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Thursday, April 23, 2015

"Greece's Eerie Calm" by Nikos Kostandaras

"To avoid rifts in his party, save face over unrealistic promises he made to voters and underline that he will not be “blackmailed,” Mr. Tsipras prefers to risk a breakup with creditors, which could destroy the economy. Relishing their rise to power, he and his party display intransigence while demanding compromise. They either have unshakable confidence that they will get their way, or blind faith that, as time runs out, others will care more about the Greek people than they appear to and will step in to avert disaster".

A most insightful commentary by Nikos Konstandaros in the NYT: Greece's eerie calm.

Basta Yani! Sign On The Dotted Line!

What gives this article a lot of credibility, in my opinion, is the fact that its author is a supporter of the Greek government and of the Greek FinMin in particular. The author, Mr. Ioannis Glinavos, describes himself as a member of the academic community, a 'Greek patriot living abroad' who has 'no skin in the game'. 

"Syriza does not have a mandate to lead the country to default and/or Grexit. Syriza should not default internally or externally right now and cannot risk the destruction of the banking system by endangering ECB support. Yani, you have no mandate for such a rupture.

A banking failure with the inevitable capital controls, disruption and liquidity problems will destroy what is left of the economy and also drive away tourists at a time when most of the country lives hand to mouth. I repeat, Syriza does not have a mandate for this. 

Yani, you need to sign on the dotted line, agree to whatever you need to agree to secure the release of the bailout money and after the immediate liquidity problems are addressed you need to resign along with the rest of the government and call an election".

I would agree with Mr. Glinavos' proposal.

Wednesday, April 22, 2015

Martin Wolf's Summary Of Myths Surrounding The Greek Debt Drama

Below is what I consider a rather good summary by Martin Wolf of the FT about myths surrounding the Greek debt drama:

Mythology that blocks progress in Greece, Martin Wolf, FT

Tuesday, April 21, 2015

Greece - A Democratic Signal For A Return to Reason?

I have just read that, according to a skaigr poll, only 45,5% of Greeks agree with the government's negotiating strategy (down from 72% in February) and as many as 39,5% say the negotiating strategy is wrong (up from 28% in February). Now those are interesting figures in the context of democracy.

The new Greek government have been champions of declared democracy. The election victory and the overwhelming support since then were the means which justified just about everything else.

Will the government pay attention to those 39,5% of Greeks who think the government is on the wrong track? After all, that's more Greeks than ever voted for SYRIZA! Will the government pay attention to the fact that support of their strategy has tanked from 72% to 45,5% in only 2 months? Will the government be respectful of the vast majority of Greeks who definitely want to hold on to the Euro?

We may be about to see evidence as to how much respect the new government has for democracy when democracy doesn't suit its fancy.

Monday, April 20, 2015

Greece --- No Friends Left?

Here is the video of FinMin Varoufakis' presentation at the Brookings-Institute:

A conversation with Yanis Varoufakis

And here is Wolfgang Münchau's reaction to it as published in SpiegelOnline. Just one excerpt: 

"The performance of Greek Finance Minister Yanis Varoufakis at the Brookings-Institute was particularly gross. Instead of explaining his future plans for Greece, he gave once more a lecture about the deficiencies of the Eurozone. What bothers me about Varoufakis is less his middle finger; rather it is his index finger. Varoufakis is correct in many of his views. After all, I have written about them often enough myself. But who does still care about that? One gets the feeling that Varoufakis has little interest in specific financial policies and prefers to walk on theoretical ground.

There was a noticeable contrast between Varoufakis and the Ukrainian Finance Minister Natalie Jaresco who, at the Peterson-Institute across the street, presented in full details all reforms which her country had already undertaken und which reforms would still need to get done. Greece received over 200 BEUR from the EU in rescue loans. The Ukraine just about 2 BEUR. From Greece we got a sermon. From the Ukraine constructive proposals. The Greek government is presently in the process  of alienating those few friends which it still has in Europe and I consider myself to be one of them".

SYRIZA - Heed Prof. Krugman's Recommendations!

What a pleasant new discovery to read articles/blogposts by Prof. Krugman which I can agree with! After his visit to Greece, Prof. Krugman first posted quick Notes on Greece and then a more lengthy analysis Greece on the brink. If no one else can, perhaps Prof. Krugman can convince the Greek government that 

"Greece does not, in fact, face a solid bloc of implacable creditors who would rather see default and exit from the euro than let a leftist government succeed, that there’s more good will on the other side of the table than many Greeks suppose".

If only the Greek government would get around to seeing things this way! Then they might be able to conclude that 

"if Greece can negotiate a halfway reasonable compromise, one that more or less pauses further austerity, it’s hard to see that the risks of exit would be worth it. And the creditors would be equally well served by such a compromise".

Prof. Krugman reminds the Greek government that 

"exiting the euro would be extremely costly and disruptive in Greece, and would pose huge political and financial risks for the rest of Europe. It’s therefore something to be avoided if there’s a halfway decent alternative".

And Prof. Krugman concludes that such a halfway decent alternative is there. It's called compromise on both sides instead of blackmail "to blow the whole thing up" (FinMin Varoufakis).

If the neo-Keynesian Prof. Krugman cannot convince the Greek government, no one else will be able to.

Sunday, April 19, 2015

Confused By Populist Rhetoric?

This article by Bulow/Rogoff in today's WSJ is, in my opinion, a more convincing narrative than anything I have seen coming out of the minds of Krugman, Stieglitz & Co. Below are some excerpts: 

"In the court of world opinion, a large majority seems to believe that even if the Greeks may have been a tad fiscally irresponsible, it is the Germans who have driven Greece into depression through cruel insistence on austerity and debt repayments. This populist narrative misses the essence of the problem: The Greeks are experiencing an emerging-market debt crisis, albeit one on steroids.

Let’s first dispense with the “it’s all German-led austerity” nonsense. In 2009, fueled by a three-year jump in government spending to 54% of gross domestic product from 45%, the Greek government was running a primary deficit equal to 10% of its GDP, according to IMF estimates. In other words, new borrowing equaled all principal and interest due, plus an extra 10% of GDP. Yet the bailouts could not begin to substitute for both the lost lending and the collapse in tax revenues caused by a deep recession. By 2014, Greece supposedly ran a 0.3% surplus with government spending at 47% of GDP plus continuing “cohesion” transfers from the EU of about 3% of GDP and ECB support for the Greek central bank.

But don’t blame today’s austerity on tough repayment terms that have never been, and probably never will be, implemented. Already the EU’s current bailout terms include no principal or net interest until 2020. Greece has enjoyed a much smoother cushion than say, the Asian financial crisis countries in the late 1990s. 

Greece would have experienced far greater austerity had it been forgiven all its external debts in 2009—with all foreign sources then refusing to lend the country more money. Solutions to Greece’s woes ultimately require structural reforms at both the national and pan-European level. Its debts will eventually need to be further written down, and the country will need aid beyond that. Greece may yet someday suffer the yoke of heavy repayments; we hope not. But so far austerity in Greece is due to having maxed out its credit-card limits. Let’s not be confused by populist rhetoric".

Ok, so if this is the right narrative, which I have said that I believe, it still doesn't answer the question of what could have been done and/or could still be done in order to alleviate the economic pains of Greeks.

My point has been a very simple one from the beginning: total GDP is the sum of the public and private sectors. When the public sector tanks and loses its ability to grow fast again, and if one wants to get GDP up, then that impulse can only come from --- the private sector. As I once suggested in an article: "Germany, don't send money. Send machinery & equipment, instead!"

Those dependent on the public sector are still doing reasonably ok, as far as I can tell. Salaries and pensions may have been reduced but the critical issue in a depression is to have income in the first place (or not). The private sector, on the other hand, seems to be in shambles after having carried the load of adjustments todate. 

In a private market economy, money flows from the spender to the receiver voluntarily ("in exchange for value received"). In the last years, I have read innumerable articles/studies about the theoretical potential of the Greek economy. I have written quite a few on the subject myself. The trick is to turn that theoretical potential into practical results. It's not the location of Greece and not a possibly insufficient work ethic of Greeks which limits the realization of this potential. Instead, it's the lack of effective institutions and the lack of an appropriate economic framework which does that job. In my opinion.

Saturday, April 18, 2015

Sobering Messages From The US To Greece

After FinMin Varoufakis had his conversations with President Obama and Treasury Secretary Lew, the following two quotations caught my attention:

President Barack Obama: "When the new PM (Alexis Tsipras) came in, I called him and recognized you need to show your people that there's hope, that you can grow, but you have to show those who are extending credit, who are supporting your financial system that you're trying to help yourself; that requires making the tough decisions".

Treasury Secretary Jacob Lew: "I believe that the kind of detail that's needed requires going literally through every line in your budget. This isn't resolved by speeches, it isn't resolved by rhetoric. It's resolved by the hard technical work. It's something that the European and global economies don't need — to have another crisis".

When one translates this from diplomatic prose into day-to-day English, and can recognize some fairly blunt recommendations. No longer is there talk about “You cannot keep on squeezing countries that are in the midst of depression" (President Obama on February 1, 2015). It now sounds more like: "Stop talking! Start working! And come down to the real world!"

I just read that Alternative Social Insurance Minister Dimitris Stratoulis said: "We will NOT implement the reforms that Obama and Merkel want, but those the Greek people want".

Well, Mr. Stratoulis, what are the reforms that the Greek people want? Since the Greek people (albeit not the majority of them) voted SYRIZA into office, I can only guess that the Greek people want the reforms which SYRIZA outlined in its socalled 'Thessaloniki Program'. That rested on the following 4 pillars: (1) Confronting the humanitarian crisis; (2) Restarting the economy and promoting tax justice; (3) Regaining employment; and (4) Transforming the political system to deepen democracy. SYRIZA calculated the total additional cost of these 4 pillars at 11,4 BEUR. Others have come up with calculations up to twice that amount. These are not reforms. These are spending plans.

Perhaps you should rephrase your comment as say that "We will implement those reforms which are good for the Greek people". Default and/or Grexit are not good for the Greek people!

Does Greece Have A Huge Stock Of Financial Assets?

This Bruegel article by Zolt Darvas addresses the issue of the Greek government's financial assets which it claims are huge. A couple of interesting points are made in the article:

* at the end of September 2014, the government's financial assets were 87 BEUR.
* while that was almost 40 BEUR less than at the peak before the crisis hit, it is still significantly higher than the 30 BEUR at year-end 1997.
* as a percentage of GDP, the Greek government's financial assets rank 7th in all 28 EU countries.

I am not sure how to interpret this but it certainly is interesting information.

Friday, April 17, 2015

Target2 Rearing Its Head Again

Greece's Target2 liabilities began increasing, after relatively low previous levels, in November 2008. Thus, that's the point in time when private lenders were beginning to contain their Greek exposures.

In November 2011, Target2 liabilities peaked at 109 BEUR and they remained above 100 BEUR until Noveber 2012. Subsequently they declined, reflecting increasing confidence in Greece on the part of private investors. In June 2014, Target2 liabilities hit a miraculous low of 30 BEUR!

And now, less than 1 year later, Target2 liabilities are back to 91 BEUR.

What a difference a year makes!

No Love Lost Between WSJ and FinMin Varoufakis!

Varoufakis at Brookings: Greece is replete with malignancies" - but enough about that, let's talk about euro failings again.

Varoufakis talked for 25 minutes, not a single sentence on how he thinks Greece should address "malignancies".

Varoufakis has so far answered 2 questions in 20 minutes, windy recital of his greatest hits. Still no reform agenda.

Varoufakis: "we will compromise but we won't be compromised". Enough of the rhetoric! Tell us what reforms you will actually deliver...

Questioner tells Varoufakis that DC is probably most sympathetic audience he's ever likely to get > true, US now home of radical leftism!

Clear from questions that even "sympathetic" DC audience frustrated by varoufakis lack of specificity. Think he's lost this crowd.