The Future of Elleniko

I just read in the Ekathimeri that there is likely going to be only one bidder for Elleniko --- the Lamda Development Group. Not being familiar with this group, I looked up their website.

Frankly, everything in this website looks very impressive and professional. Off the bat, a very suitable investor for a unique development project like Elleniko. Except, I then read that Lamda is a member of the Latsis Group. I am not familiar with the Latsis Group but I take it it is controlled by one of the Greek oligarchs.

Why is it that this creates a bit of a taste in my mouth? Why is it that I immediately start thinking about Greek cronies? About possible intransparencies? About possible back-scratching?

If the German Quandt-family (BMW) were to make a bid for a large development project, no one would have any second thoughts about it. It is too bad that Greece is in a situation where one immediately has second thoughts when well-known families engage with the state in large projects!

News About Cosco!

I have written quite a bit about the Cosco investment in Piraeus which, to me, could be a prototype of foreign investments which are good for the Greek economy. However, I have to admit that my views met with more objections than agreements. On balance, the objections rested on the argument that Cosco was nothing other than introducing Chinese sweat shop standards into the Greek economy.

Here is an article published by Bloomberg about the current situation at Cosco. It paints a very positive picture of the Cosco investment. Obviously, there are two sides to every coin and I am sure that many Greeks will paint exactly the opposite picture of the Cosco investment. I hope they will and I hope they will post their views so that a debate can take place.

Greece's Current Account - The Miracle Has Happened!

When I started observing the Greek situation in 2010, I wouldn't have bet one Eurocent on the likelihood that Greece would record a current account surplus within a decade; at least. That might have been the most lucrative bet in the world. Now, only three years later, the Bank of Greece has just released the statistics for 2013 (in BEUR):

		January-December			December
		2013	2012		2013	2012
Revenue from abroad
	Exports	22,5	22,0		1,9	2,0
	Services (e. g. tourism)	27,8	27,5		1,6	1,6
	Other income	3,5	3,8		0,3	0,3
	Current transfers	7,7	5,1		0,8	0,3
		----	----		----	----
	Total revenue from abroad	61,5	58,4		4,6	4,2
Expenses abroad
	Imports	39,8	41,6		3,2	3,0
	Services (e. g. tourism)	11,0	12,4		1,0	1,1
	Other expense (e. g. interest)	6,4	5,4		0,4	0,3
	Current transfers	3,1	3,6		0,2	0,3
		----	----		----	----
	Total expenses abroad	60,3	63,0		4,8	4,7
Net foreign deficit (current account)		1,2	-4,6		-0,2	-0,5
Trade balance		-17,3	-19,6
Services balance		16,8	15,1
Other balance		-2,9	-1,6
Current transfer balance		4,6	1,5
		----	----
Net foreign deficit (current account)		1,2	-4,6

Comments
1)  An optimal improvement is when revenues go up and, simultaneously, expenses go down. That's what happened in Greece's current account and that's why the improvement relative to 2012 (a deficit of 4,6 BEUR was turned into a surplus of 1,2 BEUR; a turn-around of 5,8 BEUR within 12 months!) is so large!
2) I could make quite a few more comments on the details, like I have always done in previous analyses of the current account, and I could point to some weaknesses. But who wants to spoil a party when the party really deserves congratulations?

Hats off!

Olympic Games permanently Near Olympia?

This is a wonderful article by Nikos Konstandaras. He suggests that, instead of travelling from city to city, there should be a permanent Olympic site and that the best place for it would be near ancient Olympia. I will not comment on the historic, emotional and idealistic aspects of this proposal; only on the economic ones.

A permanent site near Olympia would be a bonanza for the Greek economy (assuming that the cost of it would be shared by the Olympic world and not carried by Greece). In all likelihood, there will be Olympic Games in a hundred years from now, so that would be an 'investment which is needed' (instead of an investment for the purpose of spending money) and it would be a recurring investment as long as the Games take place.

If all countries could agree that a permanent site is a good idea and that Greece would be the right place for it, things would be easy. Presumably every country would agree that it is a good idea but probably no country would agree to award the 'gravy' associated with the Games to only one country. So, this proposal must be considered as an illusion.

But what a nice illusion it is!

Voters & Judges --- Are They Allowed To Do That?

In 1848, the Habsburg monarchy faced revolution from within. Citizens, disgusted by authoritarian rule, went on the streets. Emperor Ferdinand I. observed the protests from a balcony in the company of his Chancellor Count Metternich who was detested by the masses. The following dialogue between Ferdinand and Metternich was recorded:

Ferdinand: "What are all these people doing down there? They are so noisy!"
Metternich: "They are making a revolution, Your Majesty".
Ferdinand:  "But, are they allowed to do that?"

Were the judges in Karlsruhe allowed to rule on the OMT as they did last week? Were the Swiss allowed to vote as the did last Sunday?

Clearly, they both were allowed. If one deprived them of these constitutional rights, one might as well abolish the constitution. Many EU-elites were upset by the judges' and the voters' decisions. I can understand that; they certainly throw a wrench into the plans of these EU-elites.

Greeks should be encouraged by that. Greece may be a puppet of the Troika; Greece may no longer feel sovereign. I can sympathize with such feelings. However, there is still no EU law which determines which way Greek voters have to vote.

Obviously, voters have to be fully informed about the possible consequences of their vote. As far as I could tell, the Swiss voters were very well informed, as they always are when plebiscites are held. Thus, the Swiss must have known that their vote could potentially have very negative consequences for their economy and their living standard. If they voted for that, they will have to live with it.

Judges don't have to be informed about the possible consequences of their rulings; their job requires them to know that. The Karlsruhe judges essentially killed the OMT for the time being. Strangely enough, markets have not fallen into panic over that so far. Will that continue? The economist Andrew Watt wrote in a recent article the following: 

"Imagine the uproar if – to construct an extreme,  hypothetical example – a European-wide plan to counter tax evasion were to gain unanimous support in the European institutions, but be rendered inoperable because the Luxembourg constitutional court, on a 5-4 verdict, considers it incompatible with the country’s constitution’s provisions on property rights. The Luxembourg Constitution dates from 1868. I am not a legal expert, but it seems plain to me that Europe cannot function in this way".

He's got a point!

Greece --- Time To Learn From Cuba?

I have published at least half a dozen articles in this blog arguing in favor of Special Economic Zones (SEZ) in Greece. Here is the last one. My major point is that one cannot change an entire country in a reasonably short time frame. Thus, one should establish 'pockets' in the economy where foreign investors find everything they desire right away. If those SEZ work well, they would over time rub off on the rest of the country.

I have also mentioned Cuba a couple of times in articles about Greece. When the Soviet Union collapsed, Cuba lost the foreign funding on which its economy depended. Cuba found a replacement for this foreign funding through Venezuela, but that was not enough. In consequence, even the communist Cubans had to recognize that foreign investment is the only type of foreign funding which does not carry interest and does not have to be repaid (other than grants or gifts). Canadians made massive investments in Cuban tourism.

I am now stunned by the latest information out of Cuba --- that last communist country has decided to open a Special Economic Zone! The idea is to attract foreign investment. The hopes are "to get foreign investment for the production of drugs, biotechnology, renewable energy, agriculture, industry, tourism, real estate, telecommunications, information technology and infrastructure". Well, it seems they have covered all areas... "What the zone is intended for is to create a special climate where foreign capital is going to have better conditions than in the rest of the country", Cuba's Foreign Trade and Investment Minister is quoted as saying.

When reading details about the planned SEZ, I came across several points which I think are less than prudent. I have always argued that SEZ should not offer undue 'perks' (Cuba is planning to offer exemptions from "tax on the use of the labor force", property tax and local sales tax). Friends whom one buys with money will also leave for money, and that is particularly valid for some foreign investors.

While some financial incentives may be unavoidable to be competitive, the focus of a SEZ must be on offering absolutely the easiest way to do business in all regards. If the Greek government wanted to know what the key criteria for attracting foreign investment are, I would recommend that they study the World Bank's "Doing Business Report". They could find all the criteria which are important to foreign investors right there.

So, the recipe is actually quite simple: establish an SEZ and structure it in such a way that it would earn top ratings in the Doing Business Report. Then work out contracts to be offered to foreign investors whereby these contracts must not only serve to please foreign investors but they must also ascertain that Greece gets out of foreign investment what it desires.

Speech By Governor of Bank of Greece

"My presentation will be structured as follows. I will begin by discussing the origins of the euro-area crisis. Next, I will describe the adjustment that has taken place within the stressed countries. With Greece at the epicenter of the crisis, my focus will be on what has happened in my own country. I will then turn to some related issues, notably, the reasons for the deep economic contraction in Greece and the problem of debt-sustainability. Finally, I will discuss changes that are being made to the euro-area’s institutional set-up and their implications for the single currency’s future" - read full text here.