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Monday, October 31, 2016

The Alchemy Of The Greek Economy

The former Governor of the Bank of England, Mervyn King, wrote a book titled "The End of Alchemy: Money, Banking, and the Future of the Global Economy". In it, he discusses the future of the Eurozone and makes the following comments about Greece:

"It is evident, as it has been for a very long while, that the only way forward for Greece is to default on (or be forgiven) a substantial proportion of its debt burden and to devalue its currency so that exports and the substitution of domestic products for imports can compensate for the depressing effects of the fiscal contraction imposed to date. Structural reforms would help ease the transition, but such reforms will be effective only if they are adopted by decisions of the Greek people rather than being imposed as external conditions by the IMF of the European Commission. The lack of trust between Greece and its creditors means that public recognition of the underlying reality is some way off". 

While King does not use the term "Grexit", he obviously says that Greece should leave the Eurozone. At the same time, he suggests that Greece could consider re-joining the Eurozone a few years later after a new equilibrium has been reached, if it so wished.

Until about mid-2013, I was an adamant supporter of Greece's holding on to the Euro. My simple logic: it was the lesser of 2 evils (i. e. less social cost) and it had more longer-term promise than a return to the Drachma. This was followed by a period of about 2 years during which I began to doubt my earlier convictions. And for quite some time now have I felt the way Mervyn King describes above. With the benefit of hindsight I think that the social cost of a return to the Drachma could not have been much higher than it turned out to be with the Euro in the last 5-6 years and the economy would have found a new equilibrium much more quickly. Perhaps a worse one, but still.

What had been the objective of the exercise of the last 5-6 years in the first place? The official version read: "To build a modern and prosperous Greece: a Greece characterized by economic opportunity and social equity, and served by an efficient administration with a strong public service ethos".

If reforms were meant to reduce the budget deficit from over 15% to under 3% of GDP (on top of a declining GDP!), then Greece is now completely reformed. But is Greece really different today? Has Greece really changed? Did a jolt run through all corners of Greek society raising animal spirits to bring about change?

The EU Task Force for Greece (TFGR) was formed in July of 2011 and it included the above quote in its mission statement. One would have thought that a society desperately wanting change and improvement would have jumped at the opportunity of utilizing the help of its European partners to bring about such change and improvement. Regrettably, most attempts at change were treated with suspicion by Greek society for the simple reason that they were perceived - rightly or wrongly - as being imposed by the outside. Thus, they were not really adopted by the Greek people.

By the end of 2012, I made a last effort to pluck up my spirits and wrote an essay titled "Make the year 2013 the Year of the Task Force for Greece!" Exactly one year later, I re-published this essay and then I gave up pursuing the subject. By June 30, 2015, the TFGR's mandate expired and it was not renewed. Dismantling and institutional death had occurred.

Yet, neither the EU nor Greece wanted to throw the towel entirely. A new Structural Reform Support Service (SRSS) was set up in July. Its mission? "The SRSS will offer technical assistance to the Member States in order to facilitate their administrative and structural reforms". No more lofty talk about building a modern and prosperous Greece: a Greece characterized by economic opportunity and social equity, and served by an efficient administration with a strong public service ethos. Now the specific goals were administrative and structural reforms.

As though this were not enough, French President Hollande personally came to Greece 3 months later to witness as the Finance Ministers of both countries signed a protocol by which, essentially, France committed to modernize Greece.

Every reader should now judge for him-/herself: how much have we heard about progress in these matters since then?

In 2010, Greece ranked #109 out of 183 countries analyzed by the World Bank for its Doing Business Report. In Transparency International's Corruption Perception Index, Greece ranked #78 out of 178 countries. In the former, Greece was the lowest European country; in the latter it the second lowest (before Bulgaria).

By 2016, Greece had moved up to #60 out of 189 countries in the Doing Business Report. A similar improvement was shown in the Corruption Perception Index where Greece ranked #58 out of 167 countries (2015).

And yet, all these statistical improvements notwithstanding, Greece's attractiveness for foreign investors is no better than that of Afghanistan of Mali.

In contract compliance, which is essentially considered the ability of a State to guarantee compliance with business agreements and to protect investors, Greece occupies the 133rd position, second worst among developed nations.

A key problem is the enormous amount of time required for legal resolution of appeals for compliance with contracts. On average, Greek courts need 1,580 days to issue a decision, that is almost four and a half years.

A similar picture appears in property registration, with Greece ranking in the 141st position, faring worse than Venezuela, Grenada, Tanzania, Mali and Guinea.

The German Finance Minister Schäuble is said to have said that Greece is allergic to reform. What seems as certain as it is understandable is that Greeks are allergic to reforms imposed from the outside, particularly when under the heading of 'help for Greece'.

Alchemy is the ancient practice of trying to turn lead into gold. Mervyn King describes the alchemy of banking as the process whereby safe short-term deposits are turned into long-term risky loans. The alchemy of the Greek economy is that the efforts to implement reforms seem to turn into even greater resistance to make reforms.

And what better way to eliminate any interest in reforms than by calling the brutal reduction of the budget deficit from over 15% to under 3% of GDP (on top of a declining GDP!) the prototype of what is meant by reforms?

Monday, October 17, 2016

Tsipriza - The New Greek Party

With 93,5% support from the followers of Alexis Tsipras, a new Greek party was created of this past weekend - TSIPRIZA!

At least this is what the GreekAnalyst has suggested.

Greek Soccer - Take-Over By Foreigners!

Here is an interesting development described in this article from the Ekathimerini: the Greek Soccer Federation (EPO) is essentially being taken over by the FIFA. Reasons given are:

"The FIFA Council was briefed on the different issues faced by the Greek federation in recent months, such as the tense relationships with the authorities, due partly to discrepancies between national laws and the independence of the federation, the resignation of the president and other members of the federation's executive committee due to judicial procedures, the allegations linked to refereeing, as well as the difficulties surrounding the management of ethics cases."

And the reaction from the Greek government? Unacceptable colonialist behavior on the part of FIFA? Illegal intervention in national sovereignty? Greece being made a soccer colony by foreigners?

Not at all! Greece's Deputy Sports Minister Stavros Kontonis welcomed the move as "a positive development which will be combined with the placement of worthy people to manage a problem that has plagued Greek sports for years".

Well, if it works for the soccer federation, would it perhaps work elsewhere as well?

Saturday, October 15, 2016

A Strong Performance By Kyriakos Mitsotakis!

This Bloomberg interview with opposition leader Kyriakos Mitsotakis has attracted wide attention. Justifiably so, I think.

The interview is undoubtedly music to the ears of foreigners with an interest in Greece; or to so-called internationalists. Particularly if they have a background at an Anglo-American elite school and professional experience at an Anglo-American company. Mr. Mitsotakis' command of the English language is outstanding (on par with that of Yanis Varoufakis'). The way he handles himself is impressive and would be respected in any international boardroom. Last but not least, he seems very intelligent.

I am reminded of an experience I had in London back in 1972 when I had just joined an American bank there. I was assigned to the American who handled ship financing for Greek shippers. One day, a potential new Greek customer came in for an appointment with the American and I was invited to listen in. The Greek was utterly polished. A Savile Row suit, a  perfect pocket square, perfectly groomed, super manners of an 'old boy', Oxford accent, etc. I was most impressed and I thought the American would be, too. I asked him after the meeting what his impression was. The American said: "I don't know. I have an awkward feeling. He emphasized so much being Greek but he just didn't seem Greek".

As important as it will be for the next Greek Prime Minister to be trusted and respected by foreigners, it will be even more important for him to have to support of his Greek countrymen; to be perceived as 'one of us'. The interviewer asked Mitsotakis about this and Mitsotakis said that he always felt perfectly comfortable speaking 'with regular Greeks'. One thing is for sure: Mitsotakis is not a regular Greek!

I was impressed that, when asked what his first priority would be, Mitsotakis mentioned the reform of public administration. He claimed that based on his previous experience (he had been the responsible minister for 2 years) he felt certain that this could be accomplished. And I was also impressed that eduction reform was on the top of his list.

My intuitive reaction to the interview was "The message well I hear, my faith alone is weak" (Goethe). The interviewer must have felt similarly because he asked whether change in Greece was not so much an issue of reforms but more an issue of sociology. Mitsotakis, of course, disagreed with any assessment that Greece and Greeks might never change. It would all depend on the leadership, he said. Well, 100 years of experience would not necessarily support that view.

The cutest statement of Mitsotakis came when he was asked about PM Tispras' performance and the current relationship with foreign creditors. He said: "Right now Mr. Tsipras is pretending to reform and I think that a lot of people outside Greece are pretending to believe that Tsipras is actually implementing reforms".

Sunday, October 2, 2016

A Fraudulent Executioner Of The Greek People?

Much has been said about the former head of ELSTAT, Andreas Georgiou, but when one reads this article one really wonders that there is no uproar among serious people in Greece.

Greece's least wanted man lives in Maryland

The executioner of the Greek people? Criminal slander for calling Greece's previous statistics fraudulent? C'mon!

On 2 October 2009, the Greek government (New Democracy) formally notified Eurostat that the 2009 deficit was expected at 6% of GDP. Exactly one week later, the governor of the Bank of Greece informed the new government (PASOK) that the deficit for 2009 would reach, if not exceed, 12%. By November 2009, the government settled on the figure of 12,7% as the most likely deficit figure for 2009. In April 2010, ELSTAT corrected this figure to 13,6%.

And in October 2010, Andreas Georgiou, as the new head of ELSTAT, revised the final figure to 15,4%.

It seems quite obvious that Andreas Georgiou singlehandedly executed the Greek people!