Thursday, 23 April 2015

Greece running on fumes

As it heads into the latest round of negotiations with creditors on Friday, the Greek government is in increasingly desperate financial shape.

It has now drawn on most of the money it can find in the central state machinery. This includes freezing payments for public works since the election. Public contractors believe they are owed in the region of 1.5bn euros.

Alternate Finance Minister Dimitris Mardas on week launched a savings witch-hunt across the budget, targeting 40mn euros. 

The government’s latest move is to force public entities, including local government, to send their cash reserves to the central bank, where it can be used at a moment's notice to repay creditors. This will officially take the form of a loan, but no one knows for how long. A decree to that effect is expected to clear parliament on Friday. Mardas says he believes municipalities can scrape up some 2 - 2.5 billion.

Pension funds, which recently refused to volunteer their savings for a similar loan, were prevailed upon to urgently lend the government an estimated 400mn euros on Wednesday.

The government’s cash crunch means a bigger squeeze on the domestic economy, as economic sentiment sours. Latest figures show that businesses are trading cheques as IOUs valued at 75bn euros, up from 15bn in January. Given that non-performing loans are already estimated at over 85bn euros, it would not be unfair to say that the entire private sector is running on a confidence bubble almost equal to the size of Greece’s GDP.

Tuesday, 17 March 2015

A financial snapshot of Greece

Under the terms of a February 20 agreement with creditors, Greece is being asked to pay its own way through March and April, while 7.2bn euros in loan instalments are withheld until May. Without financial assistance, Greece could default, even if by accident.

These are the upcoming payment deadlines to keep on the calendar: 

20 March - 336mn euros to IMF and 1.6bn euros in short-term bonds to private lenders
9 April - 448mn euros to IMF
14 April - 1.4bn in short-term bonds to private lenders
17 April - 1bn in short-term bonds to private lenders

The government has said it will prioritise IMF payments, but it is thought to need at least 4bn euros to prevent a credit event with private lenders. It has asked pension funds to lend it an estimated 2.5bn euros in their accounts, but they have so far refused.

One possible source of money is to allow the government to issue short-term bonds. The European Central Bank refused this last month, because the only people buying Greek debt right now are Greek banks, who are doing it on money borrowed from the ECB. A bond issue would therefore be a back-door ECB loan.

Another possible source of money would be giving the Greeks the 1.9bn euro profit the ECB made in 2012 by buying Greek bonds at low rates from other lenders.

Even if all goes well and Greece gets the whole outstanding 7.2bn euros by May, it faces a funding shortfall of at least half a billion euros before the end of the year.

Three measures may help address that; the first is a tax bill coming to discussion in parliament in the next few days, which is expected to encourage large down payments from taxpayers in arrears. The second is an initiative to collect 2.5bn euros from wealthy taxpayers who seem to have mis-declared their income. The third is an initiative to redirect the proceeds of the Asset Development Fund, which oversees privatisations, to social security and away from overseas creditors. Such a move is likely to annoy the latter, but might finally guarantee the solvency of the former.

Greeks are just as worried as their creditors during this hiatus between the Feb. 20 agreement and legislation backing it up. The Athens stock market continues to fall, and some 20bn euros lifted from bank deposits before and since the election have not returned.

It seems, however, that more and more analysts are concluding that Greece's career in the Eurozone is over, and its exit will ultimately be no accident. Check out: 



Andreas Koutras: 

Thursday, 12 March 2015

Greek-German discord poses broader EU questions

Greece's famously atheist prime minister, Alexis Tsipras, on March 10 used a religious metaphor for the first time in his career.

Re-launching a dormant parliamentary committee into German war reparations, he said, "I've heard a lot of provocative statements from abroad in recent days, which puts me in mind of a famous quotation from the Sermon on the Mount - 'They see the blemish in their brother's eye, but not the log in their own eye.'"

He spelled out the relevance: "Just as we commit to seeing through our obligations, all parties are obliged to do the same. Morality cannot be a la carte." During the occupation of Greece, the Nazis extracted two loans from its central bank. Those loans, which some estimate to be worth 15bn euros today, have never been repaid and constitute Greece's strongest suit in the reparations debate.

There has indeed been a lot of sermonising directed at Greece since the January election, particularly from European leaders. Holding Germany to wartime reparations is perhaps the only opportunity Greece has to reciprocate; but it did not do so until well after a February 20 Eurogroup meeting, where it was railroaded into accepting a four-month extension of the bailout agreement, along with austerity commitments.

The present leftwing government had vowed not to carry on the policies of austerity. It asked its institutional creditors, instead, for a 'bridge' period of continued financing without austerity targets. The government would use this time to negotiate a post-2015 regime: Greece would repay its debt in full, but over, say, 30 years rather than 17. It would commit 1.5 percent of its GDP a year, rather than 4.5 percent, enabling it to finance an economic recovery and alleviate a humanitarian crisis at home.

Yet what the government came away with after three bruising conferences with Eurozone countries is a bridge of a different nature - not financing without austerity, but austerity without financing. Greece has until the end of April to show that it is serious about restarting the economy and repaying its debt. Until then, financial assistance is being withheld, but Greece still has to repay debt as it matures. For March alone, this means that some six billion euros in cash from pension funds, public companies and European infrastructure and farming subsidies have to be collected at the Bank of Greece to repay creditors. Needless to say, this further weakens the Greek economy in the short term.

Germany played a key role in this about-turn. On February 16, it sidelined the European Commission, which had been prepared to give Athens the benefit of the doubt, and effectively told Greece that it could either pick up where previous governments had left off, or jump off a cliff.

Tsipras' and Varoufakis' threat last weekend to hold a referendum or another election suggest the extent to which the Greek-German relationship has unravelled. It also suggests that Greek public opinion is being prepared for all eventualities. 

Much of this standoff has been political posturing. Greece's ruling Radical Left Coalition party, or Syriza, undoubtedly offended with its talk of upending the "dead-end austerity policies" Germany has godfathered in Europe's weaker economies. Greek finance minister Yanis Varoufakis has described austerity policy as a sweater that will unravel in Portugal, Spain and Italy if only the thread can be found in Greece.

But Germany's heavy-handed treatment of Greece has now added further political costs to keeping that sweater whole. Should the European Union's most dominant member effectively determine who gets to stay in the single currency and under what terms? Is it right for it to sideline the European executive and be seen to do so? Is the euro still pushing the European confederation towards federalism, or driving it apart? And how does one balance national sovereignty with regional solidarity in a period of righteous indignation on many sides?

These questions may not sit at the top of the agenda now. Attention is for the moment focused on whether Greece will default, causing a state of emergency in the Eurozone; but they will surely bedevil the Eurozone in years to come. France's National Front leader, Marine Le Pen, who leads both the president and the parliamentary majority in polls, is already advocating a voluntary departure from the euro.

For now, Greece's relationship with the rest of Europe has reverted to what we have been used to seeing in the past five years: technical teams of experts talking over points of policy and public expenditure. Sixty-nine percent of Greeks still want a compromise, according to a recent poll in the government-friendly EfSyn newspaper. But Syriza has pitted people power against the power of money. If anecdotal evidence is any guide, its humiliation has made the prospect of a Greek default a few notches more politically acceptable to Greeks. 

Monday, 9 March 2015

The confidence game

The Greek government says it is satisfied with a political-level agreement at Monday's Eurogroup meeting. 

Though the single currency bloc's finance ministers only discussed Greece for 20 minutes, Athens is hailing this as a first step towards implementing a Feb. 20 framework agreement that aims to bring Greece back to fiscal health and normalise its relations with creditors. 

However, Monday's Eurogroup statement did not even mention Greece, suggesting that creditors have not yet committed to any of the measures. 
Revellers at this year's Apokries (carnival) parade on the island of Angistri, southwest of Athens, dressed up as finance minister Yanis Varoufakis. He has achieved both fame and notoriety through his flamboyant style and media exposure. Monday's Eurogroup was the fourth of his six-week tenure, and the only one so far not to end in either a rupture or a controversial compromise.

Technical teams are to carry the discussion forward on Wednesday. These will meet in Brussels, as Athens wants to avoid the reappearance of inspectors of the the so-called troika of creditors - the European Union and Central Bank, and the International Monetary Fund. 

Those inspectors had given Greece the appearance, as well as the reality, of a debt colony, the government has said. In what the opposition is likely to seize upon as a major concession, Eurogroup chairman Jeroen Dijsselbloem revealed that inspection teams would also be arriving in Athens. 

However the government has not agreed to this, and will not officially comment on Dijsselbloem's remarks. Government spokesman Gavriil Sakellaridis re-iterated on Tuesday that inspectors will not set foot in Athens. 

If Dijsselbloem is borne out by events, that would be the second concession forced upon the leftwing government in Athens, after it accepted an extension of the austerity programme rather than risk losing all financial backing.


The government plans to prioritise six measures from among a slate of reforms it proposed on February 23. It hopes in this way to win the trust of its voters and creditors alike.

Its aim at home is to come through on election promises, and to appear to do so. Its aim abroad is to secure the release of 7.2 billion euros in loan instalments. Those have been frozen until May, but the government needs them to pay debt due this month.

The confidence-building measures presented to the Eurogroup on March 9, are:

1. The implementation of a Fiscal Council, which will advise the government on drafting annual budgets and carry out long-term economic planning. This, premier Alexis Tsipras told Der Spiegel, will prevent him or any other prime minister from spending their way back to primary deficits.

2. Amending the Organic Budget Law, so that ministries over- rather than under-estimate their expenditures for the coming year. This would help ensure that spending is within forecasts. Greece actually managed to keep its expenditure under forecast for 2013 and 2014, the two years in which it produced primary surpluses.

3. A flexible body of laypeople who will catch out retailers who don’t issue receipts. This is the most fanciful of the proposals, and seems likely to be replaced by a last-minute addendum – a VAT lottery to reward people who submit retail receipts. The aim is still the same – to maximize income from VAT, which makes up a huge proportion of the public revenue. Last year it accounted for 13.6 billion euros[1], from a total of 44.2 billion euros in tax revenue. Compare this to a mere 2.7bn euros raised from corporate tax, and 7.8bn euros raised through personal income tax, because the number of working people has fallen during the crisis to a mere 3.5 million[2].

4. A new incentive for taxpayers to clear their arrears. The government will forgive all fines and interest on tax and social security arrears, if debtors come forward with a sum of equal size, and agree to pay off the balance in an instalment scheme. Alternate finance minister Nadia Valavani presented details of the scheme on February 18, and clarified them last week. This bill is expected to go to parliament this month. 

A last-minute addition would provide a similar incentive to high net worth tax-evaders to pay up. The government has reviewed the income tax declarations of people with more than 200,000 euros in the bank and found a discrepancy of roughly 7bn euros. It believes it can collect 2.5-3bn euros in taxes from them, especially by providing them with a carrot of amnesty from interest and fines on amounts, and a stick of property repossession. 

5. A clampdown on online gaming. The government believes it can make another 500 million euros a year on what it estimates to be a 3bn euro industry. The government has other plans for clamping down on large-scale tax evasion, for instance in the fuel haulage business, estimating benefits of up to 1.5bn euros for the treasury. While that legislation remains in the works, the government says it will clamp down on a particular type of corporate tax evasion - the understatement of the value of imported goods through fraudulent invoicing. 

6. Streamlining the public sector. This is a mammoth task, but the government wants to begin by enforcing a simple rule - that no branch of the state will ask voters to fetch documents it can find in another branch. Such internal communication could save the private sector untold man hours.

7. Humanitarian relief. This is not strictly a reform, but it is a top government priority, and its inclusion in the first clutch of legislation is a political imperative. A bill to subsidise food, housing and electricity for the destitute was the first to be submitted to parliament by this government on March 3.

[1] Source for all budget figures: General Accounting Office, Ministry of Finance, budget execution bulletin Jan-Dec 2014
[2] Source: Elstat

Sunday, 1 March 2015

Greece flies solo

This article was published by Al Jazeera International under the title 'Greece: Climbing out of debilitating private debt'.

The Bay of Eleusis, half an hour west of Athens, was once a powerhouse of the Greek economy. Smokestacks, concrete kilns and dry docks now tower like grave markers to a great experiment in heavy industry that started here in the 1950s and began to fizzle out in the 1980s.

On the western edge of the bay, however, the rhythmic hole punching and bending of sheet metal can still be heard. Here, the Liritis Rolling Door factory is fighting the Greek recession tooth and nail. Its owner, Dimitris Liritis, has seen all his neighbours fall to a plague of debt.

“For all of 2012, trucks drove out of here carrying machinery – decades’ worth of investments,” he says with a look of bewilderment. “Do you know what they sold them for? Scrap”.

Liritis ought to be retiring comfortably by now. His clients include the armed forces, the 2004 Athens Olympics and the new Athens airport. Instead, he is fighting to stop banks from repossessing the business he inherited from his father, and spent his life expanding.

“It was then a small workshop. Now it covers a hectare, and banks played a role in that. But suddenly we are back to where we started, and we’re all alone,” he says.

Liritis owes banks $9mn, because the rolling door business has fallen to less than a tenth of its pre-crisis turnover; and since real-estate prices collapsed, his factory is no longer sufficient collateral.

His debt is a small bit of the estimated 80bn euros Greeks owe banks. Debts to the state are even worse - 20bn euros in social security contributions and 76bn euros in tax arrears. Finance minister Yanis Varoufakis called this “a major impediment to recovery” in a February 16 letter to his colleagues in the single currency bloc.

In fact, Greek private debt is equal to the 170bn euros in emergency money Greece has so far borrowed from its European Union partners and the International Monetary Fund. Settling it quickly would enable Greece to solve a liquidity crunch between now and April, which is the earliest its creditors may release 7.2bn euros in aid instalments.  

Necessity, mother of invention

Both individuals and the state are coming up with different strategies, but almost all are out of line with the wishes of international creditors.

In an effort to save his father’s business, Liritis helped found Ypervasi – a civic action group whose name means “overcoming”. Its strategy is ingeniously simple: “Instead of sitting on the sofa, waiting for a court bailiff to throw us out of our homes, we’ve launched class action suits demanding a haircut to our loans,” says Ypervasi’s director, Kyriakos Tombras.

“We want 50 percent to our mortgages, 70 percent to our business loans and 90 percent to credit cards… These haircuts are based on the discount Greek banks sell nonperforming loan portfolios at to distress funds.”

Ypervasi now represents 20,000 people with two billion euros in bank debt, and it’s still growing. Tombras doesn’t know what his chances of success in court will be, but he thinks that’s besides the point.

“While this lawsuit is pending, banks cannot ask debtors to pay loan instalments, or if they do they can’t enforce it. They can’t auction off collateral. That gives us our edge in negotiations. It’s going to take 20 years for this class action lawsuit to come to trial. We say to banks, ‘do you want to wait 20 years? Or do you want to settle with us now on a haircut and start earning money again?’”

Tax conundrum

While bad bank debt has been building for many years, two thirds of tax arrears date to just the past five years, when austerity governments piled on new taxes to boost revenue. They are still growing at a rate of a billion euros a month.

Last October, the conservative-led coalition defied the country’s creditors by allowing people to pay their deferred taxes in up to 100 instalments, but that only brought a fraction of the arrears into the scheme.

Greece’s new, leftwing government has now suggested broadening the scheme. It wants to include small debtors (under 5,000 euros) who comprise the overwhelming majority; and it wants to include debtors of over a million euros, because 97 percent of the debt is owed by just 11 percent of debtors.

Alternate finance minister Nadia Valavani also wants to collect a large, up-front sum to show creditors that Greece is serious about revenue. She would like to entice people to come forward with a down payment, offering to match it with a discount. The remaining balance would go into the instalment scheme.

Having offered this carrot to those who are able and willing to pay, Valavani would be left with those who are unable, whose debt would be frozen, and those who are unwilling, who would be punished. “For people who refuse to enter the instalment plan and by income are able to, there will be no mercy,” she said on February 18.

In a deal reached with creditors on February 24, Varoufakis promised to submit this and other ideas in the form of a bill. He vows to create “a new culture of tax compliance to ensure that all sections of society, and especially the well-off, contribute fairly to the financing of public policies.”

Greece is flying solo

However, the government is keeping expectations low about how much debt can be collected from a tax-fatigued middle class and a kernel of tax evaders the state has traditionally failed to rein in.

Valavani revealed that the “effective receivable amount”, which excludes bankrupt companies, state enterprises, debtors with bank claims on them and debt in litigation, is just nine billion euros.

Similarly, markets suggest that the mountain of bank debt is only worth pennies to the euro. If only a fraction of Greek private debt can be reclaimed, what does this suggest about Greece’s ability to repay its public debt?

Over the longer term, Syriza has pledged to meet Greece’s obligations in full, but wants to limit the portion of the economy that is spent on repayment to 1.5 percent – a third of what creditors have stipulated, so that some wealth is left over for reinvestment.

In the short term, however, the state continues to make indiscriminate demands. Just how indiscriminate is apparent from SOS Children’s Villages, a foster care charity. During the crisis, it has taken in 50 percent more children and sends shipments of food to thousands more families; yet its taxes have tripled.

Despite its charitable status, it loses almost half of what it earns in fundraising drives and from interest on deposits; and far from seeking a state subsidy, it brings in money from overseas donors to supplement donations at home.

“We have a lot of important charities and institutions in Greece that could increase their work,” says its director, Yiorgos Protopappas. “But they cannot - not because they lack any government subsidies or support - but because the government, by taxation, is taking the money of a private company or donor that gives to those charities for making and doing what the state should do.”  

Monday, 23 February 2015

Where Greece now stands

Greece fought hard through two Eurogroup meetings on February 11 and 16, to avoid an extension of its current arrangement with its European partners.

This consists of a loan agreement, upon which rides a memorandum of austerity measures. The latter consists of a mixture of spending cuts and legal reforms to better streamline the Greek economy. The two are considered legally inextricable, but decisions at the Eurogroup are made on political, not legal, criteria, so the Greek side felt there was hope of separating them.

Greece asked for an extension of the loan agreement but not the memorandum, which the current leftwing government has promised to abolish. Finance minister Yanis Varoufakis briefly succeeded in severing the two. On February 16, European Finance Commissioner Pierre Moscovici delivered a draft statement offering “an extension of the current loan agreement, which could take the form of a [four-month] intermediate programme, as a transitional stage to a new contract for growth for Greece.”

The Moscovici statement invited Greece’s institutional creditors, the European Union and Central Bank, as well as the International Montetary Fund, to “identify intermediate financing needs, how they will be covered and the appropriate conditionalities.”

This suited Greece well. It would win a truce, or “bridge period” as finance minister Yanis Varoufakis called it, in which creditors would finance the renegotiation of Greece’s arrangement.

“Unfortunately,” Varoufakis later told the media, “that fine document was replaced by the Eurogroup President, minutes before the Eurogroup meeting, with another document that took us back… we were pressurised [sic] to sign up to an extension not of the loan agreement but of the programme itself, being offered only the nebulous two word phrase ‘some flexibility’.”

Varoufakis explained why Greece could not do so.

“To many, our reluctance to accept the phrase “extend the current program and successfully complete it” stems from the determination of this government never to issue a promise that it cannot keep. We fear that if we accept the priorities, the matrix, of the current program, and only work within its overarching logic, even if we change some aspects of it, I fear that we shall be giving the debt-deflationary spiral another boost, we shall lose our people’s support, and, as a result, the country will be very hard to reform henceforth.”

Yet this phrase – “The purpose of the extension is the successful completion of the review on the basis of the conditions in the current arrangement,” - is included in the document the Greek side was prevailed upon to agree to at a third Eurogroup meeting on February 20. It was not a Waterloo for the Greek side; the statement also speaks of “flexibility which will be considered jointly with the Greek authorities and the institutions,” and allows the Greek government to propose the reforms and measures it intends to perform over the next four months, which will effectively form its new interim contract with the EU.

What does this mean? That the Greeks will get their four-month negotiation period, but the Eurogroup will hold them to the commitments of the last government if what they propose on Tuesday appears outrageous. 

Based on statements Varoufakis made at the three Eurogroup meetings, one would reasonably expect the Greek proposals to include the following:

Taxes – the ruling Syriza party has promised to create an Independent tax authority, something the IMF is keen on, and to make tax collection more efficient and transparent.  It also wants to create a tax court system to bypass the backlogged judicial system, and create a new scale of tax brackets transferring more of the tax burden to high net earners.

Public spending
– The government has pledged not to create deficits. It will maintain a balanced budget until June. However, it wants creditors to agree to reduce its primary surplus for this year – the amount of cash it needs to give creditors in repayment of debt – to 1.5 percent of GDP.  

– The government is committed to repaying the debt in full, and will not ask for a discount to its face value – though after the bridge period it may ask for an extension to the repayment period.

Private sector, business climate
– Varoufakis has suggested creating an Asset Management Company to absorb bad bank debt. Greek businesses and households owe banks an estimated 80bn euros they cannot repay. This keeps both money and human resources tied up in a holding pattern. He also wants to settle tax arrears. Alternate finance minister Nadia Valavani on February 18 said the government would offer taxpayers discounts of up to 50 percent of their arrears if they sign onto an instalment plan. That, however, may now be up for review.

Public sector
– Varoufakis has famously said that no public authority will ask individuals or businesses to provide documents and information that exist elsewhere in the state machinery. It is an example of how Syriza wants to make the state more internally connected and externally efficient. It wants to promote e-government to reduce contact between individuals and he state, limiting opportunities for corrupt practices. The number of public employees has fallen from 920,000 before the crisis to 620,000 today, the ministry of administrative reform says. It intends to replace the evaluation system introduced last autumn with one that state workers are more likely to cooperate with.

– Varoufakis has declared himself in favour of some privatisation. Each project, he says, will be evaluated on its merits, and Foreign Direct Investment will be encouraged as long as state secures revenue streams, and a say in labour relations and in environmental concerns. Syriza wants to ban quick fire sales. It has also promised to abolish TAIPED, the body overseeing privatisation at present. If it does, it may rplace it with a development bank, which would incorporate public assets.

Saturday, 21 February 2015

Greeks reach compromise with Eurogroup

Greece reached a last-minute compromise with the European Union and Central Bank in Brussels on Friday. 

They have agreed to bankroll the country for another four months, in return for Greek assurances that it will undertake reforms and maintain a balanced budget. Greece must submit those reforms for a first appraisal by late Monday. 

Greece’s newly installed leftwing government is declaring a new era for national sovereignty, the economy and relations with Europe. 

"Today Greece has turned a page," a triumphant government statement declared. "Negotiations could have happened all these years. Greece is neither isolated, nor is it sailing for the rocks, nor is it continuing with memoranda [of austerity]." 

The Greeks staved off new austerity terms and won time to renegotiate the existing ones. Crucially, they get to discuss the debt repayment schedule, which Greece cannot meet. 

But they didn’t get a reprieve with no strings attached. The Germans ultimately forced them to pick up the reform programme where the previous government left off. Which means they still have to meet certain austerity and reform targets. 

The crucial language the Greeks had hoped to avoid is in the statement's second paragraph. It states that the loan extension is "underpinned by a set of commitments. The purpose of the extension is the successful completion of the review on the basis of the conditions in the current arrangement." This effectively binds the leftwing Syriza government to the commitments of its conservative predecessors, even though they had fought for an interruption of the programme and a bridge loan separate from the existing arrangement. 

Finance minister Yanis Varoufakis said he was happy with the arrangement. “The memorandum [of austerity[ is over,” he told journalists after talks. “We’re going to sit down and write a set of reforms we want to do in the next four months…  we will be judged on this by the institutions on Monday or Tuesday… and at the end of four months we will be judged on the success of the implementation of these reforms… that is not a memorandum. And this is why you see me quite happy today. We are talking about the transformation of the Greek government, the Greek state, the Greek parliament, to co-authors of the reforms we have to finally pass in this country.”

Varoufakis said the deal “is a small step, but it is a step in a different direction."