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Saturday, April 14, 2018

Personal Economic Indicators

I have commented on several occasions about my personal economic indicators for Greece. Every spring and fall, we spend a couple of months in Thessaloniki and I have developed the habit of looking out for things which - albeit totally non-sophisticated - strike me as being indicative of how the economy is coming along. One of these personal economic indicators is the commercial traffic in the harbor of Thessaloniki.

That commercial traffic had been increasing significantly in the last couple of years. Where I used to count perhaps 3-4 ships in previous years, last year there were always at least 10 freighters, including some very large ones.

We have now been back in Thessaloniki for over one week and --- I see hardly any freighters in the harbor of Thessaloniki! I have certainly not yet seen as many as 4 at one time, not to mention 10 or even more. What is happening here???

Another personal indicator is life in the villages. We spent Easter in my wife's village near Kavala. Off the bat, the village seemed somewhat empty compared to previous visits. The one hotel was closed. Quite a few shops had closed. And, above all, some buildings had obviously been deserted.

On the positive side was the story of my wife's nephew, Giorgos, a graduate of a technical school and now 29-years old. Giorgos had taken over his father's business about a year ago. Essentially, a one-person earth-moving business with some sales of building materials on the side. Where Giorgos' father had considered "working" as sitting on his machines and moving earth, Giorgos considers "working" as doing business, as looking for jobs, as farming out jobs to others when he has no capacity on his own. Of course, Giorgos is - like his father was - an extremely hard worker and he also sits on machines and moves earth. BUT - he spends a good portion of his time knocking on doors to get orders. Most importantly, whereas his father had waited passively for customers to pay their bills, Giorgos spends time collecting them. In the evenings, Giorgos and his fiancée - who is taking care of the sales shop during the day - browse the internet for jobs which are tendered in the area.

When Giorgos' father did not get orders, he had nothing to do and there had been some extremely slow times since the crisis. Giorgos, on the other hand, is extremely busy and when he told me how much money his business made every month, I was stunned. Giorgos says that there is no crisis. Instead, money is lying on the ground and one only has to make the effort to pick it up. There is no unemployment, he says. Those who don't have work don't want to work, is Giorgos' opinion. Those who wanted to work but couldn't find work have left the country, Giorgos says.

Giorgos gives work to several people. They are Greeks and not Albanians, he says. Two of them have university degrees. He employs them officially under short-term contracts; they get between 30-50 Euros/day, depending on the type of work they do, plus insurance. I asked Giorgos if he officially declared all his revenues. He hesitated, thought for a moment and then he said: "If I did that, I would be bankrupt within a year."

Giorgos has the view of a "worker", a small-town operator who can drum up business when he tries hard. He says he doesn't feel too good for anything. When he had a slow period in the winter, he found someone who had a lot of manure to be removed and he found someone else who needed manure. So Giorgos got into the business of transporting manure.

I told Giorgos that, perhaps, the situation if different for a bookkeeper in a large city. If he loses his job and there is no new job as a bookkeeper, he can try as hard as he wants but he will not find work. Giorgos' response: "I would knock on 20 doors every day and ask people if I could do anything for them. I would find some people who needed something."

I discussed this with my neighbor in Thessaloniki. In his view, the overall economic situation is as bad as ever. But, he hastens to add, the situation might be a bit better in the villages. In the villages, he says, there is always something that can be done. If nothing else, one can start cultivating a field. My neighbor is not surprised that Giorgos feels that there is work for everyone but he stresses that this represents the narrow view of a small-town operator and is absolutely not reflective of the country as a whole.

Thursday, April 5, 2018

Greece Is Still The Least Attractive Place To Do Business In Europe

The World Bank's Doing Business Report compares roughly 190 countries in terms of competitiveness. Back in 2011, Greece ranked as Nr 109, the lowest ranked country in the Eurozone, in the EU and in Europe altogether.

There have been up's and down's since then but, overall, Greece improved its position significantly: the 2018 report ranks Greece as Nr 67. So much for the good news.

The not-so-good-news is that Greece is still behind everyone else in the Eurozone, in the EU and in Europe altogether. It pains particularly when seeing that Greece's neighbors outperform Greece: Albania (65), FYROM (11), Bulgaria (50) and Turkey (60).

Tuesday, March 27, 2018

Greece - Once Upon A Time There Was A McKinsey Plan...

Once upon a time...

Once upon a time, in mid-2011, McKinsey first published their report "Greece Ten Years Ahead" (GTYA). The report outlined a National Growth Model which, the study predicted, would create over 500.000 new jobs and add roughly 50 BEUR to Greece's GDP within a decade. I had written a total of 14 articles about it at the time.

I found the McKinsey report by googling "greece economic development plan". It is amazing how many different entries from different sources one finds when googling that subject. Including several Greek sources like the think-tank IOBE.

The common thread of all these plans is that "Greece needs to change its growth model to ensure the return of its economy to high growth rates and this model should be based on limiting the importance of consumption spending on economic growth, strengthening the role of business investments and raising "net" contribution of the external sector by boosting exports" - IOBE.

There has been no shortage of proposals as to what needs to be done about Greece's economy. Eight years after the first memorandum, it would be interesting to see a detailed report as to how many of these proposals have actually been implemented and with what degree of success.

Target2 Claims Revisited

Target2 is the cash management system which the ECB uses in order to settle balances among the banking systems of the Eurozone member countries. If a national banking system transfers more money abroad than it receives from abroad (e. g. Greece), it builds up Target2 liabilities with the ECB system. If a national banking system transfers less money abroad than it receives from abroad, it builds up builds up Target2 claims with the ECB system (e. g. Germany).

The miraculous world of Target2 was revealed to the public in February 2011 by the German economist Hans-Werner Sinn. This is how the tale goes: Hans Tietmeyer, a former President of the Bundesbank, was reviewing the Bundesbank's balance sheet over the Christmas holidays and he came across a rather large asset position, i. e. Target2 claims, which he didn't know what they were. Thus, he asked Sinn about it but, off the bat, Sinn did not have an explanation, either. Sinn then researched the subject and the net result has been a never-ending debate about the risks associated with Target2.

The below table shows the development of Target2 balances of the most significant countries since 2008 (details are here):

Target2 Balances (BEUR)
Belgium Germany Greece Spain Portugal Italy Lux
2008 -104 115 -35 -35 -19 23 42
2018 -20 882 -58 -399 -83 -433 196

Belgium has significantly reduced its (originally quite high!) liabilities from minus 104 BEUR to minus 20 BEUR whereas Portugal has increased its liabilities from minus 19 BEUR to minus 83 BEUR, a very large figure compared to the size of its economy. Greece has increased its liabilities from minus 35 BEUR to minus 58 BEUR, a rather moderate amount when considering what Greece has been through (at one point during the crisis, Greece's liabilities had exceeded 100 BEUR!).

These countries - like all the others - are only sideshows when comparing them to the truly big players: both, Spain and Italy, increased their respective Target2 liabilities by over 400 BEUR (!) since 2008! The magnitude of these figures is mind-boggling. To illustrate: through a combination of current account deficits, capital flight, QE, etc., the banking systems of Spain and Italy lost over 400 BEUR each in liquidity during the last decade!

"For every credit, there must be a debit" - this we learned in Accounting back in school. The debits of Target2 are in Germany, Luxemburg (particularly relative to its size) and the Netherlands (plus 114 BEUR, up from minus 19 BEUR). When Sinn first uncovered the secrets behind Target2 in February 2011, Germany's Target2 claims were 326 BEUR and Sinn considered this as coming close to the end of the world. Now, Target2 claims are almost 3 times as high. Inconceivable from the viewpoint of only a few years ago but an accepted fact today.

How high can Target2 claims go before they system breaks?

Saturday, March 24, 2018

Report On Greek Official Debt - Barry Eichengreen & Co.

"In sum, it is hard to avoid the conclusion that any solution to the Greek debt crisis that does not fall on the shoulders of taxpayers several generations removed will require conditional face-value debt relief."

Report on Greek official debt

International Energy Agency - Greece 2017 Review

"Greece has prioritised development of its abundant renewable energy resources and as a result of a supportive policy environment, renewable sources today play a key role in the electricity sector. Building on this success, it is important for Greece to explore its renewable resources beyond solar and wind and to advance their usage in the nonelectricity sectors. In this report, we look at the ongoing reforms to the support schemes for renewable energy and additional initiatives that Greece could put in place to further accelerate the shift towards renewable energy sources, including on the Greek islands, without compromising electricity security."

International Energy Agency - Greece 2017 Review