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Thursday, April 7, 2016

Official And Unofficial Greek Economic Activity

Greece's official statistics do not accurately reflect the real state of economic activity in Greece. I have made this point on several occasions. Why do I think so? Because by all rational calculations, the Greek economy should have nearly collapsed in 2015 as a result of all the catastrophic moves of the Greek government. And yet - 2015 didn't turn out so bad, after all.

Back in the fall of last year, I wrote this article about the miracles of the Greek economy as I perceived them then. At a time when I thought sellers of balcony shades would probably go out of business, one of them explained to me that 2015 had been their best year in history so far. I could only conclude from that that a growing part of economic activity was moving on to a cash basis where it cannot be captured by analysts.

I have now come across an article published by a blog at the LSE titled: "Greece, the country with the half Drachma". This article describes very well what I had sensed by way of intuition. One key paragraph:

The result of the above actions was a de-facto disengagement of economic life with the domestic banking system. The economy adapted in an environment that strongly resembles that of the drachma of the 80s. Almost no one is going to a bank for a loan or to deposit cash, but only to pay everyday bills. The capital controls increased the electronic and card transactions, but only for the Euros that were locked in the banking system. The cash according to the Bank of Greece Eurosystem data (so called autonomous factors), outside the banking system only fell from a high of 50 billion in June 2015 to 48.5 billion in November. And this number is after 13 billion of tourist money (much of it in cash) entered Greece during that period. So there is significant part of the economy that now operates with these 50+ billion only in cash.

25 comments:

  1. What you sense is probably true - but what if capital controls were set at almost zero euros per week? And banks did not accept no cash at all - i.e., if paper money were abolished - all transactions electronic. Black economy would have nowhere to hide, Greek tax base would widen, tax revenues would increase, and tax rates could then decrease. With all transactions traceable electronically, there would be less theft, frauds, etc. This could be effective if adopted on a European scale. What do you think, and if it's beneficial, why aren't there efforts towards abolishing paper money?

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    1. Personally, I would just as soon avoid all cash in my transactions because one payment card would make life so much easier and I would have a much better overview on my spending. HOWEVER: I would ALWAYS want to have the alternative of withdrawing all my money in cash if I so desired.

      The way to go about this is not to prohibit cash. Instead, one has to attach the proper costs to cash transactions. From my time in banking, I remember that one of the great challenges for large retailers was always the management of their cash, i. e. getting rid of it every day and converting it into bank balances. Banks could never really cost that service to retailers because the costs would have been prohibitive. So the retailers gave other business to the banks to compensate. If banks costed all cash transactions properly (from ATM withdrawals to all other forms), it would be a defensible policy and customers would think twice before doing too much in cash.

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  2. FYI,

    Cosco and Greek Government sign on the contract for the sale of OLP today. 300mil euro +. Really cheap but considering Cosco's track record with the commercial container port, I am quite hopeful in combination to the sale of peripheral airports to Fraport. Both will have huge implications on the economy and the main industry of Greece which is tourism. Meanwhile the permit of Hellas Gold is also moving forward. And hopefully by the summer Ellinkos (old athens airport) will be contracted off as well. If we can get Trainose off our books that will close a huge hole.

    The irony from one year ago, how none of these projects would be "allowed" by the Syriza government. At least the above privatizations moved forward under this government, meanwhile with the 1st evaluation coming up and hopefully a debt restructuring discussion moving forward, we may start have a feeling of change by 2017-18. Hopefully there will still be Greeks left alive to inhabit this country. :-)

    Sincerely,
    V

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  3. "...He joined Lehman Brothers as an Interest Derivatives Quantitative Specialist...".
    Very interesting!

    P.S. The ...old "known" Lehman Brothers or the newest "transparent" (!) version?

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    Replies
    1. You have the temerity to post some garbage by a Greek involved in derivatives and with no grasp of economics. This guy clearly despises anything left of Attila the Hun, and Varoufakis in particular.

      And to compare the recent enforced capital controls with the banking practices of the 1980s reveals what a fraud the man is. In the 1980s, the Greek banks had negative real interest rates. Why? It's far from clear, but only those with political and personal connections were able to borrow money, and the result was a gift to the borrower. I would call that systemic corruption. It bears no resemblance to the recent situation -- except to a bigoted idiot.

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  4. Here is an interesting phenomenon. Instead of debating the content of the article, readers look up the author's resume and find that he had, after university, a stint a Lehman's, even worse, as an Interest Derivatives Quantitative Specialist. Now if that doesn't disqualify a man for the rest of his life I don't know what does. Even though that stint was from 1997-2000, a time when Lehman's was considered one of the premier names in the entire world. With that background, it no longer matters that he also had stints at Bank of Montreal, Credit Agricole and Royal Bank of Canada, the latter being arguably the most solid bank on the North American continent.

    Studies, among others, at Cambridge University in Astrophysics and Mathematical Cosmology? A PhD on Einstein's General Theory of Relativity? Who cares about such details when the name 'Lehman's' is stamped all over your face!

    Attila the Hun turns in his grave for pleasure of having such a successor and Yanis Varoufakis pains to be hated instead of asking himself why he is being hated so much by so many Greeks even though he knows so much about economics.

    And those are typically the people who call on transparency and objectivity on the part of others!

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  5. Ok! Let's consider another aspect of his CV!!!

    ITCM Training
    So what's this?

    Read more...
    ITCM Greece – Xmas Party Time, the Greek Way
    http://www.allaboutshipping.co.uk/2014/12/16/itcm-greece-xmas-party-time-the-greek-way/

    And here...
    http://www.itcmarkets.com/news-press/itc-greece-andreas-koutras-update-from-athens
    http://www.itcmarkets.com/uncategorized/syriza-is-writing-history-by-deleting-greece
    http://www.itcmarkets.com/uncategorized/itc-greece-andreas-koutras-in-athens-syrizas-intentions-in-doubt
    http://www.itcmarkets.com/uncategorized/itc-greece-andreas-koutras-in-athens-the-day-after-greece-said-no
    http://www.itcmarkets.com/
    http://www.itcmarkets.com/our-team

    Very interesting...

    Such a wasted talent on Astrophysics (or ...Astrology)!

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  6. Actually this merely proves that unless you have deep contacts and experience on a subject you are mostly wrong. The article author obviously simply put on paper what his friends are telling him from Greece. Well I have news for you: it is actually far worse.Money from exports are staying in Cyprus or Bulgaria, payments are made internationally for even internal work (I pay or being paid in Cupertino, Cal., Dubai, France etc) for work mostly inside Greece. Money is flowing out in the North (Thrace, Macedonia) as people buy Bulgarian gas etc. The old drachma money smuggling networks (mostly through shipping)are back in force. The capital controls are like swiss cheese: full of holes. This has been going on since SYRIZA came to power.
    Which gives rise to a question: up until a month ago the Greek banks were paying back ELA money to the tune of 1 billion €/month. What was the source of that money? And the fact that during the last month or so no one is talking about ELA repayment ie there is no ELA repayment is simply because the economy is tanking or because someone is using the banking system as a whip to force political ends?
    "..., one has to attach the proper costs to cash transactions....."OK now we know our blog author's true ideology: like most successful high level executives he cannot understand the wider political/social picture and considers it irrelevant. If someone tries to force all transactions to be electronic people who value privacy-me included- will simply take all our money in cash or move it out of the country, precipitating a bank run. I do not why the NSA, my government, Herr Kastner or Anonymous must know or be able to find all my transactions.

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    1. I agree 100% with what you have posted. Most financial commentators are frauds with no grasp of reality, and crude theoretical frameworks (usually of a neoliberal-statist variety). It is largely because of these unqualified buffoons that the entire eurozone is a mess -- Greece in particular.

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    2. @athensdog
      Mr Kastner's comment, that transaction costs
      of paper money are not properly factored in, is ideological? No transaction costs are charged for cash, handling it incurs costs for banks- wouldn't less paper money reduce the costs? Aren't payments in Cupertino made electronically (therefore traceable), then will be subject to taxes etc?
      Seems the problem in Greece is not privacy of transactions, but avoiding a country under capital controls where hard earned money could get haircut tomorrow..?

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  7. Greeks, who like to claim they coined the words dialogue and logic, have big problems with discussions. They tend to counter arguments with accusations regarding the opponents moral, intelligence, knowledge, integrity and ancestry. Not exactly what I would call a logic dialogue.
    Lennard

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    1. AS a non-Greek, I can assure you that these words and concepts came from Greeks. What is the point of this sneering approach you adopt? To claim the Greek heritage as German (as the Nazis tried)?

      Nor is your cultural stereotype -- which is clearly racist in intent -- logical. There is no nation on Earth that is without politicians and journalists who smear their opponents "moral, intelligence, knowledge, integrity and ancestry" as you put it. In fact, I recall at the start of the eurozone crisis that this was the strategy of the Germans -- to impugn Greeks' credibility, honesty and propensity for hard work.

      POT, KETTLE, BLACK

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  8. Say, Klaus, sorry for the off-topic but, again, as an Austrian, what do you make of the current Heta mess?

    http://www.bloomberg.com/news/articles/2016-04-10/heta-s-creditors-forced-to-share-losses-by-austrian-regulator-imuocris

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    1. Well, as you say, it is a mess; a complete mess. Caused exclusively by the incompetence and irresponsibility of Austrian Finance Ministers and Prime Minister from December 2009 until fall of 2014. First, they nationalized a bank of which the Bavarians owned 75% because they fell for the Bavarians' bluff that they would let the bank go bankrupt otherwise. And then they let almost 5 years go by without doing anything, hoping that the problem would go away. The total damage to Austrian tax payers will not be known for quite some time but it will be at least 10 BEUR. Some predict closer to 15 BEUR. And there have been speculations about even 20 BEUR. Austria's annual budget is 75 BEUR. Had Greece fallen into the Aegean, it would have cost Austrian tax payers less than 5 BEUR.

      Since the fall of 2014, Austria has a competent Finance Minister. He has been playing "Mr. Tough" in the hope of scaring creditors and getting them to agree to a settlement. Legal experts say that Austria's legal case is very weak. Austria's only leverage is that legal proceedings would take 10 years at least and some creditors may prefer a little less cash but for sure now than 100% cash but not certain in the distant future. My guess is that there will be a settlement between 80-90 cents on the Euro. Afterwards, this issue will be quickly forgotten.

      If there is no settlement, a lot of lawyers will get rich. Precedents will be set and some may have consequences in other countries. It will get so messy that one simply has to assume that no one will want that and thus prefer a settlement.

      By the way, the haircut which was implemented yesterday (100% loss for subordinated creditors; 54% loss for senior creditors) is meaningful only to the extent that creditors now have to write down their assets. Austria's latest offer was to settle at 80 cents on the Euro and it now looks like a settlement will be between 80-90 cents on the Euro. If there is no settlement, creditors would recuperate their current losses through a favorable judgment in 10-20 years from now.

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  9. Mr. Lennard.
    You are showing your lack of knowledge of language, history and culture. Everybody knows that we invented logic, dialog, discussion and democracy, long before you developed any civilized behavior. Like most you are obsessed with your hate of Greeks.

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    1. Let me suggest something semantic for you. If you said "everybody knows that the ancient Greeks invented logic, etc." instead of saying "we invented logic, etc.", it would just sound so much more convincing.

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    2. To expand on what I meant above, let me quote Prof. Stathis Kalyvas on the subject:

      "What explains the love-hate relationship between Greece and the West? The most sensitive issue in the relationship between Westerners and Greeks was the link between ancient and modern Greece. Every attempt to challenge this relationship—most famously by the Austrian writer Jakob Philipp Fallmerayer, who suggested in 1830 that modern Greeks were the descen­dants of Slavic peoples—caused an intense emotional reac­tion in Greece. The link between ancient and modern Greece remains a sensitive issue in Greece today, as it is simultaneously a cornerstone of Greek national identity and an expression of the nation’s pronounced insecurity."

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    3. The cornerstone of Greek identity is not that modern Greeks are descendants of the ancient. It is the language (with several 100s years evolution) that makes modern Greeks cultural heirs to the ancient.

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    4. I'm not sure I get your point, Mr. Kastner. Granted, the modern Greeks don't deserve credit for the achievements of the ancient ones, but what does this have to do with their whatever "racial" purity or impurity? Unless, in this time and age, Fallmerayer's racism (regarding "bad" Slavic or Albanian blood) is still relevant.

      The way I see it, Hellenization has always been a success story. The Greeks wouldn't have been capable of assimilating foreign groups, hadn't they been more powerful than them at the time. And most of those groups were local in the region, anyway, so making such a fuss about mixing with them is ridiculous.

      Finally, here's one of the reasons we can call ourselves Greeks: the only ones (with the partial exception of the Arabs) who gave a damn about ancient Greece until the 15th century were our medieval ancestors. Hadn't it been for them, the 3/4 of the surviving ancient Greek literature (Homer, Plato, Sophocles, Aristophanes etc.) would have been lost for ever. So we are not just some modern Balkan population who happens to speak Greek - we are the heirs of the Alexandrian and Byzantine scholarly tradition in which Greek language and literature were always central.

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  10. @ Anonymous April 12, 1107 AM.
    You must be pulling my leg. Why else would you, in a few sentences, prove me right? You manage to question my knowledge, ancestry and integrity/moral, without touching upon my argument.
    Lennard

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  11. Let me be more SEMANTIKOS.
    The "We invented" invites the question: You Sir, and who else?

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  12. Logic and dialogue are Hellenic words. Discussion has its origin in 14th century Anglo?-French.
    Marianne.

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  13. I am afraid the heirs of the Alexandrian tradition have not inherited a lot when it comes to discussions. No question the Hellenes coined the words logic and dialogue in the European world, they went on to develop them into the Socratic discussion (method). Today's Greek discussions (as taught and practiced) are shouting matches. That goes for the highest to the lowest public life, even into the families.
    Ironically, one of the countries where the Socratic Method is taught from early school age is the USA. Likewise the skills in holding public speeches. That may explain the cultural chock many Americans experience when living in Greece.
    Lennard

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    1. Dear Lennard,

      You really should avoid generalizations and paint pictures what something is or someone is. Dialogue is indeed conducted in Greece, likewise satyriasis and yes on many occasions yelling. The yelling comes from what our ancients had as well. Its called expressive passion. We in the past and in the present use/d these techniques to move forward under difficult situations. And it was as back then and as now that our mannerism, although odd to you is perfectly normal to us. It what makes us different, excel and find new solutions and yes create something new as back then and as today.

      As for the comparison between the USA and Greece on the Socratic Method. Where do you see this? In the 1% of schools of Ivy Leagues? The rest of the 99% are in mess. Greece and its people may seem without wits or logic, I beg to differ and this even in the sorry state that my country and country men are in. We do not discuss as to find ways to make sense to you. We discuss to find ways to make things make sense to us and to survive the way we believe is best for us.

      Good Day,
      V

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  14. I don't disagree with the general message of the article.

    So what should we conclude? We should conclude that the Europeans have badly messed up the handling of both the Greek crisis and the Eurozone crisis (of which the Greek issue is an appendix).

    We're still kicking the can down the road, but the more we do the worse the fallout will be.

    Greek politicians are just discovering this the hard way after decades of procrastination with the Greek pension system.

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