Has Greece Reformed Since 2010?

"So we ended with half-hearted reforms, which in some cases were not implemented or were eradicated after being approved. The biggest crime of all was that the political system relinquished reform ownership and blamed everything on the memorandum and the troika. Greeks despised the troika and the memorandum as they saw their salaries and pensions being slashed while taxes skyrocketed. There was little, however, in terms of reforms. Schools, universities, hospitals, red tape and justice, among others, remained more or less the same. Fiscal reform was carried out in the same way in which a dentist pulls out a tooth without using anesthesia. In the absence of other policies, lowering labor costs became the easy way to increase competitiveness. This failed to translate into exports and real production, however, as the entire system is anti-entrepreneurship".

This would be the major critique of Greece which foreigners make off-the-record when they are being blamed for 'having destroyed the Greek economy'. I was surprised to read it in an editor's commentary in the Ekathimerini. And I was even more surprised that quite a few of the readers of the article expressed agreement with it.

Personally, I am at a loss to judge this. On one hand, when I read reports by the EU Task Force, the Troika or the IMF, I always read that "Greece has made substantial progress...". Sometimes they include listings of all the items where Greece has made progress with reforms. On the other hand, the people who I meet in day-to-day life tell me the opposite. They tell me that they have to wait as long as before to get things done with public offices; that things are as complicated as they were before; and - sadly - that public officials are as corrupt as they were before.

One thing is certain: only if and when everyday people notice in their day-to-day lives that things are getting better will they start believing that things will get better.

Piraeus Bank: David Einhorn vs. ViennaCapitalist (cont'd)

"This is a very weak investment thesis. The quality of the analysis is disappointingly low. Both his (David Einhorn's) macro and his micro arguments are overly superficial, as he takes all figures at face value without trying to understand the drivers behind them. This makes him blindly trust the coverage ratios presented by management (or Piraeus Bank), or ignore the effect of known regulatory changes. He doesn’t touch the management topic at all, although there clearly are some issues such as a cosy relationship with regulators/politicians – in my experience not necessarily evidence of shareholder value driven ethics. Worst, however, is the fact that he does not demand a “margin-of-safety” from this investment, but prefers to speculate on how much people might be willing to pay in the future".

I have previously published Part I of ViennaCapitalist's analysis of Piraeus Bank and above is the conclusion of Part II.

I have written quite a bit about Piraeus Bank, particularly its relationship with the Marfin Investment Group. To me, Piraeus Bank is a classic example of the weaknesses in the Greek banking system. Under the pretext of wonderful headlines and with the help of creative accounting, crony business deals are pursued and falsely described as efforts to turn-around the Greek economy. 

"You can fool some of the people all of the time and you can fool all of the people some of the time, but you can't fool all of the people all of the time" (Abraham Lincoln). Whether this statement will also apply to some of the Greek business elite, such as Piraeus Bank, remains to be tested.

David Einhorn on Piraeus Bank: Now I know what he thinks (Part I)
David Einhorn on Piraeus Bank: Now I know what he thinks (Part II)

Greece 2.300 years ago. And Today?

I am presently reading a book about Alexander the Great by Robin Lane Fox and I came across the paragraph which I cite below. It comments on Greek society around 330 BC, or about 2.300 years ago. In brackets, I put today's equivalent of the terms applicable 2.300 years ago. Sort of striking; isn' it? 

"War [political conflict] was the natural state of every Greek city [Greek society]. In theory, they were considered to be at war [in conflict] with each other, except for particular cases where they had sworn a temporary alliance and theory was usually born out in practice. Greece … was a society obsessed with instability and poisened with revolution … It was a living proof that the Greeks had failed to produce any political and economic form which could hold a community together".

Greek Media - Corruption, Clientelism and Censorship

Michael Nevradakis has compiled an 8-part series about corruption, clientelism and censorship in Greece's media landscape in the blog truthout. I take the liberty of linking these articles below.

Nr. 1: Corruption, Clientelism and Censorship in Greece's Media Landscape

Nr. 2: Savage Deregulation: Further Censorship and Crackdowns in Greek Media

Nr. 3: Twelve Years Before ERTs Shutdown, a Dark Chapter in Greece's Media History

Nr. 4: Setting a Bad Example: Flouting Legal Requirements in Greek Broadcasting

Nr. 5: In Greece, Media Censorship, Self-Censorship, Journalist Arrests and Murder

Nr. 6: Greek Mainstream Media: Economic Interests Come Before the Law

Nr. 7: "I Have Just Been Ordered Not to Speak": Reasons for Greek Public Broadcasting Shutdown

Nr. 8: Greece: A Grave Situation With Very Real Consequences

Greek Politicians - A Competition in Irresponsibility!

I have commented on a couple of occasions before (here and here and here) about the totally irresponsible statements by allegedly responsible Greek politicians about the possible threat of a SYRIZA government. As irresponsible as these threats sounded individually, when one sees a compilation of all of them, one becomes speechless. The Frog has made such a compilation in Greek and ThePressProject has translated it into English:

The Frog
ThePressProject

And here are the 10 terrible champions:

# 10: ”...Lending to the country will cease!”

“Markets are reacting to the prospect of a Syriza victory, owing to its lead in the polls. They’re saying ‘guys, if you are going to hold elections in three months and make Syriza the government, we are informing you that we do not want to lend the country any money'” - Health Minister Makis Voridis.

# 9: “...there won’t be a single euro left in the banks”

“If [Syriza) are ever given the chance [to govern], which they won’t be, then the money will leave the banks, there won’t be a euro left” - Prime Minister Antonis Samaras.

#8: “...Not one euro will remain in the banks (I, at least, will take my money abroad)”

In imitation of the prime minister, one ‘usual suspect’ took the issue a bit further:

“Syriza’s secret agenda is the drachma. So, if the government falls not one euro will remain in the banks” - New Democracy lawmaker Adonis Georgiadis.


#7: ”... ATMs would shut down”

“If he [Alexis Tsipras] plays tough guy in Europe, it won’t be long before ATM machines shut down in Greece, just like they did in Cyprus” - Government spokesperson Sofia Voultepsi.

 #6: “...Pensions will be lost!”

“If [Syriza’s declarations are implemented], I assure Greek pensioners that their worst nightmare will be become a reality when they go to the bank and do not get their pension" - Labour Minister Yiannis Vroutsis.

#5: “The markets are doing what they are doing to us because of the hint that Syriza will come. If it comes, then mayhem will ensue” - Development Minister Nikos Dendias.

#4: “...We will return to the drachma in one week!”

If [Alexis Tsipras] does what he said at the Thessaloniki Trade Fair, we will be back to the drachma in a week” - New Democracy lawmaker Adonis Georgiadi.

#3: “...the country will fall apart in 48 hours!”

“If Syriza becomes [the country’s] first party, the country will fall apart, no matter how many hands of elders Mr Tsipras kisses and how many foreigners he hangs out with” - Former deputy prime minister and prominent Pasok member Theodoros Pangalos.

#2: “...Lafazanis' image will adorn the new 1,000 drachma note!”

“ [If Syriza wins the elections], two options are available. The country will either beg its creditors for an even harsher memorandum or it will return to the drachma to the great satisfaction of Mr Lafazanis (a Syriza MP), whose image will most likely adorn the new 1,000 drachma note” - Administrative Reform Minister Kyriakos Mitsotakis.

#1: “...they will burn and kill!”

“There will be so much hunger and stench that all those jumping up and down about the smiling boy Tsipras, who shakes it up before the Pope, or Dourou, will be on the streets and will burn and will kills” - Former deputy prime minister and prominent Pasok member Theodoros Pangalo. 

Bullish on Greece? David Einhorn vs. ViennaCapitalist

David Einhorn is bullish on Greece. ViennaCapitalist comments on that:

"I do not hope/assume Einhorn deliberately wanted to convey a wrong picture. It is more likely that one of his many analysts made a mistake. Nevertheless, he should have noticed that this doesn’t add-up. Worse, the mistake is not merely academic, but has real implications for Einhorn’s investment thesis as it means that the Greek sovereign still has a massive debt problem, something which has to be addressed when talking about bank investments. Unfortunately, it is something he doesn’t mention further in his presentation".

Now I know what David Einhorn thinks.

Beware of Repaying Sovereign Debt!

Here is a most interesting article about the repayment of sovereign debt, or rather: how sovereign debt often gets repaid only centuries after the fact, if ever. A couple of points:

* the UK government announced recently that it will repay £218 million from the £2 billion of debt that it incurred during WW1. Note that this is debt from roughly 100 years ago!
* incredibly, some of the debt which will now be repaid goes back as far as the 18th century! It includes "the capital stock of the South Sea Company originating in 1711, which had collapsed in the infamous South Sea Bubble financial crisis of 1720", according to the UK Treasury.
* Germany paid off the last portion of its debt stemming from WW1 in October 2010! Ponder this: a country which had experienced decades of "Wirtschaftswunder" and which had become extremely wealthy had still been owing debt from 100 years ago during all this time!
* and, of course, Greeks will argue that Germany still hasn't paid the forced loans from WW2 (and they have a point there, in my opinion!).

This reinforces a point which I have tried to make forever: the principal issue with debt, not only sovereign debt, is not that it gets repaid. The principal issue with all debt is that it gets 'regularized'. Sovereign debt in the Eurozone presently stands, I believe, around 90% of GDP and everyone is concerned that this indebtedness may even go up. Markets are nervous; many predict a collapse caused by this debt. But suppose, for a moment, this debt would be increased, in one stroke, to 120% of GDP with the only proviso that the entire debt would be structured in such a way that it doesn't have to be repaid for the next 100 years. Put differently, the debt would be totally 'regularized'; that is: no one would have to worry about pending defaults, etc. I would bet that everything would return to normal rather quickly.

Another point which comes across in the above article is that too early a debt forgiveness may not be smart. Suppose Germany, back in 1953, had not been forgiven its debt but, instead, repayment of that debt would have been extended to 50 years or so. There can be no doubt that the Germany of the 1990s or the 2000s could easily have handled what now seems to be a relatively small amount of WW2 debt. After all, this is a country which could afford to spend more than 2 trillion Euro, so far, in the aftermath of unification.

I have a vague memory of New York City's financial crisis back in 1975. The City was facing bankruptcy and the Federal Government under President Gerald Ford refused a bail-out (newspaper headline: "Ford to City: Drop dead!"). There was a financial alchimist, Felix Rohatyn from Lazard's, who advised NYC and managed to avert bankruptcy. One day, the 'rescue of NYC' was announced; everything was fine again. I was wondering at the time how NYC could find so much money so quickly to repay its debt. Well, the City hadn't repaid a single dime; it had simply restructured and 'regularized' its debt.

There are probably only few countries in the world whose sovereign debt today is lower than, say, 20 years ago. So, from the standpoint of cash flow, most countries have added to their debt and not repaid any of it (whenever they paid debt on maturity, they did so with new debt which they could raise). As a result, sovereign debt always has a sort of perpetual character. The real issue as regards debt sustainability is whether the payment of interest is within the borrower's capacity. But even if that were not the case, there are alchimistic solutions for it. For example: the interest rate can be set below market and a good portion of it can be capitalized, if not all. As long as the debt gets 'regularized'...

Perhaps the even greater problem than sovereign debt not getting repaid is when sovereign debt does get repaid. In the last years of the Clinton presidency, the US started to accumulate very large budget surpluses. In 1999, Clinton announced that the national debt would be totally repaid by 2015. There was great worry in financial markets: What should the world's liquidity do when there were no longer risk-free US Treasuries to invest in? What would that mean for the stability of financial markets? President Bush then solved that problem in a hurry by making tax cuts for the rich and by starting two wars. And the world seems very happy today that there are so many US Treasuries in the market, safe havens for flight capital in times of nervousness.