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Monday, February 20, 2017

Favorite Destinations Of Emigrating Greeks

Now this is an interesting chart! It shows the number of Greeks who moved abroad during the crisis (2010-16) and to which countries they moved. The total number of 355.000 appears low compared to what has been reported elsewhere but the chart does state that data from France, Sweden, Italy and many other countries are not included.

Still, the four clear champions are: Germany (by far!), UK, Australia and Cyprus.

This Time It May Be Different, After All!

It has literally become routine since 2010: negotiations of new programs; followed by reviews; each review accompanied by high drama with anticipation of a possible Armageddon; and finally - agreement for the next several months. Against this background, the present phase of uncertainty comes across as déjà-vu all over again.

Perhaps it's because President Trump is now capturing all the headlines, perhaps it is for other reasons but somehow there is no real excitement this time around. Yes, various papers have tried to incite panic by publishing panicky articles with panicky headlines but one doesn't sense the nervousness as on previous occasions. Even when Greek depositors withdraw 2,5 BEUR in less than 2 months (and that in times of capital controls!), the pulse remains at rather regular levels.

Could it be that nobody really cares any more? Could it be that even the Greek population does not care any more? The threat of Grexit has been posed to them so many times that perhaps they are now feeling "Ok, get it over with! It can't get much worse!" Finance Minister Schäuble doesn't say much but for some reason no one has forgotten his proposal that Greece should exit the Eurozone, albeit temporarily, with a satisfactory alimony in the form of a haircut.

My sixth sense tells that that this time it may be different, after all. Everyone warns that the longer things draw out, the greater the risk that an 'accident' may happen along the way. I have no idea what they have in mind by way of 'accident' because Greece seems to have enough cash to meet its obligations for quite some time, at least until July. But, for sure, the longer things draw out, the more the energy to really make it one more time will decline. At some point, déjà-vu all over again may just not be déjà-vu all over again.

Has the likelihood that the Greek economy will ever make a turn-around within the Eurozone increased in recent years? I do not have that impression. As a champion of the idea that Greece should stay in the Eurozone (back in 2010/11) because it would be the lesser of 2 evils, I now have to admit that the social costs involved with that over the last 6 years are so high that I have trouble seeing that they would have been equally high (not to mention even higher) if Greece had exited the Eurozone back in 2010.

Bottom line: if PM Tsipras is prepared to sign on the dotted line, everything will probably fall into place and, before long, we will be talking about a 4th program. If, however, sand gets into the machine and negotiations become as difficult as back in 2015, I think there is a high probability that Greece will end the year 2017 with a new local currency.

Nobody seems to be fighting for Greece to remain in the Eurozone any more, not even the Greeks.

Thursday, February 9, 2017

The Bitch Is Back!

Suddenly, the Greek crisis is back. Or so all the media have reported in recent days. In actual fact, the Greek crisis is neither back nor has it ever been gone - it's just there!

The question is only whether the crisis is dormant or coming back to life. It is dormant when there are no 'decision points' (no major payments due, no major deadlines to be kept, etc.). When a new tranche has just been disbursed with a new review date set in 6 months, one can rest assured that there will be no Greek crisis until 6 months later. When there are decision points all the time, there will be a Greek crisis all the time. We are now, once again, approaching decision points. And the bitch is back.

As always, the Greek Analyst nails it above. I think even if all of Greece's debt were forgiven, the problems would continue. They wouldn't be felt for a number of years because, starting from zero, Greece could again start borrowing heavily. But that wouldn't change the process: as soon as a decision point comes up, the crisis returns.

Marcus Walker of the WSJ put together a coherent thread about the timeline of the Greek crisis where he traces Greece's problems to the fiscal mismanagement from 2002-09. Not quite! I believe that today's Greek crisis has its origins back in the early 1980s when two tectonic movements reinforced each other: the spendthrift policies of the PASOK/Papandreou (father) government and the financial benefits of having joined the EU. This is not to blame PASOK alone. On the contrary, PASOK started it and when ND came to power, they tried to be a cheap copy of PASOK.

Until there is a general acceptance of this development on the part of the Greek government and the Greek people, Greece will be in crisis for the simple reason that one only changes behavior if one realizes that one has done wrong.

As long as those who uncover and correct scandals are sued by the Greek government while those who caused the scandals walk free, the Greek crisis will not be 'owned' by Greeks.

Footnote: Interestingly, in most of the private conversations I have with Greek friends there is agreement on the above.

Tuesday, February 7, 2017

The Challenge Of Understanding Greek Statistics

Only recently had I commented on the most favorable preliminary state budget figures for 2016. I had reported that the "state" recorded a primary surplus of 4,4 BEUR in 2016, compared with 2,2 BEUR in the year before and a target for the year of 2,0 BEUR. By all standards, a rather sensational result.

What matters in the final analysis, however, is the "general government" of which the "state" is the largest component (other components: "state, local governments", "social security funds", "other non-consolidated items"). I thus concluded that, for 2016, the "general government" would look even better than the "state".

Yes, but with a question! Below is the table for the "general government" in P+L format:

The message is short: revenues (mostly taxes) went up quite a bit and expenses went up a bit less so that there was a significant overall improvement over the previous year. In 2015, the primary surplus was 3.993 BEUR (after adding 5.690 BEUR interest expense back into the overall deficit of minus 1.697 BEUR).

In 2016, the primary surplus was 5.007 BEUR! (after adding 5.260 BEUR interest expense back into the overall deficit of minus 253 MEUR).

That would be all fine and dandy if the same figures always remained the same and if they all added up. Half of the confidence of an analyst derives from the fact that the same figures are always the same and that they always add up.

The primary surplus of the "state" in the preliminary state budget figures was 4,4 BEUR (see here). When one looks at the break-down of the general government figures, on the other hand, the primary surplus of the "state" is only 701 MEUR. Perhaps - and most probably - one "state" is not the same as the other "state" but it would be good to be explained the difference.

My overall prediction that the "general government" would turn out even better than the "state" proved correct. I doubt that the major discrepancies described above represent incorrect figures because, after all, all figures come from the same source (Ministry of Finance). My guess is that the discrepancies are a matter of categorization and presentation, which often happens, but it would be useful to be explained what they are.

Friday, February 3, 2017

Donald Trump - Saviour Of The Eurozone?

“I had in a previous career a diplomatic post where I helped bring down the Soviet Union. So maybe there’s another union that needs a little taming" - so mused Ted Malloch recently. He is allegedly President Trump's preferred choice for US Ambassador to the EU.

The response came from the EU parliament in a letter to the EU Commission: “The prospective nominee expressed his ambition to ‘tame the block like he brought down the Soviet Union’, eloquently supported dissolution of the European Union and explicitly bet in the demise of the currency within months".

Malloch's views seem to be current thinking in Washington because President Trump himself had recently said similar things in an extensive interview.

This could be terrible news for the Eurozone. Or - it could be excellent news!

Whether it is a family, a state, a currency union or a political union - they may internally be torn by infights but as soon as there is a threat from the outside, they typically close the ranks and become unified. What if the new attitude out of Washington brought the EU elites to senses and made them realize that they have to take some real decisions if they want the Eurozone to survive?

And if they hadn't wanted the Eurozone to survive before, after the musings of President Trump and Ted Malloch, they should now certainly feel fired up! If for notother reason than to show the bullies in Washington that Europe has teeth, too.

Wednesday, February 1, 2017

A Debate About Germany's "Exorbitant Privilege"

Exactly one month ago, I published the article "Will Donald Trump brand Germany as a currency manipulator?" As we know since yesterday - the answer is a resounding YES!

It was not (yet) the President himself who did it. Instead, his new head of the National Trade Council, Peter Navarro, launched the missile which will severely impact European economies in an interview with the FT. The Guardian and The Telegraph also reported on the issue.

Navarro's argument is as simple as it is correct: Germany enjoys and 'exorbitant privilege' as a member of the Eurozone: (a) thanks to the weak countries, the EUR is much cheaper for Germany than a separate DM would be, thus making German exports easier; (b) thanks to the weak countries, the EUR, which is too cheap for Germany by virtue of its structure, has devalued 30-40% in recent years against the USD, making the benefit for Germany even greater; and (c) thanks to the weak countries, capital has flowed into Germany like a tsunami, allowing the German state to save billions in interest expense every year.

Where Navarro is wrong is when he blames Germany for manipulating all of this. In actual fact, Germany's 'exorbitant privilege' derives from the structure of the Eurozone and not really from actions or decisions on the part of the German government. Thus, it would be unfair to blame Germany for it. What Germany can indeed be criticized for is that it doesn't give the Eurozone much in exchange for enjoying that 'exorbitant privilege'.

It also needs to be pointed out that Germany is not the only beneficiary of the structure of the Eurozone. One could probably generalize and say that the Euro is too cheap for all of Northern Europe and too expensive for all of Southern Europe.

Responses from the European side to Navarro's statements have been rather weak so far. Chancellor Merkel issued some commonplaces about the ECB's acting independently. Other German commentators are bluntly saying that if only all the other countries had behaved like Germany, ALL countries would share the same 'exorbitant privilege' (which is equivalent to adding arrogance to ignorance). There have also been musings out of Brussels that Navarro does not understand the Euro. When this turns into real negotiations, the European side will have to be much better equipped with arguments than thay are now.

Progressive European economists and commentators (from Yanis Varoufakis on down) have made Navarro's point for years now. It will be very interesting to observe whether they hold on to their views now that the Trump administration is also making their point.