tag:blogger.com,1999:blog-58826454673787972662024-03-13T18:07:29.389+01:00ObservingGreeceA view of Greece from the Outside - Commentaries and Opinionskleinguthttp://www.blogger.com/profile/12491174042954678023noreply@blogger.comBlogger1358125tag:blogger.com,1999:blog-5882645467378797266.post-53531310441326221572023-07-05T21:10:00.001+02:002023-07-11T11:23:01.283+02:00Adieu Alexis Tsipras<p>Alexis Tsipras arrived on Greece's political stage with bravado. That was in 2012. A few days ago he left that stage with a whimper.</p><p>Back in early 2012, I asked my Greek friends who Alexis Tsipras was. They invariably told me that he was bad news. A communist revolutionary who had spent his entire life organizing protests and even destructive activities. And that he was married to a communist. As a great admirer of Che Guevara, they had christened their son Ernesto.</p><p>In short, I definitely started with a strong bias against Alexis Tsipras.</p><p>Then I made my first observations of Alexis Tsipras in action before TV cameras and with a microphone. This prompted me to write my first of later many articles about Tsipras, dated May 12, 2012. It was titled "<a href="http://klauskastner.blogspot.com/2012/05/cheers-for-alexis-tsipras-and-more.html">Cheers for Alexis Tsipras!</a>"</p><p>Needless to say, I immediately recognized his communicative talent: "<i>Alexis Tsipras strikes me like a youthful, energetic and, above all, charismatic individual. The type of natural leader who can easily get people to follow him. Those are the traits which any leader who is hopeful of pulling Greece out of the present mess must have. I do not see those traits with any other Greek politician at this time.</i>" There are leaders who lead with passion and there are leaders who lead with brains. Only seldom are there leaders who can do both. Tsipras struck me like a leader who could not do both but who could effectively employ passions. Thus, my conclusion of this article was that "<i>having said all this, I think what Mr. Tsipras needs more than anything else is good advisors.</i>"</p><p>I listed 10 points which competent advisors should recommend to Tsipras and I even stated that "<i>if he (Tsipras) accepts such advice, I could even envisage recommending to vote for him.</i>"</p><p>Tsipras' greatest failure was to chose the wrong advisor(s). In those days, the German weekly <i>Der Spiegel</i> put Tsipras on its cover with the question "Is this the most dangerous man in Europe?" Yanis Varoufakis, the chosen premier advisor, set out on a crusade to show the world that he could be an even more dangerous man. </p><p>Varoufakis was (and still is) a gifted seducer who was looking for a target to use as a trampoline for personal glory and gain. I can see why Tsipras fell for him. Here was a slick cosmopolitan with intellectual brilliance, supreme eloquence in Greek and English and a wide network of other intellectuals around the globe. The international media were eager to have him display his messianic messages and quotable quotes.</p><p>On a rare occasion of honest self-recognition, Varoufakis had stated at an April 2012 conference in April 2012 "<i>until this crisis erupted, I used to be a fairly decent second rate economist. The implosion of my country bestowed upon me the dubious honor and title of being a first class Greek economist.</i>" I am fairly certain that Tsipras had already recognized by that time that he had bet on the wrong guy, but it was too late. He could (not yet) extricate himself from the magic of this man. </p><p>There is one scene with Alexis Tsipras which I think displayed more than any other the complexity of the man: in the evening of Sunday, July 5, 2015, two-thirds of Greeks were in public ecstasy about the outcome of the referendum. Tsipras was not one of the celebrators even though one would have expected him to be the greatest celebrator of all. Varoufakis later wrote that, that evening, he found Tsipras in no celebratory mood at all. On the contrary, he seemed subdued. Perhaps he was thinking of the Greek proverb that "<i>any fool can throw a stone into the sea, but once he does, a hundred wise men can't pull it out!</i>"</p><p>It speaks for Tsipras the man that after his gigantic <i>kolotoumba</i> (somersault), he could achieve re-election a couple of months later. However, the Tsipras thereafter was not the same Tsipras as before.</p><p>Alexis Tsipras had begun to enjoy the '<i>good life</i>'. He found that life was much more pleasant when one is liked by the global elite instead of hated. He switched from being the '<i>Greek firebrand</i>' to being '<i>the nice young Greek</i>'. Madame Merkel displayed almost motherly care when she joined Tsipras on a stage. Bill Clinton extended Tsipras fatherly help when he had trouble with English in an interview. Every summit photo showed a smiling group with a smiling Tsipras in the middle. </p><p>The global elite had good reason to like Tsipras. After all, he accepted every measure, however brutal and/or nonsensical, which the Troika put before him. In the process, he put his compatriots through an unnecessarily painful adjustment and an hitherto unheard of level of austerity. His goal was to '<i>exit the program</i>' and he accomplished that with flying colors. No non-leftist government could have gotten away with such '<i>reforms</i>' because people like Tsipras would have started a rebellion. The irony is that, by doing that, Tsipras unwittingly set the stage for his successor to rebuild after such destruction.</p><p>During the campaign for the 2019 election, my sense was that the '<i>European elite</i>' almost would have preferred Alexis Tsipras to win. Even Angela Merkel did not come out forcefully in support of her political colleague Kyriakos Mitsotakis. After all, Tsipras was a Prime Minister whom they felt that they could control and Mitsotakis was a question mark at the time. Still, Tsipras lost and Mitsotakis won but the irony is that without Tsipras' '<i>destruction</i>', Mitsotakis would not have found it so easy to '<i>rebuild</i>'. </p><p>Alexis Tsipras strikes me as a somewhat tragic figure. With the right advisors, he could have gone down into history as the man who transformed Greece into a solid social-democratic country with consistent and effective reforms. As it was, the opposite happened. Greece today is governed by a solid center-right government with a certain emphasis on the '<i>right</i>'. Quite a few things which Mitsotakis has done in his first tenure were things which, if Viktor Orban had done them, would have caused an uproar in Brussels. </p><p>Tsipras had started out with 100% passion but borrowed the brains of the wrong people. When he realized that his passion no longer carried the day, he could no longer prove his relevance. Instead, he lost his political compass like a boat which has lost its rudder but was hoping to catch the right wave to carry it to pleasant shores. That wave never came and Tsipras could only watch how a speed boat called 'Mitsotakis' left him in its wake. </p><p>If there is one silver lining to Tsipras' tragic then it is the fact that Varoufakis was voted out of parliament before Tsipras resigned. That was some bit of justice, after all. </p><p>On the day after the July 2015 referendum (and the day after the resignation of Yanis Varoufakis), I wrote a satirical article which has registered the largest number of readers (almost 13.000) of all the 1.357 articles which I have posted so far. It was intended to be the story of how Varoufakis manipulated Tsipras by pretending to be his greatest supporter only to stab him in the back later on. It was titled: "<a href="https://klauskastner.blogspot.com/2015/07/to-alexis-from-yanis-subject-thank-you.html">To: Alexis. From: Yanis. Subject: Thank you!</a>"</p>kleinguthttp://www.blogger.com/profile/12491174042954678023noreply@blogger.com1tag:blogger.com,1999:blog-5882645467378797266.post-36224702061957072412023-06-09T10:39:00.001+02:002023-06-09T10:40:14.218+02:00Greece - Living Beyond Its Means Again?<p>In a <a href="https://www.ekathimerini.com/news/1212580/greeces-reform-labors-are-only-half-complete/">commentary published in the Ekathimerini on June 6</a>, the well-known British journalist Hugo Dixon stated that "<i>Greece is living beyond its means again</i>." This prompted me to think because I have made similar arguments in this blog.</p><p>What does "living beyond one's means" really mean? That depends...</p><p>It is easy to define it on the level of a person or family. If a person (or family) has more expenses than income, he would appear to be living beyond his means. But that is not necessarily so. If that person has wealth like savings, he would not be living beyond his means because savings are part of his means. Correctly speaking, that person would be living off his substance.</p><p>If that person (or family) has no wealth, he needs to cover the hole with debt and that would clearly be living beyond his means because he is using other people's savings to pay for his expenses.</p><p>In both cases, one has to look at the composition of the expenses. If the expenses include a large portion of investment which will generate income in the future, the person (or family) may currently live beyond his means but he is investing into the future, which is good. The opposite is the case when the expenses are entirely for consumption.</p><p>At the level of the state, the analysis becomes more complicated because it is difficult to assess the wealth of a state (for example: real estate and other tangible assets). At the same time, a state may have a budget deficit not because the expenses are too high but, instead, because the tax revenues are far too low because of tax cheating. So while it may appear that the state is living beyond its means, it is not an expense problem but a revenue problem which could be solved through more efficient tax collection.</p><p>The ultimate level of living beyond one's means is the national level. The level of the national economy and of the country as a whole. And this brings me to the subject on which I have focused since I started this blog 13 years ago - the national current account.</p><p>The current account measures the revenues which a national economy generates outside its borders compared with the expenses which it has outside its borders. If the current account registers a deficit, it means that the national economy is living off the savings of other countries. On a cross-border basis, the national economy (i. e. the country) is living beyond its means. Those savings of other countries can take the form of foreign debt, foreign investment or foreign grants. Typically, it is the foreign debt which represents the bulk of the savings of other countries. </p><p>My intensive readings about the history of modern Greece have suggested, that - since the foundation of modern Greece 200 years ago - there have only been very few years where Greece had a current account surplus. Put differently, Greece has a long history of living beyond its means on a cross-border basis. </p><p>When the financial crisis erupted in 2010, the voluntary flow of foreign savings into Greece stopped suddenly. There was only an '<i>involuntary flow</i>' from official institutions and the Troika made sure that this involuntary flow covered only the bare minimum of necessities. For once, Greece was forced to more or less live within its means. The economic pain for Greeks was dramatic (it was only '<i>more or less</i>' living within its means because, despite all the austerity, Greece did not have one single year of a current account surplus during this austerity).</p><p>Have things improved under the Mitsotakis government?</p><p>With Mitsotakis's assumption of power, the voluntary flow of other countries' savings into Greece returned. It returned in huge amounts and it was necessary because the current account deficit exploded under Mitsotakis and it was approaching pre-crisis levels. On a cross-border basis, this was (and still is) clearly an enormous living beyond its means for Greece. It could only happen because of the enormous voluntary inflow of external debt, because of substantially increased foreign investment and because of substantial funding from the EU Recovery Fund. </p><p>The most important point of interest: during Mitsotakis first tenure, the external debt of Greece increased by about 130 BEUR! That is more than 30 BEUR per year! And that is at least the level of external debt growth prior to the crisis.</p><p>Hugo Dixon stated that Greece's current account deficit was about 10% of GDP last year. Adjusted for the spike in energy prices, it was still about 6%. Those are VERY high figures. Red flags should typically show up when the current account deficit passes 3% of GDP. The pre-crisis peak in Greece's current account deficit was close to 15% but that included much more interest expense than Greece is having today.</p><p>Does that spell trouble for Greece's future?</p><p>That depends. Just like in the above examples of a person or family, it depends on what the money is used for. If it is primarily used for prudent investments into the future, it is actually very good news. However, it must be remembered that Greece's insolvency of 2010 was not à priori caused by huge amounts of debt accumulated in prior years but, rather, because that debt was primarily spent on consumption. Had it been spent primarily on investment, there would not have been an insolvency in 2010. </p><p>So, the conclusion is very simple. If Greece now spends the enormous inflow of the savings of other countries primarily on prudent investments, a Golden Age lies ahead of the country. If the consumption spree of the 2000's is repeated, the next insolvency is already in the cards.</p><p>The verdict on the above is still out.</p>kleinguthttp://www.blogger.com/profile/12491174042954678023noreply@blogger.com4tag:blogger.com,1999:blog-5882645467378797266.post-41183549370275654132023-03-13T22:53:00.002+01:002023-03-13T22:53:28.062+01:00Greece - No Country For Young Arrogance<p><a href="http://klauskastner.blogspot.com/2022/08/alexander-clapp-spoils-bullishness.html">In an August 2022 essay by Alexander Clapp</a>, published in the NYT, I found the following quote which I have cited many times since then:</p><p><i>"It is, rather, the unsustainable contradiction between the country Mr. Mitsotakis insists on pitching abroad — an unimpeachably democratic state whose respect for the rule of law and liberal bona fides ought to be rewarded with corporate investments and tourism dollars — and the one he actually presides over.“</i></p><p>Prime Minister Mitsotakis is an excellent salesman of his country and he certainly has sold me on it. It is only in the last few months that some doubtful clouds have shown up on the horizon. To sum it up in one word: arrogance. I had given 3 examples thereof in the above-linked article. </p><p>Still, I felt quite uncomfortable voicing these crescent doubts because I was afraid that in the midst of Mr. Mitsotakis' success, they might be considered sacrilegeous. So much more was I surprised to read in today's Ekathimerini a <a href="https://www.ekathimerini.com/opinion/1206459/the-sisyphean-task-of-transforming-greece/">commentary by Alexis Papachelas</a> who started out by saying:</p><p>"<i>This is not an easy country; not by a long chalk. A part of it looks and may also be European. Another is deeply Balkan and looks, in fact, a lot like what the international literature would call a “failed state.” The struggle between the two is constant and sometimes it is even violent. Anyone who is ambitious or crazy enough to govern it has to deal with this struggle between good, European Greece and Greece of yesteryear, between what it could be and what it is at its worst.</i>"</p><p>So far so good. Anyone who has followed the scandal around the recent train accident can agree with that. But then Papachelas continued (the emphasis is mine):</p><p><i>"The current prime minister has a very clear picture of where the country should be headed. In some areas, the country has made progress, and quite a lot of it. But this government has also made mistakes. No one can change the state alone, nor can they promise to change Greece 0.5 to Greece 2.0 in just a few years. <b>Such undertakings require humility, and what the government is paying for right now is overselling its managerial capabilities.</b> It settled for many of the bad habits of bad Greece and in some instances acted as if it owned the country. Some of the examples are painful and make people mad. The condition of our hospitals is a case in point. Greece is changing, but important areas are being left behind."</i></p><p>That is exactly the concern I have voiced in recent months. I see no Greek politician around who could represent the country internationally as well as Mr. Mitsotakis does ("pitching his country") and I think it is extremely important for Greece's domestic success to be represented well internationally. That has to do with credibility. If Mr. Mitsotakis were to stumble domestically because of cockiness or arrogance, it would do enormous harm to Greece internationally. And that, of course, would affect Greece's domestic success.</p>kleinguthttp://www.blogger.com/profile/12491174042954678023noreply@blogger.com2tag:blogger.com,1999:blog-5882645467378797266.post-50258801119657629852023-03-05T11:54:00.001+01:002023-03-05T11:58:28.279+01:00It's A Short Putt From Greece-Praising To Greece-Bashing<p>In the last few years, since Mr. Mitsotakis became Prime Minister, my Greek friends have often criticized me for being idealistically (and unrealistically) bullish about Greece. In short: I had predicted a Golden Age for Greece under only one proviso - that the tsunami of foreign funds coming into Greece in the last 3-4 years and expected to come in in the next few years is spent wisely. Frankly, I was not alone in that assessment. My sense is that most foreign observers had a similar impression.</p><p>It only took one dramatic scandal, the train accident, to turn Greece-praising into Greece-bashing. Above all, Greece-bashing on the part of Greeks themselves. The foreign media which I follow have not really engaged in any Greece-bashing.</p><p>The Greek blog <i>GreekReporter</i> has now published an article titled "<a href="https://greekreporter.com/2023/03/05/greece-convictions-eu-courts/">The countless times Greece was convicted by EU courts</a>." The article really provides for some astonishing reading.</p><p><br /></p><p><b><span style="font-size: medium;">EU Court of Justice Convictions</span></b></p><p>2015: Conviction for violating working hours in hospitals and in general.</p><p>2016: Conviction for constant violation of EU waste disposal rules.</p><p>2016: Conviction for undermining free movement of capital.</p><p>2018: Conviction for failing to recover state aid to Ellinika Nafpigeia.</p><p>2019: Conviction for failing to provide support for persons with inabilities.</p><p>2019: Conviction for failing to recover state aid to Larco.</p><p>2020: Conviction for failing to comply with conservation standards.</p><p>2023: Condemnation of Athens over its poor air quality and for failing to take the necessary measures.</p><p><br /></p><p><b><span style="font-size: medium;">European Court of Human Rights</span></b></p><p>"<i>Greece’s convictions at the European Court of Human Rights (ECHR) amount to 948, according to the Greek judge of the Court Yiannis Ktistakis. During a recent briefing of the Parliamentary Committee for the Monitoring of the Decisions of the Court of Human Rights, Ktistakis attributed the low position of Greece in this field to our country’s non-compliance with the sentencing decisions and its inability to eliminate the hotbeds that multiply human rights violations. As he said, a telling comparison can be made with Belgium, a country that has many similarities with Greece, and not only in terms of population. “Belgium has only 285 convictions compared to Greece’s 948 and only 234 pending appeals today as we speak, compared to Greece’s 2,214. In the numbers, Belgium in the last decade 2011-2021, paid 1,745,909 euros for compensation awarded by the European Court, while Greece paid six times more, 28,256,237 euros,” he explained</i>."</p><p><br /></p><p><b>I wish someone would comment on the above!</b></p>kleinguthttp://www.blogger.com/profile/12491174042954678023noreply@blogger.com3tag:blogger.com,1999:blog-5882645467378797266.post-62211575946890384892023-03-03T12:49:00.002+01:002023-03-03T12:49:51.355+01:00Greek Train Accident - The Culprit Was Found And Put Into Jail! Or Was He Not The Culprit?<p>The tragic train accident and the discussions around it have reminded me of <a href="http://klauskastner.blogspot.com/2022/08/alexander-clapp-spoils-bullishness.html">a NYT commentator</a> who recently observed in an article "<i>the unsustainable contradiction between the country Mr. Mitsotakis insists on pitching abroad and the one he actually presides over</i>.“</p><p>Well, it seems the country which he presides over (its institutions, its governance throughout the hierarchies, its administration and control, etc.) is indeed quite different from the country which Mr. Mitsotakis pitches abroad. Within days of the accident, all sorts of revelations reached the public about inefficiencies and incompetencies in the public sector. Mind you, not only at OSE (the Greek train infrastructure company) but in the public sector in general!</p><p>This just goes to prove, in my mind, how important Mr. Mitsotakis is for the image which Greece is now, after 4 years of his government, enjoying internationally. Yes, he is overselling his country. No thinking person would accept that a state which was not too long ago described as a "<i>failed state</i>" would, within only 10 years, become a near-perfect state. </p><p>The question is whether Greece is really changing or whether the perceived change is only a PR-job of Mr. Mitsotakis. My sense is that in the private sector, there are indeed many positive signals of important changes and improvements. I cannot say much about the public sector because I know very little about the public sector. Or rather, I didn't know much about the public sector until a few days ago.</p><p>Now, I have read about the unbelievable scandal of OSE (that, I believe, is the company where the last PASOK finance minister, George Papakonstantinou, said that it would be cheaper for the state to transport all OSE's passengers by taxi than by trains). I read that everyone knew all along that Greece's railways were the most dangerous ones in Europe and that even the EU Commission was concerned about that. I read that the EU transferred about 700 MEUR for the betterment of OSE in recent years. I read that there have been multiple written warnings about the potential risk or a major accident; and, finally, I read that no one in a position to implement improvements really cared.</p><p>But yes, the master of a small train station had to be put in jail immediately because he committed such a grave human error. And yes, even Mr. Mitsotakis knew immediately that '<i>human error</i>' was the cause of the accident (somehow suggesting that the culprit had already been found and put in jail). Why Mr. Mitsotakis bothered to announce the formation of an expert commission to look into possible causes of the accident is not quite understandable under that light.</p><p>For someone like myself, who has fallen for Mr. Mitsotakis' pitches, this is a great disappointment. Yes, I had started to believe that the Greek state was transforming from '<i>failed state</i>' to '<i>near-perfect state</i>' in a hurry. It seems I was wrong. </p><p>So where do we go from here? How do we solve this problem? Well, certainly not by declaring the station manager as the culprit and sentencing him to life in jail and to declare the matter as closed. That, to me, would be about the most unethical and immoral strategy. Not to mention the fact that it would not work. </p><p>The government now has the unique opportunity to show that they mean business when they talk about modernizing the Greek state. That they won't shy away from hot potatoes; that they will not fear any taboos. It is not sufficient for Mr. Mitsotakis to state that "<i>we will do everything in our power that such accidents will not happen again</i>." Those are words. Actions speak a lot louder than words.</p><p>If this huge tragedy does not provoke tough actions and improvements, measurable actions and improvements, then eventually Mr. Mitsotakis may be asked by foreigners why the country he presides over is so different from the one he pitches - and that would be the end of Mr. Mitsotakis' credibility.</p><p>And without credibility, you can achieve nothing!</p>kleinguthttp://www.blogger.com/profile/12491174042954678023noreply@blogger.com0tag:blogger.com,1999:blog-5882645467378797266.post-66585693384807373912023-02-27T11:29:00.001+01:002023-02-27T13:15:30.721+01:00Kostas Karamanlis - Greece's Gravedigger?<p>Kostas Karamanlis, Greece's Prime Minister from 2004-09 and, since then, a member of the Greek Parliament recently announced that he would not run again in the upcoming election, thereby "<i>completing his parliamentary career</i>." This announcement re-awakened discussion about the Karamanlis government's role in and responsibility for Greece financial crisis which broke out in 2009 and culminated with the signing of the first Memorandum in May 2010. </p><p>In a lengthy analysis, the blog Macropolis described "<a href="https://www.macropolis.gr/?i=portal.en.the-agora.6590">How Greece sleepwalked off a cliff in 2009, in black and white</a>." The facts they present there are totally convincing: if ever a government had intended to take an entire country down the tube in grandiose style, no one could have done it better than the Karamanlis government from 2004-09. Incompetence was compounded by irresponsibility. In short: Kostas Karamanlis was the gravedigger of Greece.</p><p>The conservative Ekathimerini could not let that stand. Since it is hard to debate the facts, they counter-argued on a philosophical level in a short opinion piece: "<i>It is easy, hypocritical and unfair to target this or that former PM as solely responsible. It is much more difficult to root out from politicians’ and society’s DNA the components that can easily bring us back to the brink of bankruptcy at some point in the future</i>."</p><p>Be that as it may, the past is the past and a discussion about it is only warranted if relevant lessons for the future can be gained from it. Macropolis argues that a most important lesson for Greece should be derived from the past, namely: if you want to avoid crises in the future, you should have a good and accurate understanding of what caused the crisis of the past. On this issue, Macropolis passes harsh judgment about Greece's political class and Greek society in general. To quote:</p><p>"<i>All these years, Greeks have been fed a diet of half-truths, conspiracy theories and witch-hunts that mainly aimed at deflecting the attention and discouraging any serious debate about what happened in 2009. All sorts of ridiculous claims have been thrown around, from a global conspiracy to steal the country’s “rich natural resources” to scapegoating the head of the statistical office even though he hadn’t even started the job when the events unfolded</i>."</p><p>This inability to deal rationally with the past bodes ill for Greece's future, according to Macropolis. They put the focus on 2 individuals who can/will make a difference, or not: Kyriakos Mitsotakis and Alexis Tsipras. Both could have and should have, in the last decade, lead Greece though the catharsis which, according to Macropolis, is necessary - but they didn't. And if they cannot accomplish that going forward, Greece's prospects look grim, according to Macropolis. To quote:</p><p>"<i>Nearly a decade later, the two leading figures from Greece’s political class have been unable to lead Greece through the catharsis that is necessary. Despite representing the younger generation, they seem unable to enlighten voters and both are trapped by political miscalculations and internal party dynamics. Alexis Tsipras’s strategy to gain power was to focus on a different enemy, while placing the Karamanlis era and the man himself well away from the firing line. Kyriakos Mitsotakis, meanwhile, cannot amass the courage to accept his party’s clear responsibility without qualifying it with weak excuses that seek to deflect blame. If these are the two men who are supposed to take Greece into a new era, leaving behind the trauma of the crisis, the country’s prospects look grim</i>."</p><p>Since I ran this blog very actively from 2011-18, I tested my memory to see how I would come out on the above issues and below is my summary.</p><p>While I totally agree that the Karamanlis government, with its totally irresponsible financial conduct, put the final nails in the coffin of Greece's sudden stop, I think more context is necessary. It all started in 1981 when Greece joined the EU and Andreas Papandreou assumed power. Papandreou introduced a deadly mix of a bloated and inefficient welfare state with stifling intervention and overregulation of the private sector. EU membership, at the same time, increased Greece's "creditworthiness" and foreign funds flowed into Greece to pay for these excesses. Furthermore, EU membership brought along the "Four Freedoms" (free movement of products, capital, services and people) and the Greek economy was definitely not prepared for at least two out of these four (free movement of products and capital). </p><p><a href="http://users.uoa.gr/~ahatzis/Hatzis_2012_09.pdf">According to Prof. Aristides Hatzis</a>, the political legacy of Pasok was even more devastating in the long-term since its political success transformed New Democracy into a poor photocopy of Pasok. From 1981 to 2009 both parties mainly offered populism, cronyism, statism, nepotism, protectionism, and paternalism. The net result was the outcome of a disastrous competition between the parties to offer patronage, welfare populism, and predatory statism to their constituencies. The Spraos Report of 1997 warned of a collapse of the Greek pension system. The head of the Greek Trade Union Confederation reacted: "The Spraos Report suggests that the Greek Pension System will collapse by 2010. Well, before the Greek Pension System collapses, the Greek State will collapse". Well, as it turned out, both happened (but the Spraos Report was forgotten). </p><p>In short, the turning point in Greece's economic and political development was 1981 and already within the following decade, one could see that Greece had embarked on a path which would potentially lead to disaster. In October 1993, a young professor at an Australian university described the Greek economy as being in '<i>terminal decline</i>' and he expressed great pessimism that this could ever be reversed. <a href="https://www.youtube.com/watch?v=E2cXdj2p36k&t=79s">His name was Yanis Varoufakis</a>.</p><p>And then came the Euro! Whereas the common currency was expected to impose constraints on any Greek profligacy, the opposite happened. Whereas EU politicians thought that a '<i>no bail-out clause</i>' would constrain financial markets, the opposite happened. The politicians bluffed the financial markets ("<i>there will be no bail-out's</i>") and the financial markets called the bluff. In the end, the politicians blinked first (and almost immediately). </p><p>All of the above gave Greece almost a full decade (the 2000's) of literally unlimited foreign credit and money flowed into Greece like there was no tomorrow. The money was used to finance budget deficits, current account deficits and to provide funding for Greek banks which, in turn, pushed consumer credits to the Greek public. In short, the bulk of the money was used for consumption. From 2001-10, the accumulated current account deficit was 197 BEUR (!). Imports during that time were 446 BEUR (!). Foreign debt had increased from 121 BEUR to 404 BEUR (!). </p><p>Kostas Karamanlis would have had to have the leadership profile of his uncle Konstantinos Karamanlis (who returned Greece to democracy after the junta) in order to have at least a chance to slow down this development, not to mention stopping or even reversing it. And that might not have worked because Greek politics and society in general in the late 2000's had been pervaded by 30 years of irrational conduct. </p><p>On one point, Kostas Karamanlis deserves credit. If a Greek leader had decided, in the late 2000's, to bring this mad, 30-year odyssey to an end by pushing the country down the tube and if, in true Greek drama fashion, he was going to do that in grandiose style, no one could have done that better than Kostas Karamanlis.</p>kleinguthttp://www.blogger.com/profile/12491174042954678023noreply@blogger.com3tag:blogger.com,1999:blog-5882645467378797266.post-17654416002495911982023-02-24T20:25:00.001+01:002023-02-24T20:25:27.151+01:00Greece's Current Account Deficit - Forebodings Of The Next Sovereign Debt Crisis?<p>I wish I had been wrong when, back on July 29 of last year, <a href="http://klauskastner.blogspot.com/2022/07/greece-dramatic-return-of-current.html">I projected a dramatic current account deficit for 2022</a>. Alas, I wasn't: Greece posted a current account deficit for 2022 of 20,1 BEUR which is a phenomenal deficit. It also represents about 10% of Greece's GDP, which is also a phenomenal percentage!</p><p>There are indeed some good news. Revenues from abroad increased from 68,4 BEUR in 2014 (which had been the best current account year in the past) to 112,7 BEUR in 2022. A phenomenal increase! Record exports and record tourism revenues accounted for that.</p><p>But it wouldn't be Greece if expenses abroad would not have increased substantially faster: from 69,6 BEUR in 2014 to 132,8 BEUR in 2022. Imports more than doubled since 2014!</p><p>The net result is a deterioration in the current account from a deficit of l,1 BEUR in 2014 to a deficit of 20,1 BEUR in 2022. Notwithstanding all the positive news which surround Greece's performance these days, this deterioration in the current account is a dramatic development!</p><div class="separator" style="clear: both; text-align: center;"><<a href="https://blogger.googleusercontent.com/img/a/AVvXsEj1sjfmT3qyxGPq2DBCze_IdAP7pokITtyATixQGcHFgf_WUgD1eIbMTj0s6Ru2P2JSqcyFUy4km5a16wZa_9esQ8dwxglKMq6Q55Ht8XJOAzLhD5UEenD4yvfJKvnyeAVpuUr77XeCcWJgQbyQZTyAhAoAjbLCvzsU4fUkxjxX-Q2qku_ckxf9Z45MdA" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="286" data-original-width="329" height="240" src="https://blogger.googleusercontent.com/img/a/AVvXsEj1sjfmT3qyxGPq2DBCze_IdAP7pokITtyATixQGcHFgf_WUgD1eIbMTj0s6Ru2P2JSqcyFUy4km5a16wZa_9esQ8dwxglKMq6Q55Ht8XJOAzLhD5UEenD4yvfJKvnyeAVpuUr77XeCcWJgQbyQZTyAhAoAjbLCvzsU4fUkxjxX-Q2qku_ckxf9Z45MdA" width="276" /></a></div><p>Why does the current account matter so much? Because the current account reflects whether a national economy, cross-borderwise, is living beyond its means or not. Whether it is spending more money outside its borders than it earns outside its borders. And if it is spending more money outside its borders than it earns outside its borders, it needs to obtain funding from outside its borders.</p><p>Greece currently has no difficulties raising funding from outside its borders. On one hand, Greece will continue to receive billions of Euros from the EU Recovery Fund. On the other hand, Greece has, once again, become a very attractive place for investments. Capital markets seem to have, once again, fallen in love with Greece. Furthermore, Greece has very low debt service until the early 2030's.</p><p>Still, a current account deficit is a current account deficit and a current account deficit of 10% of GDP (or worse) is dramatic. If that situation can not be improved, the next dramatic sovereign debt crisis of Greece is already in the calendar. Not this year, not next year. Not even this decade. But if the current account problem cannot be solved, the next bankruptcy of Greece can be expected for the mid-2030's or shortly thereafter.</p>kleinguthttp://www.blogger.com/profile/12491174042954678023noreply@blogger.com0tag:blogger.com,1999:blog-5882645467378797266.post-65280983629920098032022-12-26T11:33:00.002+01:002022-12-26T11:34:03.770+01:00Update On the Dramatic Return Of Greece's Current Account Deficit<p>In <a href="http://klauskastner.blogspot.com/2022/07/greece-dramatic-return-of-current.html">my article of July 29 of this year</a>, I projected for 2022 a dramatic return of Greece's current account deficit which, in 2021, was already a rather high 12,3 BEUR. A linear extrapolation of the figures for the first 5 months would have lead to an annual deficit of 24,2 BEUR. Since the tourist season was not reflected in the extrapolation, I projected that the actual 2022 figures would turn out quite a bit better. </p><p>Update after 10 months: it seems rather certain that 2022's current account deficit will reach at least 20 BEUR! That is at least 10% of GDP. A current account deficit of 10% of GDP is a horrendously high figure. Normally, it would make alarm bells go off. </p><p>Alarm bells won't go off in the case of Greece because there is no risk of a near-term financial crisis. Greece has a relatively small amount of interest expense and principal of debt doesn't really start maturing until the early 2030's. And money will flow in from the EU Recovery Fund. So there really won't be any major financial constraints during the 2020's. </p><p>When there are no financial constraints while money flows rapidly, all sorts of memories of Greece's past come to mind!</p>kleinguthttp://www.blogger.com/profile/12491174042954678023noreply@blogger.com0tag:blogger.com,1999:blog-5882645467378797266.post-2230233399455215802022-09-26T19:39:00.000+02:002022-09-26T19:39:07.929+02:00Greece On The Rebound?<p>An American friend recently asked me for my opinion on the current status of Greece. Below is the original mail which I sent him with 2 follow-up's. </p><p><br /></p><p><b>Original mail</b></p><p>News about Greece? Well, I think I said before that Nea Demokratia (Mitsotakis’ party) should erect a monument honoring Alexis Tsipras in downtown Athens! That man was to the Greek economy what Paul Volcker was to the American one. Except that Volcker did it out of conviction to wring inflation out of the US economy whereas Tsipras had signed everything the Troika had laid on his desk only to be loved by international leaders. No non-leftist leader could have done what Tsipras did - there would have been a rebellion. Sometimes I think that, in approaching the negotiations, the Troika had started with extreme austerity scenarios only to be prepared to negotiate them down but Tsipras didn’t do any negotiating. So screws were really put on EVERYTHING (wages, pensions, benefits, state employees, etc.) and taxes were increased like mad. And the result? A balanced budget and a wonderful trampoline for a new government - fresh leeway to lower taxes and increase benefits!</p><p>The really smart thing of Tsipras was that he did not agree to the Troika’s pressure so sign a standby-agreement for the time after the program. That would have again required memoranda with financial targets, reviews and so forth. Instead he opted for the option of a cash reserve (actually, at the time I argued that he should go for the standby-facility) and the Troika started with a dowry of 15 BEUR. </p><p>But the smartest thing of all was that Tsipras had learned the lesson - „borrow when you don’t need the money so that you don’t have to borrow when you need it“. Mitsotakis subsequently took that lesson to the extreme. Greece borrowed and borrowed because markets were so eager to find yields and before you knew it, Greece was sitting on cash reserves of 40 BEUR+ without having any significant debt maturities until the early 2030s and very low interest expense. So here you have it - markets were lending to Greece because the risk looked so good with so much cash reserves and the more Greece borrowed, the more cash reserves it had and the better it looked. Investment grade is around the corner. Greece spent tons of money on Corona and, now, energy and under normal circumstances that might have led to a liquidity squeeze. As it was/is, it just made a small dent into cash reserves only to be filled quickly again with funds from the EU Recovery Fund.</p><p>Greece is swimming in cash and more cash is on the way out of the EU Recovery Fund. In theory, most of this cash is earmarked for certain growth projects and if Greece, for once, manages to spend borrowed money on sensible investments, that could really lead to a phenomenal future. But that is - as always - the big „if“ with Greece. I would be cautious.</p><p>And against the above background, enter Kiriakos Mitsotakis, a superbly smooth operator with cosmopolitan flair who is more eloquent and fluent in English than most native English speakers. The ideal interviewee for the global networks. The perfect pitcher for foreign investments. A man who managed to give back to Greece, in the eyes of the world, some of its greatness and that, of course, has an impact on the perceived creditworthiness of the country. Mitsotakis dances on the world stage like it is his home. When he visits Washington DC, he - naturally - is given a chance to address both Houses of Congress where he gets innumerable standing ovations. All this leads to a situation which was beautifully described by a recent NYT commentator:</p><p><i>"It is, rather, the unsustainable contradiction between the country Mr. Mitsotakis insists on pitching abroad — an unimpeachably democratic state whose respect for the rule of law and liberal bona fides ought to be rewarded with corporate investments and tourism dollars — and the one he actually presides over.“</i></p><p>Mitsotakis has managed to get the world who loves him to disregard the Greek shadows (of which there have always been many and which have not disappeared). In some ways, he is running the country Orban-style while portraying himself as Thomas Jefferson. The media are pretty much under control and Greece went from #58 to #108 on the Freedom of Press Index. No one seemed to care. If Orban had done to refugees what Mitsotakis is doing (push-back’s, etc.), he would probably have been kicked out of the EU by now. And then it turns out that Mitsotakis' government is wiretapping political opponents! So far, Mitsotakis has managed to keep all these serious issues under control but if and when they explode, they will explode in a nasty way. </p><p>And here is the greatest risk - just like Ikarus became over-confident when he saw that he could fly, Mitsotakis is getting a bit over-confident, too. Quite cocky, I would say. When the honor of addressing both Houses of Congress is awarded to you, you live up to that distinction and you don’t use that opportunity to trash your neighbor (regardless how justified Turkey-trashing would be; and it is!). When you sit in the European parliament and listen absent-mindedly to serious criticism from a parliamentarian who quotes from the EU report on Greek push-back’s, everyone would expect you to respond in a serious way to those accusations (which, incidentally, are not accusations but proven facts). When you then get up and say not much more than „Greece is honoring all international treaties and conventions“ - full stop, well, that’s really kind of cocky. </p><p>All of this is a very long way of saying that not everything is as shiny in Greece as it presently seems. Yes, Mitsotakis is a serious leader and he has some serious people in his government. Notably the Minister for Digitalization who is a genius and who has already introduced incredible reforms in public administration. But the sad fact is that underneath the surface are Greece and the Greeks and I am very cautious before I jump to the conclusion that Greeks will really change. Our mutual friend David would tell you that they never will.</p><p>The economy is booming. No surprise with all that cash and all those tourists coming in. Unemployment is down to 12% (!) and growth this year will be over 5%! But whenever Greece booms, Greeks discover that the products for which they now have money and which they want to buy are not produced in Greece. The money immediately goes into imports. Tsipras’ austerity had brought the current account deficit down to almost zero. This year, it will be at least 20 BEUR despite all the tourism records. That’s a little over 10% of GDP. Back in 2009, just before Greece had hit sudden stop, the current account deficit was about 15%. I think there is a real chance that Greece will return to its traditional role of being a turntable for money - money coming into the country as debt and leaving it as current account deficit and capital flight. And with everything booming, inflation is going through the roof not only because of energy costs. Simply put - Greece is getting expensive again. Not too bad yet but well under way. And we all remember what happens when Greece becomes more expensive than competitor countries. </p><p>One of the greatest risks that I can see is that Greece faces no serious financial constraints for a number of years. Existing cash reserves are high enough to carry the country through several years and more cash is on its way. Not having financial constraints while cash is flowing into the county is a very dangerous combination for Greece.</p><p><br /></p><p><b>Addendum #1</b></p><p>Of course I was being facetious about Tsipras. I agree with those many people who say that Tsipras’ IQ is not very high. It doesn’t appear like he really understood what was happening around him. He was the man with the megaphone and he had great talent to hit on good soundbites. As for the „Volcker of Greece“, the Troika was the Volcker and Tsipras was their proxy. He would shout into the megaphone that he would reject the latest Troika demands only to sign them the following day. He is really a bit of a tragic figure because he took the beating so that his successor could shine (and he was not aware that he was doing it!).</p><p>Tsipras is not history yet! The wiretapping scandal has really damaged Mitsotakis credibility and strengthened Tsipras’ megaphone. The new election system makes it virtually impossible for anyone to rule alone, so Mitsotakis will need to find a coalition partner next year. Tsipras will also look for coalition partners. So Greece will face interesting times (again). The only thing which seems certain is that Greece will be less stable going forward (after the election).</p><p><br /></p><p><b>Addendum #2</b></p><p>Back in the summer of 2018, Greece was heading for the exit from the Troika program. There was really no way of telling at the time what would happen once Greece stood on its own feet again. Most people were cautious and felt Greece shouldn’t take any risks and, therefore, opt for a Troika standby facility. That also made a lot of sense to me because, that way, Greece would pay only a small commitment fee and nothing more. The alternative (the cash reserve) would mean that Greece would pay interest and receive less interest on the re-investment of those funds. </p><p>Tsipras was the lone wolf. His objective was to go into the 2019 elections with the claim that he personally had freed Greece of all foreign shackles and a standby facility would have required him to sign another memorandum. That was a no-go for Tsipras. In retrospect one can say that entirely for political reasons he took a decision which turned out brilliant for economic reasons. No one at the time would have foreseen how easy it would be for Greece to borrow new money in the markets at near-zero rates.</p><p>I love to browse around in the statistics of the Greek Central Bank and Treasury (as well as those of other countries). It is quite surprising what one can find there. For example, since 2010, during more than a decade where everyone thought Greece was excluded from foreign funding, Greece managed to increase its external debt by 195 BEUR (!) to 565 BEUR! That now represents almost 3 times GDP. Argentina is looking good in comparison… Of that 195 BEUR increase, roughly 120 BEUR alone came in during the last 3 years of Mitsotakis’ government!</p><p>Greece now has a negative net international investment position of 325 BEUR (i. e. negative international net worth). Since external debt alone is 565 BEUR, I figured that there must be somewhere at least 240 BEUR in foreign assets. As it turns out, the Greek economy reports total foreign assets of 302 BEUR against foreign liabilities of 627 BEUR. I was extremely surprised that the Greek economy would have so many foreign assets. Regrettably, from the Central Bank lingo, I can’t tell what assets those are and who owns them. That would be an interesting area to research!</p><p>Whichever way you slice it, those figures - albeit not nominally as large as Italy’s - are huge figures for a country the size of Greece. Wouldn’t you agree? I know one shouldn’t look at such macro figures with a bookkeeper’s mind but my bookkeeper’s mind tells me that, cross borderwise, Greece has a negative net worth of 302 BEUR. And if the foreign assets do not serve as collateral for the foreign liabilities (which I am sure they don’t), foreigners have 627 BEUR at stake in Greece. Not bad for a small country which doesn’t even have a complete land registry yet and where the state is not able to produce a list of all real estate it owns!</p><p>That brings me to my favorite subject of Target2. In the spring of 2011, the German economist Hans-Werner Sinn wrote an article that he had discovered an amount of 325 BEUR among the assets of the Bundesbank and had researched what they were. It turned out they were socalled Target2 claims. And since then there has been a debate what Target2 claims are. Are they overdrafts? Loans? Or simply hot air? Well, they are undocumented balances in a clearing system. If Germany has 325 BEUR in claims (the claims are against the ECB), someone else has 325 BEUR in liabilities against the ECB. If the clearing system breaks down (i. e. if the Euro fails), Germany is out of 325 BEUR.</p><p>Except, Germany would now be out of over 1,2 trillion Euro because that’s the current level of Bundesbank Target2 claims! Well, that’s like one-thousand-two-hundred-billion-Euros. Or more than a quarter of Germany’s GDP! This come on top of the rescue financing which Germany has been part of in the last decade. If there were no Euro-clearing system called Target2, the deficit national central banks would have to borrow that money in the market (if they could indeed borrow it) and pay interest on it instead of the interest-free ECB liabilities. According to the gospel, any Target2 liabilities were supposed to be secured by first-class securities. Well, they have become unsecured by now.</p><p>Returning to Greece. Greece had scared the world because by 2010, their Target2 liabilities had reached almost 150 BEUR. That was the net outflow of money which could not be financed by normal credit. It was again under their proxy Tsipras that the Troika could reduce the Target2 liabilities to 25 BEUR by 2019. An achievement which I would never have thought possible. And where have they gone since then under Mitsotakis? They are currently around 110 BEUR again. If you want to look into Target2 balances in more detail, <a href="https://sdw.ecb.europa.eu/servlet/desis?node=1000004859">here is a good link</a>.</p><p>What am I trying to get at? Well, if one were to look at Greece with the same critical mind as one looked about 10 years ago, one should really get scared. Budget deep in the red, current account deep in the red, sovereign and foreign debt rising at enormous speed. But no one is worried at the moment. After all, Mitsotakis is a good looking cosmopolitan man who is fluent and extremely eloquent in English. He has a great pitch and he pitches all the time. But one should always remember what the commentator wrote in the NYT recently: <i>"It is the unsustainable contradiction between the country Mr. Mitsotakis insists on pitching abroad — an unimpeachably democratic state whose respect for the rule of law and liberal bona fides ought to be rewarded with corporate investments and tourism dollars — and the one he actually presides over.“</i></p><p>If you look at the above figures of Greece and bear Italy’s figures in the back of your mind (and some other countries), you know that there is only one way for the Euro to survive longer-term and that is the mutualization of all national debts (i. e. Eurobonds). Otherwise, this whole system is going to blow up sooner or later. Which reminds me of a biography I once read about Alexander Hamilton. His point was that there are 2 key prerequisites for a union to stay together: a common army and a common currency with a central bank. Well, he got both. The EU still needs both (whether you like it or not).</p>kleinguthttp://www.blogger.com/profile/12491174042954678023noreply@blogger.com2tag:blogger.com,1999:blog-5882645467378797266.post-73388316559090393512022-08-28T11:39:00.002+02:002022-08-28T11:39:44.256+02:00Alexander Clapp Spoils Bullishness About Greece<p><a href="https://www.nytimes.com/2022/08/22/opinion/greece-mitsotakis-predator-spyware.html">Alexander Clapp's essay on Greece</a> ("<i>The Rot at the Heart of Greece Is Now Clear for Everyone to See</i>"), published in the NYT on August 22, met with a multitude of reactions. Personally, I thought the essay was excellent and fair but I can understand why the reaction from the Greek side would be less than enthusiastic. One exception to that was <i>The Greek Analyst</i> who published <a href="https://twitter.com/GreekAnalyst/status/1563137798109929472">a lengthy thread</a> on Twitter. This was remarkable in as much as <i>The Greek Analyst</i> (73,8K followers) has been extremely bullish on Greece of late.</p><p>Since I had been in contact with Alexander Clapp a few years ago, I sent him the following mail about his essay.</p><p><i><br /></i></p><p><i>Dear Alex,</i></p><p><i>The key statement in your essay, to me, was the following:</i></p><p><i>"It is, rather, the unsustainable contradiction between the country Mr. Mitsotakis insists on pitching abroad — an unimpeachably democratic state whose respect for the rule of law and liberal bona fides ought to be rewarded with corporate investments and tourism dollars — and the one he actually presides over.“</i></p><p><i>That question has been bugging me for quite some time now. I belong to those who were initially overwhelmed by Mr. Mitsotakis: his cosmopolitan demeanor; his superbly eloquent English; the way he handles himself; etc. Watching English interviews with him was always a pleasure. And the trick worked with me because I started believing that a new Golden Age was in Greece’s future. A modernized Western nation where people act rationally, honestly and responsibly. I even wrote a couple of articles in my blog about it.</i></p><p><i>It started with the push-back’s. There is a Greek journalist at DER SPIEGEL (Giorgos Christides) who really seems to detest the current government and whose articles about the push-back’s were accordingly. So I really didn’t take them too seriously (apart from the fact that I have true sympathies for Greece with regard to protecting EU borders). When the EU published its report on FRONTEX, there were proven facts but I still didn’t get overly excited. And then I watched a session of the EU parliament where Mitsotakis was present. A lady (don’t recall from which party) read him the riot act with innumerable facts from the report. I still did not get excited because I expected Mitsotakis to address each fact in his response. Instead, his response was limited to something like „Greece adheres to all laws and international treaties.“ That, I thought, was arrogant.</i></p><p><i>Then came his visit to the US and his speech before both Houses of Congress. To use that speech for portraying Turkey as an evil empire (even though it is) was not only displaced, in my opinion, but also arrogant. Those issues should be addressed in private discussions but not as a guest of honor before both Houses of Congress. </i></p><p><i>And now we have this issue with the wiretapping. I would have expected Mitsotakis to quickly announce the formation of an investigation committee including international experts and even members of the opposition. His actual reaction I found disappointing.</i></p><p><i>After Greece’s exit from the program in 2018, I wrote <a href="https://klauskastner.blogspot.com/2018/08/the-rescue-is-over-reviewing-7-years-of.html">a lengthy article</a> summarizing all my experiences of the crisis and concluding that Greece was now truly on the right track and that, therefore, I wouldn’t continue my blog. </i></p><p><i>Of late, I have looked at some of the hard facts of Greece (as opposed to the soft PR of Mitsotakis). I have written about <a href="https://klauskastner.blogspot.com/2022/07/greece-dramatic-return-of-current.html">Greece’s massive current account deficit</a> and <a href="https://klauskastner.blogspot.com/2022/08/greeces-gross-external-debt-hits-565.html">the staggering increase in foreign debt</a>. While I don’t want to spoil the party of a record tourist season, the hard facts are very disappointing. Greece seems to return to being a turntable for money, money entering the country as debt and leaving it as payment for imports and capital flight.</i></p><p><i>There is one minister, though, who really commands my respect - Kyriakos Pierrakakis. That man seems to be a digital genius. I wish we would have someone like that in Austria!</i></p><p><i>When I think of all the billions which will flow to Greece out of the EU Recovery Fund, I really get worried. Will that money be wisely spent or will it be wasted (again)?</i></p><p><i>I hope you are fine and if you get a chance to drop me a line, I would welcome it.</i></p><p><i>Best regards.</i></p>kleinguthttp://www.blogger.com/profile/12491174042954678023noreply@blogger.com2tag:blogger.com,1999:blog-5882645467378797266.post-38997775078752382342022-08-21T14:44:00.000+02:002022-08-21T14:44:18.688+02:00Greece's Gross External Debt hits 565 BEUR! (300% of GDP!)<p>The Greek financial crisis began when foreigners brought new lending to a halt and began calling in existing loans. That is a process which normally starts rather slowly at the first sight of clouds over the horizon but which rather quickly accelerates as foreign financial agents watch the conduct of their competitors and then start doing what they are doing. The culmination of the process is called "Sudden Stop". That is when no one makes voluntary loans to Greece any longer.</p><p>It is fair to say that voluntary foreign lending came to a halt in early 2010 (the first memorandum was signed in May 2010). At that time, Greece's gross external (foreign) debt was around 430 BEUR.</p><p>"Gross foreign debt" (not to be confused with "sovereign debt") is the total of all monies which have entered the country as debt (as opposed to foreign investment), regardless of the borrower. At that time, Greece's foreign debt was roughly 50:50 with the government and with the banking sector. A small portion was with individual borrowers such as large Greek corporations. </p><p>By the end of the first quarter of 2022 (March 31), Greece's gross foreign debt stood at 565 BEUR. What? That would represent an increase of 135 BEUR in a period where Greece was most of the time restricted by memoranda with the Troika! Well, the number of 135 BEUR is indeed not correct. The actual number is even higher!</p><p>In 2012, foreign creditors gave the Greek government a 'haircut' of 100 BEUR, roughly 60 BEUR of which were foreign debt. Thus, the increase of gross foreign debt between early 2010 and March 31, 2022 was actually 195 BEUR! That's about one year's worth of Greek GDP!</p><p>The overall interest expense on the total of 565 BEUR of foreign debt is not known to me. If the weighted interest rate were 1%, the annual interest expense would be 5,65 BEUR. If it were 2%, it would be 11,3 BEUR annually.</p><p>Interest expense it accounted for in the country's current account. In order for the country overall to pay 5,65 BEUR in annual interest, the current account needs to have a surplus of 5,65 BEUR. If the interest expense were 11,3 BEUR, the surplus in the current account must be in the same amount. Otherwise, Greece would have to borrow from abroad in order to pay interest due abroad (unless there are cash reserves).</p><p>In my previous post, I have outlined that Greece not only does not have a current account surplus but, instead, a massive current account deficit which means that Greece has to borrow abroad not only to pay interest but also to finance the rest of the current account deficit. Well, not quite. Greece currently has substantial cash reserves which can be used for foreign payments. </p><p>Whichever way one analyzes the above, those are staggering figures! A gross foreign debt of 565 BEUR represents close to 300% of the annual GDP. There cannot be many countries in the world which have a higher ratio. </p><p>Also, it is a quite staggering development when an economy aims at bringing down foreign debt after a crisis while in actual fact increases foreign debt by 195 BEUR! It certainly raises the question of what happened to all that money? Was it invested prudently and economically or was ist spent?</p><p>If this process continues, it won't be long until Greece hits 600 BEUR in gross foreign debt. Perhaps when that staggering number is published, the eyes of creditors will once again start looking at Greece's financials.</p>kleinguthttp://www.blogger.com/profile/12491174042954678023noreply@blogger.com0tag:blogger.com,1999:blog-5882645467378797266.post-10932182884326535782022-07-29T10:44:00.000+02:002022-07-29T10:44:08.207+02:00Greece - The Dramatic Return of the Current Account Deficit!<p>This blog was/is essentially a blog about Greece's post-2010 crisis. After the exit from the Troika-program in 2018 and since the assumption of power by the Mitsotakis government, the crisis has turned into a bit of a success story and Greece, today, is on its way towards investment grade. And without a crisis to observe, there was no further purpose for this blog. The surprisingly high current account deficit for May (up 47% over the previous year) prompted me to write again about this issue.</p><p>From the beginning in June 2011, the importance of the current account for an economy like Greece's was the major issue of this blog. The current account is quasi the operating cash flow of an economy: it measures money spent outside a country's borders against money received from outside its borders. If more money is spent abroad than earned abroad (deficit), the cash shortfall needs to be covered with funds from abroad (mostly foreign debt). If there is a current account deficit, a country is living beyond its means cross-borderwise. From an accounting standpoint, a current account deficit represents a transfer of domestic wealth abroad or, put differently, a reduction of domestic net worth.</p><p>2014 was the best year for Greece's current account (or the worst, depending on one's point of view): the contraction of domestic spending power had contained the growth of imports, exports were beginning to rise and revenues from tourism were strong. The current account deficit was 1,2 BEUR, the lowest in memory (then about 1% of GDP).</p><p>The figures below compare 2014 with the linearly extrapolated figures for 2022; i. e. 5 months extrapolated on a linear basis into 12 months). Since the tourist season is not reflected in the extrapolation, the actual 2022 figures may turn out quite a bit better. Still, the overall picture is a valid case for observation.</p><p>(in billions of EUR)</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEjeKnYG2PXwtMtXaIrwLjO34g-G4zIRFTgWpbxO5NYiiUs3d14-AHPXlPGMVz-S9SPhn_QTgSpHyri7AcNZdsdxhQQ0npSBM5xBG4bt9e9_SQcy4xYnXvWPjNssSAqbCAi1u6cRKSSlrCm4OmbQrdpS0BjtfxQNgP_8MT27uDLzINsu2H0vmtIXZvRpuA" style="color: #2288bb; margin-left: 1em; margin-right: 1em; text-decoration-line: none;"><img alt="" data-original-height="305" data-original-width="385" height="240" src="https://blogger.googleusercontent.com/img/a/AVvXsEjeKnYG2PXwtMtXaIrwLjO34g-G4zIRFTgWpbxO5NYiiUs3d14-AHPXlPGMVz-S9SPhn_QTgSpHyri7AcNZdsdxhQQ0npSBM5xBG4bt9e9_SQcy4xYnXvWPjNssSAqbCAi1u6cRKSSlrCm4OmbQrdpS0BjtfxQNgP_8MT27uDLzINsu2H0vmtIXZvRpuA" style="background: rgb(255, 255, 255); border: 1px solid rgb(238, 238, 238); box-shadow: rgba(0, 0, 0, 0.1) 1px 1px 5px; padding: 5px; position: relative;" width="303" /></a></div><p><br />The number which jumps to mind is the 24,2 BEUR deficit! The worst deficit Greece ever had was about 35 BEUR in 2008 (then about 15% of GDP) and that eventually lead to the country's illiquidity. From 2014-2019, the annual current account deficit increased moderately. Since 2020, it is exploding and in 2022, it is likely to be about 13%! Given the huge amounts of foreign funding which will flow into the Greek economy out of the EU Recovery Fund, the current account deficit is likely to increase even further.</p><p>Inflow of foreign funds is great fun for the domestic economic agents: those funds represent revenues on the part of the recipients which leads to growth and wealth. The higher the inflow, the greater the fun (remember the 2000's?). The only problem is that pain can result once the inflow stops.</p><p>It all depends on how the money is spent. If the money is invested in projects of sustained economic value, the inflow will lead to sustained prosperity. If it is spent on short-term consumption, we will see a repeat of 2010 at some point in the future.</p><p>The challenge for the Greek economy is to increase domestic value creation so that exports can be increased and, perhaps, some imports substituted. To achieve that would be something that could truly be called a "structural reform". Greece seems far away from that.</p><p>Even though the current account deficit is approaching a dangerous level, there is no risk of a near-term financial crisis. Greece has a relatively small amount of interest expense and principal of debt doesn't really start maturing until the early 2030's. And, as mentioned above, money will flow in from the EU Recovery Fund. So there really won't be any major financial constraints during the 2020's. When there are no financial constraints while money flows rapidly, all sorts of memories of Greece's past come to mind.</p>kleinguthttp://www.blogger.com/profile/12491174042954678023noreply@blogger.com3tag:blogger.com,1999:blog-5882645467378797266.post-25336432755623957632022-03-23T19:06:00.000+01:002022-03-23T19:06:22.256+01:00The Perennial Problem of Greece's Current Account<p>The statistics published by the Bank of Greece go back to the year 2002. During those 20 years, Greece did not even once record a balanced current account (not to mention a surplus). In fact, I remember reading in history books that Greece has not once in its 200-year existence as an independent nation recorded a balanced current account (not to mention a surplus). </p><p>What is a current account and why is it important for a national economy? The simplest description is that the current account represents the cross-border operational cash-flow of a national economy. Operational cash comes into a country as proceeds from exports, revenue from tourism, transfers from the EU, etc. Operational cash leaves a country as payment for imports, for interest on foreign debt, for transfers to the EU, etc.</p><p>When the cross-border operational cash-flow is negative, there has to be a 1:1 offset through a positive cash-flow in the capital/financial accounts. This is not a matter of economics but, instead, of mathematics. Again: if the current account is negative, there have to be, on a 1:1 basis, positive capital/financial accounts. If there were no positive capital/financial accounts, there could not be a negative current account. Put differently, a national economy which runs out of foreign currency can no longer import. Below are the Greek statistics since 2002.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj3R2JpEu4OgKfILu3PYD_nWxmZukJRm639zZUoUJ1ZKw9uBW8o-z6vXOkpWRpaP5ynoJZ2TeGJ_mPdG7zpxk1y_1_5xUaMk1hYYkDx_eiryMo9l2H4zNUfm1ZbTRQYGzzVj-2Pu-r_uNUAH2kb8vW3M4pILwJU0ijdS6oNcLGqzj4oSUH9nch-cm2DOw/s592/Bildschirmfoto%202022-03-23%20um%2018.08.06.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="561" data-original-width="592" height="303" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj3R2JpEu4OgKfILu3PYD_nWxmZukJRm639zZUoUJ1ZKw9uBW8o-z6vXOkpWRpaP5ynoJZ2TeGJ_mPdG7zpxk1y_1_5xUaMk1hYYkDx_eiryMo9l2H4zNUfm1ZbTRQYGzzVj-2Pu-r_uNUAH2kb8vW3M4pILwJU0ijdS6oNcLGqzj4oSUH9nch-cm2DOw/s320/Bildschirmfoto%202022-03-23%20um%2018.08.06.png" width="320" /></a></div><p>During the 20 years since 2002, the Greek national economy incurred a negative cross-border operational cash-flow of 274 BEUR. Put differently, Greece paid 274 BEUR more for imports, interest on foreign debt, etc. than it received from exports, tourism, EU transfers, etc. </p><p>That deficit was financed through a surplus of 45 BEUR in the capital account (e. g. EU subsidies), a 208 BEUR surplus in the financial account (e. g. debt) and another 20 BEUR which the Bank of Greece calls "<i>balancing items</i>", i. e. items which cannot be categorized.</p><p>Why is all of that important? It is important because it helps to explain the living standards in the national economy and what they depend on. Many of the capital and consumption goods which Greeks desire must be imported for the simple reason that they are not produced in Greece. In fact, when it comes to consumption goods, a walk through a shopping mall creates the impression that <i>most</i> of those goods are imported. Revenues from exports and tourism are not nearly sufficient to pay for all the goods which Greeks desire to import. Greece needs funds from other sources in order to pay for the imports which Greeks desire. Without those '<i>other sources</i>', the living standards of Greeks would decline sharply.</p><p>As the above table shows, those '<i>other sources</i>' are principally EU subsidies, foreign debt and some foreign investments. Without EU subsidies, foreign debt and some foreign investments, Greeks would have to accept significantly lower living standards.</p><p>The above table shows another '<i>Greek phenomenon</i>': as domestic purchasing power increases/declines, the current account deficit increases/declines as well. During the heyday of the Euro-party (until the financial crisis), Greek consumers were awash with cash and imported nearly beyond imagination (excessive current account deficits). As austerity was imposed on the Greek economy, Greek consumers were short of cash and the current account deficit declined. </p><p>During the last couple of years, things have improved for Greek consumers and, not surprisingly, the current account deficit returned to very high levels. Not excessively high, but very high nevertheless. That really leads to a disappointing conclusion: despite all the reforms in the decade of the financial crisis, the structure of the Greek economy hasn't really changed. It still has the characteristics of a developing economy, i. e. products which the consumers desire have to be imported and imports lead to indebtedness because there are not enough products/services which the national economy can export.</p><p>In short, the living standards of the national economy still depend on: (a) foreigners lending to or investing money in Greece and (b) various types of EU subsidies and financial support programs.</p><p>Is that a long-term perspective? Not really, at least not a very good one because it suggests that Greece will always be dependent on foreigners lending to or investing money in Greece. What if foreigners, for whatever reason, would one day stop doing that? </p><p>There is only one way to make the Greek economy less dependent on foreigners and that is to increase domestic value creation. To produce more of the goods and services which Greek consumers desire so that they do not have to import them and to produce more of the goods and services which foreigners desire so that Greece can export them. </p><p>There is no other way! And it is an urgent matter!</p>kleinguthttp://www.blogger.com/profile/12491174042954678023noreply@blogger.com0tag:blogger.com,1999:blog-5882645467378797266.post-36979293106184242972021-06-23T08:47:00.004+02:002021-06-23T08:48:17.661+02:00Greece Is Booming!<p>When my wife and I last left Greece on December 13, 2019, we had no idea that it would be 1-1/2 years until our return. Well, Corona did that to us. But now, since 3 weeks ago, we are back in Kalamaria, a beautiful suburb of Thessaloniki. And, frankly, it feels like the Greece we returned to is a different country than the Greece we had left.</p><p>The first signs that the Greek state was no longer as dysfunctional as it had often presented itself in the past came in February 2020 when Corona started showing up in several European countries. Greece immediately took action whereas most Central European countries pondered the situation and announced that they would take immediate action once that became necessary. With the benefit of hindsight, we now know that this indecisive approach was a big mistake.</p><p>The lockdown procedures where rather similar in most countries: prohibition to leave homes except for 4-6 specific purposes. In Austria, for example, there were extended debates about those exceptions leading to substantial delays. And when the exceptions were finally agreed upon, there was really no plan how to control them. Greece, instead, implemented quasi overnight a system where QR-codes had to be obtained for exceptions via SMS. And significant efforts were made to control compliance. I remember that the Greek authorities often announced the number of checks they had made, the number of fines and the total amount of fines. That obviously promoted discipline among the people.</p><p>When I told this to my Austrian friends, they said that such was the behavior of a police state. Well, police state or not, when it helps keeping infections and casualties low, Greece was far ahead of most European countries (only some Scandinavian countries were equally successful). So Greece came through the first wave literally as a hero and I could only marvel at that.</p><p>By October, the influenza vaccinations were scheduled to begin. Austrian authorities had campaigned for months to motivate people to get influenza shots. The vaccination rate had only been 8% the year before and they wanted to increase that rate to 20% this year. There was only one slight problem: Austria did not have sufficient vaccines! Something had gone wrong with the orders, the authorities explained. And while we were desperately waiting to get the vaccines (by December!), my wife reminded me literally every day that her Greek friends had already been vaccinated. That pained!</p><p>As the Corona vaccinations began in early January of this year, Austrians were informed about the national vaccination plan with all of its priorities but there was zero information as to how one could register for vaccinations. Again, my wife told me that her Greek friends were already registering and had received vaccination appointments. That was a very painful period for me. </p><p>In summary, during our 1-1/2 year absence from Greece, I observed from Austria that the Greek authorities handled the situation much better than most other European countries, certainly better than Austria.</p><p>When we returned to Greece late last month, a number of things quickly caught my attention. Above all: this was not the country which was expected to be debt slaves for decades and live in poverty and depression. On the contrary, everything and everyone seemed to be booming like in the good old days: overcrowded markets, shoppers all over the place, full cafés and restaurants, overboarding traffic and traffic jams with gasoline prices 30% higher than in Austria, etc. This prompted me to look at some economic indicators which I hadn't done in a long time.</p><p>There is no question in my mind that Alexis Tsipras - despite all the chaos which he caused in many areas - accomplished two major things for the benefit of Greece. First, following the (self-inflicted) near collapse in mid 2015, Tsipras had signed practically everything which the Troika proposed without objections. The Troika measures were rather brutal in many ways and I do not believe than anyone other than a leftist politician could have done that (because the leftists in opposition would have torpedoed most of the measures). In sum, however, these measures had positive effects as evidenced by the fact that Greece is now being attested much better competitive ratings than only 5 years ago. And, secondly, Tsipras had refused to enter into a stand-by agreement with the Troika following the termination of the program in 2018. Instead, he opted for the cash reserve strategy and the Troika started it off with a dowry of 15 BEUR.</p><p>Since then, the Greek state followed the motto "the time to take up debt is when one doesn't need the money". Today, cash reserves of the state (financed with new debt) allegedly exceed 40 BEUR and another 30 BEUR will come from the EU Resilience and Recovery Fund. Since significant debt maturities will not come until the early 2030s, the Greek state is now completely '<i>overfinanced</i>' for the next 10+ years and, thus, there cannot be foreign payment problems. Prime Minister Mitsotakis has pursued and even expanded the cash reserve policy - in the last year alone, foreign debt increased by 50 BEUR to 500 BEUR!</p><p>Rating agencies are allegedly considering an upgrade of Greece's rating to investment grade. This is very interesting in as much as Greece today has significantly weaker economic indicators than 5 years ago: the debt/GDP ratio now exceeds 200%, the fiscal budget (prior to Corona it had been positive!) is now deep in the red and the current account, which 5 years ago had been almost in balance, registered a deficit of 11 BEUR in 2020, which deficit is likely to increase in 2021. When Greece experienced the sudden stop back in 2010, these indicators were not worse than now.</p><p>The fact is, however, that the funds which will flow into Greece in the next few years will be reminisicent of the '<i>Euro-party</i>' in the 2000's. The Euro-party ended in disaster because the funds were largely misapplied. Optimists argue that this mistake will not be repeated this time around, if only because of the EU's supervision. We will see. The fact is also that Greece now has, for the first time in a long time, a government which includes a significant number of competent and professional individuals. To me, the superstar is Kyriakos Pierrakakis who is responsible, among others, for Greece's digitalization. The man seems to be a magician. I recently read an article which claimed that new digitalization has already saved 23 million working hours in the public sector. There is undoubtedly a bit of propaganda behind that statement but still, there is positive evidence. My neighbor tells me that he can now take care of most of his official business without having to go to public offices. Even though he is not very computer-literate, he can handle most things electronically. And then there is the issue of the Greek land registry. This project had originally been started by King Otto and his 3,000 Bavarian public servants back in the 1830s and hundreds of millions of EU subsidies had been wasted in recent decades. Allegedly, this project is now nearing completion and Greece will have complete digital land registry.</p><p>Miracles are unlikely to happen. In daily life, Greeks will undoubtedly continue to live with corruption and tax evasion. However, in those places where it really matters (at the upper levels of public administration, politics, corporate governance, etc.) a trend in a positive direction should be expected. I would not be surprised if this lead to a positive feedback loop and I would certainly not be surprised if foreign investors were to show significant interest in Greece very soon. That would not only bring additional capital to Greece but, above all, know-how.</p><p>All of this could suggest that one should invest in the shares of Greek banks. After all, this is where the tsunami of cash will flow in the next years and the business of the banks should be booming. However this will also be the potential Achilles' tendon. The critical issue will be how all that cash is applied, towards profitable investments or towards unproductive investments and/or activities. Time will tell whether economic rationality will drive the conduct of Greeks in the future or not.</p>kleinguthttp://www.blogger.com/profile/12491174042954678023noreply@blogger.com2tag:blogger.com,1999:blog-5882645467378797266.post-3722013203991535922021-01-31T09:16:00.003+01:002021-01-31T09:16:30.509+01:00Attractiveness Of Doing Business In Greece (rankings)<p><a href="https://klauskastner.blogspot.com/2021/01/corruption-perception-index-for-greece.html">My last post</a> discussed Greece's improvement over the last 10 years as regards perceived corruption (an improvement of about 30 spots in the ranking of about 180 countries). In that post I said:</p><p>"<i>10 years ago when I had started this blog, one of my major arguments was as follows: Greece ranks the highest in the EU as regards perceived corruption and the lowest as regards attractiveness for doing business (which was the case then). If these tables could literally be turned (i. e. the lowest in perceived corruption and the highest in attractiveness for doing business), then Greece could well develop into the economic hotspot of the Eastern Mediterranean. How have these rankings developed?</i>"</p><p>Below is the other important ranking, the <a href="https://openknowledge.worldbank.org/bitstream/handle/10986/32436/9781464814402.pdf">World Bank's Doing Business Report for 2020</a>. It measures about 190 countries in terms of their attractiveness for doing business. </p><p><br /></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiQ3w62CIa6agkx-SswSK1U-aTskzh43su1bxbq2V3aQj6JVR2sMPLO-9gor3l2EpMwAtifKLDkI6u63cX9ZQb84qBnwxkSyC-Vn6VgF8v2TEH5RyhjlhSZ7bupkC6FS9yyp8fkP17m1R-3/" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="248" data-original-width="151" height="240" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiQ3w62CIa6agkx-SswSK1U-aTskzh43su1bxbq2V3aQj6JVR2sMPLO-9gor3l2EpMwAtifKLDkI6u63cX9ZQb84qBnwxkSyC-Vn6VgF8v2TEH5RyhjlhSZ7bupkC6FS9yyp8fkP17m1R-3/" width="146" /></a></div><br /><p>Here, too, Greece's ranking improved by roughly 30 spots. Depending on how one reads statistics, one could even argue by 40 spots. That would be the good news.</p><p>The not so good news is that Greece did not improve its position within the peer group (EU member countries). In fact, only the tiny Malta ranks behind Greece at position #84.</p><p>It is interesting to note that the significant improvement occurred during the years 2020-12, i. e. during the time when Greece was literally put through the wringer by its EU friends. </p>kleinguthttp://www.blogger.com/profile/12491174042954678023noreply@blogger.com2tag:blogger.com,1999:blog-5882645467378797266.post-65894940912582577562021-01-28T11:17:00.005+01:002021-01-31T09:18:02.422+01:00Corruption Perception Index For Greece<p>Transparency International (TI) publishes annually the Corruption Perception Index where they measure roughly 180 countries in terms of perceived corruption. As the title says, it is based on perceptions and not on objective measurements because the latter would be impossible in the area of corruption.</p><p>10 years ago when I had started this blog, one of my major arguments was as follows: Greece ranks the highest in the EU as regards perceived corruption and the lowest as regards <a href="https://klauskastner.blogspot.com/2021/01/attractiveness-of-doing-business-in.html">attractiveness for doing business</a> (which was the case then). If these tables could literally be turned (i. e. the lowest in perceived corruption and the highest in attractiveness for doing business), then Greece could well develop into the economic hotspot of the Eastern Mediterranean. How have these rankings developed?</p><p>TI just published their <a href="https://www.transparency.org/en/cpi/2020/index/nzl">2020 Corruption Perception Index</a> where Greece ranks #59. In and by itself, that ranking is not very meaningful but it does become meaningful when one analyzes a longer term trend and the comparison with peer countries (in the case of Greece the EU). Below are the rankings of the last 10 years:</p><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjxoPQxaQdcHXvdYR9Jj2Ur7wTjD0tDbA_5-mend3b_RvjR0lTqS0p8tg_fbi7EVtfrGUIfdv4sGiGftvjDxZrULT-yp-gM7mPXaCn5aqWzQ9-AvZx6pr-88Jf41GvjZlsO5-owOl1ANXg6/" style="margin-left: auto; margin-right: auto;"><img alt="" data-original-height="248" data-original-width="151" height="240" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjxoPQxaQdcHXvdYR9Jj2Ur7wTjD0tDbA_5-mend3b_RvjR0lTqS0p8tg_fbi7EVtfrGUIfdv4sGiGftvjDxZrULT-yp-gM7mPXaCn5aqWzQ9-AvZx6pr-88Jf41GvjZlsO5-owOl1ANXg6/" width="146" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;"></td></tr></tbody></table><p>There clearly has been a change in the last 10 years, a change for the better. If 10 years ago the ranking ranged between 85-95, in recent years it has ranged between 55-65. Roughly speaking, once can argue that Greece improved its ranking by about 30 points in the last decade.</p><p>When, 10 years ago, Greece ranked the highest among all EU countries as regards perceived corruption, Greece nowadays leaves several EU countries behind: Slovakia, Croatia, Slovenia, Hungary and Bulgaria.</p><p>The often heard argument that "<i>Greece will never change</i>" seems a bit disproven by the above.</p>kleinguthttp://www.blogger.com/profile/12491174042954678023noreply@blogger.com0tag:blogger.com,1999:blog-5882645467378797266.post-62232053292294625562020-09-26T10:24:00.001+02:002020-09-26T10:24:14.966+02:00Greece's Admirably Strong Financial Condition<p>As Greece prepared for its exit for the '<i>rescue program</i>' 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. </p><p>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.</p><p>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 "<i>cash is king and increases creditworthiness</i>". </p><p><a href="https://www.ekathimerini.com/257370/article/ekathimerini/business/staikouras-real-economy-to-suffer-in-another-lockdown">Finance Minister Christos Staikouras is quoted in this article</a> as “<i>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</i>". 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.</p><p>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. </p><p>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.<br /></p><p>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.</p><p>This would certainly seem to be the time for investing in Greek bonds with maturities in the next few years!</p>kleinguthttp://www.blogger.com/profile/12491174042954678023noreply@blogger.com2tag:blogger.com,1999:blog-5882645467378797266.post-62206242605641043632020-09-06T22:23:00.000+02:002020-09-06T22:23:51.792+02:00I Am Embarrassed To Be An EU Member!<p>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.</p><p>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.</p><p>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?</p><p>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 '<i>only</i>' 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. </p><p>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.</p><p>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. </p><p><br /></p><div class="separator" style="clear: both; text-align: center;"><iframe allowfullscreen="" class="BLOG_video_class" height="266" src="https://www.youtube.com/embed/urwsQpsJWfo" width="320" youtube-src-id="urwsQpsJWfo"></iframe></div><p></p><p>Would they have offered the same admiration to Putin after he took over the Crimean?</p><p>But the real affront was an interview by CNN with Jens Stoltenberg, the General Secretary of NATO. The reporter's question was very simple: "<i>The Greek Prime Minister accused Turkey of violating Greek air space. How does NATO react to that?</i>" 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?</p><div class="separator" style="clear: both; text-align: center;"><iframe allowfullscreen="" class="BLOG_video_class" height="266" src="https://www.youtube.com/embed/vbuKGCOu90k" width="320" youtube-src-id="vbuKGCOu90k"></iframe></div><br /><p>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. </p><p>As an Austrian, I am very embarrassed to be a member of this EU!</p>kleinguthttp://www.blogger.com/profile/12491174042954678023noreply@blogger.com2tag:blogger.com,1999:blog-5882645467378797266.post-17983777693163656362020-08-16T20:24:00.000+02:002020-08-16T20:24:58.957+02:00Showtime For Greece's Current Account<p>From January-May 2020, Greece's current account had already deteriorated by 700 MEUR over the same period in the previous year (minus 5,6 BEUR vs. minus 4,9 BEUR). However, the critical period is from June-September. During those 4 months, the annual result in the current account is either made or broken because during this period the capital inflows from tourism take place. Last year, those 4 months registered an accumulated surplus of 4,9 BEUR in the current account.</p><p>Owing to the Corona-driven collapse in tourism, a very significant drop in capital inflows can be expected. In a worst-case scenario, there may not even be a positive contribution to the current account during this period. </p><p>The good news is that in the current environment, Greece does not have to worry about obtaining foreign funding. The bad news would be that the foreign funding is used to finance current account deficits instead of other more productive purposes.</p>kleinguthttp://www.blogger.com/profile/12491174042954678023noreply@blogger.com0tag:blogger.com,1999:blog-5882645467378797266.post-72375216408776134152020-04-19T10:52:00.001+02:002020-04-19T10:52:23.709+02:00Will Corona Trigger A Rebirth Of Greece?<div dir="ltr" style="text-align: left;" trbidi="on">
About 2 weeks ago, an Austrian journalist (a major blogger who has published several articles of mine, mostly about Greece, in recent years) asked me for an update on Greece. I wrote him a short mail with my assessment. He was so surprised that he asked me to put it into <a href="https://www.ortneronline.at/corona-ausgerechnet-die-griechen-machen-das-vorbildlich/">an article which he subsequently published</a>. Why was he surprised? Because I explained that Corona seemed to be causing something like a rebirth of Greece. The country which oftentimes in the last decade seemed exceptional in the negative sense had now become exceptional in the positive sense. An admirable crisis management; early recognition that the problem was indeed a serious problem; consequential measures implemented and strictly controlled, etc. And the results could be seen in the Corona statistics.<br />
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I further argued that this style of crisis management had triggered a change in Greece. For once, politicians were cooperating instead of fighting one another. Even Alexis Tsipras had become tame. Corona had dramatically increased the digitalization of the country. A new sense of national confidence was emerging: Greeks who had become accustomed to being called failures were now witnessing how they were praised as trendsetters. <a href="https://www.ekathimerini.com/251679/article/ekathimerini/news/greece-from-home-initiative-seen-as--brilliant-response-to-crisis">Even Bill Gates had caught up to that</a>.<br />
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Ever since I started this blog back in 2011, I have referred to Chile as an example that Greece should follow. Post-1973, a new wave of economic governance had swept the country. The Chicago Boys and their culture triggered a rebirth of the Chilean economy and the entire society was caught up in it. Suddenly, the entire society was on the move towards modernization. One may or may not agree with the policies of the Chicago Boys but that is not my point. Instead, my point is: if, at the right time, the right kind of leadership sets the right tone for change and improvement, and if that leads to rapid successes, the movement will develop self-reinforcing dynamics and there will be exponential progress.<br />
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"<i>Never let a good crisis go to waste</i>", so the saying goes. Regrettably, Greece let the crisis of the last decade go to waste. An enormous price was paid by society without any noticeable benefits. If anything, life got worse.<br />
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The present Corona crisis and Greece's reaction to it has all the ingredients for setting in motion a new change process which could develop a momentum on its own. <a href="https://www.youtube.com/watch?v=P0AYPhi-jxs">When I listened to this interview with the Greek Minister of Digital Governance</a>, I could not help but sense that an entire new way of doing things is developing in Greece.<br />
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Mind you, the economic damage caused by Corona will be gigantic in Greece. There will be enormous economic destruction. However, this could, for once, be a destruction which has the potential of becoming creative. If a new sense pervades society that destruction of some of the bad '<i>old</i>' is not all that bad if it is replaced with some good '<i>new</i>', the process will start feeding upon itself. It could even grow exponentially.<br />
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The crux of the matter is self-confident national unity in the common mission. Greeks, battered internationally for an entire decade, are beginning to have good reason for a sustained national self-confidence based on facts and not on myths. Put that together with unity in the common mission and there will be no limit to success!<br />
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<strong style="background-color: white; color: #555555; font-family: Verdana, "BitStream vera Sans", Helvetica, sans-serif; font-size: 13px; margin: 0px; padding: 0px;">Καλή Ανάσταση!</strong></div>
kleinguthttp://www.blogger.com/profile/12491174042954678023noreply@blogger.com2tag:blogger.com,1999:blog-5882645467378797266.post-73069117052834576422020-04-07T21:10:00.001+02:002020-04-08T20:55:09.893+02:00Eurobonds And Other Creative Ideas<div dir="ltr" style="text-align: left;" trbidi="on">
The United States of America did not become united states overnight. When the 13 colonies declared independence in 1776, the governmental unision was a difficult birth. And the population at large was definitely not united in breaking with the mother country. The unifying institution throughout the War of Independence was the army. While it hardly won any battles, it upheld a sense of common purpose and destiny throughout the 13 colonies.<br />
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Alexander Hamilton, the illustrious Founding Father, argued that the first step towards a federal union was a federal army. And the second step? Yes, Hamilton was emphatic about insisting that all debt of the 13 colonies would have to be mutualized and federal debt introduced to the markets.<br />
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The debate then was similar to the debate within the Eurozone in recent years. The frugal Northern colonies were against the profligate South. The principal protagonists were Thomas Jefferson and Alexander Hamilton. Jefferson, history's darling for having drafted the beautiful Declaration of Independence, came from the South (Virginia) and represented the landed gentry of gentlemen farmers. He was literally paranoid about any central government with centralized powers over decentral states. Hamilton, an immigrant from the Caribbean and a brilliant mind, had studied the economies of several countries, notably that of Great Britain. His conclusion was that one prerequisite for economic growth was federal debt in unision with a Central Bank. Federal debt which carried the "<i>full faith and credit of the United States of America</i>" and, therefore, became a safe asset. Furthermore, Hamilton was convinced that the only way to maintain the union, or to even make it an ever more perfect union, was to have mutualized federal debt which made the states dependent on one another and on the central government. Hamilton prevailed in the end (Jefferson agreed to the debt mutualization in exchange for getting the nation's new capital for the South; Washington, D.C.). And as it turned out, the federal army and the federal debt hugely contributed to making the USA an ever more perfect union.<br />
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Why this long introduction? Because there can be no doubt that a joint federal debt, i. e. a Eurobond, is a prerequisite if one hopes to ever have a more perfect union in Europe. Just like a coordinated fiscal policy with a federal treasury is another such prerequisite.<br />
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My second point is: anyone who is truly interested in ever achieving a more perfect union in Europe is doing this goal a disservice by pressuring for Eurobonds now. A Eurobond would not achieve any benefit today which cannot also be achieved by alternatives which are less divisive. A Eurobond is likely to be eventually accepted by the North but it will require time, persuasion, a change of treaties, etc. To steamroll the EU into Eurobonds with the argument that a virus requires it will eventually result in a backlash. As Gideon Rachman, the renowned British journalist, <a href="https://www.ft.com/content/b809685c-77de-11ea-af44-daa3def9ae03">wrote in the Financial Times</a>:<br />
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<i>"Advocates of eurobonds stress the potentially disastrous effects on public opinion in southern Europe if northern Europeans fail to respond while the Italians and Spanish live through a tragedy. But northern Europe also has to consider politics and public opinion. The mutualization of debt within the EU has always been the reddest of red lines for the Germans, the Dutch, the Austrians, the Finns and others. If it is pushed through now — in an atmosphere of crisis — it could set a time-bomb under the EU."</i><br />
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Let us take one step back for a moment. What actually is a Eurobond? I am afraid that one might get many different answers if one asked many people today. Perhaps one should look at the American equivalent of a Eurobond (US Treasuries) to extrapolate how it might work in Europe.<br />
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A US Treasury is a bond emitted by the federal government through its Treasury and it carries "<i>the full faith and credit of the United States of America</i>". The cash proceeds of the bond flow into the Treasury which uses the funds to finance federal expenses. Put differently, the entity which raises the funds and assumes the debt is the same entity which controls the use of those funds (i. e. the federal government under authorization from Congress). Also, that entity has its own independent revenue base such as federal taxes.<br />
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The federal government can spend the money on anything which Congress authorizes with one very important exception: the US Constitution prevents the federal government from extending financing to individual states or from assuming responsibility for state debt. Put differently, when disaster in the form of a brutal hurricane strikes the State of Louisiana and that state needs to raise funds to pay for the damage, it can raise funds by issuing its own bonds but it cannot resort to the federal government as a lender of last resort. The federal government can provide specific purpose relief funds or grants but it cannot provide general purpose funding for the state government.<br />
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I am appalled by the absence of specific proposals as to what the supporters of Eurobonds have in mind. One gets the impression that they think of Eurobonds as a source of funding which some third party will pay back. <a href="https://voxeu.org/article/covid-perpetual-eurobonds">One author, Professor Fancesco Giavazzi, described it as follow</a>s:<br />
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<i>"Member states should jointly issue a large amount of very long maturity COVID Eurobonds backed by their joint tax capacity. Each country would issue its own bonds, but the bonds would otherwise be identical. Their common rating would be the result of all bonds being guaranteed by the joint tax capacity of the countries participating in the joint issues."</i><br />
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Now that, dear Professor, is plain nonsense! There is a contradiction within the first 2 sentences: first, it is argued that member states should jointly issue Eurobonds and, then, it is argued that each country would issue its own bonds with the guarantee by the joint tax capacity of all participating countries. Well, dear Professor, it is one or the other but it cannot be both!<br />
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A bond cannot be issued jointly because the proceeds of it will have to flow to an individual account. Also, the purchasers of the bonds need to know who to sue in case the bond does not get paid. One can only go after the guarantors after the issuer has defaulted. There must be an issuer and it is currently not clear at all who the Eurobond supporters propose to be the issuer.<br />
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The idea that individual countries can issue their own Eurobonds as they please is childish, at best. No third party, and certainly no Northern member of the Eurozone, would guarantee such a blank check. The American example shows very clearly that a federal bond must be issued by a federal institution which represents the full faith and credit of the federal union. That full faith and credit is not accomplished because all US states jointly and severally guarantee federal bonds. Instead, it is accomplished through the federal institution's tax capacity and through its monopoly over the currency.<br />
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There is currently no EU institution which has a federal tax capacity. The EU has some revenues like import duties, etc. but the bulk of the EU's expenses is covered by contributions of the members states. If the EU issued its own Eurobonds, no purchaser would buy them because they would not represent the full faith and credit of the EU. It would only represent the full faith and credit of the EU Commission which has very little revenues and no authority to raise taxes. Clearly, the purchasers of the bonds would require a joint and several guarantee of the member states.<br />
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A joint and several guarantee means that the creditors can call on each of the guarantors for full repayment in case the EU Commission defaults. Every guarantor would be liable for the full amount of the bond and, obviously, the creditors would go first to those guarantors who have the strongest resources to pay. In all likelihood, each of the guarantors would attempt to limit his liability by setting caps. Then it would no longer be '<i>true</i>' Eurobonds but only '<i>limited</i>' Eurobonds.<br />
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If the EU raises funds via Eurobonds with the joint and several guarantee of its member states, the proceeds of the bonds go into an account of the EU. Then the principal question becomes: how do those funds flow to the proper beneficiaries and in what form. If they flow from the EU to, say, Greece as a loan, there is virtually no difference for Greece whether it raises funds via its own bonds or via Eurobonds. There used to be a difference during the crisis because Greece could not sell it own bonds or, if so, only at prohibitive interest rates. Today, with the ECB's declared policy, Greece can essentially sell its own bonds at the same interest rate as a Eurobond would carry.<br />
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A Eurobond only makes sense if it leads to a vast expansion of the EU's budget and when that expanded budget is used to provide relief to those countries that need it the most. Relief means non-repayable funds, i. e. grants or subsidies or whatever. It is special purpose relief and not general purpose funding of state budgets.<br />
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The battle for Eurobonds is currently the wrong battle at the absolutely wrong time. The far better response to the challenges faced by the South as a result of Corona would be to establish a large Relief Fund which would be funded either by direct contributions of certain member states or, alternatively, through its issuance of bonds jointly and severally guaranteed by certain member states. Obviously, if, say, Greece needs the relief, it does not make sense to have Greece guarantee its own relief.<br />
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Any relief must be non-repayable. In times of zero interest rates, it is no longer possible to provide relief via a lowering of interest rates. In many aspects, that Relief Fund would be rather similar to the Marshall Plan ("European Recovery Fund"). The Marshall Plan provided non-repayable funds for projects in individual countries. But here was the trick: in each country, there was a High Commissioner of the Marshall Plan who had final authority on the application of the funds.<br />
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Dear proponents of Eurobonds: please stop dreaming that Eurobonds are an easy way to draw down debt which someone else will repay without any strings attached! And please bear in mind that if you really want to plant a time bomb under the EU, then steamroll with the pressure of Corona other countries into crossing red lines which they have promised their voters they would never cross. The results will not be pleasant for the EU.</div>
kleinguthttp://www.blogger.com/profile/12491174042954678023noreply@blogger.com5tag:blogger.com,1999:blog-5882645467378797266.post-49649738962101365412020-03-16T09:53:00.001+01:002020-03-18T19:48:08.722+01:00Corona And The Greek Economy<div dir="ltr" style="text-align: left;" trbidi="on">
Corona is a health drama which is already turning into an economic drama as well. Countries will have to spend billions in order to protect their economies from meltdown. Austria, for example, has just approved a 4 BEUR package to support the economy, roughly 1% of GDP. The government has called this "<i>a first step</i>" with the indication that further packages will have to follow. This could well reach the dimension of 5% of GDP or more.<br />
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There is no alternative so such spending. There is a seemingly endless number of businesses, large or small, even entire industry sectors, which have lost their economic base: expenses keep accruing while revenues have disappeared. Liquidity crises would speedily lead to insolvencies.<br />
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That is not necessarily a threatening scenario because Austria, due to its credit standing, will have no problem raising 5% of GDP in new debt, probably at interest rates close to zero.<br />
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But what about a country like Greece? Will Greece be able to raise the new debt which it requires in order to prevent an economic meltdown?<br />
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There is one comforting factor. Greece has allegedly built up very significant cash reserves. Some say up to 30 BEUR. If new debt cannot be raised, those cash reserves will have to be used. The only problem is: those cash reserves were meant to be a financial cushion to assure future debt service, not to be spent on the economy. If they are spent on the economy now and if the economy still shrinks, there will be no further cushion for debt service.<br />
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<u><b>ADDENDUM</b> per March 18, 2020</u><br />
The above-mentioned 4 BEUR package was announced by the Austrian government on March 14 and described as "<i>a first step</i>". Today, only 4 days later, a "<i>second step</i>" was announced: the 4 BEUR was increased to 38 (!) BEUR! We are now talking about roughly 10% of GDP. Since the original budget had called for a slight surplus, we are now talking about a budget deficit of 10% of GDP.<br />
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Extrapolating this on to the Greek situation, a 10% package would amount to about 20 BEUR. That would be an enormous challenge for Greece's finances. Extrapolating it on to the USA, it would amount to a package of about 2 trillion USD (as of this writing, the US are discussing a package of 850 BUSD).</div>
kleinguthttp://www.blogger.com/profile/12491174042954678023noreply@blogger.com3tag:blogger.com,1999:blog-5882645467378797266.post-46622111177987074072020-03-11T09:44:00.000+01:002020-03-11T09:45:05.427+01:00EUROLEAKS - By Yanis Varoufakis<div dir="ltr" style="text-align: left;" trbidi="on">
<i>"On March 14, for the first time, European citizens will be able to take a front seat in the meetings where their future is decided: DiEM25’s #EuroLeaks will take YOU inside the Eurogroup that has no standing in law, but where the most far-reaching decisions about all our lives are made."</i><br />
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Thus spoke Yanis Vafoufakis. Presumably he refers to the meetings of the Eurogroup which he secretly recorded and whose transcripts he will publish on March 14.<br />
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<a href="https://www.yanisvaroufakis.eu/2020/03/11/euroleaks-letting-light-in-to-how-crucial-decisions-are-made-or-not-in-the-eu/">EUROLEAKS: Letting light in to how crucial decisions are made (or not) in the EU</a>.<br />
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kleinguthttp://www.blogger.com/profile/12491174042954678023noreply@blogger.com0tag:blogger.com,1999:blog-5882645467378797266.post-48482502675728695982020-02-11T20:28:00.002+01:002020-02-13T18:11:38.513+01:00Andreas Georgiou - Was It 'Breach Of Duty‘?<div dir="ltr" style="text-align: left;" trbidi="on">
The story of Andreas Georgiou has been told many times in the international media because it is such a good story, albeit a very sad one. Georgiou was Director of ELSTAT, Greece's national statistics agency, for 3 years from August 2010 - August 2015. He was commended by Eurostat for having been the first Greek head of statistics who provided what Eurostat considered '<i>correct figures</i>'. That got Georgiou into trouble with certain quarters of Greek officialdom and he was sued for several alleged crimes, e. g. by-passing ELSTAT's board of directors when reporting statistics to Eurostat, falsifying statistics, slander of predecessors, etc. As far as I know, most cases are still pending final judgment <i>(correction: on the charge of failing to obtain board approval before reporting statistics to Eurostat, the Supreme Court, in June 2018, upheld the previous judgment of a suspended 2-year sentence, i. e. final judgment</i>).<br />
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The Greek judiciary's treatment of Georgiou has triggered an international uproar. It seemed so obvious that Georgiou was being persecuted for telling the truth while no one had problems with his predecessors' having told lies. The latter was well described by the Icelandic journalist Sigrún Davídsdóttir in her article "<a href="https://www.coppolacomment.com/2015/07/lies-damned-lies-and-greek-statistics.html">Lies, damned lies and Greek statistics</a>".<br />
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Thomas Cool, an econometrician and teacher in mathematics in Scheveningen, Holland, has now brought a new perspective to my attention (Cool uses the name Colignatus in science to distinguish this from his other activities in commerce or politics. See his <a href="https://boycottholland.wordpress.com/about/">website</a>).<br />
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Colignatus argues that at the heart of the issue is Georgiou's by-passing the supervisory board when reporting figures to Eurostat. To recall: for the year 2009, Greece had submitted a budget to Eurostat indicating a budget deficit of 3,4% of GDP. This was subsequently corrected to about 6% but it stayed at that level until Giorgos Papandreou assumed power in late 2009. The new Finance Minister, Giorgos Papakonstantinou, shocked the world by revealing that the true budget deficit would be roughly twice that level. Eventually, he submitted a provisional figure of 13,4% to Eurostat. All of this happened prior to Georgiou's assuming the job of Director at ELSTAT.<br />
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In November 2010, 3 months after assuming his job, Georgiou reported to Eurostat a budget deficit of 15,6% for 2009, i. e. slightly higher than the previously reported 13,4%. He did so without first seeking board approval. Some commentators considered this merely a '<i>procedural matter</i>', emphasizing that the European Statistics Code of Practice states that the heads of national statistical agencies '<i>have the sole responsibility for deciding on statistical methods, standards and procedures, and on the content and timing of statistical releases</i>'. I, too, would have considered it as such a procedural matter because the substance of the report was not at issue.<br />
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The Greek judiciary has taken a different view: Greek laws were in place and Greek laws were broken, thus, a serious '<i>breach of duty</i>' had occurred. The courts handed Georgiou a suspended 2-year sentence. Georgiou's appeal is pending (<i>correction: sentence was confirmed by Supreme Court in June 2018</i>).<br />
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Colignatus provides convincing evidence that (a) the law under which ELSTAT had been founded earlier in 2010 clearly stated that board approval was required prior to any outside reporting of statistics and that (b) the Statistics Code of Practice in force at the time (and since 2005) did not assign sole authority to national directors of statistical agencies. Colignatus provides rather convincing circumstantial evidence that Georgiou and his counterparts at Eurostat were well aware of this and colluded in the attempt to circumvent such board approval. Viewed from that standpoint, it was a clear '<i>breach of duty‘.</i><br />
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Colignatus argues that the above '<i>breach of duty</i>', for which Georgiou is solely responsible, was at the heart of the issue because it then triggered all the other follow-up complaints and law suits. Colignatus further argues that both Eurostat and Georgiou are well aware that a violation of the law ('<i>breach of duty</i>') has occurred which is why they emphasize in their defense that Georgiou has never falsified statistics. This primarily in order to deflect attention from the main issue, the '<i>breach of duty</i>'.<br />
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I have had lengthy exchanges with Colignatus about his position. My initial reaction was that it is rather irrelevant whether or not Georgiou by-passed his board when reporting statistics to Eurostat. The critical issue was (or should have been) whether or not his statistics were correct. Eurostat, as the final authority on statistics in the EU, confirmed (and complimented!) the quality of Georgiou's statistics and that was really all that mattered.<br />
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Having pondered the issue at length, I have become somewhat sympathetic to Colignatus' arguments. In a State of Law, laws do matter and if laws are violated, there ought to be punishment. It seems clear that Georgiou violated laws when by-passing his board of directors. Under normal circumstances, his colleagues on the board and at the agency might have considered that as a minor procedural mistake which could easily have been cured by providing post-approval. That, of course, assumes '<i>normal circumstances</i>'. Circumstances in Greece were not normal at the time; neither at ELSTAT.<br />
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Perhaps Georgiou accepted the job at ELSTAT with a bit of naivité. Perhaps he thought he would be welcome there and that he would receive support from his colleagues in their joint effort to provide Eurostat with top-quality statistics. Well, that would have required a very substantial amount of naivité!<br />
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A seasoned manager would have known that he was about to enter a wasps' nest where undermining and mobbing would be ever present, and he would have prepared for that. He would have known that he could not afford the slightest misstep because he would immediately be crucified for it. And he would have been extremely cautious about colluding with Eurostat behind the backs of his colleagues at ELSTAT, knowing that his enemies would only wait for such a '<i>breach of duty</i>' to happen. Apparently, Georgiou was not such a seasoned manager.<br />
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<b>P. S.</b><br />
Colignatus has published a book "<a href="https://mpra.ub.uni-muenchen.de/98568/">Forum Theory and A National Assembly of Science and Learning</a>". The chapter on Greece begins on page 155.</div>
kleinguthttp://www.blogger.com/profile/12491174042954678023noreply@blogger.com5tag:blogger.com,1999:blog-5882645467378797266.post-19385039252056297012020-01-01T12:37:00.002+01:002020-01-01T12:37:48.124+01:002010's: Greece's Toxic Decade<div dir="ltr" style="text-align: left;" trbidi="on">
I have been writing in this blog since mid-2011. During this time, I have intensively observed the Greek crisis. When observing such a development step-by-step, when a crisis develops in incremental steps, one can lose sight of the overall development because one gets used to the incremental steps.<br />
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On the Website <i>Macropolis</i>, Yiannis Mouzakis summarizes all the incremental steps in one single article: "<a href="http://www.macropolis.gr/?i=portal.en.the-agora.9166">Learning the lessons of Greece's toxic decade</a>". As the founder of MacroPolis, Nick Malkoutzis, commented on Twitter: "<i>Less of a leisurely trip down memory lane, more of a hair-raising ride on the ghost train</i>".<br />
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This is a brilliant article about an absolutely incredible decade of Greece. When reading this article, one wonders how it was possible that Greece returned to a more or less normal condition. If it hadn't been so painful for many people, if it hadn't affected the lives of so many people in a negative way, one might be tempted to conclude that '<i>It was a helluva ride!</i>"<br />
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One might also be tempted to conclude that any society/nation which has gone through such painful upheavals would have learned lessons from that experience and come out of it stronger and more prudent for that reason. Mouzakis cautions about that in his closing paragraph:<br />
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<i>"During every single significant event that defined this decade, from the economic collapse to major diplomatic and social issues, Greece’s leaders preferred to release poison into society to help their short-term political goals. It appears that Greeks have yet to flush these toxins out of their system. It is one of the main reasons that we should approach the new decade, which carries more promise for Greece than the last 10 years, with caution."</i></div>
kleinguthttp://www.blogger.com/profile/12491174042954678023noreply@blogger.com3