A 30% Reduction in Total Public Sector Payroll?

"According to the figures, in 2009 the number of people working in the state sector either as permanent employees or on fixed term contracts came to 952,625 people. In December of 2013 that number had fallen to 675,530 - a drop of 277,095 or about 70,000 per year". See original article.

Now, I must admit that this small detail had escaped my attention... if one can consider a 30% reduction in total payroll a small detail. On the contrary, one of the angry comments which I heard frequently from Greeks was that "so far, they haven't fired one single public sector employee". And the Troika is making a big fuss out of sending 12.000 public sector employees into the mobility scheme.

How does that square with the above numbers? And, furthermore, how come that there has been so much discussion about a few thousand lay-off's and no reporting at all about the reduction of a few hundred thousand?

Greece's Trade Statistics --- Huge Differences Between Bank of Greece and ELSTAT!

There must be a very significant difference in the reporting of foreign trade between the Bank of Greece (BoG) and ELSTAT. As an example, I show below only the figures for 2013 (EUR; 000's omitted) but the same differences occurred in previous years.

	2013
	BoG	ELSTAT
Exports	22.535,0	53.014,0
Imports	39.764,0	57.815,0
	-----------	-----------
Trade deficit	-17.229,0	-4.801,0

Differences of such magnitude must mean that the BoG and ELSTAT follow totally different rules for reporting Greece's foreign trade. I have inquired several times, even at the BoG, but I have not been able to get a satisfactory explanation.

It would all be alright if the differences netted out and resulted in the same trade balance. However, they don't. And it does make a difference whether a trade deficit is 17,2 BEUR or 4,8 BEUR.


Post Scriptum
Thanks to an ELSTAT link provided by one of the commentators below, I have now been able to shed a bit more light on this issue. When the BoG talks about exports/imports, they only include goods. When ELSTAT talks about exports/imports, they include goods, services and cross-border personal spending. That, of course, is not quite proper because exports/imports are goods and nothing else. But even when looking at the export/import of goods only, ELSTAT's figures differ from those of the BoG by a few billion.

The way ELSTAT calculates 'their' exports/imports, the balance is more affine to the current account balance. However, it is NOT the same as the current account balance because that also includes things like other income, current transfers, etc.

Bottom-line: it would be a lot more convincing if ELSTAT and the BoG reported the same figures when it comes to exports/imports of the country.

Not All Foreign Investors Are Good For The Greek Economy!

"Greece’s successful return to international capital markets in April has boosted confidence in the country’s medium-term prospects, encouraging hedge funds and private equity groups to take a closer look at Greek companies that have survived the crisis".

This comes from a FT Special Report on Greece. I would argue with vehemence that what the Greek economy definitely DOES NOT need is hedge funds and private equity groups.

Private equity groups are financial investors. When PE companies invest, they do so with the explicit purpose of achieving a financial return, preferably within a 5-year time frame. The real business activities of the acquired company are not an end per se but instead only a means towards an end, whereby this end is the financial return.

Hedge funds have the same interests as PE companies with the only difference that they don't even give a damn about the real business activities of the target. Their sole objective is to achieve a quick financial return regardless of the methods applied.

Both, private equity and hedge funds are legitimate business activities. They wouldn't exist if they didn't serve a purpose. My only point is that the purpose they serve is not a purpose which serves the well-being of the Greek economy.

There can be no question that the only long-term solution for the Greek economy is foreign investment, both as a source of capital as well as a source of know-how transfer. Whoever disagrees with that is disagreeing with common sense. However, there are different types of foreign investments and investors and the challenge for Greece will be to pick the right ones.

The 'right' foreign investor for an economy like Greece's is an investor in the real economy who takes a long-term commercial view when making the investment. He doesn't invest only because taxes or labor costs are low because taxes and labor costs can quickly become high again. He invests because he sees an opportunity to expand his global business through a presence in the Greek economy and, ideally, because he sees Greece as a good location to serve other markets in the region. He invests because he sees resources in the Greek economy which are only waiting to be tapped (like talented and well educated human resources; like natural resources; like logistic advantages; etc.).

There is one aspect of overriding priority which I would advise every Greek official who decides over foreign investment to follow: "Know thy partner!" One has to understand what the foreign investor's culture and his motives are. The answer to that question can almost always be found in the investor's track record. And, at the end of the day, it comes down to a judgment about the investor's owners and managers.

About 30 years ago, BMW acquired a small Austrian engine manufacturer. Today, more than half of all BMWs sold in the entire world are run by engines made in Austria, several thousand people are employed in Steyr and BMW is Austria's largest tax payer. After the opening of Central and Eastern Europe, BMW could have easily found cheaper places within the radius of a few hundred kilometers (several car manufacturers went to Hungary, Slovakia, etc.). Instead, BMW expanded in the more expensive Austria because they were happy with Austria's infrastructure and labor resources. BMWs Austrian website states the following: "Of particular importance to us are good relations with the people and the region which is their working and living home. Also the dialogue with employees and neighbors, customers and partners and the respect for shared values and ideals. BMW engages itself publicly, culturally as well as socially". Clearly, BMW has been an ideal foreign investor for Austria.

In the late 1990s, BAT acquired the Austrian monopolist tobacco company as part of a privatization program. During the first years, investments were made into Austrian production and output increased substantially. Today, the Austrian company is owned by a Japanese company. All Austrian production has been closed and transferred to more efficient locations (economies of scale). Consequently, there is no longer R&D in Austria. Job losses in Austria were substantial. Clearly, BAT has not been a good foreign investor for Austria.

I sincerely hope that Greece will not fall for PE companies and/or hedge funds!

Greece's Capacity to Repay Foreign Debt

John Maynard Keynes wrote in 1919 about Germany's capacity to pay indemnities to the Allies as reparations. Below is a brief excerpt whereby I replaced 'Germany' with 'Greece'.

"Estimates of Greece's ability to repay foreign debt depend on the assumption that she is in a position to conduct in the future a vastly greater trade than ever she has had in the past. It is only by the export of specific commodities that Greece can pay. It is certain that payments can only be made by Greece over a series of years by diminishing her imports and increasing her exports, thus enlarging the balance in her favour which is available for effecting payments abroad. Greece can pay in the long run in goods, and in goods only, whether these goods are furnished directly to Eurozone partners, or whether they are sold to others and the other credits so arising are then made over the the Eurozone partners".

Well, not quite. Keynes only talked about the product side of the current account. Particularly with regard to Greece, the services side of the current account is equally important because it generates large revenues from abroad (tourism, shipping, etc.).

But still: a country's ability to repay foreign debt depends on the country's ability to generate a surplus in its current account. One can, of course, achieve that surplus by radically cutting imports (as Greece did). However, cutting imports is of no sustained value because once they are cut, the end of the line is reached. In consequence, only through an increase in revenues from abroad (exports, services) can Greece entertain the hope of ever repaying at least part of its debt to foreigners. And the nice thing about increasing exports and services is that it creates domestic employment, domestic wage/income taxes and domestic social contributions --- all revenues for the state.

I am presently celebrating the 3rd anniversary of having repeated the above points over and over again.

An Anglo-Saxon Version of Prof. Hans-Werner Sinn?

"There were many factors that together triggered the original euro crisis in late 2009 and early 2010. Chief among them was growing doubt that European economies and their governments would be able to service their enormous debts. Added complications were the lack of enforced (or even enforceable) fiscal rules for the eurozone, a severe banking crisis, huge differentials in productivity across the continent and the resulting balance of payments and trade imbalances – all of this coupled with a palpable absence of political leadership, both at the national and the EU levels".

This is one of the most concise summaries of the origins of the Euro crisis which I have read. It comes from the economist Dr. Oliver Marc Hartwich whom I had never heard of before. Given his name and his location (Australia), I thought that he probably was an economist of the Anglo-Saxon tradition. In the 'about me' section of his blog, he has two captions: 'love me.... or loathe me...'. No doubt, the man is controversial. He reminded me a bit of an Anglo-Saxon version of Prof. Hans-Werner Sinn. I looked up Dr. Hartwich's s background in the interenet and --- he is a German! Germans simply can't win in this game...

Still, his article is very interesting and his conclusion is as follows:

"We are likely to see renewed doubts about Europe's fiscal viability and speculation on Euro periphery debt. This would then also trigger questions about the future of the Euro as a currency. Of course, the European Central Bank can (and will) try everything to stop a new crisis from escalating, just as it has done so far. It can create more money to pass on to banks which lend it to goernments. Similarly, fiscal policy can also invent new bailout schemes or extend existing ones. Such policies can continue as long as there is the political will to do so. But the required interventions to keep a dead currency alive and bankrupt banks and governments solvent will need to become more exterme over time".

Academic Degrees and Common Sense!

The Wrong Multiplier --- Again!

Below is an interesting article about the never-ending issue of the multiplier used in the Greek memorandum by the IMF:

Original article (in Greek)
Google translation (in English)