Saturday, September 26, 2020

Greece's Admirably Strong Financial Condition

As Greece prepared for its exit for the 'rescue program' back in 2018, two possible alternatives were discussed: (a) a back-up line of credit from the EU for the post-program period or (b) a cash reserve in lieu of that. The disadvantage of the back-up line was that it would have involved some kind of conditionality, the disadvantage of the cash reserve was that it would trigger incremental and unnecessary interest expense. 

I had supported the back-up line. Greece chose the cash reserve. It was funded through the last tranche of the program and through new debt issues subsequent to the exit from the program. Today, I must admit that Greece was right and I was wrong.

Owing to the collapse of interest rates, the cash reserve probably caused only minimal incremental interest expense for Greece. At the same time, the cash reserve assumed huge proportions and "cash is king and increases creditworthiness". 

Finance Minister Christos Staikouras is quoted in this article as “We, the Finance Ministry, have got the cash reserves to support any government decision. We have built strong cash reserves of 37.7 billion euros so as to support any choice made". It should be noted that these are reserves of only the Finance Ministry. It is safe to assume that there are further reserves elsewhere in the public sector which are not included here.

Prior to Corona, Greece's budget was more or less in balance (after interest expense) so that the cash reserve was indeed a reserve for future expenses. Corona has totally altered this situation and now the budget deficit for 2020 could reach 8-10 BEUR. Under normal situations, this would be a crisis scenario. With a cash reserve of 37,7 BEUR, it is not much more than a footnote. 

Greece's cash reserves will receive a substantial boost from the 750 BEUR Recovery Plan of the EU. At the same time, Greece is likely to take advantage of market conditions and issue new debt. In consequence, despite the cash outflow due to Corona, Greece is likely to increase its reserves substantially going forward. More cash reserves translate into better perceived creditworthiness which, in turn, will make the raising of debt even easier. A positive do-loop.

In sum, Greece's financial condition is admirably strong. There will be no major debt service until the early 2030's. Greece already has more than enough cash to sustain the expenses until then. There is no liquidity risk in the next few years.

This would certainly seem to be the time for investing in Greek bonds with maturities in the next few years!

Sunday, September 6, 2020

I Am Embarrassed To Be An EU Member!

The United Nations Convention on the Law of the Sea (UNCLOS) is the international agreement that resulted from the third United Nations Conference on the Law of the Sea (UNCLOS III), which took place between 1973 and 1982. The convention has been ratified by 168 parties. An additional 14 UN member states have signed, but not ratified the convention.

There are 15 United Nations member and observer states which have neither signed nor acceded either the Convention or the Agreements. Turkey is one of them.

Greece has 182 UN member states on its side. Turkey is one of 15 which abstained from being party to the agreement. Thus, Turkey has the legitimate right to define its own position of what their territorial rights in the Mediterranean are. The only question is one of legitimacy: when 182 UN member states declare something as law, is that equivalent to 15 member states ignoring that law? When 182 UN member define something as law, is it defensible that one non-signatory defies that law outright?

There can only be a political solution to this. In the meantime, however, every EU member state should ask itself the question whether an attack on Greece is 'only' an attack on an individual sovereign country (which it is) but whether it is not also an attack on the union which that sovereign country belongs to. In my opinion, the EU cannot assume a mediator's role in a conflict where the EU itself is being attacked. 

The deafening silence of the EU in this matter is beyond comprehension. Notwithstanding all the economic interests of major EU countries in Turkey and the respective dependencies, Turkey is a country which has violated in the extreme many of those values which the EU considers as their core values. And, most importantly, in the refugee situation, Turkey has essentially blackmailed the EU and gotten away with it so far.

Given the fact that Turkey, from the EU's standpoint, should actually be considered more as an adversary than as a partner, I found it quite amazing what a beautiful birthday party the EU ambassadors presented to the Turkish foreign minister. 

Would they have offered the same admiration to Putin after he took over the Crimean?

But the real affront was an interview by CNN with Jens Stoltenberg, the General Secretary of NATO. The reporter's question was very simple: "The Greek Prime Minister accused Turkey of violating Greek air space. How does NATO react to that?" Stoltenberg refused to answer this question. The CNN reporter asked whether there were possibly 2 standards: one when Russia violates Turkish air space for less than 30 seconds and the other when Turkey violates Greek air space for months on end?

It is truly embarrassing how Stoltenberg ducks the question and seemingly justifies Turkey's actions without considering the position of Greece, a co-equal NATO member. Regarding the EU: it is commendable that individual countries like France or Austria have taken a clear position to be on the side of their fellow EU member state Greece but the deafening silence on the part of countries like Germany and of the EU itself is absolutely embarrassing. 

As an Austrian, I am very embarrassed to be a member of this EU!