following: industrial assets valued at 30 MUSD in 1948 and compensation for private individuals of 115 MDM in 1960. More than that cannot be found anywhere. Anyone who has read books or seen documentations about Germany's warfare in Greece from 1941-44 must conclude that these are minute amounts. Germany argues that from 1956-63, it provided Greece with financial reconstruction aid of approximately 1 BDM. That may be true in the sense that Germany provided low-interest loans but, still, they were loans and not reparations.

The German government argues that "70 years after the end of WWII and after decades of peaceful, trustful and fruitful collaberation on the part of the Germany with the international community including NATO-partner Greece, the issue of WWII reparations has lost its validity." If that is indeed the case, then it should be put into a formal agreement between Germany and Greece.

The German government states that the Two-plus-Four Treaty includes the final settlement of all open legal issues stemming from WWII; that it was clear that there would be no further peace treaties beyond the Two-plus-Four Treaty (no statement to that effect is included in the treaty); and that the issue of WWII reparations has been deemed by the signatories to be closed. That all is correct but it applies only to the 6 signatories of the treaty.

Considering all of the above, it seems far easier to defend the position of Greece than that of Germany.

What is Greece asking for?

Below are the largest positions of the 280 BEUR war reparation claims which the Greek parliament has put together:

135 BEUR - material damage and damaged infrastructure
  54 BEUR - damage cause by reduced domestic production
  34 BEUR - follow-up damages to the period 1941-44
  18 BEUR - damage to international trade
  12 BEUR - destroyed shipping fleet
  10 BEUR - Forced Loan
    9 BEUR - war damage relating to WWI

The Forced Loan has received special attention of late. Commentators have argued that Greece's case regarding war reparations may be a very weak case 70 years after the end of WWII whereas a loan is a loan and has to be viewed differently from war reparations. That is correct as long as there is proper loan documentation as regards loan amount, interest rate and terms of repayment. If such proper documentation exists, a loan lives forever unless it is repaid or forgiven (neither of which has happened with the Forced Loan). However, no evidence of proper documentation has been published to date. Greece argues that the Nazi-government recognized that debt in 1943 (in actual fact, the Nazis established a Settlement Account in 1943 for all German-Greek payments); that it committed that the loan would be repaid after the war and that the interest rate was set at 0%. Again, there is no formal evidence to that effect, not to mention the fact that a loan disbursed in the early 1940s carrying an interest rate of 0% would be close to worthless today.

The evidence regarding the Forced Loan suggests a different scenario. In 1942, Hitler appointed a Special Commissioner for Economic and Financial Issues in Greece. Hermann Neubacher, former mayor of Vienna, was put in charge and sent to Greece to stabilize Greece's fiscal situation and the exchange rate of the Drachma, both with a view towards increasing Greece's ability to pay for occupation costs. Neubacher's team consisted of 7 departments, one of which was the Economic Department headed by Paul Hahn, Director of the Reichsbank. On April 12, 1945, less than one month before the end of the war, a Final Report was submitted by the Commission in which Hahn summarized, among other things, the transactions in the above Settlement Account. Hahn wrote in this internal document: "If one makes the necessary adjustments in the final reckoning, the remaining debt owed to Greece would amount to 476 million Reichsmark." Hahn then adds that this amount was provisional and would have to be netted with claims which Germany had against Greece resulting from exports and other financial aid to support the Drachma. Hahn concluded that "regrettably, such information is not available at this time which makes it impossible to make a correct adjustment of Germany's liabilities towards Greece."

Götz Aly, co-author of the book "Hitler's Beneficiaries: Plunder, Racial War and the Nazi Welfare State", had described in that book in minute details the demonic financial structures which the Nazis had implemented in order to exploit occupied countries. From that standpoint, one can consider Aly as a non-biased expert. Aly has described the issue of the Forced Loan as a legend. There had not only been substantial transfers from Greece to Germany since 1942 but also from Germany to Greece. While detailed numbers are not available, Aly cites estimates by the then German officials that Germany's claims in the Settlement Account were approximately 300 million Reichsmark. That would leave a net liability towards Greece of 176 million Reichsmark. Aly adds, however, that IF the debit balance in the Settlement Account could be proven and IF the debit balance could be shown to have been a financial loan with proper documentation and IF Germany repaid the open balance (whatever the current equivalent would be), two-thirds of that payment would go to Bulgaria, Hungary, Rumania and Serbia because those countries sourced the transfer to Greece, and only one-third would go to Greece.

In conclusion, it seems unwise on the part of Greece to place special priority on the socalled Forced Loan because the Forced Loan seems to be a weak case which could easily turn into an embarrassment for Greece, which, in turn, could weaken Greece case regarding other war reparation claims.


Based on the evidence available to me, I find it difficult to understand why most commentators seem to be convinced that Greece does not have a claim against Germany under the title of WWII reparations. While the case for the Forced Loan seems weak, the case for general war reparations seems strong. Greece has so far received war reparations from Germany in the amounts of 30 million USD (Paris Agreement on Reparations) and 115 million Deutsche Markt (Bilateral Agreement Germany-Greece). That sum is significantly less that the combined WWII reparations of 150 million USD which Greece received from Italy and Bulgaria (Paris Peace Treaties). It seems beyond doubt that the damage caused by Nazi-Germany far exceeded the damage caused by Italy and Bulgaria.

It seems that most commentators follow the line of argument pursued by the German government, namely: that claims for war reparations have lost their validity 70 years after the end of the war; that Germany fully complied with the Paris Agreement on Reparations; that Germany voluntarily made additional compensations for private individuals (Bilateral Agreement Germany-Greece) and that, if there were still open issues after all that, the Two-plus-Four Treaty, indirectly accepted by Greece through the Paris Charta, finally settled any and all claims which might still have been open.

The German Chancellor Helmut Kohl once made the following statement regarding Greek war reparations claims: "Look, we claim that we cannot pay reparations because if we open this Pandora's box, then given the viciousness and brutality of Nazi warfare, the genocides - there were several genocides that the Nazis carried out - given these absolutely horrific facts and the unbelievable scale of these horrific crimes, any attempt to quantify this and translate it into claims against Germany will either come up with ridiculously low compensation or it is basically going to eat up all of Germany's national wealth."

Leaving legalities on the side, Kohl's explanation seems to be the most honest one.

Thursday, October 18, 2018

Growth Objectives And Plans Of The Greek Government

The Greek Public Debt Management Agency ("PDMA") published a 32-page PowerPoint presentation for use in foreign investor road shows. On pages 10-11, the presentation outlines the key growth objectives and the plans for accomplishing them. Since the slides below are difficult to read, it is best to refer to the original document.



These are beautiful headlines and bullet points! If these objectives and plans are backed by substance, Greece is headed towards a prosperous future! Here are some of the questions I have:

1. Have these objectives and plans between communicated to the Greek public? Have they been communicated to the Greek parliament? Does the Greek ruling class unequivocally support them?
2. Are there action plans behind the objectives and plans? Do they have time frames like when they were started, what the status is today and what the time frame is for their completion?
3. Are there truly projects like: A National Strategic Transportation Plan? A National Energy and Climate Plan? A National Digital Strategy? A National Public Investment Program? A 2017-2023 Action Plan for the Development of a Cohesive and Equitable Economy? A Strategic Plan of the National Central Authority for Health Procurements? A Youth "17-27" Strategy to Promote Youth Autonomy and Independence, Wealth and Well-Being?

When SYRIZA first appeared as an important force on the political stage, it offered, back in June 2012, a Manifesto which was full of beautiful soundbites. That Manifesto has long since then been forgotten. If the above objectives and plans are no more than beautiful headlines and bullet points, they will be forgotten just as quickly.