Cosco Hits the News!

I have been wondering why it had gotten so quiet around the Cosco investment in Pireaus. Readers of this blog will know that I consider this investment as a prototype of what foreign investment can contribute to the Greek economy (I remember reading that, according to projections, Cosco is expected to contribute about 2-3% to Greece's GDP).

Well, Cosco is back in the news again. According to this article in the Ekathimerini, there seems to have been a bit of a snag between Cosco and the Greek government. That snag now having been removed, the lights are on 'green' as regards a 224 MEUR investment into a new pier.

Offshore Companies, EU-Grants, etc.

Even though I have no evidence to back it up, I will make the following intuitive argument: if Greece managed to clean up the activities behind anonymous offshore companies and EU-grants, a very large part of the country's corruption, tax-cheating, etc. would be taken care of.

And the beauty of it is --- IT WOULD BE SO EASY TO DO THAT!!!

EU-grants
The EU Commission maintains a data base which records EVERY disbursement of an EU-grant: the amount of the grant; its purpose and its recipient. With so many well-educated young Greeks being unemployed, it should be easy to train a few hundred of them in the auditing of EU-grants. The simple question to check would be: were the monies disbursed used for the purpose stated in the application? This link leads to the various EU data bases registering recipients of EU-grants: EU grant recipient and contractors

Offshore companies
There is only one reason to have an anonymous offshore company: to do something which one doesn't want anyone in Greece to know. Theoretically, a wealthy Greek, out of personal modesty, might want to hide the fact is he donating a lot of money to cancer research. In practice, wealthy nationals normally want to hide other things.

If not already in place, the first step would be to require registration of all anonymous offshore companies before they can transact business in Greece.

The next step would be to identify the beneficial owners of those anonymous offshore companies. That, of course, can only be accomplished if there is cooperation from these owners. If they refuse, there is nothing one can do about it. However, one can make such refusals punitively expensive.

The best instrument is punitive taxes if anonymous offshore companies refuse to reveal their beneficial owners. For example: one could implement punitive taxes fall all payments made to such companies or on all properties which they own in Greece (with the threat of expropriation).

One could require anonymous offshore companies to have a bank account in Greece if they want to transact business in Greece. That would automatically take care of the problem because EU-regulations require all banks to know the beneficial owners of their anonymous corporate customers (actually, I would be interested if Greek banks comply with these EU-regulations).

To be sure: there is absolutely nothing illegal about having anonymous offshore companies. The problem begins when anonymous offshore companies engage in illegal business practices like corruption, tax evasion and so forth.

Conclusion
My understanding is that there are about 21.000 anonymous offshore companies transacting business in Greece. That is a manageable number. I don't know the number of annual disbursements of EU-grants but I would guess that that, too, is a manageable number.

What is keeping the government (perhaps with the help of the EU Task Force) from pursuing these issues with full force? It can only be a lack of political will.

Could more forceful popular will perhaps influence the political will?

Two Interesting Pieces for German-Speakers/Readers

Below are two interesting pieces for German-speakers/readers:

Bernd Lucke vs. Ralph Brinkhaus: Hold on to the Euro or not?
A most interesting debate lasting about 1 hour. Lucke is an Economics professor and the founder of the new German party AfD. Brinkhaus is allegedly a CDU-spokesman for financial matters.

My guess is that if Greeks watched this debate, they would choose sides with Lucke and become allergic against Brinkhaus. This despite the fact that Lucke is actually arguing in favor of a Grexit whereas Brinkhaus preaches the gospel of 'helping Greece'.

Lucke's proposal is to offer Greece what I would call 'a friendly divorce with a sizeable alimony', the alimony being a very major debt forgiveness. His principal point is that this would be the best solution for the Greek economy: a devalued Drachma would make the economy more competitive pricewise; there would be a far quicker recovery than with the Euro; the government would regain financial sovereignty in local currency; etc.

Brinkhaus comes across as the typical German 'Oberlehrer' who doesn't need to ask Greeks to know what is good for them. He speaks in terms of 'we', whereby it is unclear whether by 'we' he means the Greeks, the Europeans or perhaps even the Germans. "We have to get more reforms implemented"; "We have to improve the taxation system"; etc. He seems to feel that when 'we' are done with Greece then Greece will be a lot like Germany. A bald head and a precocious demeanor support the overall impression.

Diary of a German summer resident in Greece
A humorous (and in my opinion quite apt) story about personal experiences in today's Greece. Two observations which I really liked:

"The Germans work 7 out of 12 months of the year for the state, which for Greeks is an absurd idea. Greeks are hard-working all the way to exhaustion when they can enjoy the fruits of their labor. The state is an abstract enemy. I have to admit: I have sympathy for the Greeks' distanced relationship with their state".

"The decisions by the EU mean essentially the following: "Effective immediately, Greeks will behave like the Swedes did when in crisis". However, I can assure you: even after 3 years of crisis, there is not the slightest sign that Greeks no longer behave like Greeks".

Greece's Current Account: January-June 2013

These numbers come from the Bank of Greece (in EUR millions):

		January-June			Change
		2012	2013		in %
Revenue from abroad
	Exports	10.399	11.066		6%
	Services (e. g. tourism)	11.495	10.902		-5%
	Other income	1.587	1.619		2%
	Current transfers	3.581	3.780		6%
		--------	--------		-----
	Total revenue from abroad	27.062	27.366		1%
Expenses abroad
	Imports	21.475	19.333		-10%
	Services (e. g. tourism)	6.512	5.402		-17%
	Other expense (e. g. interest)	3.943	3.660		-7%
	Current transfers	2.043	1.854		-9%
		--------	--------		------
	Total expenses abroad	33.973	30.249		-11%
Net foreign deficit (current account)		-6.911	-2.883		-58%

A reduction of 58% in the current account deficit is, on the surface, a phenomenal improvement. 'On the surface' because - as I have pointed out on several occasions before - the improvement comes primarily, if not almost exclusively on the expense side and not on the revenue side. Fixing a financial problem only through the expense side generally does not work very well. 

Yes, exports have again increased over the previous year, and the year 2011 had been quite good, too. But exports are still not very much over the level of 2008. With so much EUR-devaluation against third currencies since then and with so much internal devaluation one would expect much better results.

In 2008, total expenses were 101 BEUR. So far this year, they are running at an annual rate of 60 BEUR. That is an enormous improvement! Most of the improvement came on the import side which would principally be excellent if it meant that less money is 'wasted' on imports and more domestic production is generated. That was not the case in Greece. Instead, the import collapse came as a result of collapsing domestic demand.

So where is the good news?

The good news is that the terrible current account deficits of the 2000's have been brought under control. 2013 will in all likelihood be the first year in a long time where Greece will have a surplus in the primary current account (i. e. before interest). That is an enormous plus.

The bad news is that the price for these good news had to be unemployment. This unemployment will turn into permanent unemployment if there is no increase in domestic economic value creation. 

Greece is now in the curious situation where a good thing per se (i. e. current account under control) may very well turn out to be a bad thing for the economy. A balanced current account means that there are no net capital imports. But Greece will have to be a net importer of capital - hopefully in the form of foreign investment - in order to finance the necessary growth.

A current account deficit is not bad per se; it all depends what caused the deficit. During the 2000's, much of Greece's horrendous current account deficits was caused by excessive imports of consumption goods. If a future current account deficit were to be caused primarily by the importation of machinery & equipment for new domestic manufacturing, that would indeed be a good thing for the Greek economy.

Leaving Austria and Returning to Greece

On the eve of our return to Greece, I am reflecting on the experiences I have had in Austria in the last 2-1/2 months.

Off the bat, if there is indeed a Eurozone crisis somewhere out there, it has not yet entered the minds and hearts of everyday Austrians. If there are debates elsewhere about how the Eurozone could survive, they certainly haven't crossed the border to Austria. Those who have an opinion about the Eurozone crisis consider it as a self-contained problem of 'those countries in the South' and they generally feel that 'we shouldn't send any more money there'. An Economics professor from Vienna asked in an interview 'why should we care about the Greeks?' and if there was any reaction to that comment, it escaped my attention.

Austria has nationalized 3 second-tier banks in the last few years, all banks which no one would miss if they no longer existed today. Resolving those banks would have resulted in a significant structural improvement in the Austrian banking sector (overbanked!). But that would have required tough political decisions. When all is said and done, the cost to Austrian tax payers will be somewhere between 15-20 BEUR (compared with an annual budget of about 75 BEUR). The South should hope that the banking union gets delayed because, otherwise, they may have to finance part of that damage. And what does the Austrian tax payer say to that? Not much. 'Happy is he who forgets', says an Austrian operetta.

The second largest city (Linz) is in a battle with a Viennese bank (owned by NY financiers) over 500 MEUR losses stemming from a derivative deal which had gone sour. And the reaction of the Finance Minister? 'The tax payers will have to pay either way. Either by bailing out the city or by bailing out the bank'. Now that is what I call pragmatic!

The state of Salzburg was not quite as reckless. Their losses from derivative speculations were only about 400 MEUR. The interesting thing is that no one has yet figured out where those losses show up (or will show up in the future). My guess? Tax payers, of course.

A national election is coming up. One week after the German election. Quite possibly, Austrians will wait to see how the Germans voted and then vote the same way. The Austrian equivalent of ND/PASOK is ÖVP/SPÖ. Every Austrian government since 1945 has included one of these two parties and much, if not most of the time they both ruled together in a Grand Coalition. Despite all that, the Social Democrats are campaigning for 'more social justice' and the Conservatives are campaigning for 'more free enterprise'. As though neither of them had ever been in government.

The election campaign is literally boring. How could it be otherwise? There will be the same Grand Coalition after the election as there was/is before. The only open question is whether the Chancellor will be a 'Black' or a 'Red'. Whichever way it turns out, it won't make all that much difference because both parties have learned over the decades that it is much smarter to work together at the expense of the country instead of competing with each other for the benefit of the country.

What are the big news? Well, there are at least half a dozen of major political scandals which are keeping the courts busy. The issues involved are mind-boggling cases of corruption, bribery, theft, etc. But since both parties have their fair share of the scandals, neither of them has a keen interest in getting to the bottom of all of this.

The teachers' union has attended 33 rounds of negotiations with the government so far. At issue is, among others, the extension of working hours from 20 to 22 hours per week. Both, ÖVP/SPÖ finally plucked up their courage and announced that they planned to go ahead with the new law even without the union's consent. The unions are warning that a Civil War could break out...

It's going to be hard for Greece to top the experiences which I had in Austria in the last 2-1/2 months but I have all the confidence that Greece will...

"We should save Europe, not the Euro!"

This is a most remarkable interview with Kai A. Konrad! Remarkable for two reasons: (1) the person who is being interviewed and (2) what he says publicly!

Mr. Konrad (whom I have never heard of before) is being called a 'Senior Advisor to Finance Minister Schäuble' by the newspaper. He is a Director of the highly renowned Max-Planck-Institut as well as the head of something called the 'Scientific Counsel to the Finance Ministry'. In short, he is not just anybody.

This is the first time that anyone close the Germany's officialdom breaks the taboo of not ever calling into question whether the present Euro-structure can be maintained. In fact, his line of argument is quite similar to that of the very provocative Hans-Olaf Henkel in his latest book "The Euro-Liars" and which I have written about here and here.

Mr. Konrad has given up the belief that the Euro-structure can/will continue in its present form. Thus, he feels certain that there will be a full and/or partial break-up in one form or another. His suggestion is that the periphery countries should get together and pressure Germany & Co. to leave the Euro.

I get the clear sense that a defeatist attitude about the Euro-structure in its present form is gathering steam!

An Example from Estonia

Caveat - I am not familiar with the economic situation in Estonia. I am certainly not writing this to argue that Estonia is a role model of an economy. In fact, I couldn't even tell.

Instead, I am writing this to argue that ANY society (or part of it), be they Estonians, Greeks or whatever, can accomplish great things if they only put their minds to it. This article suggests that Estonia has become a leader in technology. I don't know how much that 'technology' contributes to Estonia's GDP. Perhaps a lot; perhaps only little. That's no my point.

Instead, my point is that here seems to be a society which, 20 years ago, embarked on a new direction where they seemed to have competitive advantages and where they spotted potential. Once such a process starts and once one discovers that one, indeed, has potential, the process begins feeding upon itself. Nothing feeds upon itself as success does.

Obviously, if someone - like the government - sets the direction, things become a lot easier. But much more than setting the direction and possibly implementing some support structures the government can't do. The rest is up to the people involved. They have to generate enthusiasm and a sense of common purpose.

I take it that the young generation of Greeks is very well educated. Personally, I am always amazed how many people (not only young!) I meet in all walks of life in Greece who speak English very well. Sometimes I ask them whether they have lived in an English-speaking country and the answer is generally 'no'.

A young generation, however well educated, will have to wait a very, very long time until a country like Greece recovers enough to provide them with new jobs in traditional functions. It is quite apt to talk about a lost generation.

But what if someone came along with ideas how these talents could be used for something new? Something which Greece has not done before? Any raw material needs to be refined in order to assume value. For a society, the educated young generation is one of the most important raw materials.

Steve Jobs allegedly once explained why he opposed market surveys in the following way: "How can I survey consumers' preference for something which does not exist yet?" If Jobs had not come up with his ideas, thousands of people might today not have the career, income and living standard which they enjoy.

I simply refuse to believe that Greece would have a lesser share of creative, entrepreneurial people than other societies. They, too, are raw material which needs to be refined. They must be motivated to step forward.

It is really a shame that the Greek government focuses so much on hard facts (debt, budget, etc.) and so little on soft facts (motivation, visions, etc.). Focusing on hard facts generally falls into the category of 'administration'. Focusing on soft facts generally falls into the category of 'leadership'.