Friday, 11 April 2014

Greece's recovery is still a Marathon

Greek bond risk has until now been associated with the state of the economy. By achieving a primary surplus last year, which has been broadly accepted by the country's creditors and Eurozone partners, Greece passed the first milestone of fiscal health - defeating its annual deficit. After Thursday's bond sale, markets, too, appear to have accepted that its public finances are on the mend.

There is still economic risk in Greece - the country's debt is unsustainable at around 175 percent of GDP; the European Commission believes it will face a shortfall in tax revenue next year, and Greece is not on track to achieve a target 4.5 percent budget surplus by 2016; its credit rating remains low, so its borrowing rates could rise again; and the process of economic reform is ongoing - in fact, success in markets could undermine it.

The risk now appears to be increasingly political, however. The ruling conservatives could face a setback in European parliament elections and local elections on May 25. They are running neck-and-neck with the radical left opposition. The conservatives' junior coalition partner, the socialist Pasok party, is facing a trouncing in those elections, and while its parliamentary presence won't be diminished, a poor performance will undermine its authority to rule.

Yannis Stournaras, the finance minister responsible for tight spending and more effective tax collection over the past two years, could opt to leave the government in June, when the governorship of the Bank of Greece opens up. That would deprive Samaras of the only technocrat in his cabinet, and introduce uncertainty in a key post to economic recovery.

Parliament will have to elect a new president next spring. That raises the prospect of a general election, because the government will need opposition support to muster the two-thirds majority needed.

Samaras' government has overcome enormous difficulties to balance the budget and legislate reforms, many of which still need to be implemented. But the challenges ahead are just as great as those that have been overcome. The celebratory mood the government has achieved, crowned with a visit to Athens today by Angela Merkel, must be seen as an intermission rather than a denouement. 

Thursday, 10 April 2014

Greece hails return to markets

Greece sold its first long-term bond in four years on Thursday, raising three billion euros at a lower-than-expected borrowing rate of 4.75 percent. 

Prime minister Antonis Samaras hailed it as a victory for his government, a day ahead of a visit to Athens by Germany's chancellor, Angela Merkel. 

"The reception of the Greek five-year bond has surpassed every expectation," he said in a televised address. "We asked for 2.5 billion, and they offered us more than 20." 

Greece drew far less from markets than it could, because it is mostly interested in establishing a new credit history with markets and driving borrowing rates down, a senior finance ministry official explained on Wednesday. 

"All this means that international markets now unequivocally express their trust in the Greek economy," said Samaras. "Their trust in the future of Greece... their trust in this country's ability to emerge from the crisis, and much sooner than many people believed possible until recently."

Not everyone was convinced that the sale was in Greece's best interests. The 4.75 percent rate is still much higher than the roughly two percent at which Greece borrows from its Eurozone partners. 

"It’s an artificial affair. And it's superfluous, because Greece is already over-borrowed. This will add costs to Greece’s debt. This money wasn't necessary," said Nikos Theodosiadis, a doctor. 

"We're not trying to build a purse, but to build a yield curve," the finance ministry official said. "When you reach out to markets you affect all of your debt." According to ministry calculations, Greece will save 200 million euros a year thanks to today's sale, the official said.  

Greeks have lost a third of their income during the crisis, and unemployment remains stubbornly high. January figures released on Thursday by the Hellenic Statistical Authority put it at 26.7 percent. 

Finance Minister Yannis Stournaras was firm. "The safest way for all those who have suffered to find some compensation in terms of rising incomes, disposable incomes, is the road we have designed," he said on Thursday. "It seems the world community trusts Greece once more. We had a very big success today and there is, I am afraid, no other solution." 

Wednesday, 9 April 2014

Unions strike as Greece prepares to re-enter markets

Greece has announced that it will put a five-year bond on sale on Thursday, marking its return to markets after a four-year absence. 

At the same time, labour federations mounted a protest of about 25,000 people in the centre of Athens today, to press for an end to austerity taxes, wage and pension cuts and reforms taken in the last two years. 

But the government may soon be able to declare that adjustment programme a success. Greece is hoping to sell about 2.5bn euros' worth of debt at 5.25-5.5 percent interest, as the start of an exercise in rebuilding its credit history. 

"After the announcement, borrowing rates on 10-year bonds fell from 6.06 percent to 5.85 percent and a little later to 5.75 percent," said a senior finance ministry official on condition of anonymity. 

Left wing opposition MPs have questioned the wisdom of borrowing at over five percent, when Greece has already secured liquidity from its Eurozone partners and the International Monetary Fund at about two percent. 

"We're not trying to build a purse, but to build a yield curve," the official said. "When you reach out to markets you affect all of your debt." According to ministry calculations, Greece will save 200 million euros a year through this effect, the official said. 

After balancing last year's budget, Greece's borrowing rate has improved on financial markets. On Tuesday it sold six-month paper at 3.01 percent, its lowest rate during the crisis. Long-term debt is a harder sell, with higher risks and higher yields. 

The sale has political and financial significance. It would mark the beginning of a new political era, because Greece would declare its adjustment programme a success, and hail the dawn of an era of growth rather than austerity. It would also appear to claw back some lost sovereignty and autonomy in designing economic policy. 

The real economy

These macroeconomic developments, however auspicious, will leave many struggling Greeks wondering what's in it for them. 

Labour has been one of the areas most affected by austerity cuts and reforms. Unions want the government to give them back their powers to negotiate minimum wage with employers. Those were taken away two years ago, when the government forced minimum wage down from 731 euros a month before tax to 586 euros, and 20 percent less than that for the under-25s. Many employers have hired staff for a mere 400 euros, because unemployment is so high. 

But unions are losing the battle to influence politics 
and have failed to play a mitigating role on the social pressures of austerity. This is because in the past they were pressing politicians who had money to hand out. Since Greece lost its ability to borrow from markets in 2010, Greece has been forced to cut spending. Today there is no extra money to hand out, so unions have lost their clout. 

Even today's strike was largely symbolic. Shops, banks and offices remained open, because the private sector is under so much pressure to be productive.

Key union demands include: 
  • for the state to stop determining minimum wage and to go back to the previous arrangement in which employers and unions arrived at sectoral wage agreements. In February 2012, the government passed a law lowering monthly minimum wage from 731 euros before tax to 586 euros. At the same time it gave employers full power to set and change wage rates, depriving unions of their right to wage talks. 
  • for the state to clamp down on industry cartels that keep consumer prices high
  • for the state to guarantee pensions at previous levels rather than the present reduced ones. Greece has cut pensions across the board at least twice since 2011. The state is guarantor of the country's 13 pension funds, which are insolvent, giving it power to determine benefits. 
  • fairer taxes. Greeks have faced a slew of austerity-related taxes including higher consumer tax (VAT) of 23 percent, higher fuel tax, an income surtax of 1-4 percent called a solidarity tax, and a new property tax of 0.6 percent. 
  • support for poor families. Greece had notoriously poor social security services even before the crisis. 
  • continuation of protection for primary residences where mortgages cannot be paid. There was talk late last year of abolishing this.  
  • The civil servants' federation, ADEDY, additionally wants the government to repeal a law passed last month that introduces tough new evaluation criteria for civil servants and foresees further dismissals for some. Until now they tended to be given top marks routinely. The law now places a 25 percent limit on top marks earners, a 65 percent limit on average marks earners and a 15 percent quota for poor marks earners. 
  • ADEDY also wants the Greek debt to be forgiven. It stands at an unsustainably high 320 billion euros, almost twice GDP. 

Tuesday, 8 April 2014

Greece sizes up its moment to return to markets

The head of the European Commission's Task Force to Greece said today that it would be a mistake for the country to leave off structural reforms to its economy once it is able to borrow affordably from markets again.

Horst Reichenbach spoke during the presentation of a study he commissioned, suggesting that Greece may already have reaped as much as a point of GDP (1.6bn euros) in benefits from reforms undertaken since 2010.

The report suggests that Greece mount greater efforts to reform its public procurements system (alone worth half a point of GDP), strengthen entrepreneurship and the business climate, remove bureaucratic burdens on doing business and improve productivity.

Speculation has mounted of a Greek return to financial markets as early as this week. Greece has given away no hints about exactly when this will happen. Finance minister Yannis Stournaras has said only that it will be "in the first half of the year". Greece last borrowed in March 2010, before being put on financial life support from its Eurozone partners and the International Monetary Fund.

Greece announced today that it had sold a 26-week bond at the lowest rate to date - 3.01 percent, against 3.6 percent month ago and 4.1 percent in February.

Greece has begun to reclaim enough credibility in financial markets to re-earn the six percent interest rate it sold its last 10-year bond at in March 2010. It stood at 6.16 percent on Tuesday morning. That rate had climbed to over 30 percent at the height of the crisis in the autumn of 2011.

Most Greeks don't believe the government is on the right track. A GPO poll broadcast by Mega channel last night found that two thirds of Greeks believe austerity is not yielding fruit or leading Greece out of the crisis. Fifty-one percent believe ordinary taxpayers will be worse off inn the next two years. Only 21 percent thought people would be better off.

Winning political kudos

An informal Eurozone finance ministers' meeting last week gave Greece the green light to receive 8.3bn euros' worth of facilitation loan instalments due since last June. The nod came as unofficial recognition of Greece's claim to have clocked up a 2.9bn euro primary surplus last year, to be officially corroborated on April 23.

Since then, Greece has been the recipient of laudatory remarks from Eurozone officials, signalling that it has begun - in political terms, at least - to re-enter the atmosphere of the respectable euro world. 

"It seems that public finances have come along better than forecast in the [adjustment] programme," German finance minister Wolfgang Scheauble told Greek national daily Kathimerini on Sunday. "I believe that Greece will achieve its targets this year and there will be growth again." 

Greece has promised to turn a 3.9 percent recession last year into 0.6 percent growth in 2014. But European officials are still watching its ability to continue to collect tax revenues from a financially drained economy. 

"Greece is benefiting from moneyflows towards Europe but also from its own correct policies, particularly in public finances, though it must continue reforms" said Claus Regling, head of the European Stability Mechanism, which has disbursed most of Greece's second, 130bn euro facilitation loan. "I want to recognise the achievements of the Greeks. Much has been done... we may now be facing a scenario in which no further outside assistance will be needed," he said. Regling made his remarks in an interview to Greek Sunday newspaper To Vima. 

If Greece does indeed manage to maintain tax revenues, pay state salaries and suppliers and fund pensions, the big question will be whether it can service its debt, now at 174 percent of GDP. This partly depends on its rate of growth, and Eurozone officials have taken a wait-and-see approach to its performance before deciding on what kind of help the country needs.

See the Financial Times' assessment of Greece's motives for selling a bond sooner rather than later. 

Monday, 7 April 2014

Samaras promises tax relief and liquidity to businesses

Prime minister Antonis Samaras announced today that the state will provide small businesses and traders with a much-needed reduction in their overall tax debt, by offsetting taxpayers' VAT debts against the state's.

Businesses and the self-employed are obliged to pre-pay 23 percent Value Added Tax on their turnover each month, or face hefty fines of at least 500 euros. In theory, the state reimburses much of that VAT at the end of the year, once businesses and traders have presented expenses in their tax statements. In practice, however, the state has failed to disburse the cash, holding it as credit against future tax obligations and sucking up liquidity.

"The measure will be sent to parliament soon and implemented in September," said Samaras, adding that it will initially apply to small businesses and traders with turnover of up to half a million euros, before being extended to larger businesses with turnover of up to two million euros.

"With the new system, tax-compliant entrepreneurs will have no run-ins with authorities as a result of the state not paying them," said Samaras. "That will immediately allow the market to operate more smoothly."

The National Confederation of Greek Trade hailed the announcement as "satisfying a standing and vitally important request on the part of Greek trade, whose implementation is expected to provide indirect liquidity to small and medium-sized enterprises."

Liquidity crunch

Withholding VAT refunds is not the only way in which the state has squeezed businesses and traders during the crisis. The state owed private contractors about 9.5bn euros at the end of last year, Samaras revealed. "That sum is now down to 4.7bn euros and will fall to  two billion euros by the end of the year," he said, hailing a new era of "justice and growth". He said that that reduction was thanks, in part, to Greece's unexpectedly high primary surplus for 2013, which the Greek government has said will be about 2.9bn euros.

The European statistical authority, Eurostat, is expected to corroborate Greek 2013 budget figures including the surplus on April 23.

Both announcements are expected to provide much-needed relief for Greece's entrepreneurs, but not all their liquidity problems are resolved. At the beginning of the crisis, in 2010, the state obliged businesses to pre-pay 80 percent of income tax on the following year's expected turnover. That measure remains in force.

Samaras was elected in June 2012 on a platform of returning Greece to growth and jobs, and he has since reminded voters of his pro-business stance. Last September, during the annual Thessaloniki International Fair, he said that one of the first goals of tax policy would be to lower corporate tax rates from 25 percent to 15 percent.


The government is fighting to recover its image after a mixed week. On April 1, an informal meeting of finance ministers approved Greece's delayed facilitation loan instalments amounting to 8.3 bn euros, and praised the country's progress in balancing its budget. But on April 3, Samaras lost his cabinet secretary after the latter was filmed saying that the government is persecuting far-right Golden Dawn for political gain.

A poll for the Sunday edition of To Vima showed the ruling conservatives losing their two-point lead over the radical left opposition party, Syriza. Their approval fell from 21.7 percent of the vote to 20.8 percent between the beginning and the end of the week. Syriza rose from 19.6 percent to 21.5 percent.

Friday, 4 April 2014

Thoughts on the Baltakos affair

The conservative-led coalition in Greece is facing accusations of engineering a legal persecution of far-right Golden Dawn for political gain. 

The furore was sparked by a leaked video on Wednesday, showing cabinet secretary Panayotis Baltakos saying that Prime Minister Antonis Samaras ordered a crackdown on the party in hopes of sweeping up its votes. Baltakos, who was talking to Golden Dawn MP Ilias Kasidiaris in the video, resigned yesterday.

Six Golden Dawn MPs, including its leader and deputy head, are in jail awaiting trial on charges of forming a criminal organisation. The charges came after the killing of a left-wing rapper at the hands of a Golden Dawn member last year. Public order minister Nikos Dendias has said he believes that 31 more cases of manslaughter, brutality and attempted murder over a two-year period are attributable to Golden Dawn.

At one point in the leaked conversation, Kasidiaris asks why he and another MP were released from pre-trial detention. "They let you go for the simple reason that there is no evidence'" says Baltakos.

Later, Kasidiaris asks whether the prime minister is aware of the hollowness of the charges. "Not in the beginning but now that he's seen the polls... he's such a bourgeois that in the beginning he said to me '[Golden Dawn] will fall to two percent.' I replied, 'I'm telling you they'll go to 20 percent.' He said, 'you're a wanker.'"

Golden Dawn entered parliament in June 2012 with 6.97 percent of the vote, gaining 21 seats.

"Who told him to do these things?" Kasidiaris presses on.

"First of all he's worried about himself. Because you lot prevent him from gaining a lead over [left wing opposition] Syriza," replies Baltakos.

Later Kasidiaris asks why the prosecutor agreed to file charges.

"They persuaded her that "these people are pagans, idol-worshippers, Nazis, and against Christianity."

"Who persuaded her?" asks Kasidiaris. "Athanasiou and Dendias," replies Baltakos, referring to Justice Minister Haralambos Athanasiou and public order minister Nikos Dendias.

In resigning, Baltakos said he was merely keeping back-channels of communication with Golden Dawn open. Through Baltakos, the government may have been preparing the ground for a reconciliation with Golden Dawn MPs it has no real evidence against, perhaps in hopes of signing them on; but the conspiratorial tone of the conversation has led many people to suspect that he is an earnest sympathiser with the right wing party, and this is as great a concern as the possibility that New Democracy attempted to influence the judiciary. 

There are independent indications of Baltakos' right-wing leanings. In December 2012, Baltakos told the National Committee for Human Rights that “he doesn’t care, in his capacity as a representative of the government and New Democracy, about the committee’s work and human rights, nor about the country’s international obligations.” The committee made the comment public after New Democracy drafted a Draconian citizenship bill a year ago, but withdrew it without any parliamentary debate or online public consultation. 

That parts of the ruling New Democracy party are sympathetic to positions espoused by far-right Golden Dawn is no secret. Last February, 85 New Democracy MPs petitioned the prime minister to reserve jobs in the military and police for Greek nationals who are also ethnic Greeks on national security grounds, effectively abolishing constitutional equality before the law.

Baltakos may not be the only senior New Democracy member with far-right sympathies. Makis Voridis, a New Democracy MP who defected from the right-wing LAOS, was said to be seeing Kasidiaris on an almost daily basis in the first half of last year. 

Syriza has asked for a parliamentary discussion, which the government agrees to. It seems likely that Kasidiaris is responsible for Golden Dawn's back-channel communications with the centre-right. Opposition MPs are likely to ask, are his interlocutors acting on the party's behalf or their own?  

Saturday, 29 March 2014

Paying for their parents’ crisis: Greece’s abandoned children

This article and an accompanying television piece were published and broadcast by Al Jazeera English.

Haritina is a fine-boned, well-mannered 16 year-old. She brings top marks home from school, is on the cusp of sight-reading her Xenophon and Thucydides, and wants to study ancient Greek in university. What sets her apart from the mainstream is that since the age of three she has been raised in a home run by The Smile of the Child, a non-profit organisation.

Like the 25 other children in this suburban Athens home, whom she sees as siblings, Haritina was at some point abandoned or abused by her parents. Such instances of abandonment, abuse or extreme neglect of children have been on the rise during Greece’s crisis, and have now begun to overwhelm institutions capable of caring for them.

“The crisis has caused parents to lose their jobs, or to live in a state of terror because they can’t feed their families,” says Kostas Yannopoulos, who founded The Smile of the Child 18 years ago. “They start drinking, some commit suicide, some take drugs, some become mentally unbalanced. This impacts on their children and in some cases endangers their lives.”

The Smile of the Child runs a 24-hour hotline and relays reports of abuse, neglect, or abandonment to the authorities. Sometimes they do not act in time. “The prosecutor tells us that there is a lack of places for children to go, so they are left in their abusive environment,” Yannopoulos says. “Not long ago we had a case of a [little girl] that was reported abused to us on four separate occasions. She was found dead in her fridge at home. Her mother, a drug addict, had abused her to death and hidden her there.” The Smile of the Child did rescue the girl’s two little siblings.

On other occasions the hotline has saved lives. “We received a call from a father who could no longer provide for his family. He was about to commit suicide. We got his 17 year-old son on the phone, who said, “please, dad, we need you”, and talked him down.”

The effect of the crisis on families is evident in the organisation’s aid to families which are emotionally stable enough to maintain oversight of their children. Last year, it delivered food and other aid to more than 2,600 families, twice as many as in the year before. 

But it is the children who are emotionally orphaned that need help the most. The Smile of the Child last year increased its capacity and is now home to a record 306 minors. Greece’s other major non-profit organisation caring for children, SOS Children’s Villages, is also filled to capacity at 250, and plans to expand. Its director, Stelios Sifnios, agrees that cases of neglect and abuse are on the rise. A third charity, Kivotos, has increased the children in its care from about 100 two years ago to over 200.

The Smile of the Child and SOS Children’s Villages are vitally important, because state infrastructure can only deal with about half the problem. Social security runs a dozen centres across the country. In theory they can take in about 800 children, but an audit last year revealed that they were only about two-thirds full.

“Often the buildings are old and grand,” says Efi Bekou, general secretary for social security. “They are difficult to heat and maintain, and not all their wings are always working. Most date to the early 20th century. In the town of Drama, for instance, our [social services centre] used to be the old Ottoman hospital.”

The overflow of abandoned or abused children resulting from the crisis is now being ordered into the state hospital system. The country’s two largest children’s hospitals, Agia Sofia and Aglaia Kyriakou, were a temporary home to 177 children three years ago. That number rose to 216 two years ago and 301 last year.

Manolis Papasavvas, who runs both institutions, considers this an inadequate solution at best. “In the past, children didn’t stay for more than two to three weeks. Now we keep them for up to two to three months. It’s not the best thing for a healthy child to live in a hospital. It’s not good for them psychologically, and they can catch illnesses. And we shouldn’t be occupying nursing staff taking care of them.”

Children aren’t allowed off hospital premises. There is an in-hospital schoolroom, but a network of volunteers is all they have for stimulation and companionship outside the curriculum. Yet even living as hospital inmates turns out to be better than what these children have experienced before. “What surprises me is that these children say to me, ‘It’s nice here, we feel welcome here,’” says Papasavvas.

Abandonment often used to be the result of birth defects. Increasingly, it seems to be directly or indirectly economic. “Last year a parent brought their two month-old boy to the hospital and left it by the elevators,” says Papasavvas.   They left a note saying, “I don’t want this child, I can’t take care of it, please take it.” The child was entirely healthy.”

The health ministry says it is now preparing a new centre to house healthy children currently in its hospitals, but it will only absorb about a tenth of them.

As the problem of abused, neglected and abandoned children grows, authorities are beginning to realise the ineffectiveness of dealing with it piecemeal. They do not even know the exact extent of it because neither social security nor prosecutors, who issue guardianship and adoption orders to public institutions and foster homes, have the staff to classify cases or produce centralised statistics.

In early March, Bekou invited private institutions to co-ordinate their actions. There is palpable friction between them. “I want [state] institutions to be better known ... It’s not necessarily known that they exist,” says Bekou. “The state always has a greyer, mustier and more worn image. But it’s wrong to say that the state is entirely absent.”

Money will likely be a lively topic in this dialogue. Social security spent $13 million on both children and the handicapped last year. The Smile of the Child and SOS Children’s Villages together raised $20.5 million entirely from individual and corporate donations – a remarkable feat in a recession, largely thanks to a painstakingly built grassroots funding network and overseas remittances.

Despite the two non-profit groups’ undoubtable contribution, the state has made life difficult for them during the crisis. A 2010 law stopped recognising donations as tax-deductible, even as corporate social responsibility became vitally important. The law started taxing donations to the tune of 0.5 percent, and forced nonprofit groups to pay 23 percent VAT on fundraising sales. More recently, they have been forced to pay property tax. In all, the two charities paid just under half a million dollars in taxes last year.

“We don’t call ourselves non-governmental organisations,” jokes an official from SOS Children’s Villages, “because it’s clear that we are shouldering a public burden.”

The figures suggest that wealth redistribution has failed to address Greece’s massive social distress. The country now has the fourth-highest rate of childhood poverty across the EU according to Caritas, a Catholic charity. However, Greece also has a powerful tradition of euergetism dating back to ancient times, and it is this, rather than taxation, which has saved children like Haritina.

“When children have healthy role models and receive the love a child needs, they are emotionally full and can make their way in the world, even if that love hasn’t come from their biological parents,” says Stefania Tekou, a social worker who is, for all intents and purposes, mother to the 26 children in Haritina’s home. She is assisted by a staff of 15 teachers and nurses, who care for the children around the clock.

Tekou recounts with particular pride a recent conversation she had with Haritina. “She turned to me and said, ‘When I grow up and have children, I won’t need a nanny. I’ll have 16 grandmothers!’ We were all very moved by that.” But surely the most moving aspect of this conversation is that Haritina has not given up faith in family.