Monday, 13 February 2017

Greek economy to grow, if it stays the course of adjustment

Bank of Greece Governor
Yannis Stournaras

Greece's economy is on track to grow significantly this year for the first time since the beginning of the Great Recession in 2008, but that prospect could still be dynamited by its failure to stay the course of its current adjustment programme.

That was the upshot of the speech given by Greece’s central banker, Yannis Stournaras, to parliament today. Presenting the Bank of Greece’s Interim Report on Monetary Policy, he predicted growth of 2.5 percent of GDP this year and three percent in the next two years. This is close to the growth of 2.7 percent forecast by the International Monetary Fund and the European Commission.  

However, Stournaras warned that the figures were contingent on Greece’s staying the course of fiscal discipline and continuing to receive handouts from its eurozone partners until its programme ends in mid-2018. He warned the government to conclude its current assessment sooner rather than later. “There is no rational choice between concluding the assessment now or later. Conditions will be much worse later,” he said.

The ball in Greece’s court?

The ball is in Greece’s court to signal that it will legislate a new round of austerity measures, according to latest news reports from Brussels. The measures, which are part of Greece’s assessment under its bailout terms, were apparently discussed last Friday between Greek finance minister Euclid Tsakalotos and Eurogroup president Jeroen Dijsselbloem, and are said to amount to two percent of GDP, or €3.4bn.

“We made substantial progress today and are close to common ground for the mission to return to Athens the coming week,” Dijsselbloem had said on Friday. Until Monday afternoon there was no public word from Athens that it had given the go-ahead.

Defence minister Panos Kammenos told the weekend edition of Efimerida ton Syntakton that, “We are not going to legislate news measures. This is absolutely clear.” Kammenos, who is Prime Minister Alexis Tsipras’ coalition partner, also said the government would not legislate spending cuts that would take effect after 2018, when Greece’s current programme ends. He sounded confident that there will be a solution to Greece’s current assessment before the next Eurogroup on February 20.

The government is in part biding its time, encouraged by the rapid rise in opinion polls of Germany’s Social Democrat leader Martin Schultz. He is challenging Chancellor Angela Merkel and her austerity-based European policy in this autumn’s election.

Schulz’ position is having an effect on the political debate in Germany, where media are beginning to question the merits of allowing Greece to leave the eurozone – a position Germany’s powerful finance minister Wolfgang Scheauble favours – versus keeping the eurozone whole.

"Anyone who raises the issue of Grexit now is playing with the division of the continent,” Schulz said on the campaign trail. “This is perhaps in the interest of Donald Trump or Marine Le Pen, but certainly not in the interest of Germany and Europe. This is dangerous.”

Schulz’ inclusive attitude to Europe has deep roots. As president of the European Parliament he had told Greek lawmakers as long ago as 2012, that “Europe is not a community based on austerity. Europe is a community based on solidarity.” 

If the reports from Brussels are accurate, however, the Eurogroup is assuming Germany’s hard line of forcing the Greeks to generate a primary surplus of at least 3.5 percent of GDP.

Migrant relocation

Separately, the European Commission on Monday published its ninth monthly report on relocation of refugees. It says that member states have volunteered to relocate 11,966 asylum applicants (8,766 from Greece and 3,200 from Italy). The target, set in September 2015, is to relocate 160,000, in order to relieve pressure on asylum boards in the two countries that have received most of the refugee flows of the past several years in the EU.

The relocation programme was one of the EU’s main responses to the Europe-bound refugee flows of 2015. Both as an attempt to solve the practical difficulties of processing so many applicants, and as a show of European solidarity, it has been of limited success. Initial uptake was slow, and several EU members – Poland, Austria, Hungary and Denmark – refused to offer quotas, while the Czech Republic has taken just 12 applicants. However, uptake has speeded up in recent months, and the Commission has prioritised the programme in spite of the naysayers. 

Wednesday, 8 February 2017

IMF calls on Greek state to pay its share of austerity

The International Monetary Fund says Greece's austerity package is failing because the public sector hasn't made as many sacrifices as the private sector, and because banks haven't been enabled to finance the growth of business. 

Its annual country report, released on Tuesday, also ominously warns that even if Greece does everything it should to boost productivity and growth, its debt will eventually drown any recovery and needs to be restructured. 

"Only about a quarter of the overall adjustment was directed at reducing public sector wages and pensions," the IMF says. 
Greece spent more than €12bn on public sector salaries last year, and another €22bn on pensions and other social benefits (see table below). Together, the two absorbed 70 percent of tax revenue. The government's 2016 pension reform relied on raising contributions from those still in work and lowering their future pension payouts, but made no further cuts to current pensioners. The IMF calls on it to do so. 

Greeks now also own the highest level of nonperforming loans in the eurozone - 45 percent of loans aren't being repaid, quadruple the rate of nonpayment at the beginning of the crisis. Banks are having difficulty closing the books on these loans by repossessing homes or by selling off the bad loan portfolio, partly because the government has not provided all the legal tools for doing so. Doing this requires the government to legislate exactly which debtors may be evicted from primary residences, which carries political risk. 

The IMF wants the government to broaden the tax base by lowering tax exemptions, currently at €8,630 for salaried employees and farmers, because half of them declare annual income below that level. "More than half of wage earners are exempt from paying personal income tax compared to the euro area average of 8 percent," it says. 

This will be difficult. Farmers, representing a fifth of workers, are currently asking for the tax exemption to be raised. Self-employed professionals, who represent almost a third of workers and had their tax exemption completely removed under the conservatives (2012-14), demand that it be reinstated. 

Then there is the thorny issue of debt. The IMF refused to be part of Greece's third bailout in 2015 on the grounds that its debt is unsustainable. The Fund's charter doesn't allow it to extend loans to countries that already have unsustainably high debt. The eurozone wants the IMF to be involved. The powerful German finance minister Wolfgang Scheauble recently threatened that without the IMF the bailout facility might be brought to a halt, bankrupting Greece and forcing it out of the eurozone. 

The IMF says the measures Greece has undertaken as part of its third bailout loan amount to four percent of GDP, but are "heavily reliant on revenue measures" for three quarters of that, leading to "further increases in already high taxes on narrow bases." 

The IMF's thorniest disagreement with the eurozone, however, is that the eurozone, as the largest owner of Greek debt, needs to give Greece decades longer to repay it. "Even with these ambitious policies in place, Greece cannot grow out of its debt problem. Greece requires substantial debt relief from its European partners to restore debt sustainability," it says. 

The IMF's modelling suggests that without restructuring, the debt will reach almost three times the size of GDP by 2060, and servicing it will absorb revenue equal to two thirds of GDP, a clearly impossible task. 

Tuesday, 7 February 2017

IMF split on Greek debt

Greece’s most senior creditor, the International Monetary Fund, appears divided on how to address Greece’s debt, which it has called unsustainable. The Fund’s Executive Board on Monday refused to say whether it would support Greece’s current bailout, which puts its continuation in doubt.

The disagreement centres on how much of its economy Greece should spend repaying debt. The eurozone, which holds the majority of Greek debt, wants it to spend 3.5 percent of its economy - something Greece committed to doing by 2018 in return for its third bailout loan in 2015. The IMF believes Greece must be given longer to repay its loans, allowing it to spend 1.5 percent of its economy a year.

The eurozone's method, demanded principally by Germany, would require greater cuts in public spending. While a majority of Executive Board members did not press for such cuts, some disagreed: “Most Directors agreed that Greece does not require further fiscal consolidation at this time, given the impressive adjustment to date which is expected to bring the medium-term primary fiscal surplus to around 1½ percent of GDP, while some Directors favored a surplus of 3½ percent of GDP by 2018,” the Fund said in a press release.

Greek debt stands at an unsustainable 350bn dollars, almost twice the size of the economy. The International monetary fund says that without significant debt relief from the eurozone Greece won't be able to grow out of its debt problem. According to a leaked IMF estimate, the debt will explode to 275 percent of GDP - almost three times the size of the economy – after 2022. That’s because the interest rate Greece pays on much of its debt will rise from an average 2.5 percent today to about seven percent, as its grace period comes to an end in five years.

The IMF’s refusal to be involved in the Greek bailout could derail the European plan, and that would ultimately bankrupt Greece. “Come July, Greece will be unable to roll over its obligations. Greece owes seven billion that need to be repaid – bonds held by the European Central Bank and market participants,” says Greece’s former IMF representative Miranda Xafa. “Greece will not be able to meet those payments without external financing from official creditors.”

Technically that would be the end of the line as far as Greece’s membership in the eurozone is concerned, unless Greece and its creditors can figure out a way to keep the bailout process running.

Greece has achieved what many economists believe is the biggest fiscal adjustment in postwar developed economies. In 2009 it spent 15 percent of GDP more than it made in tax revenues. By 2014 it had balanced its budget, although Greece is still in deficit if one includes the money it has to spend repaying its debt.

Fund directors agreed that the Greek government needs to earn more in personal income tax. This has fallen from €11bn in 2008 to €7.6bn last year, as unemployment rose and salaries fell during the Great Recession of the intervening period. Directors also agreed that Greece has taken too long to settle the large outstanding bill taxpayers have with the government and consumers have with banks. Tax arrears stand at a record €95bn, while non-performing loans are estimated at over €100bn.

Tuesday, 31 January 2017

The Greek debt

The International Monetary Fund will on February 6 likely deal a blow to Germany's ambition to involve it in the current Greek bailout. On that day it is expected to declare the Greek debt unsustainable, which bars it from involvement. An IMF report prepared for the meeting, leaked to Kathimerini and the Financial Times, says the Greek debt, which is currently worth €330bn, or 180pc of GDP, will grow to 275pc of GDP in the next four decades.

The debt’s sheer size threatens not only to unravel the bailout. It is the principal cause of Greece's inability to grow. The government has to impose such high taxes to keep up payments to creditors, there is little money left over for re-investment in new business.

New figures from the General Secretariat of Public Revenue show that Greeks reneged on a record level of tax obligations last year -  €13.9bn. Together with past tax arrears, the total is a record €95bn, about half the value of the economy. The government has managed to produce a surplus in 2016, but only by withholding vast amounts from its suppliers, which further starves the economy.

Against this backdrop of institutional gridlock, the Greek government is also at an impasse regarding the implementation of the next round of austerity, which it feels will spell political suicide. Without those measures, Greece will be unable to receive more loan instalments. Economists give it until July to go bankrupt if nothing is done. 

Thursday, 26 January 2017

Greek Supreme Court rules against extradition for Turkish officers

This article was published by Al Jazeera International

Turkish officers are visibly relieved after their non-extradition verdict. Their lawyer, Christos Mylonopoulos, stands at right.

Greece’s Supreme Court has ruled against extraditing eight Turkish air force officers, in a decision likely to complicate relations between the two countries.

“It is a great victory for European values, for Greek justice,” said the claimants’ lawyer, Christos Mylonopoulos. “The legal thinking is obvious. It is the observation of European values, the observation of legality, and the conservation of judicial civilisation.”

Turkish authorities want the officers to stand trial for their alleged involvement in a coup last July, which nearly toppled the government. They stand accused of attempting to dissolve the constitution, overthrow parliament, placing civilian human life at risk and stealing army materiel.

The eight have been in police custody since landing at Alexandroupoli airport in a Turkish army helicopter on July 16. The court set all of them free, but it wasn’t clear when that freedom would take effect.

They had sat petrified in court ahead of the decision, but as the first decisions were read out, they began to smile and nod in acknowledgment.

“We didn’t escape the war. We jus saved our lives, and waiting has changed our lives,” one officer later told Al Jazeera on condition of anonymity.

He says he and his colleagues made up their minds to escape after Turkish President Recep Tayyip Erdogan called on his supporters to rise up against the coup, leading to clashes with troops and bloodshed.

“From our iPads we saw what was happening,” says the officer. “We couldn’t reach our commanders. We waited six or seven hours.”

Turkey has dismissed an estimated 100,000 people from public sector jobs on suspicion of political affiliations hostile to the ruling AKP Party. An estimated 36,000 have been arrested on suspicion of collusion in the July 16 coup attempt.

“The arguments were that first of all they were in danger to undergo inhuman and degrading treatment. The reintroduction of the death penalty in Turkey was an additional danger,” Mylonopoulos told Al Jazeera.

A tall order

The request for extradition was always a difficult proposition, because of the thickness of the legal requirements.

Turkey is a signatory to the European Treaty on Extradition, which forbids extradition for political or military crimes, and gave Greece the right to refuse extradition if the crimes are punishable by death. Turkish President Recep Tayyip Erdogan has said that he may hold a referendum on the return of capital punishment.

Under the European Convention on Human Rights, which Greece has ratified, the officers are deemed to be refugees if they are at risk of torture, execution or inhumane treatment and serious bodily harm in Turkey. Also under Article 6 the Convention, they may not be extradited for legal process unless they are assured of a fair trial.

Partly on these legal and humanitarian grounds, three Supreme Court criminal prosecutors have in the past weeks weighed against extradition. All outside legal opinions the court has heard have also weighed against it.

The decision is final. The Greek government cannot overturn it. Asked if this raises the possibility of more Turkish nationals fleeing what they fear is political persecution, he said, “The circumstances under which these people came here were very eloquent, it was very obvious that their prosecution was due to political reasons. This does not mean that everybody who has a problem with Turkish authorities can come to Greece to find a shelter.”

The officers have applied for asylum in Greece, a process likely to take months. Asked what they want to do now, one officer replied, “We would like for none of all this to have happened. We would like to go home and be with our families.” 

Wednesday, 25 January 2017

Tsipras digs in his heels on his second anniversary in power

Alexis Tsipras

Prime Minister Alexis Tsipras says his government won’t bring another austerity bill to parliament on the eve of a crucial Eurogroup meeting focusing on Greece. Greece’s creditors – its fellow-eurozone countries – are reportedly pressing him to accept a raft of austerity measures that would kick in after the current austerity programme ends in mid-2018.

“There is no way we are going to legislate a single euro of measures beyond what the agreement says, and that applies especially for the period after the [adjustment] programme ends,” he told national daily Efimerida ton Syntakton today, on his Syriza party’s two-year anniversary in power.

Days ago, conservative opposition leader Kyriakos Mitsotakis decried the upcoming anniversary. “Never in the last seven years – ever since the crisis so violently struck Greek society – was the horizon darker for the ship of Greece. Runaway taxation is strangling every productive Greek.”

Tsipras lashed out against the opposition’s accusations of incompetence. “Do [New Democracy and Mitsotakis] … believe that we should agree to legislate in advance for 2019? Do they think we should pass a reduction of the taxable income threshold and a further cut in pensions?”

While Tsipras rules out any possibility of a Greek departure from the eurozone, creditors are concerned about his leftwing government’s tendency to increase social spending, and his ability to maintain a primary surplus of at least 3.5 percent of GDP. That is the amount of tax revenue creditors want Greece to set aside to repay them.

The International Monetary Fund, in particular, believes that the reforms currently undertaken by Greece are not enough for it to achieve such a surplus. It also disagrees with the goal of a 3.5 percent primary surplus, because this “would generate a degree of austerity that could prevent the nascent recovery from taking hold.”

According to figures released on Tuesday, Syriza has managed to generate an unexpectedly large surplus, because tax revenues are above expectations. The finance ministry reports earnings of €54bn last year, €1.68bn above target. This helps to give the state a primary surplus of €4.4bn rather than the target €1.98bn.

That surplus has come at a high cost. Public health sector workers protested outside the prime minister’s office on Wednesday, saying that the national healthcare system “is crumbling”. Contrary to government promises to spend more on health and education this year, the health ministry’s 2017 budget has been cut by €129mn to €4.268bn.

The high surplus also comes in part from delaying government payments to suppliers. The health workers’ union says hospitals owe their suppliers €1.8bn, up from €0.7bn when Syriza assumed power. The union also says no new hires have been made, contrary to Tsipras’ post-election promise to hire 4,500 doctors and nurses.

Greek living standards have also crumbled since Syriza assumed office. A report by the Labour Institute out on Tuesday says that 37 percent of Greek households subsist on less than €10,000 a year.

Three quarters of all households saw their income fall last year, according to the Institute, the private sector’s main labour think tank. Fully one half of households now depend on a pension as their main source of income.

European Commissioner Pierre Moscovici has ruled out an agreement between Greece and its creditors on Thursday, on how to implement the next round of austerity measures. He believes February 20 is the last-ditch Eurogroup before France and Germany - and possibly Italy and Spain – become embroiled in general elections, whose outcome may well make an agreement with Greece even more difficult.