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Wednesday, August 22, 2018

"The Rescue Is Over" - Reviewing 7 Years Of Blogging

"Greece - The Rescue is Over" titled the online portal of Austria's national broadcaster on August 20. The European media were full of self-congratulatory statements by EU elites. Yes, the Greek people had to go through severe hardships in the last 8 years but now that chapter is closed and the stage is set for a prosperous future. Provided, of course, that Greece continues successfully on the reform path of the last years. Etc., etc. This blog has accompanied the Greek crisis since June 2011. In this elaborate essay I will reflect on the observations I have made and the opinions I have expressed over the years.

In early 2009, and in preparation for my upcoming retirement, my Greek wife and I started looking for an apartment in the Thessaloniki area where we planned to spend a good portion of our retired life. We had lived in Munich at the time, one of Germany's most expensive cities, and we expected a life in a less expensive environment. We quickly found an optimal apartment in Kalamaria and in April of 2009, we flew to Thessaloniki with the purpose of getting the apartment in shape, i. e. furniture, etc.

Germany at that time had been hit hard by the financial crisis. At one point, Chancellor Angela Merkel and her Finance Minister had to go on TV to assure the public that all German bank deposits were guaranteed by the state. This against the background that a bankrun was feared. In my banking job, I was responsible for corporate banking in Southern Germany, the home of the German Mittelstand. Every day we received new panic reports from our customers.

As the taxi drove us from the Thessaloniki airport to our hotel (there was no furniture in the apartment yet), we passed an impressive looking furniture store. That, I said to my wife, would be our first stop the next day. I was looking forward to the opportunity of buying top quality furniture at low prices. The first living room arrangement which they showed us (2 sofas and a chair) went for 10.000 Euros. I expressed shock at the price. The sales lady looked at us with the expression on her face: "If you can't afford our furniture, don't waste my time." We decided not to waste her time.

From then on, one surprise was followed by the next. There was an unbelievable number of large furniture stores. At IKEA it was difficult to find a place in their huge parking lot. Downtown Thessaloniki was exploding with economic activity. In short, wherever I looked, I saw shops, people shopping and the prices were high. In several instances (like supermarkets) higher than in Munich.

Through my wife's cousin, a very well connected man around 50, we made our first friends. They were either rentiers or retirees even though none of them was over 60. The cousin had sold his small business (a t-shirt manufacture) when he was 45 and he was looking at about 5.000 Euros in monthly rental income and real estate properties which he valued at 1,5 MEUR. His best friend told us that he had collected a severance package from OTE in his early fifties and was now receiving a monthly pension of almost 3.000 Euros net per month. I asked him what he had done at OTE and he proudly said 'nothing'. He would come to the office in the morning, leave his jacket on his chair and go out to the beaches. Another friend had taken early retirement from a public sector company where he had been a big shot in the union. He was just completing a new mansion which I thought would be worth at least 2 MEUR. On the side, he was pursuing projects with EU subsidies and we learned through the grapevine that a good portion of those subsidies found their way into his private pocket. A neighbor told us that he was collecting 12.000 Euros net per month in the form of pensions from 3 management positions in the public sector. Our real estate agent, a former policewoman in her mid-fifties, told us that she had retired at 48, collected a pension of 1.800 Euros net per month and now earned substantial income as a broker.

In a relatively short time, we had built up a circle of friends of over a dozen people. Only one of them was over 60 (the former public sector manager) but none of them was in a working relationship, either employed or self-employed. There were either rentiers and/or early retirees.

Around that time, I read an analysis of Greece's economic situation by a reputable international institution. Regrettably, I did not keep it and I don't remember the name of the institution. The gist of the analysis was that Greece would probably remain unharmed by the financial crisis because its banks were not involved in international speculation. If anything, Greece had a good chance of coming out of it as a winner.

Upon returning to Munich later in the spring of 2009, I happened to attend a presentation by the well-known economist Michael Huether. He was talking about the financial crisis in Eastern Europe and how the banks had to put together a rescue package. And then he said: "Mind you, before the crisis is over, we will also have to put together a rescue package for Southern Europe." I thought the man was dreaming. A rescue package for Greece? Didn't he know that Greece was a booming place and that analysts predicted a glorious future for the economy?

Around that time, I happened to read "The Battle of Bretton Woods" by Benn Steil. It was the battle between the British John Maynard Keynes and the American Harry White. Keynes had one predominant objective: to assure that the new monetary order would control imbalances in the current accounts. He proposed a new reference currency ("Bancor") in which surpluses/deficits would be settled. Over a certain level, a surplus country would have to pay into the Bancor and the deficit countries would receive them. A perfect recycling mechanism. Keynes' counterpart White also had a predominant objective and it was diametrically opposed to that of Keynes: to establish the predominance of the USD in the new monetary order. The dollar would be fixed against gold and the other currencies would be kept in a trading range versus the USD. Responsible conduct of the US would assure that world-wide imbalances would he held in check. White prevailed.

In 1971, Keynes was posthumously proved correct. The US had not displayed responsible conduct, had accumulated large external deficits and there was no longer enough gold to cover the USD in circulation. In a short TV speech, President Nixon surprised the world with the news that the USD would no longer be convertible into gold at a fixed price. In practice, it was a haircut of all USD claims held by the rest of the world. The age of fiat money had begun.

I came away from reading that book with the conviction that the most important factor in international financial stability was a country's current account, that it was a country's balance of payments that had to be checked, and that conviction shaped almost everything which I would write about Greece's financial crisis later.

When the Greek financial crisis erupted in late 2009 and until the first rescue package of May 2010, it felt to me like a déjà-vu. I had witnessed, as local country manager of a large American bank, the economic turn-around in Chile in the late 1970s/early 1980s. Since then, Chile has become the prototype for me as regards how to overcome an economic crisis. When I arrived in Chile in 1980, the economy was booming. Only 7 years earlier, Chile had been in total economic chaos caused by the policies of Salvatore Allende: Chile in 1973 was what Venezuela is today. How could a totally bankrupt economy be turned around into a booming economy in only a few years?

Two very simple factors: a very competent economic management team (the "Chicago Boys" in Chile) and a political leadership which could give that management team air cover to implement their policies. In Chile, that political leadership was the dictatorship of Augusto Pinochet, rightly blamed for atrocious human rights violations. However, without such air cover it would have been unlikely for the economic management team to succeed owing to the enormous adjustment pains which came along with the new policies. It was a shock treatment like changing traffic from left to right overnight. I often wondered whether a democracy could survive such a shock treatment. In Greece, I thought the shock treatment could work IF there were a competent economic management team and IF there were a strong, unified government supporting it.

The most important factor for the success of the Chicago Boys was that they had a plan and consistently and unwaveringly pursued it. It was nothing but applied common sense: increase exports, reduce imports, apply efficiency criteria to the huge public sector, create market conditions for the private sector and create an economic framework which would attract foreign capital. The Chicago Boys committed one major mistake which eventually caused their downfall and the external payments crisis of the early 1980s: they fixed the exchange rate to the USD 'forever'. With Chilean interest rates much higher than USD interest rates and with no perceived foreign exchange risk, foreign capital flowed into Chile like there was no tomorrow. When the bubble exploded, the Chileans eliminated the fixed exchange rate and the economy stabilized relatively quickly. Chile's luck was that they had only fixed the exchange rate instead of joining a currency union with the USD. The rest of the model of the Chicago Boys remained in place, resulting in Chile's becoming one of the most successful economies in Latin America to this day.

Later in the 1980s, I was transferred to Argentina where my bank was one of the largest foreign creditors of the country. In 1983, Argentina hit the then largest external financing crisis ever with American banks being by far the largest creditors. It was the American Citibank which headed up the crisis management. Its principal negotiator, Bill Rhodes, literally personally developed the model for handling Argentina's external financing crisis, a model which became the standard for handling the dozens of external financing crises throughout the world since then. Its components, again, were quite simple: negotiations had to be carried out directly between Argentina and its private creditors; official institutions (the Fed, the US government) only quarterbacked behind the scenes; private creditors had to maintain their Argentine exposures, i. e. loans and trade credit ("risk takers must remain risk carriers"); and the IMF assumed responsibility for providing fresh money and negotiating economic measures ("memorandum") with the Argentine government. The banks agreed subject to the involvement of the IMF, the IMF committed subject to the agreement of the banks. The mutual dependency between private creditors and the IMF was born. No bank was bailed out. Instead, their benefit was that they could keep their existing exposures on performing status instead of having to write them down.

Given the above experiences, I thought by late 2009 that Greece's problems would be solved rather quickly. As regards reforming the economy, I thought they would copy the Chileans: put in place a competent economic management team and have a unified government provide it with air cover. And as regards the external financing crisis, I thought the EU would consult with Citibank, by then the world's premier expert in how to handle external financing crises. The EU refused to consult the experts. Bill Rhodes later said in interviews that he had offered his advice to the EU as well as to the then Prime Minister George Papandreou. He was told by all parties that the experience with emerging countries would serve no purpose because the EU and, particularly, the Eurozone were completely different animals. The trouble was that the EU had zero experience with the handling of external financing crises of a country.

By early 2010, I was baffled with the events unfolding in the Eurozone. Instead of consulting experts, Angela Merkel consulted with the CEO of one of Greece's largest creditors, Joseph Ackermann of Deutsche Bank! Ackermann, as his job required, defended the interests of his institution and argued with Merkel that not only the Euro and the Eurozone but the entire world-wide financial system would fall into chaos if Greece were not bailed out. At the peak of those dramatic developments, Merkel coined a phrase which may go down into history as the most expensive phrase ever: "If Greece falls, the Euro falls and if the Euro falls, the EU will fall!" That misinterpretation was the source of every other problem which followed subsequently.

What should Merkel & Co. have said to the bankers pleading for a bail-out of Greece? Something like this: "We realize that you have a problem with Greece but, truly, this is a problem between you the creditors and Greece as your borrower. You will have to negotiate a restructuring of your claims directly with your borrower. We are on standby when it comes to financing Greece's new financial needs going forward and for negotiating economic measures with Greece but first you have to restructure your claims. Should you fail to do so, you correctly say that your institutions may fail. You need not worry about that because we already have protective measures in place. We have already put in place successor vehicles for each of your institutions. If you declare bankruptcy in the morning, our successor companies will take over your operations in the afternoon and your shareholders will be wiped out. At some point in the future, your successor companies will again be privatized and we will hopefully recover much if not most our our investment. The tax payers will not lose everything, which is what would happen if we bailed you out via Greece. Mind you, if you do not follow our advice and if your shareholders are wiped out, you may become personally liable for any damage suffered by your shareholders because you had the opportunity to avoid that damage and you chose not to use it."

The utter misinterpretation of EU elites was that, in a major financial crisis, it was the banks which had the power and the governments which were 'alternativlos'. The opposite is the case. In any major financial crisis, it is the creditworthy governments which have the power and the banks are dependent on them for the simple reason that governments have time and the capacity to raise money. If a bank falls below equity requirements, it needs to file for bankruptcy immediately, as Lehmen had shown. A creditworthy government can provide the time for an orderly bank restructuring and/or liquidation and the liquidity required. The US government had demonstrated how this is done. When the world's largest insurance company, the giant AIG, faced bankruptcy because a couple of hundred employees in London had engaged in reckless credit default swaps, the US government stepped in and it demanded its pound of flesh: 90% of shareholdings were wiped out. Only a few years later, the US government successfully exited the restructured AIG and took a huge profit on the exercise. AIG's largest former shareholder sued the government for damages to the tune of 30 BUSD. The law suit failed on the grounds that not only profits are for private shareholders but losses as well.

As I explained above, a first memorandum could not have been avoided even if the EU had handled the Greek crisis correctly: no creditor would have agreed to keep his exposures if there was no commitment for reform measures. What puzzled me during visits to Greece throughout 2010 was that life had hardly changed: Greeks were still buying imported goods like there was no tomorrow. Under normal situations, when a country loses access to foreign financing, its current account needs to be balanced literally overnight. Imports are drastically reduced. The entire population feels that there is a problem. Greece, however, continued to run very high current account deficits. In the spring of 2011, Prof. Hans-Werner Sinn provided the explanation when he introduced the world to the marvels of Target2, the ECB's cash management system. By then, the Bundesbank had accumulated Target2 claims of 324 BEUR and Sinn prophesized the demise of Germany (today they are close to 1 trillion Euros).

One can make intellectual arguments whether Target2 is the key component of a currency union or whether it is an unlimited credit card. In practice, Target2 allows a domestic banking sector to pay for imports, for deposit flight and for capital flight even if it has lost access to foreign funding. Without Target2, the Greek banking sector would have become illiquid in 2010. In June 2011, I started this blog and one of my first articles was about Target2. My argument was that Target2 was the principal reason why there was no crisis awareness among the Greek population. As long as one can buy imported goods, withdraw savings from banks and transfer capital abroad, it is hard to convince the general public that there is a crisis.

As I studied the first memorandum, I couldn't help to think that it was a bookkeeper's approach to solving financial problems: increase tax revenues and cut costs. What I was looking for was a long-term economic development plan à la Chile which would aim to drastically restructure the Greek economy so that it could stand on its own without funding/subsidies from abroad. A plan which would have a 10-20 years time frame. In the first month of this blog I proposed such a plan. To summarize the content: "If Greece cannot make it with the Euro but if a Grexit is the worst of all evils, Greece should hold on to the Euro but temporarily simulate a situation as though it had returned to the Drachma: import controls and substitution with the focus on 'infant industry protection and development'; export promotion; attraction of foreign investment AND, finally, a shock treatment for the public sector. Instead of attempting to change the entire economy at once, Special Economic Zones should be established where the new economic framework could be gradually spread through the country." I later referred to it as the "4 obsessions" which would have to be fostered throughout the Greek economy and population: an obsession with import substitution, with exports, with attracting foreign investment and with making the public sector efficient. To this date, I have not seen such a plan.

Soon after I started this blog, I became aware of Yanis Varoufakis and his blog and other publications. His 'Modest Proposal' had caught my attention because it was a most ingenius proposal to solve the Eurozone's problems. It was certainly better than everything I had heard from EU elites on the subject. The only problem I had with it was that it was a solution for the Eurozone's problems and not a solution for Greece's problems. My dialogue with Varoufakis began at that time. It continued throughout the years and became extremely intensive in the weeks prior to the election of January 2015. Only a few weeks after his appointment as Finance Minister and after observing his conduct on the international scene, I discontinued the contact.

My early critique of Varoufakis was as follows: "Why do you use all your intellectual brilliance, your competency, your eloquence and your charisma to solve other people's problems (i. e. the Eurozone's problems) and don't focus at all on solutions for the problems which Greece could provide on its own?" Varoufakis' standard reply was that, during the American depression in the 1930s, there was nothing which the state of Ohio could have done on its own because it was a systemic crisis. My standard answer was: as long as Greece ranked as the least attractive country for doing business in the entire EU (World Bank) and as the most corrupt country (Transparency International), there is no one other than Greeks who can solve these two problems.

Still, I remained optimistic throughout 2011 that, eventually, the Greek government would take its fate into it own hands (instead of focusing on the victim's role), that it would come up with a long-term economic development plan and implement it. I saw enormous potential in the Greek economy given that its problems were so obvious, could quickly be identified and attacked as long as there was the political will to do it and I also thought that the economy not only had great catch-up potential but also new opportunities as a regional economic hub. At one point, I even dreamed that Greece could become the economic power center of the Eastern Mediterranean.

Two things happened in the fall of 2011 which enormously encouraged my optimistic thinking: the EU Task Force for Greece (TFGR) was established and the Athens office of McKinsey published its economic plan titled "Greece 10 Years Ahead". McKinsey proposed how 500.000 new jobs could be created over a period of 10 years and 50 BEUR added to Greece's GDP and the TFGR proposed "to be at the disposal of the Greek authorities as they seek to build a modern and prosperous Greece: a Greece characterized by economic opportunity and social equity, and served by an efficient administration with a strong public service ethos."

All of this seemed so easy: a unified government would take the McKinsey plan and implement it and it would mandate the TFGR to implement the modernization of Greece in a hurry. Animal spirits would start flowing and foreign investors would take note. Instead of rescue funding from the EU, Greece would receive voluntary funding from private investors. After all, that's how it had happened in Chile.

I had initially been quite enthusiastic about Prime Minister Papandreou. He struck me like a polished individual who seemed competent, was saying the right things and seemed to have a will. By the fall of 2011, I had developed serious doubts. There simply did not seem to be much of a backbone. More of a diplomat than an executive. In early November 2011, I knew that there would be a moment of truth: would Papandreou prove himself as a Margaret Thatcher ("I want my money back!") or only as the son of his father. Regrettably, he showed himself only as the son of his father.

When Papandreou surprised the EU by announcing a referendum, I thought that this was an ingenius plot. Obviously, not to really hold a referendum but only to use it as a negotiating instrument versus the EU. I expected the Nice conference to become a showdown: when the French President lost his nerve, exploded and pounded the table, I expected Papandreou to remain quite relaxed and say to the President: "Look, there is no reason to get so excited; there is an easy way out. All I ask is that you do this and that for Greece and I will call off the referendum. Otherwise, the will of the Greek population will count and I am afraid you may not like the result." Given that discussions had already been in the 3-digit billion Euro sphere, a demand for, say, 10-20 BEUR in the form of additional investments in Greece's private sector would have been like the icing on the cake, a satisfactory 'this and that'.

Papandreou caved in, the political opposition behaved irresponsibly and all my hope for ever seeing a solid solution for Greece evaporated. With the benefit of hindsight, I would say that the period of 2010-12 was the crucial period where Greece 's future was determined: would Greece become the country which the TFGR envisioned or would it remain an underdeveloped economy with totally unequal distribution of wealth, income and burdens? Too geopolitically important to be allowed to fail completely but a far cry from utilizing its potential?

The cynical celebrations about 'Greece's success story' are offset by more balanced critiques of what really happened in Greece since 2010. The celebrators claim that they saved Greece, the more balanced commentators say that Greece saved the banks and the Eurozone but not itself. Very little in-depth analysis is being made as to why Greece really ended up in 2010 where it ended up. Was it unavoidable that the Euro-dominos would fall and Greece was simply the first one to fall? Was the rescue program satisfactory or were mistakes made? If mistakes were made, who is to blame? Greece or the creditors?

I have always maintained that there were 2 crises in Greece: an economic crisis and a financial one. The economic crisis, I argued consistently, began with the assumption of power by Prime Minister Andreas Papandreou and his PASOK in 1981 and the nearly simultaneous admission of Greece to the EU. The financial crisis began when 30 years of reckless mismanagement culminated in a 'sudden stop' of external financing in early 2010.

In his book "The 13th Labor of Hercules", Yiannis Palaiologos gives an account of the reckless mismanagement referred to above. In essence, PASOK managed to change Greece's political and economic climate in only a few years: a bloated welfare state with stifling interventions and overregulation; welfare populism, cronyism, statism, nepotism, protectionism and paternalism. And worst of all, the opposition, Nea Demokratia, when in power, did its best to copy PASOK instead of correcting their policies. There no longer were checks and balances. Aristides Hatzis described this as follows: "Today's result is the outcome of a disastrous competition between the parties to offer patronage, welfare populism and predatory statism to their constituencies." The responsibility can be assigned equally to both parties: if it was PASOK who initially embarked Greece on this disastrous path, the last chapter in the story "how to ruin a country" was provided by ND when, during their term from 2004-09, they drove the public sector out of control.

Was it the Euro which caused the demise of the Greek economy? Not really. When one visits Greek industrial parks today, many are more reminiscent of industrial cemeteries. Most of those industrial failures date back to the 1980s and 1990s when Greek competitiveness was essentially blown out of the water. In 1993, a young Greek professor teaching at an Australian university was asked, in a TV interview, his opinion of the state of the Greek economy. The professor stated that the Greek economy was in a state of terminal decline. His name was Yanis Varoufakis. In 1997, the so-called Spraos Report about Greece's pension system recommended urgent reforms lest the system fail. The President of all unions criticized the report for suggesting that the pension system would collapse by 2010 if corrective measures were not taken. That, the President prophetically ridiculed the authors, would assume that the Greek state would go bankrupt by 2010 (his assumption being that the Greek state could never go bankrupt).

No, the Euro did not cause the demise of the Greek economy. The stage for that was set during the 1980s and 1990s, facilitated by the wave of foreign capital flows after EU membership. The Euro only added a turbo to that process, a giant turbo to be sure, and the wave of foreign capital flows turned into a tsunami during the 2000s.

The economic crisis turned into a financial crisis during 2008. The sub-prime crisis had made lenders very risk-aware and cautious and many of Greece's lenders, previously unanimously enthusiastic, had begun looking more carefully at Greece's numbers. New lending to the Greek banking sector dried out and some existing loans were called back. This is evidenced by the rise in Greece's Target2 liabilities which began during 2008 (before then, Greece's Target2 was rather balanced). In 2009, the outflow of capital accelerated and once the new PASOK government revealed the true dimensions of Greece's deficits, 'sudden stop' was only a natural consequence. I once read an analysis which pointed out that there have been about 70 'sudden stops' world-wide since 1945. As a result, there was nothing new or unusual about Greece's 'sudden stop'. What was new about Greece's 'sudden stop' was the inadequate, if not irresponsible, EU's handling of it. Any 'sudden stop' triggers a major domestic crisis, particularly when an economy has become totally dependent on foreign capital. Thus, the question is not whether the suffering of the Greek population could have been avoided. Instead, the questions are: Could the suffering have been less? Could it have been for a shorter period of time? And, above all, did the suffering serve any constructive long-term purpose?

Anyone who argues that the post-2010 rescue programs intended 'to save Greece' is disavowing reality. As long as the mantra was "If Greece falls, the Euro falls and if the Euro falls, the EU will fall!", the obvious conclusion is that the purpose of the post-2010 rescue was to save the Euro and the EU. The only thing that Greece was saved from was a default on its external liabilities, something which doomsayers dramatically referred to as 'the bankruptcy of Greece'. The Chief Economist of Citibank reacted to this as follows: "What the Europeans did not know was that sovereign defaults have been the most ordinary thing in the world of finance in recent decades." When the threat of a default appears on the horizon (or when it has already occurred), countries - like private or corporate borrowers - need to sit down with their creditors to discuss a restructuring of the debt. Never before in the history of finance have private lenders been let so easily off the hook as in the case of Greece!

Only self-centered dreamers can have the nerve to call a rescue program which still leaves the country in shambles after 8 years a success. "Never let a serious crisis go to waste", the saying goes. The Greek crisis went to waste. No Greek parent can tell his children that "yes, we really had to suffer for a long time but we did it for you because you now live in a better country!" What went wrong?

It is much easier to identify responsibility for the failure on the Greek side instead of elsewhere. Yes, 'ALL Greeks had eaten the lunch', as a Greek politician once said, and, therefore, all Greeks should now pay for it. Yes, the Greek side never left the impression that it assumed ownership of the problem but always left the impression that reforms were undertaken only unwillingly, only under severe pressure from the Troika and then only haphazardly. Yes, the Greek side always focused on the victim's role and sought to put blame elsewhere. Etc., etc.

But the most important point is missing! What if a country is not yet quite ready for the framework of a highly developed EU, particularly for a complicated currency union? What if a country is not yet quite ready for the free movement of products, services and capital? What if a country had joined the EU and the Eurozone in the expectation that it would find help in its development?

Looking back, I would argue that the resource allocation over the last 8 years was at best 10% for assisting Greece "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" and at least 90% for debt issues. What if it had been the other way around? A debt problem, however large, can be solved by a group of people in a conference room as long as they agree. 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' is a project for a generation and it requires the best brains not only of Greece but of the EU in general.

As Greece exits the program, its debt is now more or less regularized: much of the interest burden has been deferred, most of the debt maturities have been extended way into the future and a cash reserve has been built up. Here is the million-dollar-question: Why could that not have been accomplished within the first year of the rescue, thereby allowing resources to be allocated to more constructive purposes?

In 2009, Greece had a primary deficit of 24 BEUR: before paying enormous amounts of interest, the Greek state spent 24 BEUR more than it had revenues. A staggering figure by all accounts. Naturally, that can be viewed as an example of extreme profligacy and, naturally, that can quickly be turned into an emotional issue: the profligacy of the Greeks must be stopped; the primary balance must be brought to zero as quickly as possible! So far, so good.

But anyone who has attended Economics 101 in college knows that national income is the sum of private sector and public sector income. If one of the two is cut drastically, the other one must increase if a destruction of national income is to be avoided. The problem is much greater than the 24 BEUR because when the state, as by far the largest economic agent in any country, cuts dramatically, there will be a multiplier effect throughout the economy. With the benefit of hindsight, one can debate whether the multiplier effect was calculated correctly or not. My point is that one doesn't really need a calculator. When one takes 24 BEUR out of an economy the size of about 220 BEUR, one knows that there will be shockwaves. Unless...

Unless one accompanies the (necessary) austerity with growth measures elsewhere to ameliorate the damage. Granted, no one could reasonably have been expected to give the Greek state a fresh 24 BEUR for growth measures given the Greek state's history of misspending funds. But it should not have been too difficult for EU experts to design ways to steer 24 BEUR into the private sector for growth projects. After all, the Chinese company Cosco steered millions of investments into their Greek subsidiary in the midst of the crisis and they are today very happy about that. Why could the EU not have accomplished with the country what a Chinese company accomplished with its subsidiary?

Many have argued that Greece should have been given a major haircut back in 2010 to get back on its feet. That is an illusion! Greece did not achieve a primary surplus until 2016. In other words, debt service (interest) did not burden the budget until 2016. Instead, all interest which was paid until then had first to be lent to Greece (and increased the debt). What would have mattered much more is if Greece had been given the interest terms back in 2010 which it has now (or better yet: an immediate interest moratorium for, say, 10 years). The example of Germany, half of whose debt had been haircut back in 1953, was often cited. With the benefit of hindsight, one can question whether that was a good decision. What if the debt which Germany was forgiven had been replaced with a 50-year bond including deferred interest? Would Germany in 2003 have been able to service that debt? Of course it would have and it would have been fairer to those parties who had to finance Germany's haircut back in 1953.

In short, true help for Greece would have looked something like this back in 2010: extending all loan maturities out into the future, say 25-50 years; an interest moratorium for at least 10 years; fresh money to finance the primary deficit with the proviso of achieving a surplus within 5 years; a commitment to maintain the stability of Greece's banking sector; and fresh money of at least 20 BEUR for growth measures in the private sector. All except the last point would have been quite easy to do as long as reasonable people came to an agreement in a conference room. The last point would have required true brainpower.

With that kind of an offer of 'help for Greece', the EU would have acquired a legitimate claim to put 'demands' to Greece in exchange. Those 'demands' would have consisted of the standard measures of a memorandum, albeit it in a more intelligent way than it was done. But most importantly, the 'demands' would have had to address the 'hot potatoes' of the Greek public and private sector, all those structural weaknesses that everyone knows of but no one dares to touch. Above all, the 'demands' would have had to assure that the 20 BEUR for growth measures would not go to waste.

What if the Greek side had not accepted this? What if the Greek side had interpreted this as an interference with national sovereignty? What if there could not have been accomplished consensus in the Greek government?

Well, it's like the above mentioned conversation with Joseph Ackermann: "We offer you help but it's up to you to accept it. If you don't accept it, you have to live with the consequences!"

Having written all that, it begs the question: Where are we today? Can there still be prosperity for Greeks in the foreseeable future?

At this point, there is no prosperity for the Greek population in toto in sight. Of course, the upper third of the Greek population (or so) will continue to do well to very well, as they have done in the past, even during the crisis, and they may even profit from the current situation. The middle-third (the former middle-class) will struggle to survive. And the lower-third will continue to suffer. All those Greek friends who are telling me that 'Greece will never change' are really saying that it will be this way for a very long time.

However, when I put myself back into the idealistically optimistic mode which I was in back in 2010-12, I envisage the formation of a competent economic management team and a unified government which provides it with air cover. If that were ever to happen, one could realistically hope that the day will come when Greece is 'a modern and prosperous country: a country characterized by economic opportunity and social equity, and served by an efficient administration with a strong public service ethos."

PS: reviewing what I have written above at great length, the thought comes to mind that I have said everything there is to say and that, perhaps, this is a good time to close this blog. I will ponder this.

86 comments:

  1. You make a mistake about the blog, i m saying that in 03:12 am greek time and i would prove that.

    A greek actress asked before 2-3 years about the crisis, suggested, that what happened was lack of understaning (educational) to acknowledge obvious mistakes, the manipulation of institutional foundations, the lack of meritocratic principles, the narrow antilipsis for political game etc.
    She lastly noted that economy was something to consider, but what matter was that time in Greece in certain periods remain stable-motionless, when all the world was moving with great speed, not only how to generate economic opportunities.
    (She is currently living in US.)

    The point here is that if time is perceived like the "Order of time" by Carlo Rovelli in a physics-history book then

    "Wonder is the source of our desire for knowledge, and the discovery that time is not what we thought it was opens up a thousand questions".

    In that sense the blog is offering knowledge and ideas, therefore like time has a relative meaning.

    It doesn't matter how many follow the blog.

    The many references about events, important or relevant, in different periods of time, may not directly connected to the rest, but describe the variety of perceptions and evaluations or the open mind from someone outside the greek way of thinking.

    Manos Hadjidakis the music genius-composer and theoretic of music said that when something good happening in Greece was due to the personal motivation or the inspiration of an individual. (He mostly said that in reference to his close friend K Karamanlis that decided Greece to become EEC member).

    In Greece today there aren't many happy people, or those who seem happy don't understand a lot.

    Around 500k have left and thousands others are sceptical.

    If someone from his view of things is to give the slightest stimulus people to imagine (not necessary a politician) then this effort worth a lot. For this reason different views even when there are disagreements are vital.

    It does not matter Klaus Kastner how often would you write, but to write.

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  2. For someone who is emphasizing so much (rightly so imo) the Current Account and the Balance of Payments, hence the External Debt, putting the blaim mainly on A. Papandreou is maddening.
    Whatever A. Papandreou did (many things, lots of them destructive, no love for the man), he did not finance them via external, foreign currency debt.

    The sui generis balance of payments disaster started with his successor C. Semites as interests rates started falling dramatically during Delors' second stage heading for the actual creation and adoption of the Euro; that's when Greek debt started to go from internal/domestic to external and then then also from local/national currency (drachma) to (kind of) foreign currency (euro).
    It then continued balloning till we all now when and what.

    So without the Euro (i.e. its adoption by Greece), this mess would probably have not happened and even if it did, it would have been much easier to deal with since it would have been much easier to devalue, etc.; it wouldn't have been a exotic Eurozone theatre of the absurd but a plain vanilla national BoP crisis.

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    1. When Papandreou assumed office in 1981, Greece's current account deficit was 5% of GDP. It subsequently dropped to about 8% of GDP. Then the deficit recovered somewhat during the 1990s until the Euro tsunami started. Since 1981, Greece has not had one year of a current account surplus. In fact, somewhere I once read that Greece has never had a current account surplus post Civil War. The current account was Greece's major problem prior to the Euro. There simply was not enough foreign currency to pay for all the import desires of Greeks. Which is why there had to be such hefty tariffs.

      Incidentally, the huge EU subsidies were "revenues" in the current account. Without them, the deficit would have been much higher.

      Notwithstanding that, I agree with you that, prior to the Euro, Greece's debt was heavily placed domestically and not from offshore. After all, it was issued in Drachma. However, quite a bit of that Drachma debt found its way offshore. For example, Austria had a double-taxation treaty with Greece which stipulated that interest income from Greek state debt was non-taxable in Austria. During the 1990s, one of the most sought-after investment products in Austria were Greek government bonds. Even after covering the foreign exchange risk of the Drachma, the return was still 1-2% over Austrian returns.

      I have often wondered whether Greece would have been able to accumulate so much foreign debt as a Drachma country. I am inclined to say yes. Hungary is a local currency country but that didn't stop foreign banks to overload Hungary with loans. At one point, most of Hungary's residential housing loans were financed in CHF. Financial crises always come after financial markets have gone wild, and gone wild they truly had in the 2000s.

      If you read my article carefully, you could have noticed that I said that "the most important factor in INTERNATIONAL financial stability was a country's current account". Note the emphasis on international! You can bet that, if all of Greece's debt in 2010 had been placed domestically, there would have been little excitement between Paris, Brussels, Frankfurt and Berlin.

      None of the above changes my view that it all started with A. Papandreou. The below article will probably not find your agreement but it most certainly has mine.

      http://users.uoa.gr/~ahatzis/Hatzis_2012_09.pdf

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    2. "When Papandreou assumed office in 1981, Greece's current account deficit was 5% of GDP. It subsequently dropped to about 8% of GDP. Then the deficit recovered somewhat during the 1990s until the Euro tsunami started."
      Yep but Emphasis on "was 5%", "recovered" and "Euro tsunami". It was a blip. Now let's see, let's compare with what happened under Semites and his successors:
      https://data.worldbank.org/indicator/BN.CAB.XOKA.GD.ZS?locations=GR&view=chart

      Sorry they're but not in any way equivalent.
      And in any case already told you that "even if it did [happen], it would have been much easier to deal with since it would have been much easier to devalue, etc.; it wouldn't have been a exotic Eurozone theatre of the absurd but [it would have been instead] a plain vanilla national BoP crisis."

      PS Hatjis is a joke.
      Every time I see him quoted in the international press I lose more hair out of my head as I can't stop pulling them in despair and anger.
      No, wealth is not "created through voluntary cooperation and exchange". I can't stand his BS, his ahistorical laissez-faire mantra. Not only he makes no sense in a macroeconomic sense but also in a developmental one. Not only does he makes no sense inside a macroeconomic crisis context, he doesn't even make sense in a long term developmental one (backwards or forwards in time) as historically most of advanced countries ghave become advanced economies through protectionism and lots of state intervention.

      Delete
    3. My sense is that you read my article with a preconceived notion and wherever you feel your preconceived notion offended, you explode instead of thinking other people's opinions through. There can be absolutely no question that an external payments crisis is easier to deal with when one has a local currency. Did you not read my comment about Chile where I referred to Chile's luck of only having fixed its currency to the USD 'forever' instead of having joined a currency union?

      One of the reasons why I have become pessimistic about Greece is that as I began to spend more time with Greece, with Greeks and in Greece after my retirement, I sensed that it is very difficult for Greeks to get an objective competition of opinions. The tolerance of other opinions is quite limited. The phrase "I agree that we disagree" seems impossible to speak (Varoufakis couldn't even agree that he disagreed with Schäuble). Against that background, the vision of ever having a unified government, a unified leadership pulling on the same string seems quite unresalistic, as unrealistic as it appears as of now that prosperity will return to Greece.

      It is not necessary to immediately call someone one disagrees with a 'joke'. You don't have to pull you hair out when someone you disagree with speaks. You could just listen and come up with counterarguments. There are better ways to disagree with someone than just calling him BS. Yes, I think you should read the book "The 13th Labor of Heracles". And if you really meant it seriously, you would formulate your own critique thereof for others to benefit.

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    4. I don't pull out my hair because I disagree with him.
      I pull my hair because he evangelizes plain BS and is consulted quoted internationally as if he were an expert on Greece.
      There are lots of people and views thereof I disagree with which aren't BS; his views don't belong to the latter.

      Delete
  3. It has been brought to my attention that there may be difficulties with posting comments. I would appreciate it if anyone who has such difficulties could write me a mail (see my profile).

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  4. I agree with your post and find it very worth reading.
    The only issue I may beg to differ is whether you should maybe close this blog: you seem to seriously consider closing it. Don’t do it!
    I loved following your blog and I am sure so have many more! Greece’s fate will remain an issue and I really believe that it would be such a shame if you just stopped!!

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  5. Sorry for being absent from the blog without permission, but I had some technical problems which Klaus helped me to resolve.

    His latest blog entry was very moving and I urge him to stay the course.

    In my opinion, what happens next will be very important and perhaps would allow Greece to seek retribution for the "European hypocrisy" which it recieved in abundant and thoroughly unwanted ways.

    As Ambrose Evans Prichard puts it "the euro must be destroyed" in order for Greece to abolish its debt servitude.

    https://www.telegraph.co.uk/business/2018/08/22/greece-will-not-escape-debt-servitude-euro-destroyed/

    And as long as Greeks remain in the eurozone (which apparently for some reason is so important to the Greeks), I don't think any Greek would cry if the collapse of the euro destroys Germany in the process. It would be a fate well deserved, I believe.

    Dean.

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    1. I can't get past the Telegraph's paywall. Could you send me the article via PDF?

      When I adamantly argued against a Grexit back in 2010-12, I did so out of fear that the social cost to Greeks would be unbearable. Today, I would say that that social cost would probably not have been greater than the social cost which Greeks paid as a result of staying in the Euro, the benefit of the former being that a turn-around could have been accomplished rather quickly: a one-off shock and then a steady improvement. One aspect to consider though: a Grexit would have meant for Greeks a very major devaluation of all their domestic financial assets and no one can say how that would have come across. One Greek politician said at the time that the tanks would have to move to protect the banks. If there is one benefit which Greeks got out of staying in the Euro, it is that the value of their domestic financial assets was maintained and that they could withdraw over 100 BEUR from banks in Euros. Obviously, what they have left with banks is frozen through the capital controls now and should there be a Grexit in the future, those financial assets will still be devalued.

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    2. Klaus:

      Here is the meat and potatoes of the article - well written BTW:

      "The original sin of the EU-IMF troika was to foist bailout loans on Greece – in violation of the IMF’s own rules – when it was already insolvent. The country needed debt cancellation of 50pc to restore viability, given that the cure of devaluation was blocked.

      This was done entirely in order to save Europe’s banks and the euro at a time when the eurozone had no firewall against contagion and no functioning lender of last resort. It still lacks such a backstop, as will become clear when the ECB halts bond purchases at the end of this year. Both the Indian and Brazilian members of the IMF board protested in 2010 that Greece was being sacrificed to save monetary union.

      Yes, the world was vulnerable in 2010. The Lehman crisis was fresh. But as the IMF watchdog said, if the real worry was contagion, then costs should have been borne “by the international community”.

      There was no excuse for what happened next. The troika tried to force through an “internal devaluation” of 20pc to 30pc by means of deflationary wage cuts. The country was forced to go through a fiscal squeeze of 11pc of GDP over the first three years.

      This was scientific malpractice. Overkill set off a downward spiral. The economic base contracted faster than austerity cuts could keep up, causing the debt trajectory to rise faster. When the targets were missed, the Greeks were forced to cut deeper.

      The IMF watchdog said there had been a chronic “lack of realism”. Top staff of the Fund had become cheerleaders for the euro project throughout the EMU crisis. Critics were silenced. Officials were prone to “groupthink” and “superficial and mechanistic” analysis.

      Needless to say, there is no chance that Greece will muddle through until 2060. The next global economic downturn will push the country back into recession and blow up the debt trajectory.

      Indeed, it is an open question whether the eurozone itself can weather another slump, given that the ECB has exhausted its monetary powder and there is still no fiscal union to stabilise the system. The glaring risk is that Italy’s insurgent coalition – armed with its “minibot” parallel currency – will set off a chain of events that causes the rupture of monetary union.

      In which case, Greece will be forced out of the euro as a collateral casualty. All the sacrifice and national humiliation since 2010 will be have been pointless. Greece may get its drachma whether it wants it or not."

      Dean.

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    3. You said the euro was not at fault. I say this is wrong.

      If you take a country with external deficits and convert 100% of its debt/GDP to -essentially- a foreign currency (the euro), how is this debt going to be repaid? It can't be repaid.

      Greece should have defaulted within a year after entering the euro for this reason alone. The situation was masked by refinancing the older (drachma) bonds that matured and were repaid in euros by new bonds issued in euros. This continued for a couple of years and then no-one wanted to buy bonds (because it wasn't really a viable situation anyway).

      On top of that, the Maastricht treaty required a max 60% debt-GDP ratio for entering the Euro. It was understood that the conversion of mountains of debt issued in local currency can't be viably converted to euro-debt. Greece had 100% when it entered the Euro. It was officially known. The europeans had to implement tricks to workaround the 60% ceiling "issue", like saying that if a country is showing that it will gravitate towards the 60% mark in the future, then it's ok... This is an insane amount of creative bullshit to bound a country, not suitable for euro-entry, to its euro-chains and a non-viable euro-debt.

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    4. I say that the Euro is "not really" the cause of Greece's demise. I say the Euro was a fire accelerant, a turbo on a development which would have happened with a Drachma, too. To think that Greece would not have been able to run up so much foreign debt had it stayed with the Drachma is an illusion. Financial markets had gone crazy in the 2000s (stimulated by Greenspan's loose money policies). Just look how much foreign currency debt local currency countries like Iceland or Hungary ran up during the 2000s.

      Please get the following into your mind: do NOT equate a default with a debt forgiveness!!! Countries, contrary to private individuals and corporations, CANNOT go bankrupt for the simple reason that there are no bankruptcy laws for countries. Thus, if a country does default (quasi bankruptcy), none of its debt disappears. Consequently, defaults of countries can only be remedied through negotiations, never through laws.

      If Greece had defaulted back in 2010, which I think it should have, Greece and its existing creditors (mostly private) would have had to sit down and negotiate something. Presumably it would have been a massive restructuring of the entire foreign debt of the country, as I described in the article. I doubt that the lenders would have agreed to a haircut at that time: it is simply against all financial principles and precedent to forgive a sovereign, above all a first-world sovereign, debt right away when a crisis first appears. But a massive debt restructuring it would have had to be. See my suggestions in the article.

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  6. Coincidentally, the Austrian DIE PRESSE (a conservative-liberal paper) published today the below commentary from a former head of Austria's Institute for the Economy. It references a Vision 2030 for Greece and I find the article most interesting! Run it through a translator!

    https://diepresse.com/home/meinung/gastkommentar/5485453/Griechenland-kann-Brueckenkopf-werden#

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    1. I can't tell how many articles like this I have read over the years about "reforms", when in fact reforms are code for European desperation for its own inadequacies so evident in the introduced and now failed "rescue program".

      Very early on (meaning at least 7 years ago), I have taken the position that reforms ought to be a never-ceasing process of smart administration in order to continuously seek and achieve efficiencies. However, reforms imposed never equal optimum reforms. Reforms need to come from within and normally are introduced when the general economy is doing well. If you wish to cut public spending then the rest of the economy should be humming at impressive rates. The GDP formula is well known and is taught in even elementary macroeconomics classes: GDP = C + G + I + NX. C is equal to all private consumption, or consumer spending, in a nation's economy, G is the sum of government spending, I is the sum of all the country's investment, including businesses capital expenditures and NX represents the balance of trade.

      In the United States the public+private consumption part is huge and close to 70%, the government spending roughly 17%, the gross private domestic investment around 16% and net exports around minus 3%.

      Therefore there is a smart way to do reform which is the precise opposite of dumb reforms Greece has been asked to introduce for the sole purpose of satisfying the lenders that a primary surplus exists for debt servicing.

      It also seems to me that this(constant reform reminding) is the final card of this profound stupidity which only has a very remote chance of working out in the end that somehow "reforms" will keep the Greek economy afloat and able to recycle and thus repay its debts.

      Well, guess what. There is a greater chance for an eruption of public discontent than this "reform" racket ever succeeding.

      And at some point, the Europeans need to lose this reform mania and simply admit the fallacy of their plans because only Greece can accomplish and still be alive what has been accomplished to date.

      As soon as Italy and other countries experience the crises which now seem unavoidable, the Greek rescue program will be a permanent chapter of shame for European hypocrisy, flawed politics, and total incompetence.

      Constant "reform" repetition and reminding is a form of desperation because quite honestly there is nothing left to do and now is up to the Greek people to tear down this unbelievable wall of shame.

      Dean.

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    2. All true, Dean, but tell me: do you know of any precedent where a person, company or country undertook major and possibly painful reforms when things were going well? Yes, it should be that way but it never seems to happen that way. It's like Keynes saying that “the boom, not the slump, is the right time for austerity at the Treasury.” The only example that I can think of is Andres Velasco who was Finance Minister of Chile from 2006-10 (under a leftist President!): he built up reserves in good times, was nearly crucified for that but that helped Chile to get through the financial crisis in rather decent shape.

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    3. No, Klaus, we agree. And you have convinced me that you care about Greece and as a result, I no longer doubt your sincerity.

      But the "reforms" thing is getting a little bit overworn at the moment. In fact I might say, Keynesian theory aside, that the way these "reforms" were introduced in Greece made them fail spectacularly towards being owned by the people (who never knew of the extent of the state's fiscal problems) and as a result instead of absorbing the reforms and integrating them into their daily lives they now have become reform averse. The minute you say reform in Greece, people reach for the pockets to find out what exactly was stolen from them again.

      Therefore, I truly recommend that this repetitive "reforms" mantra is replaced with quiet and substantive moves on the ground to grow the effing economy. Otherwise, this endless reforms gospel is actually the most potent anti-reform force one could possibly invent.

      Dean.

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    4. Dean, a certain amount of "bookkeeper's approach" is always necessary when things have gotten out of hand financially but I agree with you, the word "reform" has been totally misinterpreted in the case of Greece. My neighbor, who had to handle the inheritance of an apartment building which he and others had inherited, told me that, in total, he had to get 35 documents to get the job done. I don't know how long it took him but it is safe to assume that it took a lot of time. A "reform" would be to get that number down to, say, 5 . If less staff is required afterwards, that would be the result of the reform and not the objective.

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  7. The Greeks wasted 8 years since the tide went out and still refuse to put their swimwear on. kleingut, you cited the IMF outlook for Greece in your previous post and I think it said it all: Aging population + very low productivity growth + hostile business environment + deeply devided and constantly failing politcal class that only acted when other nations put a weapon to their head etc. etc.
    Your fellow-countryman is fantasizing when he thinks that there is any chance that Greece could become something like a european Singapore.

    Urs

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  8. It would be a loss if you discontinue the blog. In discussions characterized by fantasy and feelings your voice has been one of realism and reason.
    Lennard.

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  9. Thomas Wieser, the former head of the Eurogroup Working Group, gave Kathemerini an interesting interview. Where I argued that the EU should have demanded of Greece, in exchange for "real help", to "address the 'hot potatoes' of the Greek public and private sector, all those structural weaknesses that everyone knows of but no one dares to touch", Wieser takes the following different view:

    "But it is not, indeed it cannot be the aim of a program to dive deep into the political and constitutional fundamentals of a society. It cannot start addressing the root causes of a judicial system that is not allowed to work completely independently, or into fundamental questions of how the education system is organized and set up. These are issues that society has to solve for itself, and this is done largely through elections. This may work in the right direction, or in the wrong direction – but it is the direction the sovereign gives to its elected politicians. Changing such fundamentals through a program would be an erosion of democracy."

    Below is the link.

    http://www.ekathimerini.com/232009/article/ekathimerini/business/in-2015-some-played-a-very-costly-game-says-thomas-wieser

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    1. Wieser for me has the skills of a lowly clerk and the brains of semi-developed barnacle. He was never a player, so why give the guy the podium to makes speeches for the benefit of the totally rotten New Democracy which mathematically will lose the next elections? Why? Don't you know that Kathimerini is a pure propaganda newspaper for the very same political party that brought disaster to Greece? So, how can you even read their mickey mouse articles? And why would you read them?

      Dean.

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  10. http://www.ekathimerini.com/232009/article/ekathimerini/business/in-2015-some-played-a-very-costly-game-says-thomas-wieser

    Thomas Wieser understand the deficiencies, but he should emphasize for changes he mention before 2015.

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  11. @ Dean.
    The time honored Greek way of discussion and dialogue. When somebody say something or write something you disagree with, don't comment it or argue your case. No, attack the persons or publications integrity, and advise people not to listen to, or read it, and do it at a high volume to hide the lack of substance.
    The modern Greek version of the Socratic method, reduced to a shouting match.
    Lennard.

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    1. Lennard:

      I don't understand why it's so difficult for you to accept that there is a class of European clowns that I would not even hire to clean my bathroom. They are devoid of proper education and they are simply drinking the Brussels CoolAid. They are nothing more than bad propagandists and their is empty, unsubstantive talk. Why would you even listen to these people?

      Dean

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  12. Since I have frequently referred to an interview which Yanis Varoufakis gave back in 1993, I thought I would link it below. The man who blamed all of Greece's travails on the Euro said this at the time: "The financial difficulties in Greece have to traced back to a very frail model of development in the 1960s. Ever since the international economy started trembling in the beginning of the 1970s, Greece entered a very long decline... The question is what can any government do in order to stop and reverse that decline."

    When asked what he thought about the young generation of Greek politicians, he said the following: "The new generation of politicians is waiting in the wings. There is a conventional belief in Greece that all you have to do is to wait for these people and then a generation of young people with new ideas is going to emerge. I happen to be a conservative. I happen to be of the view that we would not necessarily see a greater vision by the younger generation If you look very closely at the younger generation in all parts, I don't think you see an enormous amount of talent there."

    Finally, he referred to the terminal state of the Greek economy as follows: "Wether I believe that the terminal decline that started in the 1970s, as I pointed out earlier, is going to be reversed, that's another matter. I think all the signs are pessimistic on that front."

    https://www.youtube.com/watch?v=s0IG4jREsvs&t=1s

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  13. https://www.hba.gr/6Mme/UplFiles/Deltia_typou/RedeAthen.pdf

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  14. This is a very long post, and a very biased one.

    Yes, the Eurozone caused the demise of the Greek economy. The exchange rate was too high, the interest rates were too low, the hostile central-bank did not support the bond market or the banking system, there were no surplus recycling mechanisms, the legacy debts were converted to foreign hard currency overnight, the post-crisis fiscal policy was pro-cyclical and too tight, and so on and so forth.

    Any country with a weak external sector that faces the above conditions is living on borrowed time.

    The facade that all is fine in the Eurozone has lasted long enough. As a new international crisis is brewing, and as globalization stutters, EMU will be put to the test, again. Let's all hope that this time it finally meets the fate of Europe's previous attempt to square the circle, the dreaded ERM.

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  15. Miranda Xafa is clearly not a friend of the SYRIZA government but she has a high reputation as an economist (at least among non-Greeks). Below is her rather disappointing analysis where Greece stands after the exit from the program:

    http://www.ekathimerini.com/232187/opinion/ekathimerini/comment/exiting-the-third-bailout-an-evaluation

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    1. Klaus:

      You are prone to inconsistency and lack of focus. Xafa is pro-austerity and pro-Troika. Hans Weber Sinn (by your own words the subject of your admiration) is the exact opposite. Therefore either Sinn is a respected economist and Xafa an IMF stooge or you are all over the place and are willing to trade principle in order to score cheap points. How many times do we have to say that Kathimerini is propaganda press and why do you have such difficulty accepting such simple fact? Quoting Kathimerini dilutes your argument.

      Dean

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    2. Dean, in both of your comments you fall back into the mode of reading things which were not written and putting claims in somebody's mouth (mine) which were never made. I did not know that Hans-Werner Sinn was the subject of my admiration. He is, not totally unlike Varoufakis, a man with provocative views and who knows what he is talking about, and I always enjoy thought-provoking views. Sinn is also a sort of maverick and oftentimes he goes too far in his quest to teach the world what economics is all about. Clearly, If Krugman, Stiglitz & Co. can be described as "big spenders", Sinn very clearly does not fall into that category. About Xafa, on the other hand, I know very litte but I have observed that she is, second probably only to Varoufakis, a very frequently quoted Greek economist in the international media. I cannot tell whether Ekathimerini is a propaganda press or not but I do think that they have (and had, with Nick Malkoutzis) very good commentators. Sometimes I agree with them, other times I disagree. That's how it goes with opinions.

      Regarding Dijsselbloem, by "changing his narrative" I meant that the man who was the leading steer in forcing conditions down Greece's throat has now become a critic of his former self. That goes for several others, too. We seem to be going through a phase where wisemen make news by pointing out how unwise they have been.

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    3. If you allow some feedback on Kathimerini then you might understand better the subject matter. Kathimerini was established in 1919 and supported the 1936 Metaxas dictator government which provided the seeds for the bloody Greek Civil War, a decade later.

      Kathimerini does not allow the publishing if its circulation numbers but it is widely believed that its daily sales figures are below 15,000 and its Sunday circulation at about 50,000. These are the figures of the provincial press rather than of national press worldwide.

      With figures like this Kathimerini is not a viable newspaper and you might say is very much the type of "bankrupt" type business which needs to be cleaned out of the Greek system if Greece is to modernize and move forward.

      It's owned by an obscure and mediocre Greek businessman named Alafouzos, who also owns the Skai TV network and is already divesting of its other colossal failure of a football club by selling Panathinaikos FC to an Asian businessman just to stop the financial bleeding.

      So, one immediate observation as an MBA (a degree which you hold) is why is this guy presiding over a series of marginal and failed/failing businesses?

      And the simple answer is that Skai TV and Kathimerini are ND mouthpieces and this in Greek politics means a great deal in propaganda currency.

      You, foreigners, love Kathimerini because it sucks up to your biases and distortions of Greek reality. To those of us who understand Greece in a bit more depth, Kathimerini is a contrarian indicator. Whatever Kathimerini promotes in political thought, the safe bet can be found in the exact opposite.

      As far as the "good commentators" comment, I delight in the fact that you are quickly Hellinising and becoming more Greek than the Greeks themselves, meaning that you are more interested in prose, theatrics and dramatic presentations rather than the substance of issues which is far less glamorous and far more inconvenient and/or unpleasant.

      Do me a favor please and don't fall for the fact that Kathimerini is selling you foreigners an easy platform to voice your opinions about Greece. They are nothing more than the first merchant you meet in a central market wishing to satisfy your every need, win exclusivity and convince you that all other merchants are inferior and of bad quality. The truth, of course, is that Kathimerini is the uber bad quality merchant of news and nonstop propaganda and if we are to reform Greece a nice first step would be to eliminate artificial channels of information like Kathimerini and its servants(aka Malkoutzis) from the honest part of public discourse.

      Dean

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    4. I would be interested in Nick Malkoutzis' reaction to this. Why don't you post it on Macropolis and request his response? Meanwhile, and to keep your emotional fluids in motion, I am linking an essay by Aristides Hatzis about modern Greek history which will undoubtedly trigger critical comments from you, or not?

      https://www.academia.edu/37336202/A_Political_History_of_Modern_Greece_1821-2018

      PS: at some point you will undoubtedly explain to me what part of Greek public discourse is not propaganda...

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    5. Klaus:

      I am sure you know from personal observation in life that little things are capable of producing big differences.

      So, let's start with the name Hatzis and its meaning (because everything in the Greek language has a meaning). "Hatzi- or Chatzi- (Greek: Χατζη-) is a prefix of Greek family names. It derives ultimately from the Arabic Hajji, denoting one who has successfully completed a pilgrimage. In Christianity, the prefix is added when someone had committed the pilgrimage to Jerusalem."

      You, of course, know my aversion to pseudo-religions of all type, especially Christianity the Roman invention instrument of ruling an empire of slaves. Therefore, we don't have a good start here. His family surname means he came from Asia Minor and as a result, he harbors an incurable bias against the idea of what Greece is or supposed to be.

      You see, I don't accept his thesis that Greece has a 200 year history as a modern state because it is based on two false premises (a) that Greece is a byproduct of two false empires (i.e. uber anti-Greek concepts by definition), one based on Roman slavery and the other on Ottoman slavery and b.) it makes Greece a product of the east akin to a toddler in developmental terms.

      Since I strongly reject both such versions of "modern" Greece ( I believe instead that authentic Greece is only based on science and reason such as taught by Socrates (to bring our friend Lennard into the conversation - see below for his comment in the Socratic Method) and that Greece could never be a product of slavery but an idea/concept spawned by free men not to mention that is the cornerstone of western civilization.

      I am sorry to inform you then that after reading a synopsis of Mr. Hatzis paper, I could not muster the strength to even critique the flawed foundations of his approach. He is entitled to his opinions of course, but I think he displays the unmistakable traces of those mistreated refugees from Asia Minor who maintain a romantic view of their eastern lands and who (for very good reasons indeed) feel compelled to deconstruct the modern Greek state which indeed mistreated those Asia Minor families as category B citizens and never truly accepted them as genuine parts of Greek society. These are the wounds of the Greek Civil War and they run deep but all boil down to matters of injustice. Can Greeks be cruel and uncaring towards other Greeks? Absolutely.

      Dean.

      Delete
  16. Wow, Dijsselbloem changed his narrative very quickly!

    http://www.ekathimerini.com/232221/article/ekathimerini/business/former-eurogroup-head-dijsselbloem-says-demands-on-greeks-were-too-heavy

    ReplyDelete
    Replies
    1. Which part of what he says is classified as "changing narrative"? Reforms are for well-run governments to attempt and a competent state reforms regardless. Why are you confusing reforms with saving the flawed euro? The whole objective of the last 10 years was to save the euro and not Greece. Everyone who believes otherwise is simply ignorant and naive.

      Dean.

      Delete
  17. Mr. Kastner,
    It would be a shame if you left this blog.
    However, i would like to leave this crisis behind us and try to build on the momentum seen.

    I do not share the outsights of the experts. I just got back from vacation and i have never seen so many tourists in my life on my Island and with such great variation. Meanwhile local economy has changed for the better. Greeks still complain but is more the complaining of "i want more" than "i have nothing to eat."

    Tourism window contributing to our economy is also growing.

    The population is a concern because the 500,000 who left are the working age. Young working age. That can not be made up.

    We will see.

    Wish You well,

    V

    ReplyDelete
  18. I recommend to observe the Argentine situation because Argentina and Greece share quite a few traits: corruption spread throughout the entire public sector and economy; governments playing to their friends and interest groups; perennial complaining but never taking effective long-term measures, etc. etc. Where Chile reformed its economy once, but reformed it is such a way that reform lasted for half a century (so far), Argentina is on a perennial downward slope with sporadic phases of stability in between. The huge difference with Greece is that Argentina is EXTREMELY wealthy in natural resources. The famous joke goes that what Argentines destroy during daytime, God replaces during the night. Or, when God saw how much wealth he had given that country, he decided to give it the Argentines to counterbalance that.

    The private offshore wealth of Argentines is mindboggling. Citibank's view in my time was that such private wealth was always at least as high as Argentina's government debt. That would put the figure now at well over 300 BEUR!

    The trick with that private debt was/is that, periodically, some of it came back to Argentina to work profitably there. During chaos, every Argentine converts his money into dollars and most move those dollars outside the country. Whenever a periodic stability plan is in the works, smart Argentines know that good money is to be made in their country and they bring some of that money backs (which accelerates any recovery). As soon as the first clouds re-appear on the economic horizon, that money leaves the country again (thereby accelerating the demise).

    I once suggested in this blog that the trick for Greece would be to have some of Greek private wealth return to the country but not temporarily but, instead, to stay. That would require that any new economic policy would be a long-term policy and not just a "sporadic Argentine period of stability".

    It will also be interesting to observe Turkey. From the distance, it looks like that country is facing an unavoidable "sudden stop" (if it isn't already in the midst of one). Only a miracle seems capable of avoiding that. If sudden stop does finally occur, no one will use the word "haircut" and no other country will bail out the lenders via Turkey. The existing lenders will simply have to restructure the debt, all claims will remain valid. Thus, the creditors keep full value of their loans but they won't get repayment for a long time (and some of the existing lenders may have to be recapitalized, as it should be).

    ReplyDelete
  19. Finally, an article by an author with intelligence and economic understanding on par with that of Dean, Jeffry D. Sachs. Not that it carries much weight, after all it was brought in Ekathimerini.

    ReplyDelete
  20. @Dean
    My lack of understanding must be ascribed to my upbringing and life experiences. I am brought up in a society where the logical Socratic Method is a tool, not an abstract 2000 year old ideal. It is used in all aspects of life, personal relations, business and politics. Some of the people who use it don't even know the name of it, they may call it common sense. The tool has brought the society a modest success, it has done so by facilitating compromises and positive sum deals.
    During my life and work in other societies I used the same tool, usually with success, and I did not find a better one.
    On the other hand I observed that those who refused to use the method lost influence and knowledge, and eventually became irrelevant.
    Lennard.

    ReplyDelete
    Replies
    1. Lennard:

      I am delighted that you like the Socratic method ( since I am a huge admirer of Socrates) but it requires a flowing Q&A format which this blog is lacking. When you post commentary and you need to wait one day for your comment to appear and even longer for responses, then you can kiss the Socratic Method goodbye.

      In the remote case that this blog decided to adopt the Socratic Method (i.e. an interactive and ever-flowing commentary session fostering Q&A and devoid of censorship - because delayed comments are a form of censorship) then I would love to give you a powerful demonstration of how the Socratic Method is supposed to work.

      Dean.

      Delete
  21. kleingut:

    1. In view of the occasion I would like to thank you for all the work you put into this blog over the years. I learned a lot from your articles precisely because I did not always (though mostly) agree with everything you wrote 100%. Your bankers view on the Greek long-term malaise clearly broadened my understanding of the failure of Greece economy in particular and of economics in general.
    2. I think it would be a pity if you would close this blog now. And here is why:
    - The crisis isn’t over and there a dark clouds on the horizon - not only for Greece but for the world economy in general.
    - Now as Athens has more room to maneuver you can finally discuss in more detail what the Greeks can do to better their economy. Here are the fields that I would be interested in:
    - Fiscal policy (retirement funding, public vs. private sector, defense spending, etc.)
    - Educational policy (especially vocational training)
    - Ease of doing business (legal framework)
    - Strengthening of institutions and fighting corruption
    - Foreign direct investments (especially those of the Chinese)
    - Diversification of economic activity.

    So again, thanks for this blog and please keep it up.

    Urs

    ReplyDelete
    Replies
    1. What the Greeks could do to better their economy, their society and their country? Well, I know what I would do.

      I would ask the EU to re-establish the Task Force for Greece. I would only make one change: before, the TFGR had a direct reporting line to the EU and only an indirect one to the Greek government. That made it appear to many Greeks as though it were a foreign interventor, perhaps even an occupation force, and that obviously made it virtually impossible for the Greek side to "own" the project. Going forward, I would have the TFGR report directly to the Greek government, perhaps even directly to the Prime Minister, with only a dotted reporting line to the EU. The critical aspect would be that the Greek Prime Minister, whoever he is, considers it as "his" project and fully supports it. And then I would sit down with the TFGR to formulate an agenda which, at its end, has Greece as "a modern and prosperous country: a country characterized by economic opportunity and social equity, and served by an efficient administration with a strong public service ethos."

      Do I imply that the Greeks could not handle that on their own? Not really, but only through a TFGR can the Greek side have access to all the resources and competency of other countries in its effort towards modernization. Copying others is always more efficient than inventing the wheel on one's own.

      I always referred to the Chilean experience. The Chileans could only be successful because they had their own Task Force. It was composed of Chileans and not of foreigners BUT those Chileans (the "Chicago Boys") were a unified group sharing the same economic religion: they had all studied at the same Chilean university, they had (almost) all studied under Milton Friedman in Chicago (a few of them at Harvard) and they were all very brilliant people, mostly quite young and idealistic. There were many other brilliant Chileans at the time but they did not have the same shared values, experiences, education and economic religion. They could never have achieved the unity which the Chicago Boys had.

      I am reminded of a conversation I once had very early on (around 2011) with a very prominent Greek businessman of national renown. A patriotic Greek. He said to me: "To reform the Greek public sector, we need 2 people for every middle and senior management job: one Greek and, on his side, an EU expert who trains him." I told him that he was out of his mind; Greeks would never accept such perceived subservience. He forcefully disagreed with me. He said Greeks would be happy to do that. In fact, he said, Greeks secretly know that this is what would be required and they hope that it would happen but they are too proud to admit it.

      Delete
    2. Both of you are missing the point and start comparing apples to oranges.

      The issue here is (refer to the Telegraph article again quoted above) the hypocrisy of Europe, its incompetence and the fact that in rescuing the euro, idiotic Berlin & Brussels chose to signal out Greece as "in need of reforms".

      The "reform" part is the cloak Euroidiots are using to hide their own shortcomings.

      Can the Greek economy run better? Absolutely. If I were the Greek PM I could run it w/ an increased 30% efficiency factor right from the start. That's easy to do.

      What is not easy to do is changing the seasonal nature of the Greek economy. Greece has two economies: the winter 1/2-year economy which underperforms and overconsumes(overspends) and the summer 1/2 year economy which overperforms and erases the winter deficits. Can the cyclical nature of the Greek economy be cured? Sure but not by flipping a switch; it will take a long time (decades).

      Picking a Latin (i.e. Latin being the archenemy of Greek) country with one third the per capita GDP of Greece as an example to follow, fails on two very important counts:

      1. There is no cultural commonality w/ Latin America in Greece. None. I am married to a Colombian-German girl and I know. Under a unifier umbrella like the United States culture maybe and that's a conditional maybe.

      2. Cultivating the false notion that Greece could manage its enormous debt load through reforms of any kind, is I dare say an exercise for idiots or using the diplomatic language "an exercise for the semi-ignorant and ill-informed".

      So, if you want to use an example of a country to motivate Greeks towards better performance then that's none other than Cyprus. Same culture, same people but far better-educated people under the English system.

      So, let's put it into a mathematical formula for daily use:

      Reforms = German nonsense based on German self-interest and a profound diversion from the key issue.

      Improve the Greek economy = import Cypriots to run it.

      Dean.

      Delete
    3. Dean, I am not familiar with Cyprus. What I do remember is that when, back in 2012/13, the crisis exploded, I thought how lucky the Greeks had been. From the articles I read about Cyprus, I thought that that country had really been given the shaft: depositors losing up to half of their uninsured deposits, etc. I thought Cyprus would remain in shambles for a very, very long time while the Greeks were already on a road towards stabilization, however rough that road was. In fact, Greece suddenly looked good relative to Cyprus (it even helped to bail out a Cypriot bank! Albeit at great profit for Greece...). Since then, from the little I have read, Cyprus seems to be back in reasonable shape. Perhaps you could can explain what they did differently from Greece.

      Regarding Cyprus as a role model for Greece and Chile being an anti-role model because it is Latin and so small, I am looking at TradingEconomics: Cyprus has a GDP of about 22 BUSD compared with Chile's of about 280 BUSD. Its population is about 1,2 million, or about the size of the Greater Thessaloniki area. That seems to be a different cup of tea from Greece.

      You are, as always, mixing 2 different issues: the hypocrisy of the EU and the domestic structural problems of the Greek economy and its public administration. On the former, I fully share your view and I have written at length about it. If you want to refresh your memory, go the the "favorite links" on the right hand side and browse through "AAA-What this blog is all about". At one point, I even suggested something like a Nueremberg Trial for the EU elites.

      The latter issue is a separate one, albeit in some instances linked to the former. Some people, like Varoufakis, argue that the latter is a minor one, has always been around and would never have caused all the trouble if it had not been for the former. That, to me, is pure demagoguery. Only Greeks can, within their own sovereignty and jurisdiction, change the attractiveness of the country for doing business and the level of corruption (on both counts Greece ranks last in the entire EU).

      The "reform" part is the cloak Euroidiots are using to hide their own shortcomings? That's overestimating the EU and underestimating Greece. The dramatic need for reforms has been recognized by Greece for over 20 years. Just look at Varoufakis's video of 1993 or read his manifesto for his new Greek party. I mentioned the anecdote of the Spraos report in my above article. The literature by Greeks about the need for reforms is seemingly endless over the decades. When I praised the McKinsey Report when it came out in 2011, I was reminded by commentators that it wasn't really original McKinsey. Instead, they had largely copied from a major study which the Greek government had commissioned a few years earlier. And so forth.

      So my advice to you is the same I have always given Varoufakis: focus on the problems which Greeks can solve on their own and leave the problems of other people to other people.

      Delete
    4. For what it's worth, here is an excerpt from Varoufakis' manifesto:

      "In the post-Civil War era, Greece’s growth occurred in the context of a totalitarian political framework adorned with a veil of parliamentarianism. New industries were erected in the 1950s under the protection of a paternalistic and authoritarian state. Uncompetitive and on flimsy foundations, they could simply not sustain the 1970s shock waves from the oil price hikes, the international economic crisis that ensued, and the removal of tariff protection mandated well before Greece could join the European Union (the EEC at that time) in 1980. Our industry’s demise led to a recession and hordes of unemployed workers who (in the absence of a welfare state) were gradually re-employed by the state – the beginnings of the public debt crunch.
      Greece’s accession to the EU (EEC) in 1980, and especially the eurozone in 2000, created new enrichment opportunities for the Greek borderless oligarchy: Their pre-existing political clout helped the upper class to transform themselves from protected capitalists to well-connected rentiers aiming at the rents now available from European Community sources. And when the euro arrived, and rivers of private loans from the inane Franco-German banks began to flow, Greece entered the phase of Ponzi growth on which feasted the Triangle of Sin: Developers-Bankers-Media Owners. While the weaker citizens increasingly struggled to make ends meet, our new ‘entrepreneurial’ class were celebrating the myth of Greece’s ‘new paradigm’ and its accession to ‘Europe’s hard inner circle’."

      Delete
    5. Klaus:

      If you begin to look at Greece under the favorite leftist mantra of "class struggle" then you enter a maze from which there is no exit. Varoufakis and others like him are permanently trapped victims of their own ideology. Their paths in the maze are both fascinating and endless. If you allow Yanis to define the problem then I can assure you that there is no solution to it.

      Dean.

      Delete
    6. "Only Greeks can, within their own sovereignty and jurisdiction,"
      Greece is presently sovereign in name only. You keep neglecting this. €v€n if th€ s€rfdom is by own choic€.
      "change the attractiveness of the country for doing business and the level of corruption (on both counts Greece ranks last in the entire EU)."
      Countries predominantly do not get out of macroeconomic crises by attracting foreign investment.* Nor do they advance developmentally through foreign investment (the only such useful foreign investment is the the one transfering technical knowhow, a very rare one, a very hard to attact).
      Greek (-style and relevant corruption) is not the cause of the form, structure and level of the Greek economy or of any economy. It's the form, structure and level of the economy that defines the form, structure and level of corruption it has, not the other way round.
      Germans e.g were once thought to be by nature corrupt and lazy (when Britain et al. were leading industrialization); they didn't stop being thought in this way because they rooted out corruption; they stopped being thought thus because they industrialised and caught up very fast (but certainly not in a few years; it's decades we're talking about) with the industial leading countries, following the German historical school of Economics, i.e. see Liszt, himself following Hamilton and the American School); all these things of course have been long forgotten in Germany since WWII and Ordoliberalismus. Just like
      USA being the champion of protectionism for centuries has been long forgotten in the US since at least the 70s and the reign of Neoliberalism.


      *To quote Lapavitsas on this and Greece in order to make the impossible scale of FI that would be needed to achieve such a goal:
      "Όσοι νομίζουν ότι το επενδυτικό άλμα μπορεί να βασιστεί σε ξένες επενδύσεις δεν έχουν συναίσθηση ούτε του κενού που υπάρχει, ούτε των συνθηκών στην παγκόσμια αγορά. Το 2008 η Ελλάδα είχε ακαθάριστες επενδύσεις περίπου 60δις, ενώ σήμερα έχει περίπου 20δις. Η γειτονική Τουρκία, με οικονομία 4,5 φορές μεγαλύτερη από την ελληνική και πολύ καλύτερες επιδόσεις στην προσέλκυση επενδύσεων, είχε μέσο όρο ξένων επενδύσεων τα τελευταία 5 χρόνια περίπου 12δις. Πως ακριβώς θα λύσουν οι ξένες επενδύσεις το ελληνικό πρόβλημα;"
      http://costaslapavitsas.blogspot.com/2018/09/blog-post.html

      Delete
    7. List, not Liszt, sorry for the typo. Somehow Franz intruded on Friedrich in my train of thought... :)

      Delete
    8. The only thing Greece is not sovereign in is in spending other countries' money; full stop. Everything that is necessary to make Greece a more attractive place for investment (domestic or foreign) and a less corrupt economy can be handled within its own jurisdiction. In fact, only within its own jurisdiction can it be handled.

      I wouldn't argue so forcefully if I had not experienced that, with the right economic management team and a unified government behind it, even a chaotic and bankrupt country can be turned around within a few years.

      Delete
    9. A.If other countries' money is needed to maintain the status quo, i.e to remain in the EZ and not default then not being allowed to spend this money at will means there is no sovereignty.
      Let's not play dumb, shall we?

      PS The only alternative, the only sovereign available act would be Grexit + default on the external debt.
      A path I would happily prefer but something that's not on the table, at least presently.

      B.Again, no. May I remind to you the seemingly invisible hybrid offspring of a Gorilla, an Elephant and a Blue Whale in the room?
      I.e. that:
      The Eurozone (minus Greece) did not leave the Eurozone crisis behind by rooting out corruption and/or attracting foreign investment. Nor did the US. Nor did the UK. Nor did Japan. And so on and so forth.
      They exited the crisis through QE and Economic Stimulus.
      I.e. by means which Greece was either excluded from or was not in the position to do.

      Delete
    10. When I read comments like yours, a great desire develops inside me, namely: that a majority of Greeks start feeling like you do and that they elect a government which goes for default and Grexit. Perhaps one has to force self-responsibility on a nation if it cannot be achieved otherwise.

      Other countries' money was not needed to maintain the status quo. Instead, it was needed to pay salaries, pensions and other government expenses. Nobody forced Greece to squeeze out a primary surplus by cutting investments to almost nil and running up arrears. Instead, some tranches were even earmarked for such purposes but were not used for that purpose. Fine with me if you want to play dumb, you seem to know how to. I don't.

      QE is fine for countries which take up new debt because of the lower interest rate. Greece has the cheapest debt in the whole world without QE (much of the EU-debt is interest-free). Economic stimulus? You first need to be clear what you are stimulating. If economic stimulus goes into consumption (as it had in Greece prior to the crisis) and if consumption goes heavily into imports (as it had before), a Greek stimulus is actually a stimulus for other economies. How many Greeks have told me that Greece has actually made Germany rich by buying so much from them?

      Delete
    11. Klaus:

      You last statement that Greece has the cheapest debt cannot be true. The 10-Yr German Teasury currently yields 0.39%. Can you please provide evidence that the Greek debt is at lower rates than this? How could you even make such statement when Greece's IMF debt is at roughly 4.5%? Are you turning into an EU populist?

      Dean.

      Delete
    12. I said „much of the debt“ is interest free. That‘s the ESM part, I believe around 150 BEUR of the total. It was interest free until 2022 and has now been extended to 2032 interest free. The rest of official EU debt is also at extremely low rates. But, yes, there is also expensive debt: all the free market debt raised since 2014, left-overs of old debt and, of course, the ridiculously expensive IMF debt.

      Delete
    13. OK, now you ARE playing dumb.
      "QE is fine for countries which take up new debt because of the lower interest rate. Greece has the cheapest debt in the whole world without QE (much of the EU-debt is interest-free)."
      https://voxeu.org/article/ecb-grants-debt-relief-all-eurozone-nations-except-greece

      1.This is how Portugal, Spain, et al. and the very existence of the Eurozone was saved.
      Excluding Greece of course.

      Including Greece in QE could, if not would, have signalled the markets that the ECB is behind Greek debt, i.e. that Greece would not -in various degrees of probability- default, and this WITHOUT having to starve and tax herself to death.
      It could have possibly turned a solvency problem to one of illiquidity and possibly even better; without the endless austerity.

      And this exactly why it didn't happen. It's would be a northern transfer union nightmare. Instead, the other EZ countries were signalled that if they wouldn't walk the teutonic/nordic line they would have to follow in the footsteps of Greece; and if on the other hand they would follow the righteous path, then they would be rewarded (though Super Mario had to fight a war with the Teutones even for this macroeconomic sine qua non).
      It's the carrot and the stick, grand EZ style.

      2.Greece does no have the cheapest debt in world in any reasonable sense -nevermind the instances of negative rates, Dean mentioning Germany etc- by a longshot because Greece
      *cannot actually borrow from the markets at that rate,
      *didn't/doesn't have the de facto sovereignty to spend that borrowed money at will (you know, 90% right back to the creditors etc.)
      and
      *had to starve and tax herself to death in order to be given relevant loans (so that she wouldn't default and exit the EZ).

      The cunning slight of hand you are doing is not impressing me... ;-)

      Delete
    14. PS Forgotten to include, to make absolutely clear, in the reasons why the debt is not actually that cheap, the future dimension.
      I.e that the reasons already mentioned for the past are absolutely also true for and extend to the future.
      I.e. Greece cannot and will not be able to borrow at such rates from the markets (in fact at the first obstacle a return to chaos is commonly fortold), cannot and will not be able to spend at will (i.e. de facto no sovereignty; see for examples recent threats to be denied debt "relief" if she doesn't walk the line) and
      has to produce and will have to produce large primary surpluses (i.e. tax and cut) virtually for ever in order to the money pay back (something you spinned very cunningly focusing on the fact that the idiots in power have chosen the strategy of producing even greater surpluses for the near future).
      When on the other hand Germany for example or any normal borrower borrows (cheaply or not so cheaply), it means that:
      she can borrow in at least the near future at that or similar rate from the markets,
      she can spend the borrowed money however she pleases and,
      she doesn't have to chop and keep chopping pieces off her arms and legs for ever in order to receive that money.

      Delete
  22. @Dean
    But you have given me a powerful demonstration of your discussion method, it is more like one of my friend's description of Greek discussions.
    Transmitters only, no receivers, the only listener is the microphone that via the amplifier and loudspeaker creates an ever louder sound loop ending in a crescendo of wailing noise. Like cheap sound equipment.
    Lennard.

    ReplyDelete
    Replies
    1. Are you trying to transmit to me that you are not tolerant of opposing views?

      Dean.

      Delete
    2. That's the same experience virtually every rational commenter has made when trying to have a discussion with Dean Plassaras, Lennard. Dean is a well known troll and blocked by many sites. I wonder why Klaus let him comment here, that's a total waste of time.

      Delete
  23. @Dean
    By no means, express your views and discuss them in whatever form you wish, so do I.
    Lennard.

    ReplyDelete
    Replies
    1. Views opposition is generally a good thing. This is how propositions of value get developed and applied for the greater good.

      Dean.

      Delete
  24. As I said: Do you want Greece to prosper? Then let Cypriot run it.

    "Cyprus managed to raise 1.5 billion euros on Tuesday in a sale of 10-year bonds, shortly after Standard & Poor’s upgraded the island’s credit rating out of junk status on Friday.

    Demand for Nicosia’s new paper came to 5.5 billion euros and the interest rate came to 2.4 percent, beating original estimates for 2.6 percent."

    http://www.ekathimerini.com/232738/article/ekathimerini/business/cyprus-makes-the-most-of-sp-credit-rating-upgrade

    Dean.

    ReplyDelete
  25. Best deal ever for Greece. COSCO.

    http://www.kathimerini.gr/986792/article/oikonomia/epixeirhseis/yperdiplasiasmos-kerdwn-kai-megalh-ay3hsh-tziroy--apo-ton-olp-to-a-6mhno

    ReplyDelete
  26. Dear Klaus,

    if you decide to close this blog, I would like to thank you for the work that you have done over the years. I have followed the blog from time to time, and it has given me considerable new insight. Sometimes it seemed to me a bit like an island of sound reasoning in an ocean of rubbish.

    If you decide to continue, this could be an interesting story to deal with:
    https://www.nzz.ch/international/lager-moria-wird-zur-politischen-affaere-in-griechenland-ld.1424674
    I wonder what to think about this matter.

    ReplyDelete
    Replies
    1. I think I once wrote an article about this. At that time, if I remember correctly, total aid was around 800 MEUR (which now is said to be around 1,6 BEUR). Only a portion of that aid (I believe around 1/3) had gone to the Greek state, the rest to all sorts of other agencies/institutions like NGOs, etc. They all had one thing in common: zero accountability as to how the funds had been used. In my opinion, there is a point where misuse of funds is less a sin of those who misuse them and more of those who provide the funds so irresponsibly that they literally invite misuse.

      According to Greek commentators I have read, the above reflects the disfunctionality of the Greek state. That may be the case. It may also be the case that the Greek state wants to make it extremely unattractive for refugees to cross the Aegean.

      The true test would be to invite a tender for the construction of a container city housing up to, say, 50.000 people and the cost of operating it. My sense is that it would take at maximum a few months and cost much less than 1,6 BEUR.

      Greece's luck is that the new UN High Commissioner for Human Rights is a former communist (Michelle Bachelet). Apparently, she heard that the conservative Austrian Chancellor is opposing an open-door policy for migrants and she felt it necessary to send a commission to Austria to check on that country's human rights situation. These auditors will have a lot to audit in Austria because Austria offers so many different social benefits to migrants that it will be a long time until they get to look into the Greek situation (not to mention countries where they have torture, etc.).

      Delete
    2. "...Austria offers so many different social benefits to migrants that it will be a long time until they get to look into the Greek situation"

      ...but, alas!, not "a container city housing up to, say, 50.000 people"... from where Austria, Switzerland (!) & Co could chery pick with whom they are going to share their "many different social benefits", while at the same time a) getting to shed bitter tears of moral superiority when lamenting the deplorable refugee concentration camps many many many hunderd kilometers south of their southermost borders and b)wallowing in that totaly pervasive but always-better-left-unspoken feeling of victimhood that good Northernes get when contemplating how much of their hard earned taxpayers money is beeing wasted many many many hundert kilometers south of their southermost borders on those ungrateful and incompetent camp keepers.

      But damn those (ex-)commies !

      Lykinos

      PS. One could and should hold, amongst others, SYRIZA responsible for its refugees concentration camps but that one should not come many many hundet kilometers north of our borders unless said one is willing and able to put up "a container city housing up to, say, 50.000 people" from where richer countries will pick and choose with whom and when they are going to share their generosity without Nazis, Nazi apologists, Nazi sympathisers & CO taking the reins of their affluent societies.

      But damn those (ex-)commies ! Damn them everywhere!

      Delete
    3. I take it you have never seen container homes. They are very much like mobile homes. From the inside, you couldn't tell the difference with an apartment.

      Delete
    4. Stop playing dumb.

      Delete
  27. Here is an interesting article about how Albania developed in the last few years and lessons which Greece could draw from it:

    https://www.project-syndicate.org/commentary/albanian-economic-miracle-innovative-policymaking-by-ricardo-hausmann-2018-09

    ReplyDelete
  28. @Lykinos
    Does it rankle that Austria has taken proportionally more migrants than Greece, and treat them decently, and finance it out of her own budget?
    Does it disturb your picture of Greece as the hospital country that has shown Europe what humanity is?

    ReplyDelete
    Replies
    1. I shouldn’t be doing your work for you but since reading comprehension is obviously not your thing I’ll give you a hint: is Austria expected to imprison sixty thousand people and counting, since refugee and immigrant flows are not to stop soon, until its richer “partners” deem the moment opportune to show “generosity” without fear that their good honest folk will flock en masse to FPÖ – AfD shits and their we-are-the-moderate-centre desperate imitators?

      Does it disturb your picture of yourself as a good fiscally responsible northerner of humanitarian tendencies if not sensibilities and as a raging smartass telling off those Greek hypocrites that these camps – or, “a container city housing up to, say, 50.000 people” - cannot be anything other than concentration camps, no matter how much alike to apartments these container homes may be; the moment these people are afforded free movement, which is the humane and decent thing to do, most of them will strive to abandon bankrupted Greece and reach poor little affluent you, making people like your dearest self increasingly concerned about the “many different social benefits” that immigrants enjoy in you country, supposedly causing an open invitation effect, and increasingly ridiculous as you strive to come up with more and more sophisticated excuses why these up and coming Nazi apologists, misunderstood sons and grandsons of good old upstanding families that happened one to be Nazis, are not as bad as they are made to be seen and finally one could believe that they represent a legitimate political alternative and so on…

      See, I can also make assumptions about you. There’s nothing to it.

      I don’t even need to know where you hail from in order to expose your particular brand of hypocrisy in the matter of: “hey, let’s raise immense humane concentration camps many many many hundred kilometers south of our borders and then congratulate ourselves that at least we are not as bad as the wasting-our-hard-earned-taxpayer-euros people that are running them!”

      PS. Cool it off with your “Austria has taken proportionally more migrants than Greece” stuff. I know the numbers that ÖVP -FPÖ types like to advance but what I’d like to know is the actual number of people granted asylum.

      Lykinos

      Delete
    2. I will respond on behalf of Anonymous at 8.31 PM

      Asylums granted in Austria prior to 2014: 3.000-4.000 per year. Thereafter:

      2014: 8.724
      2015: 14.413
      2016: 22.307
      2017: 21.767
      2018: 9.786 (8 months)

      Delete
    3. And here are the numbers for asylum applications:

      Prior to 2014: on averasge 15.000 per year. Thereafter:

      2014: 28.064
      2015: 88.340
      2016: 42.285
      2017: 24.735
      2018: 9.337 (8 months)

      Delete
  29. @Lykinos
    From your response I gather that it does rankle that Austria could manage her migration problems and Greece, in spite of the millions she received from EU to do so, could/would not.
    Or would you say that Moria is a beacon of Greek humanity and that conditions in Austria are worse?

    ReplyDelete
    Replies
    1. From your response i'm surprised you gathered anything at all.

      Lykinos

      Delete
  30. @ Klaus.
    There seems to be confusion regarding how much Greece has received to manage her migrant problems, most likely caused by the European Commission paper MANAGING MIGRATION EU Financial Support to Greece, April 2018. My take on it is that Greece has been allocated/disbursed as follows:
    From the 2014-2020 long term funding 561/153 MIO.
    From 2015-2018 Emergency Funding 393/279 MIO. Thereof 197.4 MIO ear marked for NGO's (UNHCR etc.)
    Those figures indicate that Greece had availability of 80% of the money at hand.
    As for who is accountable, the Greek state is, EU allocate funds to member states, not NGO's.
    As for who is more reliable as responsible end spender entity,
    Greek General Secretary for Co-Ordination or UNHCR, I leave it for you to decide.
    I don't share your views on misuse of funds. Not being religious I don't pray "don't lead me into temptation". If I was religious, I hope I would ask for "the moral strength to resist temptations".
    Lennard.

    ReplyDelete
  31. Thanks for the blog. I've visited regularly over the years and learnt a lot.
    Your polite, active commenting style was also a highlight.

    ReplyDelete
  32. Come on Klaus!

    This publication from August has now gathered several months of comments with many readers saying that they would like to continue reading your valued opinions.

    Myself I also would like to thank you for all your efforts and kindly ask you to continue.

    I fully understand that it is hard work without recompense. I think that an average of quarterly texts would lessen your burden and still keep us informed how you see the situation.

    Thanks again and regards from Switzerland
    H. Trickler

    ReplyDelete
  33. http://www.pdma.gr/attachments/article/1710/Greece%20-%20Investor%20Presentation_September%202018.pdf

    page 22

    and

    https://www.nbg.gr/greek/the-group/press-office/e-spot/reports/Documents/NBG%20Greece_Macro%20Outlook_September%202018_final.pdf

    page 10 (after Eurogroup June 21, 2018)



    ReplyDelete
    Replies
    1. What is the source of the "Investor Presentation"? Who prepared it and who was it made to?

      Delete
    2. What is the source of the "Investor Presentation"?

      You mean the source of the data?

      Probably, PDMA Public Debt Management Agency.

      -----

      "Who prepared it?"

      Download the document, and then click File, Properties.

      In Description you will see:

      Title: UTILISATION DU MODÈLE

      Author: David Nguyen

      -----

      "Who was it made to?"

      Probably (?) for investors. Tsakalotos and Chouliarakis have made lately many trips in US and Asia.Tsipras also visited USA (24 September).

      What do you see?

      Delete
    3. What I see is an excellent PowerPoint presentation, the type of presentation investors like to see. So the optics are great. As regards content, I will have to take time to study it but as luck would have it, of all the 31 slides, I hit the one about "strengthening banking sector" and having followed the news lately, that is a heading I would not have used...

      Still, I am impressed that the Greek government would have understood that in order to impress foreign investors, one has to go the international (and not the Greek) way and the international way, I say this cynically, begins nowadays with beautiful PowerPoint presentations. One has to bear in mind, though, that the best presentation will not do the trick if it is not supported by facts and actions.

      Delete
    4. PS: the name David Nguyen rings a bell. I have come across this name before but I can't remember where.

      Delete
    5. For the last sentence, you don't have to stop writing.
      Typically, the economy is improving, but parallel important issues how the economy performs, are far more complicated.

      Delete
    6. Well, Nguyen is a family name as common as Meier in german speaking countries. There are even a number of David Nguynes around. This David Nguyen is probably this guy:

      https://www.niesr.ac.uk/users/dnguyen

      Urs

      Delete
  34. Hi Klaus, thank you very much for this excellent summary of the weird tale of “rescuing“ Greece. As someione who has paid attention to this madness and occassionally commented here, it saddens me that your optimistic views have not prevailed. Yes, there had been a chance for a better outcome, but now, so many years later, it has become very obvious that it had been a very small one. The reason for that is very simple and you mentioned it yourself at the beginning of this article: It's the self serving attitude of large parts of the Greek public which milk the country for as much money as they can get, unlimited by any ethical concerns. Those greedy Egomaniacs don't give a damn about solidarity or loyalty, they don't see the state as a necessary part of the community that deserves their support, but only as a cashcow to enrich them. Thus, a lot of energy goes into finding new creative ways to get a bigger share of this apparently unlimited supply of money, and hardly any into succeeding in the real economy. The few real entrepreneurs who opposed the con artist mentality of the majority have been ruined by now or fled the country. Without such enterprising folks who are necesary for an economic revival, any hopes for improvement are moot.

    That's the ugly truth, and - pls excuse my monday morning quarterbacking - you could have known that when you made your first aquaintances after moving to Greece. Didn't it occur to you that your optimistic ideas were not compatible with those freeloaders, who had no bad conscience for ripping their country off? That very mentality let to the ripping off of the Troika and the stubborn resistance to each and every measure that was seen as a burden to the deadbeats. In many cases, they prevailed, and what's even worse, they never contributed anything productive to the reform program.
    That's why there's no happy end to this story, actually no end at all. Nothing has seriously changed and Greece will continue to use all means available to squeeze money out of naive investors and the EU. So, pls keep this blog going, Klaus, if you have the energy and nerves to do so. There's more madness ahead and your insights will be valuable. Here's to the next season of this giant soap opera. Yamas!

    ReplyDelete