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Wednesday, December 13, 2017

Betting On A Greek Recovery?

Having just finished our regular 3-month autumn stay in Greece, it's a good time to reflect on the impressions I could gather and what may be in store for Greece until we return there next spring. Obviously, the all-important questions are: Has Greece really turned the corner (economically, that is)? Are we perhaps witnessing the beginning of an accelerated turn-around? In short: has the time come to bet on a Greek recovery?

There have been different views in recent months. Some, like the reputable American investor Kyle Bass, predicted that "investors are getting ready to pour billions back into the Greek economy". Others considered talk about Greek economic recovery as "fake news in action". Today, it was Bloomberg who headlined an article "Betting on the Greek Recovery."

What stands out is that all commentators focus on the macro-side of things: Will Greece successfully exit the program? Will Greece be able to return to markets? Will yields on Greek bonds decline further? Are bank shares rising? Do banks report profits? Etc.

To be sure, the hard facts still tell a rather miserable story:

* the government continues to tax the living daylights out of Greeks, the result being that unpaid taxes (about 100 BEUR!) seem to rise faster than taxes collected. To put this into perspective: GDP is currently running at about 170-180 BEUR which means that unpaid taxes amount to substantially more than half of GDP!
* while some progress seems to have been made with non-performing loans, NPL still amount to almost half of all loans in the Greek banking sector. By all normal standards, a banking sector which has almost half its loans in the non-performing category is a defunct banking sector kept alive by artificial means (is there any other banking sector in the world which comes even close to having half of its loans in the non-performing category?).
* Greeks exposed to the risk of poverty are still said to be close to 3 million.
* while unemployment figures have come down of late, monthly incomes at the minimum wage level (or even below) seem to have become standard for those who find a new job.
* the government's conduct with regard to foreign investment (Ellenikon, Eldorado) makes one wonder why any investor would get ready to 'pour billions' back into the Greek economy.
* Etc., etc.

And yet...

A visitor like myself observes significant changes. Already during our spring stay I had written last May that "The gut says: 'Greece is on the rebound!'" Today, the gut says that even more emphatically. I emphasize: it's the gut which is talking, not the brain. If I ran into depressed Greeks a couple of years ago, I now ran into cheerful ones. If every Greek I talked to a couple of years ago talked about the crisis, was frustrated about the Troika, about foreigners in general and about Schäuble in particular, this time it seemed like the crisis didn't matter. Yes, it was still there but so what?, the feeling seemed to be. A bit like a boxer who was badly knocked down but not out and saved by the bell. And after the break he felt the juices returning and went on to fight well again, albeit with a lot of bruises.

As I write this, I look out the window at the Thessaloniki bay where a number of huge freighters are waiting to enter the docks. Not too long ago,  I was happy when I saw 3 or 4 ships and I don't even remember seeing large freighters. Now, there is hardly a day when there are not at least 10 ships, most of them large freighters, and they all seem to be heavy-loaded. Now, I have no idea whether this relates to Greek exports/imports or whether it is just goods in transit towards the Balkans and further up. But my point is: the economic activity in the Thessaloniki harbor has increased substantially!

Thessaloniki has returned to its vibrating temperament where life is pulsating. But in the villages, too, I noticed a return of spirits. And jobs, too. My wife's 2 nephews are both in the construction industry: one in earth moving and building materials and the other one is a project engineer. As late as two years ago, their families had to live off their savings. Now both have rather good order books. Some village tavernas which we frequent seemed to be close to shut-down not too long ago and now I have seen them fully booked. Albeit only on Sundays but there had been Sundays in the past were we were the only customers.

In short, wherever I looked I got the feeling that money was being spent again. Whether official or black money, I don't know.

All of these observations, be they the professional ones or my gut feelings, have one thing in common: they don't address the question whether things have really changed in Greece; whether the economy has really become reformed; has Greece really become a good place to do business? The original intention had been to use the shock of the crisis to 'build a modern and prosperous Greece: a Greece characterised by economic opportunity and social equity, and served by an efficient administration with a strong public service ethos' (EU Task Force). Is Greece now on its way towards becoming such a country?

As I listened to my Greek friends over the last 3 months, I have never heard from anyone a comment to the extent that something had really changed significantly in the last years. It was much more common to be told, with a twinkle in the eye, that "Greece will never change!" Yes, the budget was balanced, no doubt a sensational result but actually a controller's result (raise taxes and cut costs). From true leadership one would have expected new visions, new narratives, new plans, etc. The general business model pursued in Greece does not seem to have changed much. Greece still exports far too little and imports products which it should make at home (including agricultural products and food stuffs). And Greece continues to hold the questionable distinctions of ranking at the bottom in the EU as regards attractiveness as a place to do business and the top as regards perceived corruption.

So my bottom line at this point is this: yes, a turn-around is happening and it may even gather some speed. Nevertheless, however large the turn-around will be, it is unlikely to be the result of a reformed and improved economic framework. Instead, it seems to be driven by catch-up needs and by a generally higher level of optimism. The well-known political slogan is 'never waste a good crisis!' As far as Greece is concerned, I am not sure that the terrible crisis of the last years has been put to good use.

25 comments:

  1. So what you are basically saying is this: Greece is lifted up by the tide and the moment the tide (i.e. cheap money) goes out, we will be reminded (again) that they are actually swinning naked.
    Urs

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    1. Well, yes, in a way that's what I am saying. But I am not saying that that's the end of the world for Greece. On the contrary, Greece (and Greeks) will somehow manage to get through all of that.

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  2. Mr. Kastner,

    Observing from outside even at close range, you really can not distinguish what is really going on. Overall of course Greece is bouncing back. Both on ground level and country level. This though does not necessary mean we still do not have the crisis still in hand. Nor will the wounds of the severe crisis not be closed for many years. We will still have strict measures for many years to come and one from the inside can take that people have simply accepted them. Of course there is a sense of vengeance always boiling underneath.

    On ground floor there is positive views in both the economy of black (less now) and white markets. Investment has never stopped and is showing itself and its only speeding up. This is evident on small business, middle sized and large corporations. Of course there are many large projects that will greatly help to the rebound of the country. Ports, airports, roadways, Trainose, energy, ellinikos and many more. All this will help the ground level economy to bounce back.

    It will come when Tsipras leaves. He will have done all the dirty work and ND will come. Not that strict policies will not remain but i believe it will signal the rebound. I believe tsipras is trying to show this rebound as so he can be reelected, but he needs to go.

    Every year and as time goes by the transportation of goods and works is growing on a large scale as you see the ships in the port. I see truck que's lined up everywhere for importing and exporting. Whichever it is, it is not necessarily bad or good, the positive you should take from this is that there is movement. For example, right now there is a great shortage of trucks for transportation of goods. This more so in the spring and summer periods when our agricultural exports also kick in.

    We will rebound and i am sure of this now. Will Greek mentality return? To some small extent yes, but not the classic. We have changed like a chameleon changes its color.

    In addition to the above you now start to see movement of people. In the deep crisis nobody would dare risk to leaving there job, now people are changing jobs at an increased rate.

    For the average Greek though things are still hard. Not much room for black money considering the need to pay with cards as to acquire tax breaks for income taxes.

    Overall, we are okay. If investment comes and the large projects move forward, Greece will be a force to be reckoned with.

    Sincerely,
    V

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    1. Quote: " Will Greek mentality return? To some small extent yes, but not the classic. We have changed like a chameleon changes its color."

      Would it be a good or a bad thing if Greek mentality would return?

      Quote: "For the average Greek though things are still hard. Not much room for black money considering the need to pay with cards as to acquire tax breaks for income taxes."

      Hm, I hope I misunderstand your statement and this can not be seen as an answer to my question above.

      Urs

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    2. "Will Greek mentality return?"

      One of the most sad and damaging consequences of the ever on going crisis is that an increased number of Greeks use that phrase as some kind of a swear word just as some northerners do, although the latter usually don't have the courage to do so openly, since that would expose their premises - so they opt for the apparently more neutral and above all scientifically sounding: "mentality", a term snatched away from social studies and striped from its restraining and complicated qualifications, by which they mean nothing more than the good old stupid and suspect "national character" .

      Of course, in my many years in Greece, I have noticed that even well before the crisis this ugly blame - lamentation is usually being used by people of relatively upper social strata when they want to exalt their own modernized, European, "proper capitalistic" "mentality" against their more Greece - bound compatriots…

      I've always find it a blatantly arrogant, hypocritical and ultimately self-serving attitude.

      What's saddest, in the crisis years, this rhetoric is being parroted to a degree that has been adopted by the very people against whom it's being deployed…

      It's no wonder that such a level of internalized blame, the guild of the nonsensical, hypocritical and terribly ugly: "όλοι μαζί τα φάγαμε", has been weaponised by any and all governments when justifying the terrible…

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    3. What the heck is Greek mentality?

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    4. Reply to Urs

      Well it can be a good thing. Greek positive ingenuity and problem solving and selflselflessness (filotimo) is wonderful. Actually these are characteristics which the world loves us for. It's the shortsightness and negative aspects the world hates us for.

      I used the metaphor chamellion because it is true. You can't change who you are but you can change the colour of your coat to blend in. There is nothing wrong in knowing yourself and hiding the bad aspects of yourself and showing that which you are liked for.

      As for the 2nd statement. All world economies have black money. It is a healthy aspect of an economy if kept in check. We are at that point. It is not a bad balance. If capital controls were stopped would we revert to cash? On a large extent no. More because people especially Greeks love the ease of cards and not needing to run to an atm all the time. Cash is dead to a large extent. Personally 90 % of my transactions are white and the remains black. It's a healthy balance. White economics is overcoming so to say the black economy.

      If Greece comes out, aside from the atrocities, I will be grateful. However like I said wounds will not close and Greeks do not forget.

      Good day
      V

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  3. Yes consumer sentiment is rising, for 2 reasons. The financial herd is finally moving. Tsipras has been able to sell the idea that post memorandum means a return to 2008. It was not difficult since that is what the average Greek wish for, most people are still convinced that the memorandums are the reasons for their problems. The promise of an imminent return of 2008 is loosening up the mattress money, they are substantial but not infinite.
    We are still back to the key question of FDI, and not the FDI the financial herd brings. The FDI's that privatizations brings are, ironically, not all good either, they are necessary because they bring money and relieve the state of liabilities, but they are not all instant growth and job models. You mentioned Eldorado and Ellenikon, both are potential growth and job models (but not high skill technology transfers). The other side of the coin is cases like Public Power Corporation and domestic air ports, they will instantly bring higher redundancies, and only weak long term benefits.
    The sort of FDI Greece need is Green Field investments. The sort where investor build a factory, for one or more products for the global markets, train his employees, keep a controlling interest, and hopefully expand that company. Such companies are necessary to absorb the jobless. Knowing that this kind of FDI was weak in Greece, I was still shocked to learn that from 2009 to 2012 it was only 4% of total FDI, while in 2013 to 2015 it was -8%, a disinvestment (Central Bank of Greece).
    One such company is BSH (Bosch), 500 plus employees, they are making electric home appliances, a clean product with the right degree of technology for the present Greek workforce. Not rocket technology, but you have to start somewhere, work suitable for men as well as women. After years of harassment by local politicians, blocking their attempts at expanding, they have finally announced that at year end they will close their factory.
    With their hate/fear of such companies Greece has forfeited the chance of such ventures. Should that not be enough there is also the Damocles sword of Article 106 in the constitution.
    Lennard

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    1. Interesting input as always, Lennard.

      Quote: "One such company is BSH (Bosch), 500 plus employees, they are making electric home appliances, a clean product with the right degree of technology for the present Greek workforce. Not rocket technology, but you have to start somewhere, work suitable for men as well as women. After years of harassment by local politicians, blocking their attempts at expanding, they have finally announced that at year end they will close their factory."

      So how do the workers at BSH react. Who are they blaming for loosing their jobs? One should assume that the politicians who blocked the expansion are now in trouble.

      Urs

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    2. After years of harassment by local politicians, blocking their attempts at expanding

      Care to explain?

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    3. Lennard,

      You are perfect example of someone observing from the outside. You find a eaten/regurgitated main stream news example of Bosch. If you tell a story, tell the whole thing.

      In such an unstable environment of the last 10 years, it is only certain that companies will be recycled and many will be discarded.

      Fortunately, there are indeed multiple companies investing and growing and building for the future. The smart ones who envisioned this in the deep crisis. I can name 10 major companies and 50 medium size businesses just in manufacturing. A can also point to hundred of small businesses that have come out of the ashes of the crisis.

      Keep betting against. Please do as it will only make those who bought low, profit even more.

      Sincerely,
      V

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  4. I'd stick to the hard facts if I was you.

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  5. Two important factors.

    a. The Cold Civil War* ended. SYRIZA won, but its capitulation vindicated the old political establishment. By capitulating, SYRIZA discredited the anti-MoU movement and ideas, which dominated the agenda until the referendum.

    b. Greece's international isolation seems to have come to an end. Germany and the EU don't seem punitive anymore (even Markus Söder changed his mind on Grexit!) and the US Ambassador announced that "America is back!"

    *I borrow the term "Cold Civil War" from Yannis Pretenteris' book title. The book was published in 2012 and was about the period from the 2009 elections to the 2012 double elections. I believe that the term is suitable to cover the period until 2015. To those not familiar with him, Pretenteris is a famous journalist and commentator for Mega TV and Vima & Nea journals. SYRIZA used to boycott his TV programme and he was widely regarded by SYRIZA voters as being a mouthpiece for the establishment.

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  6. @ V.
    The case of Bosch was only an example because it happens this very moment. Another reason to mention Bosch was my belief it is a perfect type of investment for Greece.
    The figures from Central Bank of Greece do tell the whole thing, they are net figures. That some are going and some coming is irrelevant, I am sure we can agree that what counts is the net figure.
    PS. That I am observing from outside is rather inaccurate.
    Lennard.

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    1. This reminds me of the company of my neighbor in the Kilkis Industrial Park. I believe I have written about it once before when I wrote about Greece's Industrial Cemeteries.

      Last month I visited his company again. It hasn't become any less depressive than a few years back. A huge production hall where once over 60 people worked. The work stations are still there, everything else is run down and dead. My neighbor, 80+ years old, still works there every day and he has 2-3 locals who do odd jobs for him. He says he has just enough income to give these 3 people some money; no more. Nothing left for him.

      Because of the crisis? No! He makes electric heating units, the kind you find in water heaters and the like (with spirals). I am sure BSH made those heaters once in the distant past. 20 years ago, a very prominent traditional Austrian company making the same products went out of business because they had overlooked moving that very simple production to the cheap East. Companies like BSH survive because when the world changes, they change with it. My neighbor is a true gentleman and extremely hard working and his electrical heaters are probably the best anyone ever made but which no one needs today (at least not at his price). Just the thought where my neighbor might be today if only he had had a little know-how from companies like BSH make me pain.

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  7. Yes, it's a sad story. But it's not only the know-how and skills (technical and managerial) that affect FDI's, that can be compensated for with training and expats in the starting period. It is the attitude of the society. As a BSH official, involved in the planning of the Elefsina extension announced, "it is the company's policy to invest where the local community is on its side".
    No ventures are islands, you cannot operate if your environment is hostile. Project Managers don't make site surveys with presentations of their projects because they love to travel. That's why, sadly, I do not think your idea about Special Economic Zones would succeed.
    Lennard

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  8. "We should not try to appease using the logic of a success story, which is disastrous". That is how far around the corner Greece is, according to Syriza's Group of 53, lead by Tsakalotos.

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    1. Yet Mr. Tsakalotos ideology shows how far Greece finance minister is behind the curve.
      Urs

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  9. The departure of Bosch is not the end of the world for Greece, but let's look what it is in a larger picture. As V says, it would not do not to tell the whole story.
    There are 1 million unemployed in Greece, half of them will have to be employed by companies like BSH. For that sort of investment (500 employees, assembly only) first cost is EUR 150 million, or EUR 300000 per employee. For the 500000 that need to be employed it means a first cost investment of EUR 150 billion.
    If you want to move one step up in the food chain and produce cars (assembly only) instead of dishwashers, the investment doubles.
    The total investment of this character in the period 2009 to 2012, the previously mentioned 4% of total FDI, was EUR 178 million, roughly the sum it would take to create a new BSH. So Greece only needs to attract another 1000 BSH's.
    Lennard

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  10. @kleingut @Lennard

    Quote: "Just the thought where my neighbor might be today if only he had had a little know-how from companies like BSH make me pain."

    "Yes, it's a sad story."

    I’d like to challenge your views. Why on earth should BSH share IP with a small competitor (for free)? And why is this a "sad story"? Agreed, when companies close shops and people loose their jobs this is nothing to be happy about yet this is a comparatively small price society has to pay for having the most competitive and wealth creating system around. Even a small company with 80 employees should be able to invest in R&D to find a niche to survive. You (Kleingut) brought up an austrian company that vanished because they did not move their production to the east. Is this a "sad story" or just a story of complacency and conflict avoidance?
    After the "Gang of four" was removed from power and the PRC turned to a more market-oriented society there were a number of propaganda movies made that "explained" new things like competition, markets etc. to the public. Nowadays in a Europe (still one of the most prosperous regions in the world, but this is not heaven sent) full of leftwingers and rightwingers opposing open societies and globalization I sometimes wonder if we are more in need of these movies than the thrifty Chinese.
    Urs

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  11. Mr. Kastner,

    Wishing you a Merry Christmas and a Happy and healthy new year.

    To All,

    I wish you all Health, Happiness and Infinite Affections of LOVE for you and your families.

    Sincerely,
    V

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    1. Thank you. Let me return the wishes as well as pass them on to all the others who follow this blog.

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  12. @ Urs,
    You are of cause right on all accounts. However, having lived and worked here for many years I have invested a lot in Greece and Greeks, not financial that would be madness, but emotional. I know the kind of owner Klaus describes, I met lots of that kind of people when I first came here.Basically naive, without knowledge of the ways of the world, many barely literal, hard working. When Papandreou came to power they thought the world of him, he was bringing water and electricity to the villages. That he was making them cannibals, eating their own offspring they did not understand.
    You will have to bear with my respect for these people, and the "modern Greeks", of what ever age they are, will have to bear with my harsh critic of their behavior.
    And with that sentimental outburst a merry Christmas to you and others.
    Lennard

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    1. @Lennard:

      Thanks for your reply Lennard. I know I sometimes sound like a reincarnation of Scrooge (btw. Merry Christmas to you and everyone else here at OG) or like an Ayn Rand disciple because I tend to overstate my case. Sorry for that. I am not that cold hearted or small minded and I not only do understand your respect for the hard working people you and Kleingut describe I in fact share your feelings. It’s just that I like to play the advocatus diaboli. My mother used to call me Kippe Kuh like Esther Gretor’s eponymous heroine the famous Kippe Ko - you as a Dane know what that stands for.
      Urs

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  13. http://www.minfin.gr/documents/20182/436601/state_budget_december2017.pdf/7e536767-edba-4cdf-9642-05a3e2fbd3b8

    State Budget Net Revenue: Jan-Dec 2016/2017 54.161/51.274

    Ordinary Budget Net Revenue: Jan-Dec 2016/2017 49.982/48.825

    State Budget Net Revenue are less almost 3 bn € and Ordinary Budget Net Revenue less 1 bn €.

    If the increase in GDP during 2017 is estimated around +1.6% why budget revenue are less?

    Tax refunds, (2 bn € more) according to Budget
    Estimates 2018, is an explanation?

    But, supermarkets revenue +1.6% during 2017 an increase after 7 years according to Nielsen.

    http://www.kathimerini.gr/943496/article/oikonomia/epixeirhseis/ay3hsh-tziroy-16--sta-soyper-market-to-2017-prwth-fora-meta-7-xronia

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