Tuesday, 16 February 2010

Today's Greek news

Strikes begin in earnest
The squeeze on Greek state employee incomes through a ten percent cut in their above-salary benefits is already producing reactions. Several groups of civil servants are on strike this week (February 16-19), including employees of the finance ministry such as the General Accounting Office and the National Statistical Service. The most worrying action comes from customs officers, who have to clear fuel imports. They will strike for three days, followed by a tanker truckers' strike on Friday. Together the two could produce fuel shortages and bring the country to a halt. The customs union said it would allow through only military and medical supplies and fuel for public transport.

Widespread media reports suggest that the EU is putting pressure on Greece to abolish the Christmas bonus for public servants. The strikers say that they have already forfeited their Christmas bonus (amounting to a full extra salary) and, in some cases, their Easter and summer bonuses (amounting to two extra half-salaries) through a ten percent benefits cut for the public sector announced earlier this month. Any further reduction will eat into their 12-month salary, they say. Another reported emergency measure includes raising VAT by 1-2 points across the board by putting low-category goods into higher categories. The government has so far resisted measures that would indiscriminately affect rich and poor such as increases in VAT, electric power rates and heating oil.

The civil servants' union (ADEDY) went on a one-day pre-emptive strike on February 10. They will join the General Confederation of labour (GSEE) in a one-day strike on February 24. Together the two umbrella unions are the largest representations of organised labour in the public and private sectors, respectively.  
Finance Minister Yiorgos Papakonstantinou announces the tax measures to Greek media on February 9.

Eurozone seeks tougher Greek action
The FT's Brussels bureau chief, Tony Barber, reports that the European Union refused Greece a bailout, and are instead insisting on more measures to curb the deficit this year. Greek Prime Minister Yiorgos Papandreou returned this weekend from an impromptu Brussels summit convened to discuss the eurozone's weaker members, beginning with Greece.

Greece submitted a Stability and Growth Plan in January, detailing how it will reduce the deficit of 12.7 percent of GDP last year by four points in 2010. The EU accepted it on February 2 on condition that further measures were detailed for the likely event that the original package did not hold the line. Greece's progress is up for review at a March 16 ecofin council (the EU finance ministers' forum). At that time further measures could be requested.

Greek newspaper headlines today demonstrate the mood of inevitability in Greece:
"Heavy artillery for new measures" - Eleftherotypia, nominally socialist
"Possible new measures" - Kathimerini, nominally conservative
"We expect further measures from Greece" - Ta Nea, nominally socialist

Hidden debt scandal causes uproar in Greek media
The Greek media are in uproar since yesterday over a New York Times story published on February 13 revealing that Goldman Sachs helped Greece conceal billions of euros in sovereign debt by packaging it in complicated derivatives that do not appear as loans.

The bank sold such a derivative to the Simitis government in 2001, the NYT says, shortly after Greece entered the eurozone: "The 2001 transaction involved a type of derivative known as a swap. One such instrument, called an interest-rate swap, can help companies and countries cope with swings in their borrowing costs by exchanging fixed-rate payments for floating-rate ones, or vice versa. Another kind, a currency swap, can minimize the impact of volatile foreign exchange rates."

What Greece essentially did, the article says, was to mortgage revenue streams: "In Greece, the financial wizardry went even further. In what amounted to a garage sale on a national scale, Greek officials essentially mortgaged the country’s airports and highways to raise much-needed money.

"Aeolos, a legal entity created in 2001, helped Greece reduce the debt on its balance sheet that year. As part of the deal, Greece got cash upfront in return for pledging future landing fees at the country’s airports. A similar deal in 2000 called Ariadne devoured the revenue that the government collected from its national lottery. Greece, however, classified those transactions as sales, not loans, despite doubts by many critics."

The original NYT story by Louise Story, Landon Thomas and Nelson D Schwarz: 
Eurostat, the EU's statistical agency, has asked Greece to deliver details on currency swaps transacted between 2001 and 2008, which effectively hid some of its sovereign debt.

Papandreou to CNN 
"In the battle against the perceptions and the psychology of the markets, the EU was timid, at the least," Greek Prime Minister Yiorgos Papandreou said on Saturday in an interview.Returning from a Brussels summit that ran February 11-12, Papandreou demonstrated disappointment with his European colleagues for the first time since coming to power last October. He said Greece was being used as a guinea pig by the EU in this economic crisis.

Comment: Greece headed the way of Argentina
The FT's Desmond Lachman believes that Greece cannot achieve retrenchment through austerity, and predicts a breaking off of Greece from the eurozone in two to three years.

1 comment:

  1. It’s interesting that the media and the government continue to be fascinated by symptoms of the crisis, and not their root causes.

    The spending cuts on public payrolls are temporary measures, and will do little to improve the longer-term productivity and effectiveness of the public sector.

    The government is ignoring a historic opportunity to reduce bureaucracy and place more services online, while steadily reducing headcount in dead-end posts. At the same time, it actually needs to increase public payroll (as strange as this may sound) if it wants to offer a living wage and invest in productivity.

    The fact that the international financial media is now nit-picking over the 2001-2002 Goldman Sachs bond deal rather than the substantive issues of unreported or “off balance sheet” debt which has been guaranteed by the Central Government is, frankly, puerile. It’s ignoring the elephant in the room.

    No serious measures have been taken for direct audits and tax collection of Greece huge number of “independent workers”, or small hotels, restaurants and shops which depend on tax evasion to “round out” their incomes in a fundamentally uncompetitive business model. Sure, there were tax audits of doctors in Kolonaki. What has changed since then? How much tax money was collected?

    And finally, the original Stability and Growth Plan submitted in January simply does not add up, and there is no comprehensive data set to enable a real analysis of risks and fiscal impact. If this were judged to any acceptable international standard, it would have been sent back covered with red ink and an “F”.

    As long as we focus on symptoms and media hysteria, we will ignore the strategic approach towards reducing or alleviating the root causes of the problem. I’ve explained my understanding of these in my blog post:



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