Thursday, 25 February 2010

History written in the ink of disobedience

GREEK WORKERS took to the streets yesterday as they began to feel the bite of new taxes on fuel, alcohol and tobacco.

They are also worried that the government is about to raise the retirement age and reduce benefits to pull back social security from bankruptcy.

“What will happen to pensions?” asked Fotis, a 60-year-old worker at the Hellenic Telecommunications Organisation, one of roughly 25,000 people who took part in a protest march that brought central Athens to a halt. As an employee of Greece’s telecoms behemoth nearing retirement he should feel secure, but does not: “If the country goes bankrupt who will pay us our pensions? And what will happen to the young?” he asks.

The public sector is especially unhappy. Its one million employees – a quarter of the national workforce – have already taken a roughly five per cent pay cut, and that is expected to double next week. On top of this, the deputy prime minister has intimated that the lifelong tenure that makes public sector jobs so sought after may be up for discussion.

“We are striking because the government is going to cut our salaries,” said Vasiliki Revythi (56), who works at the National Pharmaceutical Organisation – the approval body for medicine in Greece which sets price ceilings.

She is one of the public sector employees who’ve already seen their above-salary benefits reduced, and insists she is not privileged. “I am a biochemist with a PhD; I have 35 years of work behind me. I am a manager, and I get €2,500 [a month]. Salaries are low in Greece. It’s not like Ireland.” Ms Revythi believes the government is leaning on salaried employees as it does not have the means to go after tax evaders.

“Companies should also pay. We know they evade taxes and social security payments. And we should find the people who put Greece in deficit. They must have siphoned money off to Swiss accounts. We should bring that money back.”

These sentiments are expressed more radically by Greece’s communist party, whose cheerleaders were at the head of waves of unionised strikers chanting slogans through megaphones. “No sacrifice for the plutocracy,” said one.

“History is written in the ink of disobedience,” beckoned another.

Organised labour, with left-wing parties, which claim about 12 per cent of the vote in Greece, have often succeeded in stifling social and economic reform.

Yannis Stournaras, the chief economic adviser to the socialist government that put Greece in the euro zone in 2001, doesn’t believe they will pull it off again. “This is a strike which is led by public sector unions. I think it is against the feeling of the average Greek, who sees the spectre of bankruptcy and wants to avoid it. So I don’t think these strikes will continue. I think it’s a one-off and will evaporate.”

Another threat to the government comes from its widening rift with the conservative opposition. The ruling socialists recently decided to call a parliamentary committee of inquiry into the conservatives’ six-year mismanagement of the economy from 2004-2009 as a way of winning support for austerity. But many observers believe this will backfire by killing any hope of consensus at a time of national emergency.

The socialist government is in a race against financial markets to cut the budget deficit by four points this year. If it fails, policymakers fear the markets could fail to refinance €20 billion in debt due this spring. That could have a knock-on effect on the 15 EU countries that also share the euro.

This story was published today in The Irish Times.
You can also hear today's NPR report online.

Greece suffers further credit downgrades 
Financial Times: "The Greek bond markets fell sharply on Thursday after the second ratings agency in as many days warned that the country’s long-term credit ratings could be downgraded.
Greek two-year bond yields, which have an inverse relationship with prices, rose nearly half a percentage point following warnings from Standard & Poor’s on Wednesday and Moody’s Investors Service in the early hours of Thursday morning."

As the FT reports, four Greek banks have also suffered a downgrade due to their exposure to Greek bonds.
"Greek banks came under further pressure on Tuseday after Fitch Ratings downgraded the credit ratings of the country’s four largest banks on expectations that the real economy will worsen further as a result of the tough fiscal measures the government must take.
Ratings on the National Bank of Greece, Alpha Bank, EFG Eurobank Ergasias and Piraeus Bank were lowered by one notch to BBB – just two notches above junk."

Pangalos lashes out at the EU
Deputy Prime Minister Theodoros Pangalos told the BBC he did not think that today's European leaders were up to snuff compared to the leaders of the 1980's. "This is another level of leadership which we don't have today. The quality of leadership today in the union is very, very poor indeed," he said.

He also accused the Germans of destroying the Greek economy during World War Two. 
"They took away the gold that was in the Bank of Greece, they took away Greek money, and they never gave it back. This is an issue that has to be faced sometime in the future," he said.

Tuesday, 23 February 2010

Greece's new witch hunt begins
In December 2004, before they had completed a year in power and just after they had got the Athens Olympics out of the way, the conservatives launched a parliamentary committee of inquiry into socialist defence procurements. The socialists are now doing the same. Last night, the government of Yiorgos Papandreou introduced a motion to launch an inquiry into conservative financial mismanagement over the past six years.

The inquiry is sure to end the vague consensus that has so far existed between government and opposition on the economy. Last week, in expectation of the launching of this inquiry, the conservatives began to distance themselves from government policy by issuing a list of 23 economic development policy points they believe need to be immediately implemented.

Conservative opposition leader Antonis Samaras followed up with a fiery speech on Sunday to his party's congress. He echoed much of the socialist pre-election platform, advocating a new economic revolution on the back of renewable energy, and spoke of releasing the dynamic Greek spirit much as Papandreou had done.

The government's response has been to escalate the tension further. The government spokesman said yesterday that "we realised yet again how much hypocrisy there is in the words of the leadership and members of New Democracy." Deputy Prime Minister Theodoros Pangalos called Samaras' warnings of new humiliation for Greece through the revelations of the committee "nonsense".

These latest exchanges confirm what has been apparent since Papandreou announced his intention to call the inquiry a week ago, that the gloves are off and the domestic political scene will now enshrine the traditional acrimony that has bedevilled any attempt at long-term policymaking in Greece for decades.

See the story in The Irish Times.

Goldman banker critical of Greek transparency, but defends deal
The BBC and Financial Times today generated diametrically opposite headlines from the same story. Goldman Sachs chairman Gerald Corrigan told a UK parliamentary committee of inquiry that Greece's 2001 credit swap was in keeping with standard practice at the time, but that further controls should have been implemented internationally.

The Financial Times led with the banner headline, "Goldman Banker Hits at Athens Swaps". It hangs the title on Corrigan's statement that, “with the benefit of hindsight . . . the standards of transparency could have been and probably should have been higher”.

The BBC billed the story "Goldman defends Greece debt swaps" and led with Corrigan's statement that the swap "was "consistent" with the regulations of the time."

Corrigan was commenting on a swap that took place in 2001 to help defer public deficit after Greece's entry into the eurozone. Goldman Sachs posted the following details of the transaction:
“In December 2000 and in June 2001, Greece entered into new cross-currency swaps and restructured its cross-currency swap portfolio with Goldman Sachs at a historical implied foreign exchange rate,” the statement says. “These transactions reduced Greece’s foreign-denominated debt in euro terms by €2.367bn and, in turn, decreased Greece’s debt as a percentage of [gross domestic product] by just 1.6 per cent, from 105.3 per cent to 103.7 per cent.”

Greece threatens the entire EU project
FT comment by Gideon Rachman: "The risk for Europe now is that if the EU does not move forward politically in response to the Greek crisis, it will move backwards – and the long process of European integration could start to unravel." 

Let the Greeks ruin themselves
The Economist carries out a political analysis of why there is such strong opposition within Germany to further assistance to Greece: "A domestic row over welfare makes charity for foreigners a still more awkward subject. This month the constitutional court ruled that the government had erred in setting benefits for the main welfare programme, called Hartz IV. It has until the end of the year to come up with a new formula, which may cost more money. Guido Westerwelle, the FDP leader, lamented the “late Roman decadence” of a society that treats welfare beneficiaries more generously than workers. His outburst, in turn, annoyed Ms Merkel. “I can’t explain to someone on Hartz IV that we can’t give him a single cent more but that a Greek gets to retire at 63”, said Michael Fuchs, a CDU leader in the Bundestag."

Monday, 22 February 2010

The Greek deficit crisis in the media

Germany denies loan plans for Greece
A German finance ministry spokesman denied a report today that Germany was thinking of extending loans and loan guarantees to Greece worth 4-5 billion euros. The denial came on the tail of a report in Der Spiegel magazine that Greece's European partners were mulling over a 20-25 billion euro line of credit, citing German finance ministry sources.

'Greece seeks good interest rates, not bailout'  
Greek Prime Minister Yiorgos Papandreou wants political support and help from his European partners to borrow money at rates enjoyed by other, less-indebted countries, he recently told the BBC's Andrew Marr show, but denied that Greece was looking for a bailout.

"We don't have at this point a need for borrowing. Our borrowing needs are covered until mid-March. What we're saying is simply that we need the help so we can borrow at the same rate at other countries, not at the high rates that undermine the possibility for making the changes [to Greece's deficit]," Papandreou said.

ECB 'lacks imagination'
Deputy Prime Minister of Greece Theodoros Pangalos says that the European Central Bank lacks the imagination to support Greece in an interview to the Sunday edition of To Vima yesterday. That support, he says, could simply take the form of the bank buying Greek bond issues and pitting itself against hedge funds that drive interest rates up. "Just as they gamble, so should the ECB," says Pangalos. "A bank that bought Greek bonds with spreads at their highest point would make money. But they don't do it."

Pangalos ruled out the possibility of Greece electing a bailout from the International Monetary Fund, which would provide credit at cheaper rates than financial markets. "There is no possibility of that," he said. "We are in the European system. This is a strategic choice... But that doesn't mean we can't say to a European partner, 'Look here, I'm doing for you everything the IMF would ask me to do, and you won't perform for me a single anti-speculative gesture'."
Full interview:

The euro will face bigger tests than Greece 
 Financier and investor George Soros writes in today's Financial Times that a eurobond should be instituted for Greece and other eurozone countries whose debt matures. This is both in order to provide less expensive financing than is available in money markets, and in order to build the political unity on which monetary union is predicated.

"A fully fledged currency requires both a central bank and a Treasury," Soros writes. "The Treasury need not be used to tax citizens on an everyday basis but it needs to be available in times of crisis. When the financial system is in danger of collapsing, the central bank can provide liquidity, but only a Treasury can deal with problems of solvency. This is a well-known fact that should have been clear to everyone involved in the creation of the euro." 

Friday, 19 February 2010

Domestic opposition to Greece's austerity plan rises

The conservative New Democracy party yesterday published a list of 23 steps it considers immediately necessary to give the economy breathing room and prevent the austerity plan from flattening it beyond repair. "The government's plans are one-sided," the party statement said. "They focus exclusively on the fiscal problem, ignoring the necessary stimulation of the economy, without which unemployment will rise enormously. We also need countermeasures to stimulate demand."

Among New Democracy's proposals are the following:
- Shift Greece's participation in EU co-funded projects to 2013, which is the end of the current financial period, to give state coffers a reprieve and allow infrastructure projects to continue on EU funding alone
- Accelerate the approval of new infrastructure projects
- Accelerate concession projects (eg. toll roads) 
- Accelerate public-private partnership (PPP) projects
- Exhaust loan possibilities from the European Investment Bank (EIB)
- Carry through a conservative initiative to expand regional airports as concession projects
- Carry through a conservative initiative to expand the fibre optic network to homes as a PPP
- Fulfil the 2009 law setting up investments through Invest in Greece S.A.
- The state should pay off its debts to private contractors and move money into the system
- Set up industrial parks envisioned by New Democracy
- Promote competition
- Remove bureaucratic obstacles to enterprise creation
- Approve measures to promote the liquidity of small and medium-sized enterprises
- Promote construction by subsidising new housing loans
- Promote the conversion of buildings to energy efficiency
- Promote tourism by opening up the cruise shipping market to European competition
- Expand and improve island harbours to better handle passenger shipping

The conservatives' emphasis on development is in stark contrast to the government's emphasis thus far on fiscal discipline. The government took a step towards addressing this imbalance yesterday, when it announced a 1.5 billion euro green energy development plan.

Wednesday, 17 February 2010

Stability plan approved, further austerity in sight

Cracks appear in Greek-EU consensus, and political partisanship stirs at home

Yesterday's ecofin (European Union economy and finance ministers) council definitively approved the Greek stability plan entailing a four percent cut in the budget deficit this year, to bring it to 8.7 percent. But the mood in Brussels is still in favour of further cuts, Greek newspapers report. Ta Nea suggests that Greece is under pressure to save three billion euros above current projections this year, through measures that may include mass layoffs of civil servants and elimination of 13th and 14th salaries which represent Christmas, Easter and summer bonuses.

The latest ecofin council in combination with last week's EU emergency summit have seen Greek-EU relations turn a corner. Whereas Prime Minister Yiorgos Papandreou, Finance Minister Yiorgos Papakonstantinou and the eurogroup until now reinforced each other in pushing for austerity measures, a difference in emphasis now seems to be emerging, with Athens fearing that further cuts in salaries and benefits, and mass layoffs in the public sector, could flatten the already fragile Greek economy. The Stability Plan is up for review on March 16, only a month from now. The government now seems to be weighing the option of an appeal to the International Monetary Fund against carrying out further EU commandments come spring, newspapers report. Kathimerini reports that the European Central Bank is pressing for a 5.25 percent deficit reduction this year, which represents a major revision of the 2010 budget approved by Bryussels. Some observers of the Greek economy fear that it will shrink by more than the projected 0.3 percent, making it necessary to adjust the deficit reduction proportionally to GDP. 

The finance ministry recently reported a good budget performance for January (it has promised a monthly performance review) thanks to an extraordinary tax on companies making more than five million euros in profits in their last tax return. It also reports a 10.6 percent reduction in expenditure, overshooting the monthly target.

Nonetheless, the harshest measures so far, officially announced on February 9, to reduce public sector above-salary benefits by 10 percent, which is effectively a 4-6 percent public wage bill reduction, seems to be inadequate to satisfy Brussels. This and a new tax bill, which includes higher fuel tax, are included in the Stability Plan.

Another qualitative difference this week comes on the domestic political scene. Thus far, conservative opposition leader Antonis Samaras has sounded concessionary on the economy, not wishing to replicate Papandreou's record of undermining consensus, while pitching battles on more ideological issues such as the immigration bill and public order.

That may be about to change. Yesterday the socialist government announced that it would seek a parliamentary committee of inquiry into the figures sent by the National Statistical Service to the European Commission in the years of conservative rule, 2004-2009. The conservative opposition now wants to extend that committee's scope of inquiry backwards to 1981, when the socialists first came to power and began running up high deficits and debt.

It is a stock-in-trade argument in Greek politics to fiddle with the temporal scope of an inquiry. New governments typically want to chastise predecessors, who in turn argue for a massively expanded scope in order to dilute their liabilities. But in the highly inflammable situation the government now faces, this perfunctory argument is no longer perfunctory. It could become the excuse for a parting of the ways, and make Prime Minister Yiorgos Papandreou's job a great deal harder than it already is.

The Goldman deal 
Greece's media have been animated by the revelation by the New York Times last week that the socialist government that put the country in the eurozone in 2001 hid some of its sovereign debt in a currency swap arranged by Goldman Sachs. The Financial Times today explains how the deal worked and reveals that the Greek debt management agency paid 200 million euros in fees for the arrangement:

"Bankers and officials say the swaps were legal, that they were in line with EU accounting rules that prevailed at the time, and that similar transactions had already been arranged between investment banks and other southern eurozone countries including Italy and Portugal. The nature of the Goldman deal was, however, that it remained out of public view and did not show up on Greece’s balance sheet until the following year, when the country’s debt-to-GDP ratio fell from 105.3 per cent to 103.7 per cent."

Comment: The FT's senior analyst, Martin Wolf, draws a distinction between the US deficit, which is a temporary phenomenon in hard times, and the Greek, which requires fiscal tightening. The US can afford to spend its way out of the crisis via stimulus, Wolf argues, while Greece cannot.

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.

Friday, 12 February 2010

Strucutral weakness behind woes in Greece

UNTIL A few days ago, the key question investors were asking themselves about Greece was whether it can dig itself out of debt. Greece had said it could do so. It submitted a Stability Plan to the European Commission, and just got approval on February 2nd, albeit with caveats about contingency planning.

Many of the austerity measures contained in that plan are still being legislated. They are still a way from being implemented, and even further off from bearing fruit. Prime minister Yiorgos Papandreou confessed that they will only have an effect next year. Until then, markets may not give Greece a chance to keep refinancing roughly €300 billion in debt, forecast at 125 per cent of GDP this year – hence the extra lines of credit under discussion in Brussels.

The Greek plan contains austerity measures that would have been unthinkable before the international economic crisis. For instance, Wednesday’s strike by civil servants was occasioned by a 10 per cent cut in their benefits, which can add between 30 and 90 per cent of nominal salary over again. That amounts to a 4 per cent cut in the public payroll, a significant sum, given that a million out of Greece’s 4.5 million-strong workforce is on the public payroll. But it also dims the socialist party’s election message of hope. Papandreou had promised to raise civil service salaries, which he did initially by 1.5 per cent, only to undermine them. He had also poured scorn on the incumbent conservative warning of a wage and hiring freeze in the public sector. Last week he adopted them, too.

To be sure, it is nothing to Ireland’s 20 per cent cut in civil service salaries, but the Greek public sector is traditionally a milk-fed reserve of party appointees not subject to the hardships of the real economy.

The private sector is bearing its share of the pain, too. Finance minister Yiorgos Papakonstantinou hopes to raise €4.5 billion more than he did last year – a 9 per cent rise, despite a 0.3 per cent drop in GDP, from direct and indirect taxation. He is recalibrating the tax scale to penalise higher earners, and abolishing flat taxes on certain professions and bringing them onto the sliding scale. Fuel, alcohol and tobacco are also going up. However, Papakonstantinou is being careful to leave untouched taxes that might affect the poor, such as tax on heating oil, VAT and electricity rates.

Still, with all this in place, he hopes to raise only €54 billion this year to counter expenditures of €70 billion, borrowing €16 billion in new money, and that’s if things go according to plan.

So why did things spiral so badly out of control? After all, Greece earned membership of the euro zone in 2001 on the basis of three good budgets.

One problem is that Greece’s loss of credibility is partly Papakonstantinou’s own doing. He shocked his euro zone partners when they met for the first time last year. The outgoing conservatives had sent figures a few days before the October 4th election to the effect of a 5.7 per cent deficit for 2008 and a 6 per cent outlook for 2009. Papakonstantinou’s revision was for 6.5 per cent for 2008 and 12.7 per cent for 2009. It was the second time in six years that an incoming finance minister rubbished his predecessor’s figures. Tired of being lied to, the EU demanded that Papakonstantinou make the National Statistic Service politically independent. Legislation for this is under way.

Another reason for Greece’s predicament is that the international financial crisis has revealed structural weaknesses in the economy. It’s not just that the cost of government is too high. It is also that development has been stalled for years because of Greek conservatism, so government revenues have been falling despite a 4 per cent average growth rate from 2000 to 2007. For instance, Greece is paying daily fines of €15,000 since the beginning of the year for ignoring a directive (and European court conviction) on recognising degrees issued by other EU universities. Apart from the social injustice involved to Greek graduates of non-state universities, this is directly tied to a lack of investment in private tertiary education at home. It is also tied to stagnant research and development.

Greece has also forestalled liberalisation of its electricity market, worth about 10 per cent of GDP. This is because of pressure from the Public Power Corporations union, which fears that private generators will lead to attrition in the state sector and render their social security fund insolvent. The implications run deep in this sun-soaked, windswept archipelago. Renewable energy investments and micro-generation have been stymied as a result, and a growth industry kept in the wings.

Other key areas remain effectively locked to private investment. Take transport. Taxis and road freight are closed professions. Non-Greek flagged cruise shipping may not use the Athens port of Piraeus as a base, depriving the islands of much of the benefit of powerful Italian and Norwegian operators. The Hellenic Railways Organisation, a state monopoly, is responsible for about €700 million in state debt each year. All this is against the letter and the spirit of European antitrust and competition directives.

Where Greece did liberalise, notably in banking and telecommunications, the results were spectacular. These areas saw growth, foreign investment and new jobs in the last 15 years, helping to drive much of the economy. For instance, all three of Greece’s mobile telecom licences have traded upwards to be owned by foreign interests (Germany, the UK and Egypt). Some of its banks are strategically partnered with interests in Germany, France and the United Arab Emirates or have themselves acquired targets in the region.

These signs of competitiveness are all too rare in other areas of the economy. Last September Greece dropped in the World Economic Forum’s Global Competitiveness Index from 67th to 71st place among 133 countries, and has been dropping for years. It performs poorly in Transparency International’s Corruption Perception Index, coming well behind the EU15 and even some eastern European members which have been independent nations, free market democracies and EU members for far shorter periods.

The socialist government has shown that it appreciates the deep-rooted nature of the problems Greece suffers from. For now, the government has a fairly free hand. Public opinion polls recently showed themselves in favour of the austerity package by a ratio of two to one. Wednesday’s protest was feeble, given that it came from one of the two largest union umbrella organisations. The other represents private sector labour and is scheduled to hold a one-day strike on February 24th. If the General Confederation of Labour fares similarly, this may be a signal that the reactionary unionism that has for a decade stifled attempts at economic restructuring may be dead.

You can also view this analysis by John Psaropoulos as published today by the Irish Times. To see today's news update on European support for Greece please scroll down to the next post.

Worth reading today

Brussels stops short of a Greek bailout
European leaders pledged support for the Greek recovery plan at the start of an impromptu Brussels summit yesterday, but stopped short of the full bailout media analysts had led the markets to expect. "we fully support the efforts of the Greek government and their commitment to do whatever is necessary, including adopting additional measures to ensure that the ambitious targets set in the stability programme for 2010 and the following years are met," the statement said. It forecast close monitoring of the plan's implementation together with the IMF, and did not exclude possible additional measures.

Any effect on stock, financial and currency markets is unlikely to show until trading begins today, as the Council's statement was issued after European trading hours.

"We have the will to do everything for Greece to regain its lost credibility and its place in Europe," said Prime Minister Yiorgos Papandreou, blaming the conservative government he defeated last October for the present predicament. "Greece is living through the catastrophic policies of the recent past. We Greeks are experiencing the results of irresponsible policies in our daily lives."

Conservative opposition leader Antonis Samaras expressed gratitude for the European support for the Greek recovery plan, but reserved some criticism for Papandreou. "He is not the most suitable person to talk about integrity and responsibility," Samaras said. "The catastrophic opposition exercised by his party was irresponsible. So was his pre-election demagoguery that 'there is money available'."

The statement by European leaders:
Yiorgos Papandreou's statement:
Antonis Samaras' statement:
Financial Times cover story:
FT's Lex analysis, that Greece should choose an IMF bailout, should it need one, over a eurozone bailout, if the interest rate is lower:

The Greek press reaction
Kathimerini (nominally conservative): "We should pause today and ask ourselves what led us to the brink of bankruptcy and IMF/EU guardianship. The responsibility belongs to politicians who handled the country's finances and behaved irresponsibly and reprehensibly. Personal favours, appoinments, the creation of new public services such as the border patrol, benefits and unjustifiable expenditures sank the country in debt. What is needed now is a new breed of politician who will take unpopular decisions..."
Ta Nea (nominally socialist): "Yesterday's dramatic confession by Prime Minister Yiorgos Papandreou that 'we handled our finances in such a way as to lose a piece of our national sovereignty' shows the tragic situation in which our country now finds itself. His assertion that the country is now in the most difficult period of its modern history leaves no room to avoid painful sacrifices and new tough measures which are necessary if the country is to regain its prestige and prosperity."
Eleftherotypia (nominally socialist): "Brussels has begun to understand that the problem of Greece, Spain and Portugal is European and therefore these countries must not be left to deal with it themselves without the danger arising of a transmission of the disease to the entire eurozone."
Apogevmatini (unofficial mouthpiece of the conservative New Democracy party): "The government's lack of agreement creates a new problem for the people, which is impossible to understand. Either the crisis is as great as they describe, and if very tough measures are not taken we are headed for a crash; or there is a safe exit and they are deceiving us into believing that it is a great crisis so that they can impose unjustifiable measures for many people, according to the dictates of Brussels. And when we come to the safe exit they are already aware of they will present themselves to us as heroes."

Credit spreads linked to recovery
The FT's John Authers highlights a Barklay's study which finds that high bond spreads, such as those the Greek bond market is suffering from, seem to inhibit market recovery:
"Looking for the key factors driving recoveries, Barclays found that economic growth and profits were not particularly important. Instead, the strongest link was with credit spreads. Provided credit continued to get cheaper (as shown by the extra spread for corporate debt compared to government debt), then relief rallies could continue. Once credit spreads widen, equities cannot make much headway."

Thursday, 11 February 2010

Worth reading today

Brussels Blog
The FinanicalTimes' Brussels bureau chief, Tony Barber, reports that a rescue plan for Greece is all but certain at this European Summit. But what will Germany demand in return for bailing out its fellow eurozone member?
"Today’s European Union summit in Brussels will set out the framework for a financial rescue operation for Greece. This much is clear is from various briefings being given by officials from countries as varied as Austria, Lithuania, Poland and Spain.  But financial markets will have to wait until next week to see the full details of the plan."

Berlin and Paris urge backing for Greece
Financial Times: President Nicolas Sarkozy and Chancellor Angela Merkel are expected to give a show of political support to Athens at a summit of EU leaders in Brussels.

Franco-German bailout plan for Greece in the works
Kathimerini reports that France and Germany are leading efforts to formulate a bailout plan for the Greek economy. Talks went on late into Wednesday night, the paper reports, with the possibility of a 25 billion euro line of credit being mooted. Germany apparently raised the idea of an EU viceroy to oversee budget execution in Athens.
Prime Minister Yiorgos Papandreou reiterated from Paris his determination to see through the new Greek Stability and Growth Plan. "I assured [President Sarkozy] of our strong political will to implement to the letter the Stability and Growth Plan... and stressed that we have recently taken additional measures."
Spanish Prime Minister Jose Luis Zapatero said, "The countries of the eurozone will support Greece in this unprecedented crisis it is going through."

Greek civil servants strike over austerity plan
FT: Thousands of Greek civil servants on Wednesday staged a one-day strike and march to parliament in the largest protest to date against the government’s austerity measures. All domestic and international flights were cancelled for 24 hours as air traffic controllers at Athens airport – employees of the transport ministry – joined the walk-out. Bus and underground services shut down across the capital.

Ministers grudgingly accept the tax bill
Ministers grumbled about cuts in their respective portfolios at a cabinet meeting to put final touches to the tax bill yesterday, Eleftherotypia reports. Deputy Prime Minister Theodoros Pangalos apparently got Finance Minister Yiorgos Papakonstantinou to agree to except air force pilots from a cut in their benefits. In a reminder of the internal government tensions surrounding the stability plan, National Economy Minister Louka Katseli comlained that she was not invited to a single consultation. Papakonstantinou replied that this was because the tax bill was not in her jurisdiction. Katseli and Papakonstantinou share a building on Syntagma Square, but have divided their territory so as to work from separate floors.

A very European crisis
The Economist surveys Greece's structural and budget problems in a three-page briefing this week. "SOME would say that tragedy was inevitable from the moment, nine years ago last month, when Greece was admitted to the euro zone. Others would claim that woe was sure to befall such a disparate currency union sooner or later: if not Greece, then some other weak member of the club would have been the cause. Avoidable or not, trouble has arrived. At best, Greece has to undergo a dramatic budgetary tightening. Its fellow Europeans, or the IMF, may yet have to organise a humiliating bail-out."

The view from Turkey
Ioannis Grigoriadis, a Greek academic teaching at Bilkent University in Ankara, writes that Greece's liability to the European Union is seen by many Turkish commentators as comeuppance for favouritism. Greece should never have been admitted to the EU in 1979 on objective criteria, in this view. Europe is now paying the price. Grigoriadis also writes that the economic crisis Turkey underwent at the beginning of this decade fortified its currency and financial system. Many Turks are now calling for an opportunistic buyout of Greek interests, especially banks, in reciprocation of the National Bank's buyout of Turkey's Finansbank a few years ago.

Audio commentary
You can hear a discussion on the Greek economy in which I partook hosted by the show On Point on Boston's NPR member station:
and with the CBC here:

Wednesday, 10 February 2010

Worth reading today

Germany building Greek firewall
The Financial Times reports that German policymakers are looking into the danger of a flight from Greek government bonds turning into a flight from eurozone bonds in general. Officials spoke vaguely about trying to insulate themselves from the Greek phenomenon, not bailing Greece out, without specifying details.
The markets' sensitivity to Greek default fears remained as high as ever, as yesterday's positive trading showed.

The new tax code
The socialist government is increasing high-end income tax brackets, offshore company tax and taxes on fuel and luxuries, among other measures. A controversial measure is making half the tax-free threshold of 12,000 euros contingent on taxpayers gathering thousand of euros' worth of sales receipts. Daily Eleftherotypia offers a summary of the measures announced today, and due to be voted before the end of the month.

Monday, 8 February 2010

Worth reading today

G7 tries to ease fears over Greek contagion
Financial Times/Kathimerini: The unfolding debt drama in Greece, which is now spreading to Spain and Portugal, was among the top agenda items at the G7 summit over the weekend. The fear was that Greece's loss of creditworthiness due to excessive debt would spread to Spain and Portugal, and destabilise the eurozone. Greece received statements of confidence and support from the US and France. German finance minister Wolfgang Schauble was stern, in keeping with his country's official attitude to Greece during the crisis. Not following the rules over a long period results in a comeuppance, he said.

Tax measures to be announced by Friday was reporting that a cabinet meeting tomorrow or on Friday would approve final tax measures to be announced by the end of the week and voted into law before the end of the month. Social security reforms discussed in an inner cabinet meeting yesterday are expected to be announced tomorrow. The government's new income policy and pension reforms are part of what Prime Minister Yiorgos Papandreou plans to present in Brussels on Thursday at a European Union summit. Civil servants and customs officers plan to strike on Wednesday over a public hiring freeze and wage freeze announced on February 2 by Prime Minister Yiorgos Papandreou, and may be joined by others. (In Greek).

EU disunity is making the economic crisis worse
Tony Barber's Brussels Blog: "There is no common approach visible in the fiscal emergency unfolding in Greece, Portugal and Spain. This crisis cries out for more vigorous action from the eurogroup, the body that brings together finance ministers from the 16-nation eurozone. For the sake of calming financial markets, it demands clarity from eurozone governments about what they plan to do. Instead, all the markets hear is that eurozone leaders are determined not to involve the International Monetary Fund, but don’t want to give any financial assistance themselves to Greece. From the markets’ point of view, this is not exactly reassuring."

Tractors remain on the highways Hardcore farmers' unions in Greece were to meet today in Larissa to decide on how to continue to exert pressure on the government for an extra-curricular subsidy. They are seeking a meeting with Agricultural Development Minister Christina Batzeli tomorrow, and have decided to maintain a dozen roadblocks, reports. (In Greek)

Benefits above salary to cost state over 6.5bn this year
Eleftherotypia daily newspaper reports that the Greek government will spend more than 6.5 billion euros this year paying out benefits above salary to civil servants and the public sector payroll in general. This does not include overtime, memberships on committees and travel expenses. Finance Minister Yiorgos Papakonstantinou said these benefits will be cut by ten percent, which amounts to an estimated four percent of the public wage bill.

Wednesday, 3 February 2010

Worth reading today

Greece to tighten public spending
Greek Prime Minister Yiorgos Papandreou firmed up his government's commitment to fiscal discipline hours ahead of an expected European Commission approval of the Greek stability and growth programme for the next three years. Papandreou, whose socialist government came to power in the midst of the economic crisis last October, has announced a wage and hiring freeze in the public sector. A new tax bill also goes to parliament next week, he said, in which special tax brackets are abolished and all professions are brought into a uniform sliding scale. It is also expected to tax dividends and offshore companies, and place a special levy on real estate worth more than 200,000 euros. Also under discussion are higher taxes on fuel and raising the retirement age.
Financial Times:

Monday, 1 February 2010

Worth reading today

EU tells Greece to take strict measures

The European Commission will tell Greece on Wednesday to consider additional measures to cut public spending in case its stability and growth plan should fail, reports in Kathimerini and the Financial Times reveal. The measures include slashing public sector pay and raising taxes on non-essential goods.
Kathimerini (in Greek):

Greece suffers from 'credibility deficit'
The Financial Times' Gillian Tett describes the Greek prime minister's credibility deficit in international fora on the occasion of his speech to the World Economic Forum.,dwp_uuid=91d7b52e-0527-11df-a85e-00144feabdc0.html
British Chancellor of the Exchequer Alistair Darling says Britain would not assist the eurozone in a possible bailout of Greece.,dwp_uuid=91d7b52e-0527-11df-a85e-00144feabdc0.html
The FT's Daniel Gros comments: "When taking over a company in distress, one does not consider only the views of management. Similarly, a bail-out of a country makes sense only if all stakeholders contribute. Saving a country that is consuming too much makes sense only if the entire body politic accepts that more than a fiscal adjustment is required. Deep cuts in private sector wages and consumption are needed before any outsider should even consider stepping forward.",dwp_uuid=91d7b52e-0527-11df-a85e-00144feabdc0.html

Economic changes to be rushed
Eleftherotypia reports that Prime Minister Yiorgos Papandreou, upon his return from the World Economic Forum in Davos, last night gave four main priorities to his cabinet:
a) Rushing the National Statistical Service to independence (a bill is under preparation).
b) Rushing the new tax code to parliament, which abolishes special tax brackets and puts all professions on a sliding scale.
c) Cutting public sector benefits.
d) Reforming social security.