Monday, December 28, 2015

Will Greece Ever Be Modernized?

I am returning to a year-end practice which I started back in 2012. On New Year's Eve 2012, I published the article "Make 2013 'The Year of the EU Task Force for Greece!'" By that time, the EU Task Force for Greece (TFGR) had already been in operation for over one year but, apart from detailed periodic reviews, one didn't really hear a lot about it.

A year later, on New Year's Day 2013, I asked the question "Was 2013 "The Year of the EU Task Force for Greece?'" I am afraid my answer was not a positive one. Perseverant as I am, I suggested one more time that the TFGR should be a top objective for 2014. Still, things remained rather quiet around the TFGR. Yes, there were some success stories like increasing the utilization rate of EU subsidies but I, for one, could not identify anything Earth-shaking facts that the TFGR had accomplished. For sure, Greece had not become a modern country as yet. The TFGR finally expired in June of 2015.

In October of this year, I happily reported on the birth of a replacement for the TFGR. First of all, there was a significant improvement in the acronym: a boring TFGR now became a flashy SRSS. Somewhat reminiscent of an interballistic missile. It stands for Structural Reform Support Service.

And only a few days later the bombshell: "France will modernize Greece!"

I have not heard yet about any progress France has made so far. Let's be hopeful that there will be progress this time around. Meanwhile, let me repeat the Mission Statement of the original TFGR:

The Task Force is a resource at the disposal of the Greek authorities as they seek to build a modern and prosperous Greece: a Greece characterised by economic opportunity and social equity, and served by an efficient administration with a strong public service ethos. 

What a wonderful mission! Will it ever be completed?

Thursday, December 17, 2015

An Intelligent Foreign Investment

The Austrian Prinzhorn-Group has acquired the Greek Viokyt Packaging. From what I have read about this transaction in the Austrian media, it could be a classic example of what I would call an intelligent foreign investment for Greece, exactly the kind of investment which Greece should strive for.

Prinzhorn has a tradition of being family-owned (Prinzhorn family). As such, they are literally the opposite of a financial investor. Prinzhorn is among the European market leaders for recycling paper and the packaging industry. They employ 5.300 people in 13 countries and their annual sales are 1,2 BEUR. And - they are profitable and enjoy good creditworthiness.

Viokyt, I understand, is a star in the Greek packaging industry. Only a few months ago, they received the award of a National Champion from the European Business Awards.

The owners of Viokyt will profit because they allegedly received top-Euro for their excellent company. But Greece will profit, too. Prinzhorn takes a long-term view on its investments with a clear emphasis on growing the business instead of milking the companies.

Prinzhorn plans to increase and modernize the production facilities of Viokyt, both with a view towards tripling the production output. One can only assume that this will also have something to do with additional employment.

If I were Alexis Tsipras, I would invite Mr. Prinzhorn to the Maximos Mansion, entertain him to an unforgettable Greek lunch and then hold a press conference with him. And at that press conference, I would announce to the world that if Greece got another 20-30 of such investments, the country would be back in the future.

Tuesday, December 15, 2015

Non-Performing Loans And Fairness

The four large Greek banks, supervised by the ECB, will need to make very substantial write-off's on their loan portfolios in the next years.  Roughly half of all their loans are non-performing (107 BEUR at the ECB's last count). At this point, there are wild guesses as to how much of that 107 BEUR will eventually have to be written off.

Loans are an asset of a bank and a liability of a borrower. When a lender writes off an asset, he takes a loss (because he doesn't get the money which is due to him) while the borrower registers a gain (because he doesn't have to pay everything he owes). The lender's loss is material. The borrower's gain is not when he truly does not have the money to pay the lender. An overdebted borrower does not benefit when the debt which he truly can't pay is reduced.

There are essentially 3 ways in which a bank can resolve non-perfoming loans which have no chance of ever returning to full performing status:

1) Initiate bankruptcy proceedings.
2) Negotiate settlements with borrowers.
3) Sell the loans to a specialized fund at a deep discount.

Bankruptcy proceedings can assumed to be fair because they are under a court's supervision: an official administrator liquidates the borrower's assets and pays off the lenders with the proceeds. If the proceeds are less than the bank's claims, the bank's loss is fair and the borrower has no undue benefit. Regrettably, bankruptcy is always the most expensive solution for all parties involved and, typically, substantial economic value gets destroyed. The only question is whether the borrower's assets in the bankruptcy proceedings are his 'true assets' which leads to the following two disclaimers.

First, the old saying is that "the company is bankrupt but its owner is rich". Why? Because the owner had taken up debt in the name of his company and - through various legal or non-legal tricks - had milked the company, enriched himself personally while leaving the company worthless (as long as the owner had not issued any personal guarantees). That is an extreme case of unfairness but no legislation has yet been found which could counter such conduct (unless fraud could be proven).

Secondly, in the case of personal bankruptcies, the husband/borrower may truly present himself as a pauper whereas his wife is living in a palace and driving the Ferrari, both of which were bought with loans the husband had taken up. Again, there is no legislation against such conduct (unless fraud could be proven).

Selling loans to a specialized fund is the easiest (but probably costliest) way out for a bank: a deal is closed, a price is paid and the bank will never again have to think about these loans. From the borrower's standpoint, it is the worst solution of all. The borrower no longer faces his relationship banker at the negotiating table. Instead, he is looking straight into the eyes of liquidators who want to see cash. And fast! Still, selling loans is a 'clean' solution in the sense that no fund will pay more than it thinks the loans are worth and if the selling bank thinks the fund offers too little, it doesn't have to sell. In short: transparency and voluntariness all around.

Negotiated settlements are deals where the bank forgives part of the debt in exchange for something. That 'something' is typically a plan by the borrower as to how he can return to profitable operations once the debt is reduced. In this case, the bank voluntarily writes off some debt and takes a loss, while the borrower has significant benefits (above all: he stays in business and his debt load has been reduced to reasonable levels). In short, here the borrower truly gains.

And this is where unfairness can easily come into play. Suppose the 4 banks decide to set aside 20 BEUR for settlements on the 107 BEUR non-performers. It is not a computer which will determine which borrowers will get that benefit. Instead, it is human beings who will take those decisions. Human beings with friends and acquaintances, with networks, with shared political interests, etc.

There are undoubtedly very many borrowers out there who are already vying for a piece of that settlement cake. Some will spend their efforts to prepare restructuring plans for their business but there are a lot of borrowers who, instead of preparing plans, will lobby their networks to influence bankers' decisions. And who knows? A borrower who is forgiven, say, 20 MEUR might be quite disposed to transfer, say, 2 MEUR to the private offshore account of his banker. Or does this seem far-fetched?

To be sure, Greek bankers are not totally free to arbitrarily distribute gifts to their friends and acquaintences. They are being supervised by the ECB and the hedge fund owners will also be keenly interested to assure that the value of their investment is not damaged. But, still, there will be room for manouvre and the situation should be watched closely.

Tuesday, December 8, 2015

Now Argentina. Greece When?

Anyone who has spent any length of time in Argentina will attest to some of the similarities between Argentina and Greece. Both countries have a long tradition of terrible political leadership. As a result, both have oversized and corrupt public sectors characterized by cronyism. In both countries, the strength of institutions was sacrificed in favor of party politics. Both countries have very wealthy elites who contribute litte to their own society and who hold their financial wealth outside the country. On and off again, both have been characterized as failed states or even failed nations.

Prof. Andrés Velasco, a former Finance Minister of Chile, argues in this article that Argentina may now indeed have the chance for a fresh start. A really fresh start. Like in Argentina, I have always wondered about Greece why a society which has so many highly competent people through all walks of life, why such a society would not be able to bring some of that competency to the political top. Or to put it the other way around: why the many highly competent Greeks from all walks of life would not step forward to change the country.

When one looks at today's mess in Argentina, it is hard to remember that, 100 years ago, Argentina was among the world largest economies and the peso was a reserve currency. Something clearly went wrong along the way. In Argentina, it was 99 years of Peronist populism interrupted only temporarily by reactionary generals and short periods of governance by centrists.

Prof. Velasco argues that the newly elected President, Mauricio Macri, has a good chance of breaking with the above pattern and truly achieving a fresh start for the entire country.

That offers hope for Greece. After all, Greece did not have as many as 99 years of crazy politics but only about 30+ years: my understanding is that Greece was more or less an ok-country until Andreas Papandreou got on the scene with his newly formed PASOK and until ND, during intermittent periods of governance, only tried to be a copy of PASOK.

When will the Mauricio Macri's of Greece come to the conclusion that it's high time to stand up and be counted for their country? There are plenty of Mauricio Macri's in Greece. They just have to make an effort to come on stage. Before anything else, they must understand that they owe it to their country.

Monday, December 7, 2015

Ten Tips About Greece!

This listing of Ten Tips about Greece was published almost 3 months ago but it would not hurt anyone to re-read it every once in a while. These bullet points were prepared shortly before the last election of September. It concludes:
  • If the left wing SYRIZA is re-elected, which is more likely, then the outlook is more complicated.
  • They may decide to play by the rules, restore growth, and then try to implement a more ideological agenda.
  • This would give everybody breathing space.
  • But on the other hand, they may not want to govern within the constraints of the Agreement, or even, I would say, within the constraints of reality.
  • If so, then we will have more turbulence.
  • We will find out soon.
Well, 'soon' can be a very long time...

Monday, November 30, 2015

Does Greece Need Another Narrative?

This article in the Ekathimerini began with the following paragraph: 

"Greece will have to create the right conditions to win back the financial markets if it wants to return to a sustainable growth path. This means it has to present a credible investment story that combines fiscal discipline with privatizations and some structural reforms in addition to political stability, among others."

Well, I beg to differ. During the first couple of years of the crisis, I had written at length about the urgency of developing a narrative for Greece's future. Then the Great Narrator came along and ever since I read his First Economic Manifesto, I developed sympathy for His ability to project positive soundbites and, that, too, to come up with well-sounding narratives. As late as January of this year, I had fallen for His narratives quite a bit.

Narratives become stale when they are not eventually backed up with facts. To me, the last thing Greece needs today is yet another well-sounding narrative in which no one really has confidence. I think it is urgent to focus on facts, instead!

I also have my reservations about the content of the above article. It focuses almost exclusively on financial and capital markets and how a narrative could positively affect those. Financial and capital markets alone will not solve Greece's problems, at least not on a sustained basis. It is not (and cannot be) the primary motive of financial investors to create sustained economic value. Instead, their primary motive is (and must be) to create high financial returns on their financial investment, preferably within less than 5 years. 

What Greece urgently needs are strategic investors and investments. Those could be large international corporations which buy some stakes in large public sector companies but they could also be, perhaps they even should be in their majority, medium-size companies which recognize opportunities in Greece which would reinforce their own strategic plans. In short: investors who do not only buy balance sheets but also brick and mortar!

It would truly be helpful, in fact I would consider it urgent, if the government - instead of developing a narrative - put together investment profiles for, say, 100 interesting strategic investment opportunities, be that the aquisition of existing companies/projects or the development of new ones, for potential investors to review. To give just one example: it would escape my imagination that a company active in the solar business would not review with great interest investment opportunities in a country where the sun shines most of the time. Or that waste management companies would not be interested in investments in a country which has one of the worst waste managements in the EU.

But before anything else, the govenment - instead of developing any narrative - would have to come out and commit passionately that strategic foreign investments are what they truly want.

Saturday, November 28, 2015

Greek Pension Reform - An Issue Since 1958?

Having read up on the issue of pension reform in Greece, I am amazed how long this issue goes back (to 1958!). This paper by Platon Tinios gives a good overview. This is the same Tinios who was in the commission which produced the famous Spraos Report of 1997 (only available in PDF via Google) which gave an outline of what aspects should be considered when implementing a pension reform and what such a reform could look like.

There is a whole chapter on the pension issues in Yiannis Palaiologos' book "The 13th Labor of Hercules". The following paragraph from this chapter is quite unique:

"On 16 October 1997, three days after the Spraos Report had been officially presented, Christos Polyzogopoulos, president at the time of the General Confederation of Greek Workers (GSEE), made an unintentionally prophetic statement. The Spraos Report, he said, 'essentially says that if its recommendations are not implemented, the system of social insurance will collapse by 2010. But the social insurance system, as a sub-system of the wider economic and social system, will collapse after the collapse of the State Budget and the economy as a whole'. Polyzogopoulos meant this as a counter-argument to Spraos. He thought he was demonstrating the absurdity of the idea that social security could ever go bust."

Well, 2010 came around faster than Polyzogopoulos might have thought at the time.

More About The Greek Bank Tragedy!

Further to my recent article about the Greek bank recapitalization ("Buy Greek banks! Velly, velly cheep!"), I today read the below article which puts some hard numbers behind the arguments which I made:

A Greek Bank Tragedy, by Emilios Avgouleas

Greek Shipowners - More Take Than Give?

Reuter reports on The Greek Shipping Myth. The Greek shipowners are not going to like it.

The organizational structure which the shipowners are using is not unique. On the contrary, probably every larger company with international/multinational operations is using similar structures; at least to an extent. And --- there is nothing illegal about it.

For example: an Austrian supplier of, say, pulp plants owns valuable patents. He will, in all likelihood, house those patents in some offshore company in a tax haven; very often Cyprus. And whenever the Austrian company sells a plant, a royalty is paid to the Cyprus company for using its patents. This is totally transparent to the Austrian tax authorities but those royalties reduce the taxable income in Austria dramatically.

The only effective measure for a government to still get some revenue out of such structures is to negotiate the royalties which leave the local tax jurisdiction or, vice versa, the percentage of total revenues which return to the local tax jurisdiction as management fees. In Reuters' example, Greece gets about 5% of total revenues as management fees. If that were increased to 10%, the absolute amounts would double.

There is, of course, this argument via-à-vis local tax authorities that "if you don't give us what we want, we will move our business elsewhere". Apparently, the Greek shipowners could move their business elsewhere with the stroke of a pen and that would hurt the Greek economy. Perhaps not as much as the shipowners claim but still.

I have never met a Greek shipowner, I only know about them through the media. Still, my guess is that there is no other place on Earth where the Greek shipowners and their families would enjoy their private lives as much as in Greece. They might be able to play big roles in places like London, Paris, Geneva or Zurich but in Greece they have a whole country to play with. They might own exclusive homes in places like London, Paris, Geneva or Zurich but they cannot enjoy there the spectacular scenery and the 'Greek way of life' which Greece offers. Finally, they might enjoy a luxurious life style in places like London, Paris, Geneva or Zurich but the kind of 'Greek enjoyment of life' which they can have in Greece they won't get anywhere else.

So, everyone has an Achilles' heel and an Achilles' heel plays a key role in every negotiation. I would venture to say that the Achilles' heel of the Greek shipowners is that they want to live in Greece, at least part of the time. And if you live in Greece full or part of the time, you are privately subject to Greek tax laws.

To catch corporate taxes in a world of tax havens is a most difficult taks. To catch private taxes is much easier because the tax subjects are in the country and they don't want to emigrate. Thus, it would seem to me that, instead of chasing corporate taxes of Greek shipping companies, the Greek tax authorities should make a much greater attempt at chasing private taxes and to design tax laws accordingly.

Monday, November 23, 2015

Buy Greek Banks! Velly, velly cheep!

Macropolis published 2 very informative articles about what's happening in the current phase of recapitalizing the four large Greek banks (here and here). What really stands out is how cheap these banks really are!

One caveat: market capitalization (i. e. the total value a bank according to its share price in the stock market) does not mean that one can buy a bank at that price. On the contrary, a bank or company normally achieves a hefty premium over the stock price whan a large portion and/or majority is sold. On the other hand, there are cases where investors are only prepared to buy if a hefty discount is offered. The Greek banks are one such example; and an extreme example, at that!

Get this: the new private investors offered prices for the Greek banks with discounts over stock market ranging from 34% (Alpha) to 94% (NBG). These discounts are so unbelievable that I would consider them erroneous if the source of this information were not Manos Giakoumis of Macropolis.

Wonna buy a bank with over 80 BEUR in assets, almost 20.000 employees in over 1.000 branches and 5,7 million customers? Well, withdraw 177 MEUR (millions, not billions!) from your savings account and buy Piraeus Bank. Its market capitalization is 177 MEUR.

Correction! If you have more confidence in orderly bookkeeping and certified financial statements than in the Greek stock market, then you would have to come up with 6,7 BEUR (billions this time, not millions!) to buy Piraeus because that is what the bank is worth according to its financial statements per September 30, 2015.

Many banks 'sell below book' (i. e. their market capitalization is below equity book value) but to sell 97% below book is a rather unique situation. Particularly when it is a bank where bankruptcy can essentially be ruled out unless the entire state goes bankrupt and/or leaves the Euro. Hard to imagine a situation where investors won't make a good return on their investment: if you pay virtually nothing for an investment, even a small profit is a huge return!

In defence of the private investors: they deserve to make some good profits on Greek banks because they have taken enormous losses in the last 5 years. Life is unfair because the Greek state and European tax payers won't be so lucky: their original 25 BEUR (again billions, not millions!) capital investment in the Greek banks has been all but wiped out and they are only participating minimally in the current recapitalization. In short: the state got all the downside in exchange for very little of the upside potential.

I guess the moral of the story is: the all-important thing is to subsidize private investors because they can generate market confidence. But they will leave as soon as the next hurricane appears on the horizon whereas the state which foots their profits will stay around forever, with or without market confidence.

Wednesday, November 18, 2015

In Defence Of Greek Banks

As of today, the four large Greek banks are bankrupt. A bank is not bankrupt when it is solvent and liquid. Solvency means that the bank has sufficient equity (capital) and liquidity means that it can exist without last-resort funding. The ECB has ascertained that the Greek banks have a capital shortfall of about 4 BEUR as of now, which shortfall might increase to 14,4 BEUR if macroeconomic conditions deteriorate. And as regards liquidity, the Greek banks would cease to exist if they could not rely on emergency funding from the ECB. Thus, bankrupt on both counts.

When a bank is bankrupt but not closed down, i. e. when it is bailed out, the standard procedure of the new owners, i. e. the 'bail-out'ers' (typically an official body), is to replace the management and supervisory boards. After all, if they ran the bank into the ground, how could they be allowed to stay on. That assessment, however, depends on whether the bank was literally run into the ground or whether it failed for other reasons. Perhaps force majeure reasons.

Let me take Deutsche Bank to illustrate my point. Not too many decades ago, Deutsche was viewed as Germany, Inc. A bank which not only due to its name was mistaken by many as Germany's Central Bank but which in reality was probably as solid as the Bundesbank itself. In the last couple of decades, Deutsche had managements which perverted the bank, to a large extent, into a sophisticated gambling house, possibly the riskiest bank in the world. Their policy decisions perverted the bank's culture and the bank essentially became an instrument for the top echelons of management and trading to personally become enormously wealthy. In 2012, a scheduled top management change took place and it was recognized that the new management would have to radically return the bank to its traditional solidity. However, the new management which was installed with the mission to return the bank on a solid course was a management which had been part of the previous management team. How would they change a culture which they themselves had helped forming?

A more radical management change took place earlier this year and there is a chance that they might accomplish what their predecessors could not. However, the change was not radical enough, in my opinion. What would have been necessary would have been to replace Deutsche's entire management and supervisory boards in order to show the world that they meant business.

It seems to me that Greek banks never went down that road which Deutsche (and many other TBTF banks) had embarked on. The classic business of a bank is to be intermediary between those who have money and those who need it; i. e. to transform risks and tenors. Deutsche & Co. had dramatically departed from this classic business. It seems to me that the Greek banks never did.

It is not known to me that the Greek banks ever got involved much with toxic assets (sub-prime, etc.). I have not heard that the Greek banks ever formed SPVs (special purpose vehicles) in order to house toxic assets off-balance sheet. It is not known to me that the Greek banks ever got involved much in hugely speculative trading. In short: make a list of all the things which Deutsche & Co. had done wrong and ask yourself if the Greek banks had done the same. My guess is that they had not, at least not in a major way.

It seems to me that the Greek banks, by and large, had stuck to the classic business of taking in deposits and making loans. And today, half of their loans are non-performing and half of their deposits have disappeared since 2010. What does that tell us? Is that enough of a reason to replace all management and supervisory boards?

The behavior of bankers has historically been pro-cyclical; some would call that the 'herd instinct of bankers'. When the economy booms, bankers lend money like there was no tomorrow and they convince each other that there will not be a tomorrow. When the economy busts, they all run for the exit door. I had an unforgettable experience as a trainee when I was assigned to assist a senior banker in working out one of his problem loans. I asked him how he felt about having made a bad loan. His answer: "It was a good loan when I made it!" Unless crooks are involved, all loans are good loans when they are made. They only turn into bad loans when they are made payable but can't be paid.

When the economy collapses to the tune of 25% or more and when half of your retail borrowers lose the income to service their loans, it is only natural that a very large portion of formerly 'good loans' turns into 'non-performing loans'. And when the economy is in depression, it is only natural that collateral values collapse and that many formerly 'fully secured loans' turn into virtually 'unsecured loans'. That is force majeure.

Before I give the managements of the Greek banks my absolution, I need to state that I am well aware that all of them did get involved in some reckless, if not illegal, lending. By reckless lending, I mean deals which would not have passed the test of a responsible credit controller if he had been allowed to be responsible. Piraeus' lending to the Marfin Group, about which I have written quite a bit, is just one example thereof. The common thread running through such deals is that there is a close connection between bank owners/managers and the beneficiaries of their lending. But, frankly, as deplorable as such lending is, that alone could not have caused the bankruptcy of the four large Greek banks.

In short: the list of all the reckless, irresponsible, unethical and/or illegal deals which Deutsche & Co. got involved in is very long. My sense is that the corresponding list for Greek banks would be rather short. My sense is that the four large Greek banks would do very well today if the capital markets had continued to fund Greece after 2010 in the same manner as they had done from 2001-09. They didn't.

Which reminds me of my first employer, the Continental Bank of Chicago. A handful of lending officers (only three out of hundreds, to be exact) had made small to medium-size loans to oil entrepreneurs in Oklahoma. They were all 'good loans' because the price of oil could only go up (high inflation) and because the loans were fully secured with valuable oil rigs. And they were very profitable because of the high margins. Most importantly: there was no self-enrichment on the part of the lending officers. The sum of those small and medium-size loans exceeded one-third of the bank's equity/capital. When it turned out that all those loans had practically lost their value (the oil price collapsed and oil rigs had become worthless), the bank was out of one-third of its equity/capital and, within 2 years, a formerly triple-A rated bank was bankrupt. And I experienced a sudden stop to my employment with my first employer to whom I had devoted the first 17 years of my professional life.

One day, over drinks, I lamented the situation with a senior manager who had also lost his job. We both expressed fury about those few who had caused misery for so many. But then the senior manager said to me: "Bear one thing in mind. If Volcker (Paul Volcker, then the Chairman of the Fed) had not wrung inflation out of the US economy, those guys who made those loans would be heroes now!"

If capital markets had continued to lend Greece the same gigantic amounts after 2009/10 as they had lent before, the managements of the four large Greek banks would be heroes now. And they would continue to be heroes until capital markets realized that the loans to Greece had turned from 'good loans' to 'bad loans'.

I guess the moral of the story is: if you are a band leader on the Titanic and you go out of business after the ship sinks, it's not because your music was bad.

Tuesday, November 10, 2015

Greek Seamen - Please Extend Your Strike!

Friedrich Nietzsche had created the philosophical concept of the "Revaluation of Values". In his book "The Antichrist", Nietzsche demolished the values of Christianity and called for their complete reversal, their complete revaluation. Which brings me, believe it or not, to Greece.

Of all the many things which Greeks have been critized for by Central Europeans, Greeks' tendency to strike a lot undoubtedly ranks near the top. Greeks should not strike, so the logic, but they should work. No wonder that the country is in such an economic mess if the people strike all the time.

Greece's seamen are currently on strike. My understanding is that the strike will last from Monday through Wednesday. You would expect uproar in Central Europe about this effrontery to go on strike while asking for money from Central Europe.

Well, on Austrian TV, the news reporting took a different view last evening. The flow of refugees entering Austria from the South had ebbed down. In fact, they even showed empty halls. But they immediately cautioned that this was only a temporary relief. It was due to the Greek seamen's strike which would be over in a couple of days (regrettably, they seemed to suggest).

And the unspoken moral of the story from non-striking Austria? Greek seamen - please extend your strike!

Saturday, November 7, 2015

Greek Banks - A Good Way To Burn Money!

The Hellenic Financial Stability Fund (HFSF) is the entity which makes recapitalizations of Greek banks when necessary. It does so with funds which it borrows from the European Stability Mechanism (ESM).

The interim financial statement of the HFSF as per March 31, 2015 is something one doesn't see every day: against the 39 BEUR originally lent to the HFSF by the ESM and invested by the HSFS in all Greek banks, there were only 9 BEUR of value left at this date. The rest was 30 BEUR 'accumulated losses'. Accumulated losses represent the decline in the value of the bank investments which the HFSF made. Mind you: this was as per March 31, 2015, i. e. long before the Greek banks really went South.

Below are the numbers for the 4 large Greek banks as of now. The numbers are in BEUR.

HFSF Privates

Cash capital injections since 2010 25,0 11,9
Current value 2,4 1,1

% change -90% -90%

The good news is that the funds which European tax payers invested in the 4 large Greek banks via the HFSF are currently still worth 10% of the original value. It could have come worse if these banks had collapsed when the ECB cut its funding in late June.

The bad news is that those remaining 10% of value will be heaviliy diluted through the recapitalizations which are currently in process. Those recaps could actually become a rather good deal given the fact that the entry price is rather low. In that scenario, current investors could recap some of the losses which they have taken on previous investments.

If, however, these new recaps will not return the 4 banks to prime quality overnight (the possiblity of which I personally exclude), then there is a high chance that we will be looking at similar declines in value in a couple of years when the next recap of these banks becomes necessary.

Tuesday, November 3, 2015

Best (And Worst) Countries For Doing Business

This article leads to a list of the alleged 10 best and worst countries to do business. The good news for Greece: Greece does not show up among the 10 worst countries. The annoying news for Greece: its Northern neighbor FYROM made it to the 10 best countries (as #10). I am not really familiar with FYROM but I am sure that this ranking will trigger some conversation in Greece.

ECB Stress Test - A Tale For Laymen

Two detailed analyses of the recent ECB stress test of the 4 large Greek banks were published in Macropolis and Forbes. I will try to make them understandable for laymen.

The ECB assumed an adverse macroeconomic scenario for the period 2015-17 and checked its impact on the health of the 4 large Greek banks. The adverse macroeconomic scenario assumed a cumulative GDP decline of 7% and a cumulative decline in housing prices of 22%. One would think rather pessimistic assumptions! In that scenario, the 4 banks would require additional equity (capital) of 14,4 BEUR (which will bring the total equity of the 4 banks to about 30 BEUR) in order to remain sound. One remembers that the Eurogroup had originally 'reserved' 25 BEUR for the bank recapitalizations. 14,4 BEUR is a lot less than that. So everything is very fine? Absolutely not!

Picture yourself as the personally liable sole owner of your own private bank. Your bank has assets, liabilities and equity. 'Assets' are what you own (loans, securities, etc.); 'liabilities' are what you owe (deposits, other funding) and 'equity' is what you are worth if you could liquidate assets and liabilities at their book values. Assume that you have assets of 100 and liabilities of 90, which leaves you with a worth of 10 (equity). One day you discover that some of your loans are about to go sour and you calculate that your total assets are now only worth 90 and not 100. You calculate that your assets of 90 will serve to pay back your liabilities of 90 but - your own worth has been wiped out.

The above 14,4 BEUR equity requirement means that the 4 banks need an additional 14,4 BEUR of  equity to withstand the 2015-17 storm (i. e. losses) and still have satisfactory equity at the end of the period.

A bank is as healthy as the quality of its loans. If the loans are good quality, they are called 'performing'. If they are not, they are called 'non-performing'. 'Non-performing' means that the loans are not being serviced according to the original contract (a restructuring of maturities may have become necessary due to financial problems of the borrower, etc.). 'Non-performing' does not mean that the bank will lose money on the loans. It can, however, mean that the bank will end up with a total loss.

Take an oil company which calculates that it will be hugely profitable when the price of oil is 100 USD, that it will only break-even when that price goes down to 50 USD and that it will survive only another 3 months if that price goes to 30 USD. Today, oil trades at 50 USD and the company is breaking even. It had to restructure its bank loans and is now classified as non-performing. Tomorrow, oil shoots up to 100 USD and the loan becomes one of the best the bank has. Day-after-tomorrow, oil collapses to 30 USD and stays there, and 3 months later the bank will have a total loss.

Why a total loss when the bank is well secured with oil rigs as collateral? Well, ask yourself how much someone will pay for an oil rig when the entire industry is collapsing!

The 4 banks now have 107 BEUR of non-perfoming loans. To put this into perspective: that is almost half of all the loans they have (48,6% to be exact)! Where are the days when I read that non-performing loans were about 70 BEUR or about 35% of total loans? Not too long ago, I am afraid!

It's not only the sheer magnitude of non-performing loans which is frightening. Non-perfoming loans require intensive care on the part of the banks. When almost half of their loans require intensive care, one wonders when they have time and spirits to think about making good new loans!

The layman may wonder how a bank can stay in business when half of its loans are non-perfoming, i. e. do not earn any interest. The layman is naive! Many of these non-performers do earn interest, interest which the borrower pays with new money which the bank lends him. Think about that! (Sounds a bit like the 'rescue loans for Greece', doesn't it?).

The ECB reviewed the value of collateral which the banks have and they investigated 11.826 cases with a total collateral value of 21,4 BEUR. Wait! Only 21,4 BEUR? Compared with non-performing loans of 107 BEUR? Compared with total loans nearly twice that amount? My sense is that those non-performing loans will create huge losses not yet accounted for should the banks ever have to liqudidate collateral. Thus, one is basically condemned to viewing all these non-performing borrowers as ongoing concerns because if one didn't, the banks themselves would soon cease to be ongoing concerns.

Finally, I cannot save the layman from learning about an item called Deferred Tax Asset (DTA). As the name implies, that is an asset; something which the bank owns. To refer to the above private banker: DTAs are part of the 100 of assets which have 90 liabilities against them and which create a worth for the owner of 10.

What is a DTA? The above private banker might explain it as follows: "Look, I just took a huge one-time loss on a deal. The good news is that I can carry forward, for tax purposes, that loss into future years and deduct it from future taxable income. That way, I won't have to pay income taxes for several years and the DTA is today's calculated value of future income taxes which don't have to be paid. What if I do not have taxable income in the future, you may ask? Well, then the DTA is worthless"

The 4 banks have combined DTAs of about 15 BEUR. Hold tight and do the numbers: that is almost half of the combined equity of those banks! If those DTAs became worthless, the entire current recapitalization of 14,4 BEUR would go out the window, and more!

The Greek government, taking a cue from Italy, recognized this problem and copied Italy's (and other countries') creative solution: the Greek state simply guaranteed 82% of those DTAs, or almost 13 BEUR, to make it count against equity. To return to the above private banker: the owner could easily increase his equity by 100 BEUR. All he would have to do is have his bank lend him 100 BEUR so that he can put this money back into the bank as equity (regulations would not allow this to happen!).

This is conceptually similar to what's happening with the DTAs: the Greek state puts equity into the bank so that the bank can make it a loan to finance the equity increase. Well, only conceptually. In practice, the sequence is in reserve: it began with the DTAs which turned into a claim against the state when the state guaranteed them.

So what are these guaranteed DTAs of almost 13 BEUR really worth? Well, they are worth 100% according to Basel-3 and confirmed by the ECB. However, should they one day become worthless because the Greek state fails, then the banks will follow right behind the state!

And that is probably the key conclusion of the ECB stress tests: the Greek state and the 4 banks are now more linked with one another than ever before. Letting the state fail would lead to a collapse of the banks, and vice versa if one were to let the banks fail. The Greek banks will survive as long as the Eurogroup supports the Greek state. Understanding that is probably the most important outcome from the ECB stress test.

PS: 'Greek banks surving' does not necessarily rule out a future bail-in for depositors. If the recapitalization were not to take place before year-end, for whatever reason, the likelihood of such a bail-in would increase dramatically.

Monday, November 2, 2015

When Will They Fire Yiannis Stournaras?

If the greatest problem of the Greek judicial system was/is one of secretarial support, that problem has now been relieved by the decision to promote 28 former Finance Ministry cleaners to secretarial posts in the Greek judicial system.

I am not trying to be cute here. There may be very good reasons for promoting the above 28 former cleaners. There are always two sides to everything and, regrettably, I don't know the other side.

However, there is an issue of personnel decisions or rather: on what grounds are people moved into public positions and/or removed from them. I have been reading that SYRIZA is making appointments on the same old crony basis as previous governments had done. Meritocracy does not seem to be a priority of theirs.

The most worrisome aspect is not the people they hire but, instead, the people they fire. Katerina Savvaidou, head of the General Secretariat of Public Revenue, was fired for the simple reason that she refused to resign. She should have resigned, in the eyes of the government, because of a breach of duty. She may well have committed a breach of duty but, in order to determine that, there would have to be a court's judgment instead of a politician's decision.

Costas Botopoulos, Greece's Chief Securities Regulator, was asked by the government to resign. Again, there may be very justified reasons for doing that except that they are not apparent, not to mention transparent.

As I observe such developments, there is only one question which goes through my mind, namely:

When will they fire Yiannis Stournaras?

Sunday, November 1, 2015

The Mysteries Of Greek Land Registration

Wim Louwman, Former President of the European Land Registry Association, made the following most interesting comment on my earlier article on Greek land registry: 

"The existing land registration in Greece is described at It illustrates that Greece has to fulfill two projects. Improve the existing Land registry and implement a registration of taxes of landowners. Most EU Member States have different registrations for these purposes with different legal meaning. A Land register (civil law) provides decisive evidence about titles to plots of land. A Cadastre (public law) provides names of the presumed landowners who have to pay property taxes. In Land Registries the boundaries of plots of land are described generally. In Cadastres the boundaries are surveyed exactly because this information is needed to calculate the number of acres and determine the value of the plot of land. However in a boundary dispute the court can decide that the location of the civil law boundary differs from the Cadastre boundary. Also in most EU Member States, pursuant to existing civil law on property rights, a boundary of a plot of land can change after adverse possession. Of course landowner has the right to claim that an adverse possessor leaves his land, but when he does not do so he loses that right after a certain period because of prescription. In that case the possessor acquires the property rights. The interference of the existing property rights was considered human-rights compliant by the Grand Chamber of the European Court of Human Rights in the case J.A. Pye (Oxford) Ltd and Another v United Kingdom (2007) 46 EHRR 1083. The limited legal meaning of a Cadastre opens the possibility to use a simple process. The registration of taxes payers can be based on presumptions of ownership and for establishing the value of the land aerial imageries can be used. It allows a taxes inspector to sent provisional tax assessments. A receiver will raise objections when he uses the land because of rent or lease. But when the prescription period of adverse possession is still underway he will prefer to "let the sleeping dogs lie" and pay the taxes.

Unfortunately Greek law demands that both the perfecting of the land register and the introduction of a taxes registration takes place at the same time. This causes enormous delay because for the perfecting of the registration of property rights (fundamental human rights) asks for a more careful process then is needed for implementing a Cadastre. For the perfecting of the Land register all landowners have to present evidence of their property rights and of the location of boundaries. The Cadastre annex Land register verifies whether the claims are in accordance with previous registration and whether neighbors have objections against the boundaries. This causes many boundary disputes that have to be solved by the courts and cause delay. However this does not have to delay to involve the collecting of taxes, In this case delay can be prevented by changing the law in so far that the two projects are completed at different times. A first step could be introducing a Cadastre of presumed owners. This approach is in accordance with the “Fit-For-Purpose” method that recently advocated by Danish professor Stig Enemark at a recent congress organized by the World bank ( It means that perfecting of the Land registry can no longer be used as an alibi to postpone the collecting of property taxes." 

"The present landscape of land registration in Greece"

Wednesday, October 28, 2015

The Farce Of Greek Sovereign Debt

A very interesting paper by Carmen M. Reinhart & Christoph Trebesch. Of the many points they make, one of the overriding themes is a theme which I have made since the beginning of this blog, namely:

The critical issue is not necessarily the sovereign debt of a country. Instead, the critical issue is the foreign debt of the entire country, not only the foreign debt of the state. What the state (and others) owe domestically is one cup of tea which can be solved domestically. An entirely different cup of tea is what the state (and others) owe cross-border. 

If all of Greece's sovereign debt had been owed domestically (technically, this would have been possible back in 2010 because there were then enough domestic savings to finance the entire sovereign debt), there would have been only little excitement between Paris, Brussels, Frankfurt and Berlin. And if all of it had been owed to banks on Mars, no one in Europe would have cared.

It is the cross-border debt which matters! That is the debt which becomes worthless to the lenders if and when Greece were to fall into the Aegean. It may well be that the state has its household in order and that all the cross-border debt is owed by the private sector. If push comes to shove, i. e. in the case of a 'sudden stop', the private sector's cross-border debt becomes cross-border debt of the state (witness Ireland, witness Spain).

The farce of the Geek sovereign debt is that literally everyone in the world is financing the Greek state --- except the Greeks themselves. The Greeks put their money into Greek banks, into Greek shares and, most of all, into foreign accounts (and under mattrasses). But virtually none of the Greek sovereign debt is held by Greek citizens and only a little of it is held by Greek banks. The Greeks seems to be saying to foreigners: "You finance our bankrupt state, por favor, because we have better things to do with our money!"

Greek bank deposits are now around 130 BEUR. Five years ago, they were 130 BEUR higher. It is still not certain that these bank depositors will not be bailed-in. They should not be bailed-in. They should be kept whole but their deposits should be replaced by bonds of the Hellenic Republic. That way, the Greeks would truly become stakeholders in their own state!

Yanis Varoufakis As Mother Theresa?

Yanis Varoufakis has guilt feelings about being portrayed in the media as a high-flying star who makes money out of his public appearances. Thus, he felt it necessary to make this public denial. And here is my response to his public denial:

"Oh my, Yanis. there is nothing immoral about collecting fees for value delivered. If you delivered no value, you would not get any fees. That system is called ‘market economy’, by the way. A system which has created enourmous wealth for societies over the centuries (after all, you will spend your money somewhere; won’t you? That will substitute for government deficit spending somewhere…).

There is no need for you to put on the Mother-Theresa-hat. On the contrary, you could be a role model for young Greeks by showing them that if you deliver value, you will be compensated in accordance with that delivered value. And if you get rich in the process and if richness bothers you for idiological reasons, just donate your wealth once you have proven that you can accumulate wealth. Warren Buffett can tell you how to do that. But first show that you can accumulate wealth!

The real losers are the ones who say: “I could have made so much money but I didn’t because it would have been immoral”. So, do you want to come across as loser?"

Monday, October 26, 2015

German Border Controls

This past weekend, I could become familiar with the German border controls which had been announced a few weeks ago, and it was an interesting experience.

The major refugee route is from Salzburg to Munich. Train service between Salzburg-Munich had been stopped entirely a few weeks ago and, since last weekend, only 'special trains' resumed service. Thus, it is the Autobahn Salzburg-Munich which most of the refugees focus on.

Before anything else, one has to bear in mind that the Salzburg-Munich stretch is no less than one of the most important North-South connections in Central Europe!

I have driven the Salzburg-Munich stretch hundreds of times in my life. I remember the 1960s and 1970s when there were fully-fledged border controls just a few Km West of Salzburg; on a hill called the Walserberg. Walserberg had become known as the dividing line between modern Germany and backward Austria in the post-war era. The Austrians may have been backward relative to Germany but they were smart enough to recognize business opportunities which the Germans did not see: on the Austrian side of Walserberg, a rather sizeable brothel was established. On April 1, 1998, Walserberg lost much its significance because the Schengen Treaty became operative. The brothel still exists to this day!

About 3 Km before we reached Walserberg, traffic came to a halt; a complete halt at first which then turned into a very slow stop-and-go traffic. My initial thought was that of a big accident but then I remembered the border controls. When we finally approached Walserberg, I looked forward to showing our papers and to moving on more speedily on the German side. However, there were no controls on Walserberg, at the border, that is! And stop-and-go traffic continued.

About 3 Km beyond Walserberg, that is on the German side, there is a gas station. They had built up a rather sizeable control operation around that station. However, that was no longer a border control where one could prevent people from entering the country. People can only be prevented from entering the country at the border. Once they are inside Germany, they can be arrested for illegally entering the country. Alternatively, they must be let go.

Essentially, the purpose of that boder control station was to get some semblance of order into the chaotic situation. To register arrivals and to move them on to places where they could stay. A true welcoming exercise and not a rejection exercise.

All told, the new border controls cost me close to 1 hour of delay. Even during the worst traffic times of the 1960s and 1970s, I rarely lost 1 hour crossing the border. Since 1998, I thought of Walserberg as the place where one has to slow down to 80 Km/h (or come to a full stop if one wants to visit the brothel...) but no more than that. And now it seems that we are going back in time.

Fortunately, I no longer have to travel the Salzburg-Munich stretch very often. If I still had to travel it as often as during my active professional time, and if had to sacrifice 1 hour every time I travelled, I am afraid I would rather quickly build up frustration about how the refugee situation is being handled by politicians.

France Will Modernize Greece!

Further to my recent article on the new Structural Reform Support Service (SRSS), which replaced the EU Task Force for Greece (TFGR) earlier this year, we now have the first evidence of the SRSS in action and it looks rather promising.

Here is the Protocol between the Hellenic Republic and the French Republic for a partnership for reforms in the Hellenic Republic. The signatories are no less than the Finance Ministers of both countries and they signed in the presence of the Greek Prime Minister and the French President. So this is more than just another document!

Just like with the TFGR, the SRSS facilitates the availability of the most competent resources in other EU countries to assist Greece. France has been selected to assist Greece with Central Administrative Reform, Tax Reform, Privatization and Public Asset Management. The protocol lists rather detailed goals and objectives. They all sound great!

The goals and objectives which the TFGR had stated after it was formed in late 2011 also sounded great. In fact, in would be interesting to make a point-by-point comparison. Chances are that the goals and objectives are rather identical. Why did the TFGR fail? For one: it never had the full commitment of the Greek leadership behind it; or to use the standard speak: it was never 'owned' by the Greek leadership.

This could now, indeed, be different. First, it is the political leaders of both countries who put their names on the line and certainly the French President will not want to end up as godfather of failure. Secondly, the glory of French Civil Service would suffer a blow if it failed in Greece. Thirdly, and because of that, the French will undoubtedly put pressure on the Greeks to cooperate instead of remaining passive like the TFGR had remained. Finally, and because of these points, PM Tsipras will have quite a bit of ammunition to counter resistance which he may receive from within his party.

But there is also cause for being cautious with one's expectations. 180 years ago, Otto, after having been made King of the Greeks, brought a few thousand top Bavarian civil servants to Greece who were going to show the Greeks how to administer the country, how to collect taxes, etc. Well, the Greeks, instead, showed the Bavarians what 'resistance' means and the Bavarians had to literally flee the country after a few years.

Once again, I find myself in a situation where something new, be it a project or a person, has come up and I am getting excited about positive new developments in Greece and the promise they hold for Greece's future. If Ronald Reagan could observe me from heaven, he would probably say: "Here he goes again!"

Tuesday, October 20, 2015

Two Separate Views About Greece's Future

The Greek university professor Eleni Louri-Dendrinou visited the US and collected views from Americans. She seems to have been taken a bit by surprise by the "Views from the other side of the Atlantic" because she felt it necessary to contrast those views with her own at the end of her report.

Views from the other side of the Atlantic
"Look at the cumulative loss of GDP in Greece since 2008, they said. You’ve lost a quarter of your GDP and your debt is still increasing. It is now close to 200% while it was 120% in 2008, they pointed at my diagrams! So your adjustment seems to create more problems than it solves and where does it lead? And the banking sector has such a limited time and resources to get recapitalized until the end of 2015! Such questions full of doubt about Greece’s progress were equally expressed by academics, students, bankers and ‘think-tankers’."

Reaction of Prof. Eleni Louri-Dendrinou
"With political stability in place, this adjustment framework looks quite capable of pushing Greece back into positive growth, especially if a first positive assessment of the program implementation leads to opening up negotiations on debt sustainability and restructuring. A virtuous circle can then start provided there is no hesitation, delay or endless and aimless discussions. If focus, clarity and decisiveness prevail, Greece has the potential to recover within the Eurozone faster than many people in the other side of the Atlantic think possible."

I would truly love to share Louri-Dendrinou's view but I also have to remember Goethe's verse "I hear the message well but lack Faith's constant trust". Not that I consider her assessment wrong. On the contrary, it all sounds very logical. It's the soft facts which have made me doubt of late. Not only a society's willingness to change but also, and foremost, its ability to change. Five years of adjustment don't really spread much confidence that willingness and ability are very high. One would literally have to feel the winds of change by now and I, for one, don't feel much in this area.

I remember reading some time ago the catching phrase "For Tsipras to succeed he needs no less than turn into a capitalist". Well, I don't think he needs to become a capitalist Wall-Street-style but certainly a believer in the workings of a market economy with private economic agents. Put the word 'social' in front of it and you have the 'social market economy' of Ludwig Erhard. Perhaps it's due to my insufficient Greek language capability but I never hear anything about markets, competition, private investors, profitability, etc. from members of the current government. Instead, I hear much about the distribution of the fruits of a market economy.

Regarding the views of the Americans, I had to chuckle a bit. They seem to have read very well everything Anglo-Saxon economists have published in recent years. Nevertheless, I will let it stand there because, otherwise, this article would get to long...

Monday, October 19, 2015

SRSS - The New "EU Task Force For Greece"

The history of the EU Task Force for Greece (TFGR) is a rather sad story, in my opinion. When established in October 2011, its lofty objective was stated to be "a resource 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." What a wonderful objective!

I had always likened the Greece/TFGR relationship to a large corporation which gets into serious financial trouble due to complete mismanagement and organizational/structural chaos. Before the corporation goes out of business, it is offered virtually unlimited support from various consulting firms in order to facilitate a complete restructuring and a return to successful operations. And I would have thought that the management and the owners of that corporation would jump of joy and immediately draw on all the resources offered to them.

I never got the impression that Greece jumped of joy and immediately drew on all the resources offered by the TFGR. Instead, I got the impression that Greek authorities viewed the TFGR as a necessary evil to be accepted as part of the bail-out. And the Greek public may have even viewed it as an occupation force (fittingly with a German by the name of Horst Reichenbach at its helm...).

The regular progress reports of the TFGR read like success stories. They reported on all the wonderful things which had been accomplished and the so many more wonderful things which still required accomplishing. If there is one major accomplishment which comes to my mind about the TFGR, it is the fact that they helped Greece to significantly improve the utilization of EU structural funds available to Greece.

SYRIZA never displayed any great sympathy for the TFGR. Shortly after they came to power, there was talk about 'Athens protesting againsts the TFGR'; about 'Athens giving the TFGR the cold shoulder', and, finally, about 'dismantling the TFGR'. The absorption rate of EU structural funds which the TFGR had admirably increased to 88% by the end of 2014, declined quickly after SYRIZA assumed power and available funds remained unused. The TFGR was clearly a bad term in the eyes of SYRIZA leaders just like the term 'Troika' was. So once the 'Troika' was successfully renamed into 'Institutions', something had to be done about renaming the TFGR.

The term "EU Task Force for Greece" made it sound like Greece was the only country which needed help from the EU in getting its act together, which understandably hurt Greek pride. Thus, instead of having a country-specific task force, a supra-national task force was required which would be available to all countries and which would not single out any specific country for its problems. EU experts are geniuses at solving such challenges.

As the TFGR expired on June 30, 2015, as new Structural Reform Support Service (SRSS) was set up in July. Its mission? "The SRSS will offer technical assistance to the Member States in order to facilitate their administrative and structural reforms". No more lofty talk about building 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.

The objectives are further detailed as follows: "Technical assistance will be offered to help Member States absorb and use EU funds effectively. It will also offer support, in the areas of revenue management and public finance, improvement of business environment, assistance with employment, social inclusion and public health. It will also play a supporting role in development of efficient, modern, service-oriented public administrations and public procurement practices."

I wish the SRSS better luck than the TFGR has had. Above all, I wish the Greek leadership to understand that such a project, be it called TFGR or SRSS, is an exceptional opportunity for the country and not an occupation force!

Ever since the first memorandum, the following question has been on my mind: How can a country which, allegedly, has a lousy public administration, how can this country successfully implement reforms which implementation would require an excellent public administration? When I read about all the 'actions', be the prior or pending or implemented actions, which are now being passed via the democratic instrument of omnibus bills, I am simply baffled how Greece alone could implement those reforms, much less implement a controlling of the implementation.

On New Year's Eve 2012, I wrote an article titled "Make 2013 'The year of the EU Task Force for Greece'"! On New Year's Eve 2013, I asked "Was 2013 'The year of the EU Task for Greece'"? I felt very disappointed then. 

I think there has been an atmospheric change since then. Back then, the memoranda called for many actions but no one was really surprised when the reviews revealed that only a small portion of those actions had been implemented. This time around, it seems that the Institutions have run out of patience and mean business. Just like the Greeks are tired about new measures all the time, the Institutions seem to be tired about uncompleted new measures all the time. 

So finally the moment of truth seems to have come: Greece will finally have to show whether it wants to change and can. Or does not want to and/or cannot.

Delayed Land Register (Cadastre) A "National Shame"?

In my previous article, I voiced optimism that cadastral registration in Greece was well under way. This was based on an experience my wife is having with the inheritance of some fields in the Kavala region.

The Ekathimerini today published an article titled "Typically Greek, delayed land register is never-ending epic" which kills any optimism one might have on the subject. To kick it off in the right spirits, the authors state that, 5 years ago, Greece and Albania were the only two European countries lacking a computerized register of land ownership and usage. And now Greece is the only one, they say. Speaking of adding insult to injury...

The authors call the issue "a microcosm of everything that remains to be fixed in the country - bureaucracy, political patronage, competing layers of government, legal complexity, fiscal uncertainty, vested interests, cheating, tax evasion and opaque relations between the two biggest landowners - the state and the church". That sort of wraps it up nicely, doesn't it?

In a hilarious example of things having been turned upside down, the authors report that Greece even boasts a union of illegal house owners on Crete which allegedly represents some 45.000 illegal home owners on the island. The union, of course, wants to have these homes legalized. And free of charge, of course.

Former Finance Minister George Papaconstantinou explains why the process of computerizing land registry is so slow (allegedly it started off back in 1995): "Clearly, if you're an illegal owner in Greece, you don't want this cadastre project ever to be finished."

This clearly is an issue where a foreigner will never understand why things are done in a certain way in Greece but I am sure that there are very convincing explanations as to why things are done that way in Greece. Nevertheless, a foreigner is likely to feel that legal certainty about property rights and land usage are key ingredients of a state of law. As the article states:

"Experts from European Union and International Monetary Fund identified the lack of legal certainty about property rights and land usage as a major barrier to investment, proper taxation and economic development." That sort of wraps it up nicely, doesn't it?

Wednesday, October 14, 2015

Cadastral Registration Under Way In Greece!

I have written before about the project of cadastral registration which is allegedly under way. Like with so many reform intentions in Greece, I have begun to make it a habit to say: "I believe it when I see it!"

Well, I am beginning to believe that cadastral registration may indeed be under way!

My wife's father, a farmer, had owned several small pieces of land in the region near Kavala. Not really of any significant material value, according to my wife. When her father died about 17 years ago, he had left no testament. My wife told her brother and sister that, whatever there was, they could have it. She even put something in writing to that effect, she recalls.

Thus, in the absence of a testament, the land would have legally gone to my wife, her mother and her brother and sister, in equal amounts according to Greek law, I am told, and my wife thought that her share had been passed on to the others. A few years later, my wife's mother died as well and she did not leave a testament, either. Thus, the land should have moved in equal one-thirds to my wife, her brother and sister. Again, my wife told them they could have it. And that, she thought, was the end of it.

No, it wasn't the end. Instead, it came back to life a few weeks ago, 17 years after my wife's father had died. In the course of compiling the registry, it turned out that my wife had never formally accepted her inheritance. Not having accepted it, she could not pass it on to her brother and sister, either.

A bureaucratic nightmare came as a result. On one hand, my wife's relatives near Kavala had to compile all sorts of papers to document what the properties were, who had owned them and who the legal heirs had been. Picture this: here we are talking about 7 or 8 small fields where there had never been any formal definition of borders, etc.

But now to my wife, a citizen of Austria for 35 years who had left Greece almost 50 years ago and who had never worked or earned income in Greece. She was told by her relatives to go to the tax office to get a number called "kleidarithmos", and then all hell broke loose.

My wife was registered with the tax office and she has had a Greek tax number ever since we rented an apartment in Thessaloniki and bought a car 6 years ago. She had never filed a Greek tax return because we couldn't have dreamed of reasons why she should file one: we typically spend only 3-4 months a year in Greece and my wife has no income to declare, neither in Austria nor in Greece.

Well, in the eyes of the tax office, that immediately made my wife a most suspicious invidual and potential tax cheater. From their standpoint, she was a Greek living in Greece and hiding a lot of income and wealth abroad, and the time had come for the authorities to go after all that income and wealth to tax it. My wife who has a mind for many good things but no mind at all for bureaucratic procedures was near nervous breakdown after the first grilling.

A tax consultant then helped us out. There were 6 forms which had to be filled out for the Greek tax office and 3 forms which will have to be filled out by Austrian authorities. The point of all of them is to establish that my wife is a resident and tax payer of Austria even though she doesn't pay any taxes in Austria for lack of income. Under the double taxation treaty between Greece and Austria, it is then assured that my wife won't have to pay taxes on income in Greece which income she does not even have in Austria. Make sense?

When all is said and done, my wife will be in a position to assume official ownership of her inheritance and then she will be able to pass on to her brother and sister that inheritance.

At the end of this exercise, she will not own property in Greece which she never knew that she owned and she will not pay taxes on income in Greece which income she doesn't have in Greece, in Austria or anywhere else.

But the good news is: the fields which her father had owned will finally be fully and 100% correctly registered in the Greek cadastry. And the tax consultant tells us that my wife will have to, from now on, make an annual statement to Greek tax authorities about her tax situation. Any more questions?

PS: I am now waiting for the Greek tax authorities to find out that I, too, spend 3-4 months in Greece and that I, too, am technically subject to Greek tax laws. Well, what's another 9 forms, anyway!

Friday, October 9, 2015

Debt Service Capped At 15% Of GDP?

The Eurogroup is now talking quite openly about debt relief for Greece. Its Chairman Jeroen Dijsselbloem allegedly said that debt relief for Greece should be accomplished by capping its debt servicing costs at 15% of GDP annually.

Greece's GDP is currently around 180 BEUR and 15% of that would be 27 BEUR. So the above described debt relief would mean limiting Greece's annual debt servicing costs to 27 BEUR?

Someone isn't thinking so well here. Greece's debt servicing cost (i. e. interest expense) was 5,7 BEUR or about 3% of GDP in 2014, and that turned out to be more than Greece could handle out of its own resources. Where the heck is Greece going to get 27 BEUR from?

I suppose the term 'debt servicing costs' needs to be clarified. Normally, debt servicing costs are understood to be interest expense. The repayment of any maturing principal would be 'repayment costs' or 'refinancing costs'. Either way, there is no way that Greece can come up with 15% of its GDP to pay interest or principal or both. There must be a confusion there.

Wednesday, October 7, 2015

Yanis Varoufakis Sees Potential Game Changers For Greece (positive ones!)

In this article in ProjectSyndicate, Yanis Varoufakis makes some very powerful statements. First, he describes the recent election as "the costliest minor government reshuffle in Greece's history." Well, Varoufakis has a point there, for sure!

Varoufakis then goes on to deride the latest Agreement which he predicts will fail: "The new Tsipras administration knows this. Tsipras understands that his government is skating on the thin ice of a fiscal program that cannot succeed and a reform agenda that his ministers loathe. While voters wisely prefer that he and his cabinet, rather than the conservative opposition, implement a program that an overwhelming majority of Greeks detest, the reality of the austerity agenda will test public patience."

None of this would be considered as newsworthy because Varoufakis has been making these points all along. But now he comes with a new twist to his predictions for Greece's future:

"This leaves Tsipras with only his second line of defense: the “parallel” program. The idea here is to demonstrate to the electorate that the government can combine capitulation to the troika with its own agenda of reforms, comprising efficiency gains and an assault on the oligarchy that may liberate funds for the purpose of lessening austerity’s impact on weaker Greeks. This is a worthy project. If the government can pull it off, it is a potential game changer. 

To succeed, however, the government will have to slay two dragons at once: The incompetence of Greece’s public administration and the inexhaustible resourcefulness of an oligarchy that knows how to defend itself – including by forging strong alliances with the troika."

Did I read this correctly? Varoufakis now says that there could be potential game changers? That the current government could indeed succeed? 

The two measures which Varoufakis considers as potential game changers are: make the public sector efficient and slay the dragon a.k.a. Greek oligarchy. Well, that sounds simple enough! And I am sure if the government really wanted to do that, it would get quite a bit of support from abroad. And every Greek would benefit from it.

I hadn't realized that everything was going to be so simple but if Varoufakis says so, it must be right.

Greece's True Plan B

Much publicity has been given to Yanis Varoufakis' Plan B of last July even though that wasn't really a Plan B. All it was was a mechanism to create a pseudo Euro liquidity during a time when the ECB and EU would have cut off their funding. It was not a plan to return to the Drachma even through a return to the Drachma would have been its likely consequence.

The true Plan B was quite different from Varoufakis' 'creative Euro-printing'. It was titled "A program of social and national rescue of Greece" and it was prepared by Costas Lapavitsas and Heiner Flassbeck. It consists of 37 pages text and another 10 pages of appendices and references.

This true Plan B is worth reading because I would not rule out the possiblity that it may be used at some point in the future. Certainly if Greece fails with the current program, a return to the Drachma will become a very likely alternative and once that happens, the above Plan B will be one course of action to be considered.

Plan B starts with a premise which is most important but, nevertheless, wrong. Plan B argues that, after Greece has stopped servicing its entire foreign debt, at least 10 BEUR will no longer be necessary for debt service and can be used for other purposes (such as alleviating austerity). Regrettably, there will not be 10 BEUR+ freed because Greece's entire debt service was only half of that in 2014; to be exact: 'only' 5,7 BEUR. And some of that 5,7 BEUR was due to domestic creditors which would continue to be paid under Plan B.

More than half of the 5,7 BEUR was paid to the IMF on its very expensive loans and to the remaining private creditors. If Greece renegotiated rates with the IMF and found a way to prepay the private debt, the same result as conceived in Plan B would be achieved without breaking so much glass.

The key section of Plan B is titled "Confrontational exit from the EMU" which outlines 29 different measures to be taken. When reading those measures, one gets a bit cold sweat on one's back because some of them are really adventurous, to say the least. However, one is well adivsed to study this Plan B because, by and large, things are likely to unfold that way (or quite similar to it) if and when Greece were to give the Euro the shaft.

Tuesday, October 6, 2015

SYRIZA's Amazing Track Record In One Graph!

The below numbers allegedly come from the 2016 Draft Budget. They speak for themselves as a record of the performance of the first SYRIZA-led government.

Some of the most important statistics are not even included in this table (e. g. non-performing loans, past-due taxes, state arrears, deposit flight, etc.).

It seems quite obvious from the above that Greeks will have to pay for quite some time for the SYRIZA-experiment. Greek voters seem to have thought at the last election that the best qualified people to clean out an unnecessary mess are the ones who caused it in the first place. Or they thought that everyone else would be even worse.

Either way, seldom have so few done so much damage to so many!

Thursday, October 1, 2015

Alexis Tsipras Promises More Of The Same!

I still have not gotten over the poor performance which PM Tsipras pulled off at the Clinton Global Initiative. The first SYRIZA/ANEL government had been criticized for acting like inexperienced amateurs without being prepared for anything. Somehow, the impression had meanwhile come across that they - particularly Tsipras himself - had learned a lot during this experience and that they were now ready to move the country towards greener pastures.

Well, if Tsipras' performance at the CGI serves as an example, that's a dream!

No one expects the 41-year old Tsipras to come across as the most competent Prime Minister in the world. For all intents and purposes, it is sufficient if he can act as a leader; if he can mobilize the spirits of the citizens; if he can project a better future to his compatriots. That Tsipras does better than many other political leaders.

However, ever since Alexander the Great, the key ingredient for success, be it as a general or as an entrepreneur, has been defined as: "Surround yourself with good people!" Tsipras is not expected to know how to make a sales pitch for foreign investments in his county in front of an American audience, particularly in English. But Tsipras IS expected to surround himself with professionals, with advisors who can orchestrate events like that in a manner so that Tsipras only has to fulfill his role as the 'Chief Salesman', as the 'Chief Representative' of Greece.

That obviously has not happened in the case of the CGI. And I remember reading analyses that Tsipras has not included in his new government the sort of competent 'movers & shakers' who might really turn Greece around. If the new government is nothing but 'more of the same', Greece won't remain the same very long.

In short, I am not expecting any new sense of urgency to reform Greece for the benefit of Greece (instead of the creditors). On the contrary, I am afraid Tsipras will act in the future as he acted during the CGI interview: strong and convincing deep voice when it comes to general statements; twisting and squirming when it comes to specifics and obviously hoping that someone will come to his rescue.

Wednesday, September 30, 2015

The Alexis Tsipras - Bill Clinton Chat: A Missed Opportunity For Greece!

On September 27, the Clinton Global Initiative gave PM Alexis Tsipras a unique opportunity to 'sell' Greece to an audience of potential US investors. Tsipras failed miserably in this task.

A rejunivated, girlish-looking Madam Ambassador Yanna Angelopoulou (59), in a short dress, first introduced "the man who inspires me, inspires all of us with his energy, his passion and with his compassion" - former President Bill Clinton (69). And then she introduced the man "in whose hands the Greek people put their faith and their future" - Prime Minister Alexis Tsipras (41). A gentlemanly Clinton politely received Angelopoulou's kiss on one cheek but as she prepared to kiss the other cheek, he abruptly turned away. For Tsipras, Angelopoulou only had a handshake. And off the father-son conversation went.

A somewhat frail sounding Clinton felt it appropriate to kick off the conversation by reminding everyone that "it is important not to forget that this is a very rich country, Greece. It's rich in natural resources, it's rich in human resources, it's people work on average 25% more hours per week than German workers." So why, then, is Greece in so much trouble? Clinton's answer: "It's been victimized by a tax base that does not include the wealthiest people in the country (the camera forgot to shift over to Angelopoulou) and by a long past of promises from the public sector that can't be funded or fulfilled." And then Clinton turned to Tsipras and asked him true to form: "I want you to say whatever you want to say but I would like to begin by asking you 'Where do you go from here?'" Tsipras seemed a bit caught off guard by that simple question which prompted Clinton to follow-up with a big grin: "You are like the dog who chases the car. What do you do when you catch it?"

Tsipras then managed to get all the right buzzwords into his first sentence: "Greece as a negative example of tough limitations of austerity measures; a bad recipe increased public debt from 120% to 180% of GDP; a memorandum based on internal devaluation and austerity, etc." And the second sentence followed up with the delaration that "this is not a Greek problem. It is a European problem". And just in case Clinton did not know it, Tsipras said: "You know, there is a conservative spectrum in Europe". "Unfortunately," he added quickly.

Tsipras then remembered that Clinton had asked where he planned to go from here. That was easy to answer: "We have to continue the fight to recorrect the direction of Europe". But when it came to specifics, Tsipras quickly had to revert to his briefing papers where it said: "For the first time we have a realistic program to implement which does not exhaust itself on recessionary austerity". But the most important thing was, Tspras now speaking without notes, that "there is a commitment on the part of our partners to start the crucial discussions to reprofile and to restructure our debt. So were are going to deliver our commitments even though we have difficulties ahead but it is necessary for the other side to deliver their commitment for the relief of our public debt." That had to be said!

Tsipras then embarked on a summary: "All of this is necessary to create an atmosphere of trust and credibility to the markets and to regain, to reclaim economic stability in order to have investments in Greece. This is very important in order to come back to growth. We must fight for the necessary reforms. Internally, in my country, it is necessary to make changes, it is necessary to make reforms in taxation, in the public administration and to try to create a friendly environment for investors, to cut the ties with the clientilistic state of the past, to hit tax evasion and corruption, to create a meritocracy in the public administration and then to try to have foreign investments because this is very crucial to come back to growth" - Milton Friedman could not have phrased it better!

Clinton did not let Tsipras get away with lofty phrases. In his inimitable way he asked Tsipras: "Do you believe that the path of the next 4 years is clear enough so that you would feel comfortable, if everyone in this room was a potential investor in Greece, telling them that it's safe to move now?"

Tsipras seemed totally surprised by this simple question and he started shuffling in his preparatory notes. "This is a good question!", congratulated the former Nobody the former two-time President of the United States at long last (Clinton probably thought to himself "Kid, that is not only a good question, that is THE most important question!"). So what was the answer?

"Positive", Tsipras finally managed to say. Grexit is no longer an issue. The conservative forces had wanted a division of Europe but Greece joined with the progressive forces that work towards a united Europe.

Clinton seemed uninclined to let Tsipras get away with small talk: "If you had a wishlist that could be immediately fulfilled, which sectors of the economy are most important for foreign investments and which would create, from your point of view, the largest amount of growth and the largest amount of employment?" Oops, Tsipras' assistants had forgotten to make preparatory notes for that question. Tsipras meandered from tourism to agrigulture, to healthcare, to pharmaceuticals, to energy, etc. It would have been better if he had handed Clinton the McKinsey Report "Greece Ten Years Ahead".

Clinton, the devil, still did not let Tsipras off the hook. "You said energy investments are very important. Are the laws such that, if one comes in there and makes a significant investment in making you more energy independent, that they can recover their investment". And pointing at the audience of investors: "If we bring these investors there, have they got a way to get their money back? You know, they could put a lot of people to work!".

Regrettably, Tsipras had not been coached that if one does not immediately respond so such a question in a determined and specific way, the audience will conclude that the answer is negative. And instead of responding immediately, Tsipras squirmed and put on an artificial laugh. No Alexis, Clinton did not mean it as a joke! And then Tsipras - brace yourself! - explained that Greece was still a corrupt country and that the question could only be answered affirmatively after the reforms have been made!

At this point, Tsipras had clearly become uncomfortable. It seemed to have dawned on him that his memorized campaign slogans were insufficient to answer Clinton's specific questions. Perhaps he even condemned in his mind his advisors for not having prepared him better for the interview. Clinton, who had obviously noticed how Tsipras gradually disintegrated, decided to let him off the hook and offered the following way out: "So you are saying, in no uncertain terms, that it is not necessary for people to wait until every last detail of the new arrangement on the debt refinancing is worked out. To know that it will be worked out, that the government is going to be there for 4 years and that better to invest sooner rather than later, so if you buy low, sell high, increase growth in employment and that in itself will stabilize the political and economic climate." No reaction from Tsipras. "That's basically your message, isn't it?", Clinton followed up. Only nodding from Tsipras.

Tsipras no longer seemed part of this conversation by then. In the presence of the seasoned Bill Clinton he had recognized his own insufficiencies and seemed extremely uncomfortable with his role. So Clinton turned the tables and made himself the spokesman for Greece. He made the pitch for Greece, Clinton-style. He was thinking of finding ways how millions of Greek-Americans who may not have a great deal of money individually could pool their money into a fund to start new businesses. Investors should not wait because at some point "we undermine your position by waiting". Clinton went so far as to justify why Tsipras hadn't said much: "The time is now to do something. The time has come to stop fooling around with it. And you are being awfully kind for not saying it that bluntly but I think that's accurate. Basically, your message is 'I got this under control, please don't wait any longer to start investing'. Is that a fair statement'?

If only Tsipras had managed to say "Yes, that is a fair statement. Thank you for making it on my behalf!" Instead, he managed to say - nothing. Just an uncomfortable laugh. And then he fell back into campaign soundbites about Greece.

What a wasted opportunity!

The obvious intention of the Clinton Global Initiative was to promote foreign investment in Greece before an audience of potential foreign investors from the US. One wonders why the staffs of both sides had not gotten together beforehand and scripted a question-answer routine which would optimally serve that purpose.

As it turned out, Tsipras was absolutely unprepared to act as his country's 'chief salesman'; perhaps even incapable of a task like that. Tsipras simply could not make a convincing sales pitch for Greece before a very friendly audience and with the support of a most friendly host.