Saturday, July 7, 2012

Does Mr. Samaras have a twin brother?

I have watched Mr. Samaras' main policy speech in parliament on July 6 and I am wondering whether this was the Mr. Samaras of the previous two years or perhaps a twin brother of his. The Mr. Samaras of the previous two years seemed to know one word only - "njet". Except perhaps for the last few months when he was a member of government himself, there was hardly anything constructive which could be read into his announcements. And there was very little of substance and most of it very confusing.

The entire structure of the speech was, at long last, the correct one. For much too long now, everybody has been discussing/criticizing the terms & conditions of financing for Greece. Very little attention was given to the purpose of financing, i. e. the underlying economic plan.

In the normal world, first comes the plan and the financing comes afterwards. If the plan is convincing, there will be no financing problem. Alas, what we have been witnessing todate is that everyone was debating the financing without really knowing what the plan was. This is like saying “I don’t know where I am going but the faster I drive, the sooner I will get there”.

In actual fact, a good economic plan is about the only effective negotiating instrument which a borrower can bring to the negotiating table. If the plan is so good that no thinking person can object to it, it is next to impossible to reject the financing of that plan.

In his speech to parliament, Mr. Samaras outlined 9 major themes of his plans for the economy. My surprise increased from one theme to the next because they were exactly the themes which I have been propagating in this blog. In detail:

First, "we give privatization priority". What? Did I hear correctly? After two years of madly focusing on austerity measures, the first priority becomes privatizations! That is investments! That is new foreign investments! And to add insult to injurity for believers in state control and monopoly, the energy market is to be liberalized!

Second, not only those privatizations which have been committed in the memoranda but even privatizations beyond that! And then this: "Privatizations not only as revenue to cover the deficit. Instead, as an opportunity for development, to attract investment, to create jobs, to improve competitiveness". Finally, there seems to be an understanding that, financially, privatizations are one-time gains which, at best, buy time to get more important things done. But much more important than the one-time financial gain is the know-how transfer which comes with privatizations and foreign investment. 

Third, investments in infrastructure are a priority and they will create new jobs. That is in and by itself not a brand new idea but it is good to see it stated as the third on the list.

Fourth, the use of public property will be optimized. That rings a big bell with me because as I travel through Greece, I often see idle property where people tell me that it belongs to the state but that the state doesn't do anything with it. Investors could do a lot with it. And what does Mr. Samaras have to say about this? "We are a country that will become investment friendly. Because investment creates jobs which is our number one priority today". What a revelation!!!

Fifth, do everything to unblock EU Structural Funds for Greece. That is an old issue and the EU Task Force is working on it.  It can only be good when its importance is revived by being mentioned as a priority in a policy delaration.

Sixth, close or merge dozens of public agencies. Apparently, hundreds of them have already been identified for action. What a positive perspective!

Seventh, take all possible measures so that deposits return to banks again. Mr. Samaras is not shy to talk about tax amnesties. Frankly, any trick in the book should be acceptable to get bank deposits back. Mr. Samaras talks about an electronic wealth register (thanks to Alexis Tsipras for that idea!); special legislation for undeclared income evident through property acquisitions in Greece and abroad; and more. All of them excellent ideas!

Eight, immediate action is to be taken against waste. E-government is expected to play a vital role. Note the statement: "Personally, I believe that bureaucracy is our number one enemy!" Amen!

Ninth, the process of clearing state debts to the private sector is to be accelerated. That would provide financial breathing space for many small and medium-sized businesses.

Throughout the speech, I heard soundbites which I have been wishing to hear for quite some time now. Soundbites like: "Reducing deficit by cutting waste is primary goal; generating revenues through privatizations and improved asset unilitzation is primary goal; structural changes which improve competitiveness of Greek economy are primary goal"; etc.

In fact, at one point Mr. Samaras had the courage to say: "Truth be told: employees and retirees have borne the bulk of the sacrifices so far!"

Well, as they say: "Words are easy, action speaks". We will see in the next few months what kind of language the specific actions will speak. Hopefully a good one. The words may have been easy but they certainly were good ones as well!


  1. In my opinion, the first thing that should change in Greece is the (re)-establishment of the state of law. Simply put, to cover up for the corruption at the top level, Greek politicians have allowed lawlessness at all levels of Greek society. Until that changes, Greece will never establish a healthy society.

    As far as privatizations go, I doubt they'll be as beneficial as proclaimed. Take the airport of Athens for example. It's a pure rent-seeking exercise on behalf of the German company that co-built it. As a result, we have the most expensive airport in Europe.

    I guess where I'm getting at is this: private investors will only invest if they smell profits. And most state business relies on internal demand. With internal demand being comatose, and external demand faltering as well, thanks to the inactivity of politicians and central bankers, I doubt privatizations are even feasible. But I hope I'm proven wrong.

    Finally, the elephant in the room whose existence nobody yet acknowledges remains the common currency, the euro. Frankly, the euro has caused tremendous damage and that should - at the very least - be recognized. The euro has been the cause of the intra-European imbalances, and the euro has been the cause of the current European crisis as well.

    The way I see it, the ECB had one chance to stave off this crisis, and that was very early, back in 2008, when it should have engaged in aggressive quantitative easing to prevent any disruptions in the flows of credit. It's failure to do so transmitted the crisis in the real economy. So now there's one realistic solution: aggressive public spending. It's what Japan has been doing with semi-success, and Western authorities have been taunting in their ridiculous arrogance.

    The failure of the European authorities to move forwards in any significant manner, tells me that the Euro is gonna be dismantled. I hope it's sooner rather than later.

    1. Unfortunately, the privatizations at "any cost", is the conseguence of the reluctancy of Mr. Karamanlis' ND in 2004, which, had the opportunity to privatize many companies at very good values, but he got scared at the accusations of Mr. Papandreou that he would send him to Special Court for trial...

      Now, privatizations is Mr. Samaras' only card for a political bargain with the Europeans. A pretty desperate card, but, nontheless,his only card.

      I am not too excited about "selling" everything, either. I hope that strategic assets will be given with say 30 year concession.

      Either way, with the current political situation, chances are very much in favour of Grexit and what the EU will do about the euro will not be of our concern. The EZ right now is like USA in Vietnam. A war they can't win, but can't afford to lose.

      It is not just about the debt/bank problem, it is also a question of whether the EZ rules fit all of the economies. For example, i am not an expert of the field, but i had talked a few years ago with a greek fisherman. He told me that "once, all the islands could live exclusively out of the sea. Now we can't use the nets the Turks or Egyptians use and sweep everything leaving nothing to us,because EU has declared them illegal and we can't beat their prices either. Few young want to take fishing nowdays". This is unnatural for a sea country like Greece. Similar stories you hear about agricultural products or animals from outside the EU (use of pesticides, drugs banned in EU etc).

      Beppe Grillo, leader of "5 Stars Movement in Italy" and supporter of "Quitaly", has a relevant article: "Import taxes or slavery".

      "There is no game to play. The labour cost of a Romanian or an India is impossible to beat. No italian firm can compete, if not by nullifying rights and rules, as in effect, is happening. It seems a madness to me. The world is re-alligning itself towards a lower level,always more. Towards new Pharaohs. There is no limit to the bulimia of capital.

      And he is from a country, Italy, with high exports and industry! A friend of mine used to have a small pig herd. Eventually he stopped. He told me "I wasn't earning anything. I don't want to feed any kind of s*it or inject them with hormones or keep them immobilized all time to to gain weight.For my costs, i can't compete with the prices of imports from Bulgaria or FYROM". This is how a country with 80% mountains, today covers only 40% of cow mean on its own.


    2. >>And one can say whatever about switching to more productive activities according to the market, but the default history of Greece has shown one thing. If a crisis comes and you default, the most important thing is to be able to cover easily your needs with domestic food, be it a war or an economic collapse. If you can feed your people, you will restart sooner or later. You won't be able to eat you car or your computer and even gold won't last you as long as a garden with vegetables and some chicken.

      The big countries that made the EU rules export stuff where the competition is limited and easily overcome by new technologies and quality. The quality of a pig is difficult to differentiate on a butcher's shop. And Greece is surrounded by non-euro and many non-EU countries.Tough to compete on the same products with them even in the internal market.

      Import taxes will be good for Greece after Grexit.

      Note about Mr Grillo's inspiration:

      Italian industrial production has fell 9,2% in 1 year

      Italy for 2012 will be in recession -2,4%. Italy's Industrialists' president said "These are warlike damages, we are in the abyss"

      Maybe J. Stiglitz was right recently when he said "those who left the Gold Standard in the Great Depression first, where those who suffered the least".

      If Italy is in the abyss, where is Greece and how much more damage should it take in this "salvation".A common graffiti in Athens is "please, don't save us anymore"...

      P.S.: I am really tired having every day a German politician warning about Grexit. Today it was Mr. Brunderle. Don't they ever get tired? Maybe take a week to read a book, take another week with their families, before coming back to Grexit? I am sure that even the last grandmother up in the mountain villages has understood it. If not anything else, finally getting over it and doing it, will spare us the daily routine and give the various Merkel/Westerwelle/Brunderle/Schauble something else to do.


  2. Mr. Kastner,

    I don't want to curb your enthusiasm, but, greek politicians are used to have a "metamorphosis" once they pass from opposition to power and also unfortunately, they usually make beautiful speeches, because someone else writes them on behalf of them (if i am not mistaken, Prof. Varoufakis has in the past written some beautiful and inspired speeches for Mr. George Papandreou).

    It is well known that at least one of the persons who write Mr. Samaras' speeches is Mr. Lazarides (on the right).

    "First, "we give privatization priority". What? Did I hear correctly? After two years of madly focusing on austerity measures, the first priority becomes privatizations! "

    It's not a matter of choice. The memorandum predicts about 3 bln of income out of privatizations this year, if we get half of it, it will be a success. The troika will ask to cover the rest from elsewhere if not. On the other hand, today, one of the prominent SYRIZA MPs, warned they will send to jail the politcians that will sell for 2 pennies the state property and that SYRIZA will cancell the contract once it takes power.

    "Third, investments in infrastructure are a priority and they will create new jobs."

    I hope it does not end up like the Olympic Games, where "new jobs" were illegal immigrants being paid ultralow salaries from the construction companies that made a huge profit.

    Fourth, the use of public property will be optimized.

    Mr. Papandreou was saying the same thing since 2009, we are yet to see anything. Foreign investors will always think of Grexit before committing venture capital to Greece. The greek state has also much free land that could be cultivated. There is a plan giving for long leasing state land to young people who want to take a shot in agriculture, but it has been proceeding like a snail.

    "Fifth, do everything to unblock EU Structural Funds for Greece."

    Yes, the problem of absorbing structural funds exist since Mr. Papandreou's days. It was a matter of will, it was a matter of being able to. State's investment program, which should co-finance pending projects has zero funds and banks stopped giving credit too. Same story with "ESPA", some funds for small enterprises not being absorbed. It was recently changed to 95%-5% in an attempt to facilitate the absorbtion, since before nobody could take a bank loan or was willing to risk more capital injection in a project, under the threat of Grexit.


  3. >>

    "Sixth, close or merge dozens of public agencies. Apparently, hundreds of them have already been identified for action. What a positive perspective!"

    These useless state entities, have been identified by Mr. Pangalos, ex vice-president of the PASOK goverment since 2010. At first they were saying they were hundreds, then they said they were 30, now they say they are about 100. PASOK at the end didn't close anything because,well, they are STATE entities and who wants to reduce the state, right? ND may close them (let us hope), but has already said that nobody will be fired.

    "Seventh, take all possible measures so that deposits return to banks again. "

    Yes, Mr. Samaras wants to copy the "Berlusconi amnesty", which had a partial success. Unfortunately i am afraid that the greek plan won't have as much success, again, because of the threat of Grexit. Something that Mr. Samaras admitted in his speech too in another part.

    "Eight, immediate action is to be taken against waste. E-government is expected to play a vital role. Note the statement: "Personally, I believe that bureaucracy is our number one enemy!" Amen!"

    Nothing different than what Mr. Papandreou was saying. Let us hope that he will go beyond what Mr. Papandreou did.

    "Ninth, the process of clearing state debts to the private sector is to be accelerated"

    Yes, word is that they will do that with a 20% or pay part of their debt with state bonds that mature in 2020 :)

    "In fact, at one point Mr. Samaras had the courage to say: "Truth be told: employees and retirees have borne the bulk of the sacrifices so far!""

    You 'd be surprised how many times Mr. Papandreou, Mr Tomsen (IMF) and Mr. Klaus Masuch (EU troika) have said these things in the past 3 years and each time they kept targeting the same, increasing the social division and instability.

    "Well, as they say: "Words are easy, action speaks". We will see in the next few months"

    Exactly. I believe very soon Greece will have to choose paths once and for all. I remain pessimist though, as long as the threat of Grexit persists.

    At the end, these are things that Mr. Papandreou should have done since the beginning. Now, it may be too little, too late.


  4. I think by the end of the year at the latest, we will know how long this gov (and the Grexit) will last.

    Latest poll after the elections (showing the net social division):

    - 57% is currently positively viewing the goverment, but at the same time 48% thinks that there will be soon new elections, while 46% think the goverment will manage to last 1-2 years.

    48% want immediate abolition of the memorandum and 48% want 48% want to keep the memorandum with improvements. With disctint age division:

    - 66% of ages 18-34 want the abolition of the memorandum.
    - 67% of ages over 65 years want the "renegotiation".

    Most popular is Mr. Kouvelis Of Democratic Left (66% has positive opinion of him,30% negative). Mr Samaras is 52% positive,48% negative.Mr Venizelos 35% positive,65% negative, Mr. Kammenos (Independent Greeks) has 44% positive,53% negative, Mr. Mihaloliakos (Golden Dawn) has 20% positive,72% negative and Mrs Papariga (KKE) has 19% positive,80% negative.

    Mr. Tsipras has 49%-49%.

    Mr. Kouvelis also repeated that they will not accept further reductions of salaries and pensions... But, given the history, then one can expect raise in taxes :)


  5. Let us hope for Grexit soon. This situation is only worsening thigs:

    Mr. Tsipras in Parliament:

    "Those who will sign the selling out of the public wealth, will face the conseguences of their action".

    And warning towards potential investors:

    "Don't try to take the public wealth of the Greeks for a piece of bread, because you will loose your money", implying, that when SYRIZA comes to goverment, it will not recognize as valid the contracts.

    The only way Greece will liberate itself from this left, is exactly, by having Mr. Tsipras govern and further ruin the country.

    Of course he also attacked the goverment "In 2009 some said "there is money", now you said "there is renegotiation". The people forgives mistakes, but does not forgive being cheated".

    Poor Greece...


  6. Mr. Samara's goverment doesn't start under good omens (beyond having the PM and finance minister knocked down by illness).

    After 1 day from getting vote of confidence, the vice minister of Labour ministry, Mr. Nikolopoylos (ND), resigned, because of the lack of renegotiation about the labour market, as New Democracy has promiced before the elections.

    This goverment is having an extremely high rate of "casualties" to hope to last all its mandate... And they haven't taken yet any new cuts. What will happen when they will have to do so...

    The EU/IMF played Mr. Samaras very cleverly. Before the elections, everyone was ready to give 1-2 years more to Greece plus they were open to review any individual items in the memorandum and talk about ideas.Mrs Lagarde in particular was making clear openings. After Mr. Samaras won, they said "take it or leave it" and probably will conceed the prolongation of after some months. With the ESM coming to force within the summer, one can understand that the "Tsipras danger" is now gone for the troika, so why become more open to renegotiation, now that Mr. Samaras will be in power at least as long as it needs for the "ultimate firewall" to be raised.

    On the other hand, Mr. Tsipras strategy is becoming more obvious: Let Mr. Samaras take the hard fall, so that Mr. Tsipras can then take power, say to the people "i had told you that the memorandum would lead us to default and the drachma and here we are! Now i have received scorched earth from Mr. Samaras, so you must have patience, i can't make miracles, but at least i was telling you the truth".

    All they think about is politican gain for their parties...


  7. The main issue is that to please the troika, the government has to be downright dishonest with the citizens. And, the troika are lenders who demand their money back with interest. The citizens just give them their money. So let's see

    -bring back the bank deposits.
    Why would one do that? Do you trust the greek policitians or are you that sure that default is avoided?

    -make the country investment friendly
    This is a country where the state intervenes in EXISTING private contracts(at the troika's insistence). Why would anyone invest there?

    -privatizations. An example is Deutsche Telekom buying 40% of OTE. What has changed except for money for the government? Certainly this has not helped employment or resulted in any know-how. And, my position has always been that if I do not consider myself competet enough to run monopoly companies like power and water, I'd certainly not apply for a much more complex task such as running a country! There are 3 cases in privatizations: 1) a company that is intrinsically nonprofitable (such as a company aking horseshoes). Well, if you find a sucker to sell it to, good for you. 2) a company sold at a great price many times its value, so one can use that money to set up again a similar company and save some too. In that case again one has found a sucker and good for you. 3) A company that you cannot run profitably(or as profitably), but the buyer can.
    Maybe we should get the buyer then to run the country
    -certainly the current management is incompetentfor the job. Running a company is not relativity theory.