Saturday, July 23, 2016

Greece's Current Account - Major Changes!

Below are Greece's current account statistics for the period January-May 2016, compared with the same period of the previous year (source: Bank of Greece).

(in BEUR)

2016 2015
Revenue from abroad
Exports 9,6 10,5
Services (e. g. tourism) 6,2 9,3
Other income 2,9 3,2
Current transfers 0,9 1,1
------ ------
Total revenue from abroad 19,6 24,1
Expenses abroad
Imports 16,4 18,6
Services (e. g. tourism) 3,8 5,6
Other expense (e. g. interest) 1,9 2,9
Current transfers 0,9 1,4
------ ------
Total expenses abroad 23,0 28,5
Net foreign deficit (current account) -3,4 -4,4
Trade balance -6,8 -8,1
Services balance 2,4 3,7
Other balance 1,0 0,3
Current transfer balance 0,0 -0,3
---- ----
Net foreign deficit (current account) -3,4 -4,4

While the bottom line is encouraging (a 1 BEUR improvement over the previous year), there have been substantial developments in the services balance which the Bank of Greece comments as follows:

"The surplus of the services balance shrank by €1.3 billion in the January-May 2016 period, as net transport receipts registered a significant decline, which is also largely attributable to capital controls. Net travel receipts also recorded a fall. It should be noted that in the first five months of 2016 total non-residents' arrivals decreased by 1.3% and the corresponding receipts by 6.2%. These developments were offset to a small extent by an improvement in the other services balance".

I am not quite sure why the deterioration in the services balance is the result of capital controls because capital controls should affect payments to abroad and not from abroad. Service revenues from abroad declined by a staggering 3,1 BEUR to 6,2 BEUR.

Tuesday, July 19, 2016

Democracy - Carved In Stone Or Work-In-Progress?

Out of (still) 28 EU democratic member states, there are probably not any 2 countries with identical democratic systems. The voting age may differ; the representation rules may differ; there may be winner-take-all or not; etc. etc.

I would like to see this: suppose that there are 28 different forms of democracy in the EU, have each country show the results in each of these 28 variations. Who knows? Maybe there is a democratic scenario where Merkel would not be Chancellor. Or take the most extreme example: in the US, it is quite possible that one becomes President without a majority in the popular vote (happened several times). Is that ok?

Greece, or rather: SYRIZA, is currently attempting to change the electoral rules: where the largest party received a bonus of 50 seats (out of 300) in the past, SYRIZA now wants to eliminate that. True, democracy may be more pure if one eliminates bonuses like that but democratic systems should also make it easy to form a government.

Obviously, SYRIZA's attempt is a play to assure its participation in government even when it is not the largest party. There probably is not a single Greek who doesn't understand that.

On the other hand, and removed from day-to-day politics, it would certainly seem appropriate, if not even desirable, that politicians continually lead debates about how we want to govern ourselves. Be that at the country level or at the EU level.

That’s what the American Founding Fathers (and their successors) did and, yet, Barack Obama still aptly calls American democracy „work-in-progress“.

Sunday, July 17, 2016

TrainOSE - A Good Deal Or A Bad Deal?

The Greek TrainOSE was sold to the Italian Ferrovie Dello Stato Italiane (from state-owned to state-owned) for 45 MEUR. I have not yet read any analysis anywhere of this transaction. Obviously, with a price ticket of 45 MEUR, one is inclined to think that this was a give-away. On the other hand, even 45 MEUR could be a good price for Greece. It all depends...

Some years ago, Austria sold its national carrier to Lufthansa. Not only did Austria not obtain a price for the carrier, instead, they had to give Lufthansa a 'gift' of 500 MEUR in order for the deal to close. In retrospect, that 'gift' of 500 MEUR was cheap compared with what Austria would have lost otherwise.

If the Italian state assumes all liabilities of TrainOSE and all future losses, and if - as commentaries suggest - they make substantial investments in TrainOSE going forward, this might indeed be a good deal for Greece. If, as one of my Greek friend says, the Thessaloniki office of TrainOSE alone is worth more than 45 MEUR and can be sold straight away, then it might not be such a good deal.

One can only hope that it will not take too long until details of this transaction are published.

Marinopoulos - The Cascade Of A Possible Bankruptcy

The Economist Intelligence Unit provides a report about "Marinopoulos - the decline and fall of a retail giant". It provides for scary reading because it shows the follow-up damage which comes as the result when a large company goes bankrupt (n. b.: Marinopoulos is not bankrupt yet but it doesn't look good).

The casual newspaper reader might say ok, there is a large company going out of business; too bad for the employees but that's that. What that casual newspaper reader does not understand (yet) is that there are enormous consequences of such a bankruptcy which might even affect himself.

For starters, Marinopoulos has over 1,3 BEUR in liabilities, i. e. money which they owe to someone else. One might say ok, so the banks will have to take a loss but that's their problem because they made bad loans. When 4 banks have to take losses of over 500 MEUR, that may quickly turn out to be not only the banks' problem but someone else's, too.

Marinopoulos owes over 700 MEUR to trade creditors. Now the bullets are starting to hit closer to home because the reverse conclusion is that trade creditors may lose over 700 MEUR. Huge amounts of money are owed to individual large suppliers which raises the question how those suppliers will handle those losses and whether, perhaps, there will be another chain reaction among the suppliers and their creditors. But then there are also an assumed 3.000 small suppliers, perhaps even your small neighborhood farmer, who might be entirely wiped out by their losses.

Taken in sum, a Mariopoulos bankruptcy would cause shock waves throughout the Greek economy whose final impact can only be guessed at this point. And then the next question is: Will there perhaps be another Marinopoulos soon? 

Saturday, July 9, 2016

Varoufakis As The Killer!

Xenia Kounalaki of the Ekathimerini, in a blistering critique of Yanis Varoufakis 'and his acolytes' for writing books and giving lectures about their various plans ("A", "X" or whatever) of a year ago, has coined a new unique analogy of Varoufakis' conduct:

"It's a killer designing a murder he never executes advertising his plan to sell knives".

Well, I must admit that that's a good one!

Wednesday, July 6, 2016

Was It "Plan B" Or "Plan X"?

Prof. James Galbraith, advisor to Yanis Varoufakis while the latter was Finance Minister and close friend of his, has published a book titled "Welcome to the poisoned chalice: the destruction of Greece and the future of Europe". It is a collection of his writings, interviews and speeches on Greece from 2010 through the summer of 2015.

The media celebrate this as a major revelation of what happened behind the scenes (and top secretly!) in the first half of 2015 when Varoufakis had commissioned a small group of advisors to develop a Plan B (or Plan X, as Varoufakis allegedly called it) for an exit from the Eurozone. In fact, Galbraith had already reported on that a year ago. Some of the key points of the plan were (allegedly):

* declaring state of emergency
* nationalization of the Bank of Greece and selected other banks
* conversion of bank deposits from Euro to New Drachma
* payment of salaries and pensions in IOU's
* emergency measures to keep public order

Galbraith writes that the plan was developed at the request of Varoufakis to prepare for the risk of Greece's being kicked out of the Eurozone. If true, that would be a remarkable statement because one of Varoufakis' major points, which point he has stressed consistently in his blog for several years, was that no one could kick Greece - or any other country - out of the Eurozone.

Still, it is good to be reminded of what happened a year ago. Greece today seems rather stable politically and SYRIZA seems rather a serious party. The fact, however, is that this party, particularly several of its key proponents like Varoufakis, had recklessly played with the future of their country.

Galbraith concludes that, in his judgement, Varoufakis had carried out his responsibilities with distinction. True, just like Salvador Allende had carried out his perceived responsibility to convert Chile into a Cuba of the South with distinction even though, ultimately, he failed. Failure is a negative word which in the case of Allende and Varoufakis assumes a positive meaning.

Sunday, July 3, 2016

Cosco Deal Final - At Long Last!

For several years now have I been stating my view that the Cosco investment at Piraeus is arguably a prototype of the foreign investment which Greece should attract: no short-term cash milking; instead, longer-term investments with longer-term perspectives and longer-term contributions to the Greek GDP.

Long before SYRIZA, leftist Greek politicians had criticized Cosco as a classic example of Chinese sweat shops being introduced to Greece. When SYRIZA assumed power, it seemed like one of their top priorities would be to reverse the Cosco investment (but certainly not allow an expansion).

It did not require much from the Chinese side. Only a few reminders from China what they meant by old friend status had a magic mind-changing effect on SYRIZA. Negotiations were quickly started and in April of this year the deal was signed: Cosco will buy 51% of Piraeus for 280,5 MEUR and another 16% for 88 MEUR after 5 years and once Cosco completes investments of 350 MEUR over the next decade.

A few days ago, the Greek shipping ministry submitted to parliament for approval the terms of the Cosco deal. Only one slight glitch happened: Cosco immediately sent an email stating that "the content of the specific plan is a complete reverse of what was agreed between Cosco HK and Taiped". Ouch!

At first, shipping minister Theodoridis Dritsas misjudged the situation and said that while there were differences, the government had the right to make changes. That must have prompted another few phone calls from the Chinese side.

And then things happened quickly: one day before PM Tsipras' departure to China, parliament ratified the Cosco deal with 223 votes (out of 300). And the alterations which the shipping ministry had made? No longer a problem, they were all rectified.

I don't consider this as an embarrassment. Instead, it is a terrible faux-pas which sheds bad light on the intentions of the Greek government which obviously ignored the 11th commandment ("Don't get caught!"). And it also questions the government's international wherewithall when they don't know that a foreign investor will always closely monitor how their cases are treated in parliament.