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Friday, December 30, 2016

Brussels And Greek Slot Machines!

Here is a good one to finish off the eventful year 2016. As the Ekathimerini reports:

"The European Commission has sent a letter to the government asking it not to implement a new regulation on the operation of video lottery terminals (VLTs), which OPAP has undertaken.

Dated December 21, the letter asks the government to forward its draft measures for the operation of the gaming market to Brussels and to freeze the application of the new VLT operation regulations, as the Internal Market Directorate-General argues the rules approved in October by the Greek Gaming Commission (EEEP) do not protect punters or society sufficiently."

Well, aren't we glad that Greek society is being protected by the EU Commission?!? With that kind of an efficient EU government, it can only be a question of time until Greece becomes sufficiently protected against illegal migration, etc.

Will Donald Trump Brand Germany As A Currency Manipulator?

A tweet by Yiannis Mouzakis drew my attention to an Analysis of Donald Trump's Economic Plan and a brief comment which was made on page 15 of that White Paper:

"A similar problem (of currency manipulation) exists because of the European Monetary Union. While the euro freely floats in international currency markets, this system deflates the German currency from where it would be if the German Deutschmark were still in existence.  In effect, the weakness of the southern European economies in the European Monetary Union holds the euro at a lower exchange rate than the Deutschmark would have as a freestanding currency. This is a major reason why the US has a large trade in goods deficit with Germany – $75 billion in 2015 – even though German wages are relatively high."

This issue is well know to many Europeans. The Southeners blame the North for having an exorbitant privilege and the Northeners tell the South that they knew what they were getting into when they joined the Eurozone. Both are right, in a sense, but neither side has a solution for the problem.

Now that Donald Trump will soon be President, this may all change in the near future. Trump has talked a lot about currency manipulators during his campaign, always with great passion and with promises for retaliative action, but his targets have been mostly China and Japan. Not once has he mentioned Germany but that was probably more by default (i. e. not knowing how the Eurozone works) rather than by intention.

An outsider to the Eurozone is probably certain that the Euro cannot be manipulated to the advantage of any one country because the truth is - it can't. However, it rests in the structure of the Eurozone that the Euro becomes too strong a currency for some countries (i. e. Greece) and too weak a currency for others (i. e. Germany).

Trump will probably tweet immediately that Germany should urgently revalue and France, Italy & Co. should devalue. This will be followed by another tweet where he says that his advisors have now explained to him that neither can Germany revalue nor can France, Italy & Co. devalue. At that point, Trump has probably realized that the Euro is a huge problem.

"Donald Trump has promised to use his Treasury Department to brand any country that manipulates its currency a 'currency manipulator'. This will allow the US to impose defensive and countervailing tariffs if the currency manipulation does not cease" - states the White Paper. Well, this is going to be an interesting situation!

Will Trump's Treasury Department brand Germany as a currency manipulator? It really can't because Germany isn't. But one can certainly brand Germany as the beneficiary of currency distortion which comes as a result of the structure of the Eurozone.

It would be an irony of history if the elitist defenders of the Euro were to be told by an American con man to stop pretending and to start fixing the structure of the Eurozone! That'd be something interesting to watch!

Tuesday, December 20, 2016

From Beer To Mountain Tea

The Financial Times calls this article about two Greek companies "Hangover cure and clutching at straws drive Greece's export sales". One of the companies produces a low-calorie soft drink derived from Mountain Tea ("Tuvunu"). The other one ("Matrix Pack") makes polypropylene drinking straws. Both are small but allegedly very successful companies.

Tuvunu caught my attention because it was mentioned that they belong to the Macedonian-Thrace Brewery from Komotini, makers of the Vergina Beer. A brewery in Komotini? That triggered a bell. Something in the deep corners of my memory told me that I had read something about this before. And then I remembered.

In January 2011, the NYT had published an article titled "What's broken in Greece? Ask an entrepreneur!" It told the story of Demetri Politopoulos, a Greek American from Manhattan who had this idea of returning to his home country in order to start a brewery in Northern Greece. That was the plan. The result was that he lost over 5 MUSD in the first years of operation.

I remember that, when reading the article, I felt very sorry for the man because I felt sure that it was only a question of time until he would be forced to cut his losses and return to the US as a poorer man. So much greater my joy to read that apparently he has succeeded, Greek intricacies notwithstanding! Congratulations!

Friday, December 16, 2016

Uproar About A 616 MEUR Christmas Present

According to the Ministry of Finance's State Budget Execution Report, Greece's primary surplus for the period January-November 2016 was budgeted at 3.553 MEUR and it came out at 7.449 MEUR. That's a surplus in the surplus of 2.896 MEUR, or 110%. Greece has now decided to take 616 MEUR out of that unplanned surplus in the surplus of 2.896 MEUR, or 21% thereof, for a one-time payment to recipients of low pensions.

In the world of business, this would be called a bonus. Management exceeded expectations by 110% and the board decides that management is deserving of a bonus in the amount of 21% of the excess. In the world of investment banking, management would not be satisfied with only 21%.

If the EU had been smart, it would have anticipated events and acted pro-actively instead of reacting later. That the State Budget would have a significant surplus over the planned surplus has been in the coming for months. And one does not have to be a prophet to predict that, when there are unexpected surpluses, voices will come out claiming a piece of the action. Particularly when there are battered pensioners. Particularly at Christmas time.

If the EU had been smart, it would have proposed to Greece something like the following: "Your State Budget has seen a terrific development this year (that would be the praise part). We think that a portion of this unexpected surplus should go to the most needy in your society instead of your creditors (that would have been the bonus part). We propose 25% thereof."

The way things happened, the EU has fallen into a trap laid out by PM Tsipras. He did the right thing (reward the most needy in society at Christmas time) but he did it in such a way that the EU would have to violently object to it (by not consulting them beforehand and, thereby, violating the agreements). The net result of this: it is now Tsipras who is the human politician to whom the most needy in society are more important than greedy creditors. And it is the EU who are the bad guys. Well done, EU!

Below is an article which I had written about the distribution of the primary surplus 4 years ago.

Wednesday, December 14, 2016

Special Economic Zones in Serbia?

Why Germans invest in Serbia and Romania, but not in Greece.

“'In Romania and Serbia a new German investment is made every week,' said the head of the German-Greek Chamber of Commerce and Industry, Michalis Maillis, deploring the unwelcoming conditions for investments in Greece."

"Unlike Greece, Romania and Serbia are seen as investor-friendly countries. While Greece is 60th in the Doing Business 2017 chart, which ranks countries according to the ease of doing business there, Romania stands in 36th spot and Serbia in 47th."

"Serbia introduced serious incentives for the increase in employment in July 2014, and both Serbia and Romania operate special economic zones with incentives for investing in them."

To make a long story short: just type "zones" into the search box on the right hand side and you will find much of what I have written about Special Economic Zones. 

Tuesday, December 13, 2016

For Once, The IMF Got It Right!

"Greece’s debt is highly unsustainable and no amount of structural reforms will make it sustainable again without significant debt relief. Similarly, no amount of debt relief will allow Greece to return to robust growth without reforms."

Well, this article titled The IMF is not asking Greece for more austerity really nails the issues which Greece is confronting and which Greece needs to handle successfully in order to return to growth. Just one minor addition appears appropriate:

The IMF always reminds the world that Greece needs debt relief but it never accepts the notion that such debt relief should also come from the IMF itself. After all, the IMF's loans are by far the most expensive portion of all official loans to Greece. If only the IMF's debt relief came in the form of lowered interest rates, that would also be a contribution!

Monday, December 12, 2016

Where Did Bail-Out Money Come From And Where Did It Go To?

The European School of Management & Technology (ESMT) is a Berlin-based business school founded and sponsored by large corporations. It published a White Paper on the sources and uses of the bail-out funds for Greece as part of the first and second programs (2010 & 2012). The draft version of the White Paper can be found here. Major points:

* 216 BEUR were distributed as part of 2010/2012 bail-out's.
* 139 BEUR thereof were used for debt service (principal and interest).
* 37 BEUR thereof were used to recapitalize Greek banks.
* 10 BEUR thereof were used as incentives for the 2012 PSI.
* Finally, 10 BEUR thereof, or roughly 5% of the total, were used for the budget.

It should be noted that an IMF calculation differs from the above to the extent that the IMF claims that a total of 247 BEUR were disbursed, of which 41 BEUR (or roughly 17%) were used for the budget and the remainder of 206 BEUR for debt-related items.

* in the first bail-out (2010), Slovakia did not participate and Ireland and Portugal were separate bail-out beneficiaries and thus did not provide funds.
* disbursements under the first bail-out totaled 73 BEUR, of which 53 BEUR came from the EU and 20 BEUR from the IMF.
* 34 BEUR of the first bail-out remained undisbursed.

* in the second bail-out (2012), 154 BEUR were disbursed of which 142 BEUR came from the EU and 12 BEUR from the IMF.
* this 154 BEUR included 11 BEUR disbursed to and later returned by the HFSF, bringing net disbursement to 215 BEUR.

Productivity In Comparison

The below graph measures the amount of GDP generated in one hour's worth of work.


Like any statistic, it has to be taken with a grain of salt. Ireland, for example, is at the top of the list because it has European headquarters of firms like Apple and Facebook where not too many people are employed and work. But still, the numbers do give a general picture.

Friday, December 9, 2016

That "Inhuman Logic Of The Market"

PM Alexis Tsipras had the TV world as his audience when he gave a eulogy at Fidel Castro's funeral services. Tsipras used this opportunity to denounce before the world the "inhuman logic of the market". And he added neoliberalism, too.

Nevermind that market and neoliberalism, as the latter is understood today, can be quite different things. In fact, one could argue that the original idea of neoliberalism, as developed from late 1930s onwards, is almost the opposite of that neoliberalism which, today, is being accused, often with good reason, as the cause of all economic evil. Neoliberalism came to life in the late 1930s as an attempt to find a Third Way between the conflicting philosophies of classical liberalism (complete laissez-faire) and socialism. In the decades that followed, the term neoliberal tended to object to the complete laissez-faire doctrine of classical liberalism, and promoted instead a market economy under the guidance and rules of a strong state, a model which came to be known as the social market economy (Ludwig Erhard).

As regards the market, Mr. Tsipras should be happy for it. Politically, if there hadn't been a free market for votes in Greece, Tsipras might never have become Prime Minister (on the other hand, the Castro's might not have remained in power if there had been a free market for votes in Cuba). Economically, the market begins with the street markets in Greece. There is no better way of seeing how a market works than spending a couple of hours at a Greek Λαϊκή. A wonderful experience of observing supply and demand in action. The more the forces of supply and demand, the forces of reasonable competition, are restrained, the more one becomes subject to arbitrary (and perhaps unfair) judgments of others (or, as one of the founders of the original neoliberalism would have said: subject to the coercion of others).

Having said all that, my point is still a different one here. Mr. Tsipras has been touring the capitals to persuade foreigners that Greece is a wonderful place to do business, a great place for foreign investors, perhaps even a nirwana for private enterprise. And here is my question:

Will denouncing the inhuman logic of the market be conducive to accomplishing this objective? Or perhaps not?

Tuesday, December 6, 2016

Eurogroup's Debt Relief - Much Ado About Nothing?

In its Statement on Greece, the Eurogroup announced the following measures which are to be understood as debt relief:

* The smoothening of the EFSF repayment profile within the current weighted average maturity of up to 32,5 years;
* The waiver of the step-up interest rate margin amounting to 200 bps related to the debt buy-back tranche of the 2nd Greek program for the year 2017;
* The use of the EFSF/ESM funding strategy as markets allow to reduce interest rate risk without incurring any additional costs for former program countries. This measure will be implemented through: (i) exchanging the EFSF/ESM back-to back notes supporting the bank recapitalization loans to Greece, (ii) the ESM entering into interest rate swaps to mitigate the risk of higher market rates and  (iii) introducing matched funding for future disbursements to Greece under the current program.

In a commercial bank, loan approval competencies depend on the size of a loan. A small loan might be approved by two officers of the bank, a very large loan might require the approval of the entire board. When changes to the terms of an approved loan are to be made, the same competencies which were required to approve the loan have to approve the changes. Unless...

Oftentimes, changes to loans which required the approval by the entire board may be so minor that it would be a waste of time and resources to involve the entire board. Thus, there is normally a definition of minor changes which can be approved by, say, only two officers of the bank.

The above measures which are understood to be debt relief fall into the category of minor changes. The smoothening of the repayment profile is only required because an appropriate smoothening was not implemented at the outset. To forgo a future margin hike of 200 bp is nothing other than foregoing an unrealistic and inappropriate margin hike. And to use derivatives to convert interest rates from floating to fixed is something every corporate treasurer does every day.

So is this really much ado about nothing? Not really. There are some advantages which make Greece's debt sustainability appear a bit better (or less bad) than before. But it is amazing that 18 Finance Ministers are required to approve such changes.

Wednesday, November 30, 2016

Alexis & Fidel & Augusto

The Greek Prime Minister honorably represented all of Europe at Fidel Castro's funeral. Or so it has to appear to those who are following the news. "Give me liberty or give me death!", Alexis Tsipras intoned in his speech suggesting that this was Castro's motto. In actual fact, this slogan was coined by the American patriot Patrick Henry back in 1775 when he was fighting for true liberty for his Virginian compatriots from the yoke of British colonial rule.

Tsipras vowed that his struggle for justice and dignity would "always have Fidel's example before us". One is inclined to hear "Give me Fidel or stay an infidel!"

A logical thinker could be inclined to think that anyone who admires Fidel should really adore Augusto!

Fidel staged a successful coup and so did Augusto, so they are even on that. Fidel caused a lot of casualties and so did Augusto, so they are even on that, too. So the question is: which of the two left a better legacy?

Cuba is economically in shambles and politically still a dictatorship. Chile, on the other hand, is doing well economically and politically it returned to democracy while Augusto was still alive. So wouldn't logical thought indeed suggest that if one admires Castro despite all his failures, one should adore Pinochet who had successes instead of failures.

Or put differently: if one despises Pinochet, one should be called upon to explain why one adores Castro!

Monday, November 21, 2016

ECB Supervises TBTF Banks? Really?

So we all thought the 120+ banks in EU countries which were directly supervised by the ECB were safe in the sense that their supervision was shielded from national interests and/or pressures? Well, think again!

The European Court of Auditors (ECA) has published a report on the new EU banking supervisory system which was established in 2014. The system identified 120+ banks which were deemed too-big-too-fail and which, therefore, has to be taken away from national banking supervision systems and transferred to the ECB. Much to my surprise, I now read the following paragraph in the auditors' report:

"ECB staff led only 12% of on-site inspections of these banks, and overall the inspection teams were predominantly staffed (92%) by the national competent authorities. Similarly, off-site supervision is heavily dependent on staff appointed by the Member State authorities, with the ECB having little effective say over the composition and skills of joint off-site supervisory teams."

Perhaps this is too short a time to pass judgment but somewhere along the line the expectation has got to be that 100% of inspection teams are led by ECB staffs!

Friday, November 18, 2016

A Growth Strategy For Greece?

When the NYT publishes some potentially good news about the new Republican administration under Donald Trump, one is well advised to read on. Everyone seems to agree that Greece needs a growth strategy if the country is ever to see the light at the end of the tunnel. Trump, too, has said that he will make major infrastructure investments in order to make America great again.

Spending money on infrastructure is far easier said than done. It doesn't make sense to spend money on bridges to nowhere. James B. Stewart, the author of the article under a column appropriately titled "Common Sense", writes the following:

"All he (Trump) needs to do is what he presumably does best: build something. And I don’t mean a few miles of asphalt or a paint job on a rusting bridge. Build something awe-inspiring. Something Americans can be proud of. Something that will repay the investment many times over for generations to come. Build the modern-day equivalent of the Golden Gate Bridge, the Hoover Dam, the Lincoln Tunnel or the Timberline Lodge. All of these are Depression-era New Deal public works projects started under President Franklin D. Roosevelt that are still in use."

What makes this article different from most others is that it doesn't only discuss infrastructure spending in a global way but it also proposes about a dozen specific investment objects ("shovel-ready or close to it"). Approving and funding spending is one thing. Spending the money wisely on wise projects can be quite another thing.

I don't think there is a single Greek politician who has not talked about the need for infrastructure spending in recent years. What I have not seen anywhere yet is a list of "shovel-ready or near it" projects where money could be spent quickly and wisely. There was a project some years ago about a new Formula 1 racing track. On the surface, that does not necessarily sound like money being spent wisely.

Wednesday, November 16, 2016

Varoufakis Not The Best Looking Greek In The World?

After I listened to this interview, I wondered why Yanis Varoufakis would have made such downgrading remarks about President Obama's visit to Greece. And I think I found the explanation.

Back in 2015, Varoufakis attended a White House reception in honor of Greek Independence Day. When Barack Obama was in conversation with Yanis Varoufakis, John Ramos, the handsome Greek-American entrepreneur, was the third person in the group. Stamos later told Jimmy Fallon on the latter's show about the meeting (see link). After making the comment that Obama was talking to 'that guy, the Finance Minister, Yanis, Yani...?' (couldn't remember the name), Stamos said:

"He (Obama) looks to me and he says 'John Stamos, how are you?' And then he looks to the room and says 'This is the best looking Greek in the world!'"

That, indeed, must have hurt to hear the most powerful man in the world call someone else the best looking Greek in one's presence! Hurt real bad!

"The Euro Is Murdering Europe!"

I reproduce the below article because it is a concise summary of the arguments of today's critics of the common currency AS WELL AS the European Union. If this were the America of the 1780's, the political elite of Europe would intensively and publicly debate these points to come up with better solutions. The EU elites are either unwilling or incapable of doing that. And perhaps the EU citizens are not all that interested, either.


The Euro Is Murdering Europe

By F. William Engdahl

November 13, 2016 "Information Clearing House" - "NEO" -  The Euro is murdering the nations and economies of the EU quite literally. Since the fixed currency regime came into effect, replacing national currencies in transactions in 2002, the fixed exchange rate regime has devastated industry in the periphery states of the 19 Euro members while giving disproportionate benefit to Germany. The consequence has been a little-noted industrial contraction and lack of possibility to deal with resulting banking crises. The Euro is a monetarist disaster and the EU dissolution is now pre-programmed as just one consequence.

Those of you familiar with my thoughts on the economy will know I feel the entire concept of globalization, a term which was popularized under the presidency of Bill Clinton to glamorize the corporativist agenda that had just come into being with creation of the World Trade Organization in 1994, is fundamentally a destructive rigged game of the few hundred or so giant “global players. Globalization destroys nations to advance the agenda of a few hundred giant, unregulated multinationals. It’s based on a disproven theory put forward in the 18th Century by English free trade proponent David Ricardo, known as the Theory of Comparative Advantage, used by Washington to justify removing any and all national trade protectionism in order to benefit the most powerful “Global Players,” mostly US-based.

The faltering US project known as Trans-Pacific Trade Partnership or the Trans-Atlantic Trade and Investment Partnership, is little more than Mussolini on steroids. The most powerful few hundred corporations will formally stand above national law if we are foolish enough to elect corrupt politicians that will endorse such nonsense. Yet few have really looked closely at the effect that surrender of currency sovereignty under the Euro regime is having.

Collapse of Industry
The nations of what today is misleadingly known as the European Union follow a concept ratified by a then-far-smaller number of European members–twelve versus 28 states today–of what had been the European Economic Community (EEC). A European version of giganto-mania appeared during the EEC Commission presidency of French globalist politician Jacques Delors when he unveiled what was called the Single European Act in February 1986.

Delors overturned the principle established by France’s Charles de Gaulle, the principle which de Gaulle referred to as “Europe of the Fatherlands.” De Gaulle’s concept of the European Economic Community–then six nations including France, Germany, Italy and the Benelux three–was one in which there would be periodical meetings of the premiers of the six Common Market nations. There, with elected heads of states, policies would be formulated and decisions made. An assembly elected from members of national parliaments would review the actions of the ministers. De Gaulle viewed the Brussels EEC bureaucracy as a purely technical administrative body, subordinate to national governments. Cooperation should be based on the “reality” of state sovereignty. Supranational acquisition of power over individual nations of the EEC was anathema for de Gaulle, rightly so. As with individuals so with nations—autonomy is basic and borders do matter.

Delors’ Single Act proposed to overturn that Europe of the Fatherlands through radical reforms to the EEC aimed at the destructive idea that the diverse nations, with diverse histories, cultures and diverse languages, could dissolve borders and become a kind of ersatz United States of Europe, run top down by unelected bureaucrats in Brussels. It in essence is a Mussolini-style corporativist or fascist vision of a non-democratic, non-responsible European bureaucracy controlling populations arbitrarily, answerable only to corporate influence, pressure, corruption.

It was an agenda developed by the largest multinationals of Europe, whose lobby organization was the European Roundtable of Industrialists (ERT), the influential lobby group of Europe’s major multinationals (by personal invitation only) such as Swiss-based Nestle, Royal Dutch Shell, BP, Vodafone, BASF, Deutsche Telekom, ThyssenKrupp, Siemens and other giant European multinationals. The ERT, not surprisingly, is the major lobby in Brussels pushing adoption of the TIPP trade deal with Washington.

The ERT was a major driver for the 1986 Delors Single Act proposals that led to the Frankenstein Monster called the European Union. The idea of the EU is creation of a top-down central unelected political authority that would decide the future of Europe without democratic checks and balances, at heart a truly feudal notion.

The concept of a single United States of Europe, dissolving national identities that went back more than a thousand years or more, can be traced back to the 1950’s when the Bilderberg Meeting of 1955 in Garmisch-Partenkirchen, West Germany, first discussed the creation out of the six member nations of the European Coal and Steel Community of “a common currency, and…this necessarily implied the creation of a central political authority.” De Gaulle was not present.

The project to create a monetary union was unveiled at a 1992 EEC conference in Maastricht, Holland following the unification of Germany. France and Italy, backed by Margaret Thatcher’s Britain, forced it through over German misgivings in order to “contain the power of a unified Germany.” British Tory press railed against Germany as an emerging “Fourth Reich,” conquering Europe economically, not militarily. Ironically, this is what has very much de facto emerged from the structures of the Euro today. Because of the Euro, Germany economically dominates the entire 19 Eurozone countries.

The problem with the creation of the European Monetary Union (EMU) prescribed in Maastricht Treaty is that the single currency and the “independent” European Central Bank were launched without being tied to a political single legal entity, a genuine United States of Europe. The Euro and the European Central Bank is a supranational creation without answerability to anyone. It was done in absence of a genuine organic political union such as that created when 13 states, with common English language and following a commonly-fought war of independence from Great Britain, created and adopted the Constitution of the United States of America. In 1788 the delegates from the 13 states agreed to establish a republican form of government grounded in representing the people in the states, with separation of powers between the legislative, judicial and executive branches. Not so the EMU.

The EU bureaucrats have a cute name for this disconnect between unelected central bank officials of the ECB controlling the economic destiny of the 19 member states with 340 million citizens of the so-called Eurozone. They call it the “democratic deficit.” That deficit has grown gargantuan since the 2008 global financial and banking crisis and the emergence of the not-sovereign European Central Bank.

Collapse of Industry
The creation of the Euro single currency since 1992 has put the Euro member states into an economic strait-jacket. The currency value cannot be changed to boost national exports during economic downturns such as that experienced since 2008. The result has been that the largest industrial power in the Eurozone, Germany, has benefited from the stable euro while weaker economies on the periphery of the EU, including most notably, France, have endured catastrophic consequences to the rigid Euro rate.

In a new report, the Dutch think-tank, Gefira Foundation, notes that French industry has been contracting since the adoption of the euro. “It was not able to recover after either of the 2001 or 2008 crises because the euro, a currency stronger than the French franc would be, has become a burden to France’s economy. The floating exchange rate works like an indicator of the strength of the economy and like an automatic stabilizer. A weaker currency helps to regain competitiveness during a crisis, while a stronger currency supports consumption of foreign goods.”

The study notes that because of this currency strait-jacket, ECB’s policy has created a Euro too high versus other major currencies to enable France to maintain exports since the economic downturn of 2001. The Euro has led to increased imports into France and because France had no exchange rate flexibility, her industry “could not regain international competitiveness in the world’s market after the 2001 crisis, so its industry has been slowly dying ever since.” They lost the economic stabilizing tool of a floating exchange rate.

Today, according to the Eurostat, industry makes up 14.1% of the French total gross value added. In 1995 it was 19.2%. In Germany it is 25.9%. Most striking has been the collapse of a once-vibrant French car industry. Despite the fact that world car production almost doubled from 1997 to 2015 from 53 million to 90 million vehicles annually, and while Germany increased its car production by 20% from 5 to 6 million, from the time France joined the Euro in 2002, French car production almost halved from nearly 4 million to less than 2 million.

Euro Bail-in Laws
The same Euro strait-jacket is preventing a serious reorganization of troubled banks across the Eurozone since the 2008 crisis. The creation of the supra-national, non-sovereign European central Bank has made it impossible for member countries of the Eurozone to resolve their banking problems created during the excesses of the pre-2008 period. The case of Italy with its request to make a state bailout of its third-largest bank, Monte dei Paschi, is exemplary. Though draconian layoffs and closings have for the moment eased panic, Brussels refused to permit a $5 billion Italian state rescue of the bank, instead demanding the bank revert to a new EU banking law called “Bail in.” While they may not yet dare to implement bail-in just yet in Italy, it is EU law and will certainly be the instrument of choice by the unelected Eurogroup when the next banking crisis hits.

Bail-in, while it sounds better than taxpayer bailout, actually requires that a bank’s depositors be robbed of their deposits to “rescue” a failed bank, if Brussels or the unelected Eurogroup decides such a bail-in of deposits is needed after bank bond holders and stock holders and creditors have not been able to meet the losses. This bail-in confiscation was applied in Cyprus banks in 2013 by the EU. Depositors there with over €100,000 either lost 40% of their money.

If you are a depositor in, say, Deutsche Bank, and the stock shares are tanking, as they have been, and legal troubles threaten their existence, and the German government refuses to talk bailout, but rather leaves the bank to potential bail-in, you can be sure every depositor with an account over €100,000 will begin to look to other banks, worsening the crisis for Deutsche Bank. Then all other remaining depositors would be vulnerable to bail-in as was initially proposed by the Eurogroup for Cyprus banks.

Surrender of monetary sovereignty
Under the Euro and the rules of Eurogroup and ECB, decisions are no longer sovereign but central, taken by not-democratically appointed faceless bureaucrats like Holland Finance Minister, Jeroen Dijsselbloem, President of Eurogroup. During the Cyprus bank crisis Dijsselbloem proposed confiscating all depositor money, big or small, to recapitalize the banks. He was forced to back down at the last minute, but it shows what is possible in the coming EU bank crisis that is pre-programmed by the defective Euro institution and its fatally flawed ECB.

Under current Eurozone rules, effective January, 2016, EU national governments are prohibited from taxpayer rescue of their banks, preventing orderly resolution of bank liquidity problems until too late. Germany has adopted a bank bail-in law as have other EU governments. The new bail-in rules are the result of a bureaucratic directive from the unelected, faceless bureaucrats of the EU Commission known as the EU Bank Recovery and Resolution Directive (“BRRD”).

In 1992 when Swedish banks went into insolvency as a real estate bubble popped, the state stepped in with Securum, a bad-bank/good bank rescue. The bankrupt banks were temporarily nationalized. Non-performing real estate loans in billions were put into the state corporation, Securum, the so-called bad bank. The risk-addicted bank directors were dismissed. The nationalized banks, minus bad loans, were allowed, under state management, to resume lending and return to profit before being reprivatized as the economy improved. The non-performing real estate became again profitable as the economy recovered over several years, and after five years the state could sell the assets for a total net profit and liquidate Securum. Taxpayers were not burdened.

ECB Prevents Bank Resolutions
Now, as the EU faces a new round of bank solvency crises with banks like Deutsche Bank, Commerzbank and major banks across the Eurozone facing new capital crises, because the EU lacks a central taxation power, no flexible tax-payer or bank nationalization is possible. New national bank rules adjusted to local circumstances are not possible. Measures to give troubled banks time such as allowing a temporary moratorium on foreclosures and repossessions if people fall behind on their payments, outsourcing national electronic payment system to commercial banks, are not possible.

The EuroZone has no central fiscal authority, so such solutions cannot be implemented. Banking system problems are only being solved by monetary authorities, by the insane ECB policy of negative interest rates, so-called Quantitative Easing where the ECB buys endless billions of Euros in dodgy corporate and state debt with no end in sight, and in the process making insurance companies and pension funds insolvent.

The answer is definitely not that proposed by the kleptocratic George Soros and others, namely to give the unelected Brussels super-state the central fiscal power to issue Brussels Euro bonds. The only possible solution short of destroying the economies of the entire Eurozone in the coming next European bank solvency crisis, is to dismantle the Frankenstein Monster called the European Monetary Union with its ECB and common currency.

The individual countries in the 19 country Euro Zone do not form what economists call an “optimum currency area,” never did. The economic problems of a Greece or Italy or even France are vastly different from those of Germany, or of Portugal or Spain.

In 1997 before his death, one of my least-favorite economists, Milton Friedman, stated, “Europe exemplifies a situation unfavorable to a common currency. It is composed of separate nations, speaking different languages, with different customs, and having citizens feeling far greater loyalty and attachment to their own country than to a common market or to the idea of Europe.” On that, I have to say, he was right. It’s even more so the case today. The Euro and its European Central Bank are murdering Europe as effectively as the Second World War did, only without the bombs and rubble.


F. William Engdahl is strategic risk consultant and lecturer, he holds a degree in politics from Princeton University and is a best-selling author on oil and geopolitics, exclusively for the online magazine “New Eastern Outlook.”

Saturday, November 12, 2016

Ross Perot's "Giant Sucking Sound" Revisited

Ross Perot was my hero in America's 1992 Presidential campaign. As a common sense Texan businessman, he could explain complicated things is a way that people could easily understand them. Such as trade agreements.

Perot explained, in a rather convincing way, that manufacturing jobs are where manufacturing takes place. If a country makes trade agreements where it starts importing manufacturings which it previously manufactured domestically, there will be that 'giant sucking sound of jobs being shipped abroad'.

Warren Buffett, another American who can explain complicated things in a simple way, described the same phenomena in his story about Thriftville and Squanderville.

"If the Japanese want to work 18 hours a day in exchange for us signing promissory notes, that's fine with me", a young American told me back in 1974 when I asked him whether he wasn't concerned about the rapidly increasing American trade deficit. That, too, sounded convincing to me except that he didn't tell me about the consequences thereof, i. e. the giant sucking sound on one hand and the foreign indebtedness on the other.

I have written time and again about the overriding importance of current account balances in this blog. There are intra-border financial crises, i. e. crises which can be contained within the borders of a country and there are cross-border financial crises. Greece started out as a cross-border financial crisis (when the country lost access to capital markets) and it subsequently evolved into an intra-country financial crisis (when the banks had to be recapitalized on more than one occasion and when still more than half the loans of domestic banks are non-performing).

The external accounts of a country are summarized in the Balance of Payments (BoP). The BoP consists of a Current Account and a Capital Account. The critical formula is:

Current Account + Capital Account = Zero.

The current account measures a country's revenues from abroad and its expenses abroad. When foreign revenues exceed foreign expenses (current account surplus), the country is accumulating a surplus abroad. Vice versa, when foreign expenses exceed foreign revenues (current account deficit), the country is accumulating a cross-border deficit. Just like when a family spends more money than it earns, it has to cover the difference either with debt of with proceeds from the sale of assets or with proceeds from an inheritance. Spending more than earning is generally called 'living beyond one's means'. However, when some or most of the spending represents investment, it is actually good to spend more than one earns because the excess spending will, hopefully, lead to good returns on investments.

The point is, when you spend more than you earn, you have to get funding for it. It is a matter of arithmetic (and not economics!) that a current account deficit must have, in compensation, a surplus in the capital account. The latter means money flowing into the country. It can flow as debt or equity (foreign investment) or as gifts (EU subsidies). If it flows mostly in the form of debt, there will be trouble in the future.

Since the Vietnam war, the world has seen tectonic shifts in current account balances; gigantic centrifugal movements between manufacturing jobs and consumers. The consumers have contributed to the creation of jobs and wealth elsewhere. The price they paid for that is indebtedness to people elsewhere.

How does all this relate to Greece? Greece has 'exported' a lot of jobs by importing products which could just as well be made in Greece. And, in exchange, Greece has signed a lot of promissory notes...

Monday, November 7, 2016

Gross Financing Needs Capped At 15% of GDP? - A Silly Idea!

There are reports that the Greek government has now decided what it expects (or rather: hopes for) by way of acceptable debt relief. The key term is "gross financing needs" by which is meant the sum of budget deficits and funds required to roll over or pay debt that matures during any given year. Apparently, the Eurogroup had proposed, last May, to cap gross financing needs at 15% of GDP until 2030 and no more than 20% thereafter. The Greek government would now consider this acceptable.

Frankly, I think this is silly!

Two different items are being mixed here and put into the same bag: (1) debt maturities are funded out of refinancings and (2) interest payments are funded out of the budget. The latter funding is controlled by Greece; the former is not.

There are hardly any industrialized countries these days which actually repay debt in nominal terms (i. e. out of the budget). To expect that, of all countries, Greece would be the one which could accomplish that is a farce. With the present debt load, Greece could not even cover all interest at market rates with 15% of GDP.

The best that creditors can hope for (and that already is a BIG hope!) is that Greece will not have to increase its debt in nominal terms. Assuming Greece can achieve this miracle, then it follows logically that one should base projections on the assumption that debt will remain unchanged in nominal terms (i. e. maturities always rolled over and/or put on very, very long tenors).

The only question which really matters is how much interest Greece could be (or should be) expected to pay out of its budget. And since expenses in the budget are funded with budget revenues, the most logical formula would be to cap interest expense at a certain % of government revenues.

According to ELSTAT, total government tax revenues were 45 BEUR in 2015. The US spends 13% of tax revenues on interest. The equivalent of that rate for Greece would be 5,8 BEUR (roughly the same amount which Greece paid on interest in 2015). 5,8 BEUR sounds higher than any primary surplus projection which I have seen. Thus, it does not seem achievable. To lower it would be the debt relief.

What if one said that Greece should pay interest at half the level as the US, i. e. at 6% of tax revenues? That would have been 2,7 BEUR in 2015. And guess what! That would have been about 15% of GDP!

In short: the critical decision is to determine how much of total tax revenues a suffering economy like that of Greece can be expected to allocate to interest expense. That percentage will lead to a nominal amount available for interest and then it's only a matter of negotiations among creditors to agree on an arithmetic which creditor gets how much and when of that nominal amount.

Saturday, November 5, 2016

Death Of An Oligarch

Aged only 63, Andreas Vgenopoulos, the principal behind the Marfin Group, died earlier today. The question now is how many enterprises will cease to exist in the wake of his death.

A couple of years ago, I spent quite a bit of time researching the activities of the Marfin Group, the group's dealings with its principal bank (Piraeus) and the dealings of important Greek businessmen who were directly or indirectly associated with Mr. Vgenopoulos (such as George Provopoulos, the former governor of the Bank of Greece).

It often happens that large business groups which have the characteristics of a house of cards are held together only by the presence of an almighty founder, the person who can hold the group together by his sheer presence. In the presence of such a 'leader', all others become followers. If the 'leader' is a crook, the followers become accomplices. None of them has the courage to stand up and be counted.

When such a 'leader' suddenly disappears (sometimes because he has to go to jail), all hell can break loose. Suddenly, all the former followers find the courage to report about all the bad things which have been going on and which they always knew would drive the group into the ground. The classic Saul-Paul conversion.

The only trouble with the Marfin Group is that the skeletons which may come out from its closets could be rather huge, so huge that there could be consequences and threats to stability for other areas. Marfin and Piraeus Bank recorded transactions where the outside observer can only marvel how they came about (like the 3,4 BEUR profit which Piraeus took on the purchase of Greek branches of Cypriot banks). There seem to have been quite a few 'quid's'. The questions will be what were the 'quo's' and who received them.

Monday, October 31, 2016

The Alchemy Of The Greek Economy

The former Governor of the Bank of England, Mervyn King, wrote a book titled "The End of Alchemy: Money, Banking, and the Future of the Global Economy". In it, he discusses the future of the Eurozone and makes the following comments about Greece:

"It is evident, as it has been for a very long while, that the only way forward for Greece is to default on (or be forgiven) a substantial proportion of its debt burden and to devalue its currency so that exports and the substitution of domestic products for imports can compensate for the depressing effects of the fiscal contraction imposed to date. Structural reforms would help ease the transition, but such reforms will be effective only if they are adopted by decisions of the Greek people rather than being imposed as external conditions by the IMF of the European Commission. The lack of trust between Greece and its creditors means that public recognition of the underlying reality is some way off". 

While King does not use the term "Grexit", he obviously says that Greece should leave the Eurozone. At the same time, he suggests that Greece could consider re-joining the Eurozone a few years later after a new equilibrium has been reached, if it so wished.

Until about mid-2013, I was an adamant supporter of Greece's holding on to the Euro. My simple logic: it was the lesser of 2 evils (i. e. less social cost) and it had more longer-term promise than a return to the Drachma. This was followed by a period of about 2 years during which I began to doubt my earlier convictions. And for quite some time now have I felt the way Mervyn King describes above. With the benefit of hindsight I think that the social cost of a return to the Drachma could not have been much higher than it turned out to be with the Euro in the last 5-6 years and the economy would have found a new equilibrium much more quickly. Perhaps a worse one, but still.

What had been the objective of the exercise of the last 5-6 years in the first place? The official version read: "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 reforms were meant to reduce the budget deficit from over 15% to under 3% of GDP (on top of a declining GDP!), then Greece is now completely reformed. But is Greece really different today? Has Greece really changed? Did a jolt run through all corners of Greek society raising animal spirits to bring about change?

The EU Task Force for Greece (TFGR) was formed in July of 2011 and it included the above quote in its mission statement. One would have thought that a society desperately wanting change and improvement would have jumped at the opportunity of utilizing the help of its European partners to bring about such change and improvement. Regrettably, most attempts at change were treated with suspicion by Greek society for the simple reason that they were perceived - rightly or wrongly - as being imposed by the outside. Thus, they were not really adopted by the Greek people.

By the end of 2012, I made a last effort to pluck up my spirits and wrote an essay titled "Make the year 2013 the Year of the Task Force for Greece!" Exactly one year later, I re-published this essay and then I gave up pursuing the subject. By June 30, 2015, the TFGR's mandate expired and it was not renewed. Dismantling and institutional death had occurred.

Yet, neither the EU nor Greece wanted to throw the towel entirely. A new Structural Reform Support Service (SRSS) was set up in July. Its mission? "The SRSS will offer technical assistance to the Member States in order to facilitate their administrative and structural reforms". No more lofty talk about building 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. Now the specific goals were administrative and structural reforms.

As though this were not enough, French President Hollande personally came to Greece 3 months later to witness as the Finance Ministers of both countries signed a protocol by which, essentially, France committed to modernize Greece.

Every reader should now judge for him-/herself: how much have we heard about progress in these matters since then?

In 2010, Greece ranked #109 out of 183 countries analyzed by the World Bank for its Doing Business Report. In Transparency International's Corruption Perception Index, Greece ranked #78 out of 178 countries. In the former, Greece was the lowest European country; in the latter it the second lowest (before Bulgaria).

By 2016, Greece had moved up to #60 out of 189 countries in the Doing Business Report. A similar improvement was shown in the Corruption Perception Index where Greece ranked #58 out of 167 countries (2015).

And yet, all these statistical improvements notwithstanding, Greece's attractiveness for foreign investors is no better than that of Afghanistan of Mali.

In contract compliance, which is essentially considered the ability of a State to guarantee compliance with business agreements and to protect investors, Greece occupies the 133rd position, second worst among developed nations.

A key problem is the enormous amount of time required for legal resolution of appeals for compliance with contracts. On average, Greek courts need 1,580 days to issue a decision, that is almost four and a half years.

A similar picture appears in property registration, with Greece ranking in the 141st position, faring worse than Venezuela, Grenada, Tanzania, Mali and Guinea.

The German Finance Minister Schäuble is said to have said that Greece is allergic to reform. What seems as certain as it is understandable is that Greeks are allergic to reforms imposed from the outside, particularly when under the heading of 'help for Greece'.

Alchemy is the ancient practice of trying to turn lead into gold. Mervyn King describes the alchemy of banking as the process whereby safe short-term deposits are turned into long-term risky loans. The alchemy of the Greek economy is that the efforts to implement reforms seem to turn into even greater resistance to make reforms.

And what better way to eliminate any interest in reforms than by calling the brutal reduction of the budget deficit from over 15% to under 3% of GDP (on top of a declining GDP!) the prototype of what is meant by reforms?

Monday, October 17, 2016

Tsipriza - The New Greek Party

With 93,5% support from the followers of Alexis Tsipras, a new Greek party was created of this past weekend - TSIPRIZA!

At least this is what the GreekAnalyst has suggested.

Greek Soccer - Take-Over By Foreigners!

Here is an interesting development described in this article from the Ekathimerini: the Greek Soccer Federation (EPO) is essentially being taken over by the FIFA. Reasons given are:

"The FIFA Council was briefed on the different issues faced by the Greek federation in recent months, such as the tense relationships with the authorities, due partly to discrepancies between national laws and the independence of the federation, the resignation of the president and other members of the federation's executive committee due to judicial procedures, the allegations linked to refereeing, as well as the difficulties surrounding the management of ethics cases."

And the reaction from the Greek government? Unacceptable colonialist behavior on the part of FIFA? Illegal intervention in national sovereignty? Greece being made a soccer colony by foreigners?

Not at all! Greece's Deputy Sports Minister Stavros Kontonis welcomed the move as "a positive development which will be combined with the placement of worthy people to manage a problem that has plagued Greek sports for years".

Well, if it works for the soccer federation, would it perhaps work elsewhere as well?

Saturday, October 15, 2016

A Strong Performance By Kyriakos Mitsotakis!

This Bloomberg interview with opposition leader Kyriakos Mitsotakis has attracted wide attention. Justifiably so, I think.

The interview is undoubtedly music to the ears of foreigners with an interest in Greece; or to so-called internationalists. Particularly if they have a background at an Anglo-American elite school and professional experience at an Anglo-American company. Mr. Mitsotakis' command of the English language is outstanding (on par with that of Yanis Varoufakis'). The way he handles himself is impressive and would be respected in any international boardroom. Last but not least, he seems very intelligent.

I am reminded of an experience I had in London back in 1972 when I had just joined an American bank there. I was assigned to the American who handled ship financing for Greek shippers. One day, a potential new Greek customer came in for an appointment with the American and I was invited to listen in. The Greek was utterly polished. A Savile Row suit, a  perfect pocket square, perfectly groomed, super manners of an 'old boy', Oxford accent, etc. I was most impressed and I thought the American would be, too. I asked him after the meeting what his impression was. The American said: "I don't know. I have an awkward feeling. He emphasized so much being Greek but he just didn't seem Greek".

As important as it will be for the next Greek Prime Minister to be trusted and respected by foreigners, it will be even more important for him to have to support of his Greek countrymen; to be perceived as 'one of us'. The interviewer asked Mitsotakis about this and Mitsotakis said that he always felt perfectly comfortable speaking 'with regular Greeks'. One thing is for sure: Mitsotakis is not a regular Greek!

I was impressed that, when asked what his first priority would be, Mitsotakis mentioned the reform of public administration. He claimed that based on his previous experience (he had been the responsible minister for 2 years) he felt certain that this could be accomplished. And I was also impressed that eduction reform was on the top of his list.

My intuitive reaction to the interview was "The message well I hear, my faith alone is weak" (Goethe). The interviewer must have felt similarly because he asked whether change in Greece was not so much an issue of reforms but more an issue of sociology. Mitsotakis, of course, disagreed with any assessment that Greece and Greeks might never change. It would all depend on the leadership, he said. Well, 100 years of experience would not necessarily support that view.

The cutest statement of Mitsotakis came when he was asked about PM Tispras' performance and the current relationship with foreign creditors. He said: "Right now Mr. Tsipras is pretending to reform and I think that a lot of people outside Greece are pretending to believe that Tsipras is actually implementing reforms".

Sunday, October 2, 2016

A Fraudulent Executioner Of The Greek People?

Much has been said about the former head of ELSTAT, Andreas Georgiou, but when one reads this article one really wonders that there is no uproar among serious people in Greece.

Greece's least wanted man lives in Maryland

The executioner of the Greek people? Criminal slander for calling Greece's previous statistics fraudulent? C'mon!

On 2 October 2009, the Greek government (New Democracy) formally notified Eurostat that the 2009 deficit was expected at 6% of GDP. Exactly one week later, the governor of the Bank of Greece informed the new government (PASOK) that the deficit for 2009 would reach, if not exceed, 12%. By November 2009, the government settled on the figure of 12,7% as the most likely deficit figure for 2009. In April 2010, ELSTAT corrected this figure to 13,6%.

And in October 2010, Andreas Georgiou, as the new head of ELSTAT, revised the final figure to 15,4%.

It seems quite obvious that Andreas Georgiou singlehandedly executed the Greek people!

Monday, September 19, 2016

It's The Productive Capacity, Stupid!

Here is an article which, to the extent that I understand the rather sophisticated presentation, focuses on an aspect of the Greek economy which I have tried to emphasize since the beginning of this blog, namely: the importance of production. To illustrate my point in a less sophisticated way:

If a country/economy/society wants to enjoy products & services, it must produce the products & services which it desires. If it doesn't or cannot do that, it must import those products & services from other countries. If it imports those products & services from other countries, it needs to give those other countries something in exchange. Ideally, that would be products & services which those other countries like to have. If it is incapable to give other countries, in exchange for products & services received, those products & services which other countries desire, then it has no choice but to give other countries promissory notes in exchange. Promises to pay later. In short: debt.

Luckily, Greece has a service which other countries enjoy having almost without limitation - tourism. Unluckily, tourism alone is not sufficient to pay for all those products & services which Greeks like to import from other countries. Other countries no longer accept promissory notes in exchange. In logical consequence:

There is no way for Greece to return to prosperity other than by coming up with products & services which other countries like to have!

Foreign creditors could forgive Greece its entire debt and domestic banks could forgive their borrowers all their debt - if Greece does not manage to increase its productive capacity, the standard of living will ultimately sink to the level corresponding to the low productive capacity which Greece has (instead of corresponding to the level which Greece would have with a greater productive capacity).

In short: it's the productive capacity, stupid! That Greeks are willing to work hard and produce has been proven by Greek guest workers all over Central Europe. The guest workers had to travel to places where the productive infrastructure was and send home the money which they earned. What Greece needs to do now is to bring the productive infrastructure to the country, have the Greeks produce in their own country and keep their earnings here.

Wednesday, September 14, 2016

Joseph Stiglitz Misunderstands European Realities?

It has become chic to predict the demise of the Euro. Particularly progressive economists are competing with one another in their predictions when and how the Euro will fall apart. The latest in the fray was Joseph Stiglitz, an economist whose judgment is demonstrated by his Nobel Prize and by his praise of Hugo Chavez' economic policies in Venezuela.

From that standpoint, it was good to be presented, for once, with a differing view. That differing view came from Guillaume Duval, a French editor of an economic magazine and author of several books. Below is the introductory paragraph of Duval's article on the website Social Europe.

"Joseph Stiglitz, American economist and winner of the Nobel Prize in Economics, has come out with a new book, "The Euro: How a Common Currency Threatens the Future of Europe". In recent weeks Stiglitz has appeared in several features in the press, advocating «a smooth exit» from the euro. Still, he expects «the end of the single currency does not mean the end of the European project.» That position, however, betrays a deep misapprehension of the realities of Europe."

Monday, September 12, 2016

New Car Registrations Grow!

Since the latest figures for new car registrations are only available for July 2016, I will below always comment on the periods January-July (7 months).

Back in 2009, new car registrations for that period were 146.584 units and the comparative figure for 2016 (7 years later) was 54.447 units. That shows the drama of the Greek economic downturn.

The interesting aspect is that new registrations collapsed in the early years of the crisis (until 2013) and, since 2014, they are increasing again. In 2014, they increased 22,5%; in 2015 7,7% and in 2016 12,1%. In fact, in the month of July, new registrations increased by as much as 29,1%!

What is to be made of that?

When a market, despite increases in recent years, is still down -63% relative to the previous peak, the meaning of these increases becomes quite relative. And yet - increases are increases and they do reflect increased car purchases. Perhaps smaller cars and perhaps cheaper cars but still new car purchases.

The nice thing about new car registrations is that the figures cannot really be 'fudged'. Units are units, regardless whether they are partially paid for 'in black' or at different VAT rates.

Secondly, even though the increases are not all that meaningful in the context of previous declines, they do reflect a change in trend. After all, it could have gotten worse back in 2014 and, instead, it got better. So whatever the trend was before, since 2014 the trend is different.

As the crisis continues into its 7th year, I am beginning to wonder how meaningful Greek economic statistics really still are. The Greek economic agents seem to have adjusted well to chaos and a very important aspect of this adjustment is undoubtedly the transfer of economic activity from the official into the shadow economy.

There is no shadow economy for new car unit registrations. They are and can only be official.

So those who believe that new car registrations are a good indicator of the real economy, they will argue that - notwithstanding official statistics to the contrary - the Greek economy is actually developing quite will because the Greek economic agents have well adjusted to chaos.

Friday, September 2, 2016

The Damage Caused By SYRIZA-Independent Greeks Government

"The question is whether the SYRIZA-Independent Greeks coalition will understand when it crosses the line that separates the past from the present, when the excuse that “the others were worse” no longer works and that they will be held responsible for whatever they do or do not do. Instead of bringing a new mentality and better procedures into public life, the government is rushing to control the state machinery, adopting the tactic which played a serious part in bringing disaster upon Greece. With the air of the new, uncorrupted party, it is keeping the failed system alive, causing new damage."

This commentary by Nikos Kostandaras of the Ekathimerini says it all!

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.