A Superb Propaganda For Greece! (and good business, too...)

I was so excited after reading this article in the Ekathimerini that I decided to reproduce it here in full length. Those are the kinds of things which Greece ought to do more of! 

"Volkswagen has booked Costa Navarino’s entire Westin Resort unit for the promotion of the German automaker’s new Passat model, starting on Friday and ending on December 3. Preparations have been under way since mid-September, while the last departures are anticipated in mid-December, when the complex in the southwestern Peloponnese will shut down for the winter.

The event organizers are expecting the arrival of as many as 22,000 people, while a special course covering 22,000 square meters is being set up to allow for the testing of the new cars. 

Such events are a blessing for units such as Costa Navarino, which has also been booked for one of next year’s biggest tourism events, the annual conference of the Association of British Travel Agents on October 12-14. The ABTA conference will be returning to Greece after 15 years, having been hosted by Kos in 2000. The Peloponnese region secured the hosting of the 2015 event after beating rivals from Portugal and Indonesia".

Public Spenders - Read This Before You Embark On Spending!

"This paper employs a new empirical approach for identifying the impact of government spending on the private sector. Our key innovation is to use changes in congressional committee chairmanship as a source of exogenous variation in state-level federal expenditures. In doing so, we show that fiscal spending shocks appear to significantly dampen corporate sector investment and employment activity" --- Study by Harvard Business School 2011.

The trick which the authors apply to come to their conclusion is somewhat unique American: they have determined that whenever a committee in Congress gets a new chairperson, that new chairperson uses his/her influence to steer public/federal money into his/her constituency. In other words, increased public spending. They have measured that federal funds which flow into their constituencies increased by 9% during the first year. Public orders which are given to the private sector in those constituencies increased even by 24%. According to theory, that should make for a significant impulse for the private sector in the constituency.

The opposite development was observed. Private companies reduced their investment in machinery & equipment on average by 15%. Expenditures for R&D also declined, as did employment in R&D. The authors conclude that increased public spending seems to crowd out activities in the private sector.

Perhaps EU policy makers should take a look at this study.

The Miraculous Conversion of Bad Loans Into Good Loans!

"Mr Draghi, ECB president, will this week unveil details of a plan to buy hundreds of billions of euros’ worth of private-sector assets – the central bank’s latest attempt to save the eurozone from economic stagnation" - Financial Times.

The unveiling of this plan will be most interesting. The ECBs declared intent is to buy only good loans. If banks sell their good loans, their demise is programmed because all they would have left on their books is bad loans. So there is a gap which needs to be bridged.

The logic is as follows: an individual loan may be worth nothing. A package of individual loans may include loans which are worth nothing. But the package will also include loans which are worth 100%. Typically, it takes quite some time to find out which loans will eventually be repaid and which not. Thus, one buys a whole package of loans and assumes that a certain percentage of it will be paid for sure.

Greek banks hold bad, or non-performing, loans of about 70 BEUR. Some of them will no doubt eventually be paid in full. Other may turn out to be a complete loss. No one can tell at this point with certainty what the eventual outcome will be. If anyone can make a good projection, it is the ECB because they have just subjected all those loans to intense examination. Let us assume that 30% of these loans, 21 BEUR, will eventually be repaid in full with great certainty. Let us further assume that another 30% of these loans, another 21 BEUR will be repaid at least in part. And, finally, let us assume that the remaining 40% of these loans, 28 BEUR will never be collected. The challenge is that, upfront, one doesn't know which loan is which. So let us retrieve the recipe of sub-prime and make tranches:

Tranche A: this is the Senior Tranche and we will put 21 BEUR of those loans into it which, today, seem to be of the best quality of the lot.
Tranche B: this is the Junior Tranche and we will put the next 21 BEUR of those loans into it which, today, seem to have a fair chance to be repaid, at least partially.
Tranche C: this is for gamblers; we will call it the Equity Tranche and we will put the remaining 28 BEUR into it.

Tranche A will get a rood rating and therefore the ECB can buy it at par. The return on this tranche ought to be a reasonable market return for good quality loans. The rating for Tranche B is going to be much lower but the ECB apparently also intends to buy a bit of Tranche B. The return on this tranche will be fixed considerably higher because there is considerably more risk. And those who buy the Equity Tranche will have a stasggering return potential or --- a significant loss.

This is all fine and dandy but the Greek banks are not helped if Tranche A - or even Tranche B - is taken off their books. They want to get rid of the entire 70 BEUR. And if the entire 70 BEUR is part of Mr. Draghi's plan, someone will have to take a very significant loss. Otherwise, the losses stay on the books of the Greek banks.

Since no one wants to intentially take a loss, the plan will have to be structured in such a way that it appears that every buyer of any of the tranches has a fair chance to make a return. It will be interesting to see how the potential losses are hidden and/or who will eventually end up with the losses.

How To Spend 3 Hours at a Greek Tax Office

An elderly man died in Thessaloniki on Tuesday after collapsing at a bank while waiting in line to pay the ENFIA property tax, reports the Ekathimerini. Which reminds me of the story which my neighbor Yiannis told me yesterday.

Yiannis had to go to the tax office to get a certificate that all his taxes were paid up. There were a total of 5 stops, he said. First, he had to go to employee 1 who handled the hard facts. She checked that all the information Yiannis provided was correct and then she wrote her ok in handwriting. With that provisional piece of paper, Yiannis had to go to the Director on the first floor. The Director checked the handwriting of employee 1 and the information and gave his stamp of approval. That, however, was not the end of it because there was not yet a final document. Instead, it only authorized Yiannis to go back downstairs to employee 2 who would check the signature and stamp of the Director in order to issue the final document. However, the final document now required the signature of the Director, so Yiannis went back to the first floor. And after he got the signature of the Director, he had to take the final document back to employee 2 who would then add a second stamp. And that was it.

All told, it took him 3 hours, Yiannis said.

Germany's Economic Mirage

"Germany has stagnant wages, busted banks, inadequate investment, weak productivity gains, dismal demographics, and anemic output growth. Its “beggar-thy-neighbor” economic model – suppressing wages to subsidize exports – should not serve as an example for the rest of the eurozone to follow".

Germany's Economic Mirage

Greece's Media Landscape - A Chronicle

The author of these articles calls them 'a series of articles which chronicle the long history of corruption, lawlessness and censorship in Greece's media and journalism landscapes". To an uninformed outsider like myself, they are interesting reading which is why I publish them without comment from my part. This is part II. 

19 Sep 14: Corruption, Clientelism and Censorship in Greece's Media Landscape

27 Sep 14: Savage Deregulation: Further Censorship and Crackdowns in Greek Media

Two Austrians and Tsipras - and Pope Francis

Sarcastic stories are floating through the interenet about Alexis Tsipras' recent 'audience' with Pope Francis. Was it an audience in the first place? Or was Tsipras in a group of people who saw the Pope? Why were there no pictures taken? Did the Pope say what Tsipras said he had said. The most sarcastic, albeit quite humorous, item was a picture showing the Pope waiving to thousands of people on St. Peter's Square suggesting that Tsipras was among the crowd and called that 'meeting the Pope'.

The fact of the matter is that there were 3 people who were received by Pope Francis and not Tsipras alone. Since the other two were Austrians, I quote what the Austrian public broadcaster reported on its website.

ORF reported that the meeting was arranged by the Austrian Franz Kornreif who is head of the Austrian branch of Fokolar Movement. That movement, according to its website, operates under the auspices of the Roman Catholic Church and its mission is to foster unity. Unity in the family, in the social-cultural, political and economic spheres; unity between the rich and the poor and between nations. Kronreif on his part is very good friends with Walter Baier, an Austrian who headed the Austrian Communist Party in the past and who is now a leading figure in transform!europe, a network of 27 European organizations from 19 countries, active in the field of political education and critical scientific analysis, and is the recognized corresponding political foundation of the European Left Party.

ORF quotes Tsipras as saying after the meeting that "even though we start from different ideological points, we believe that we have common positions in the principles of solidarity, in the principles of justice, peace and cohesion" and a Vatican spokesman as saying "the meeting with the leader of the Greek SYRIZA party Alexis Tsipras and Austrian Walter Baier was private rather than political".

Walter Baier held a press conference after the meeting in which he said that "the Pope said it is scandalous that saving banks is regarded as more important than saving people".

"The meeting with leader of the Greek SYRIZA party Alexis Tsipras and Austrian Walter Bayer was private rather than political. - See more at: http://www.grreporter.info/en/tsipras%E2%80%99_meeting_pope_was_big_gaffe/11753/#sthash.izhH1AQU.dp

He is one of the leaders of the Focolare Movement which is an organization that operates under the auspices of the Vatican and aims to establish contact between the Catholic Church and people with non-Christian views and mostly atheists.   - See more at: http://www.grreporter.info/en/tsipras%E2%80%99_meeting_pope_was_big_gaffe/11753/#sthash.izhH1AQU.dpuf

He is one of the leaders of the Focolare Movement which is an organization that operates under the auspices of the Vatican and aims to establish contact between the Catholic Church and people with non-Christian views and mostly atheists.   - See more at: http://www.grreporter.info/en/tsipras%E2%80%99_meeting_pope_was_big_gaffe/11753/#sthash.izhH1AQU.dpuf