Tuesday, 20 March 2012

Football Violence Damages Institutions

A different version of this story can be viewed on CNN.com

The football violence that damaged Athens' Olympic Stadium on Sunday night damaged three institutions: the stadium where Greece hosted the 2004 Olympics, and Greece's two most accomplished football teams.It also bears the same troubling hallmarks of clashes in central Athens during political protests: underemployed gangs of young men with a vendetta against police.

The clashes left 20 police wounded, two seriously. Twenty-three people were arrested on charges of violence against police.

Police say they were provoked by “a large group” throwing sticks, stones, bits of metal, Molotov cocktails and flares. The clashes began two hours before a match between Greece’s two main football clubs, Panathinaikos and Olympiakos, was due to begin.

“Before the match, individuals who had already gained entry made a sortie from their stands, breaking stadium doors, attacking police and allowing others to enter without security checks,” a police statement said.  “There was a large group of fans that tried to get into the stadium through the basketball courts without tickets,” explained one Panathinaikos fan who was present.

The violence resumed inside the stadium at half time, when dozens of Panathinaikos fans stormed police lines. The second half of the match started almost an hour late and was cut short by several minutes when fans started raining Molotov cocktails on the stadium. They ripped up seats and partly burned one of the stadium’s two giant digital display boards (photo). 

Police later displayed pictures of seized Molotov cocktails and flares. They also seized three, 16-litre canisters of inflammable fluid that had been placed outside the stadium doors, presumably for the resupply of troublesome fans.

The stadium is a symbol of a modern Greek moment of glory. It hosted track and field events during the highly successful 2004 Athens Olympic Games. But it was never built to host soccer matches. It lacks turnstyles and heavy-duty security doors. Cleanup crews were on Monday piling up broken plastic chairs and railings onto the brick-red rubber track and cleaning up debris with leaf blowers. The display board was visibly charred, and splotches of dried blood adorned the aisles.

“When these groups can get away with such things, it is because they were able to get away with them in the past, with no one being punished” said Public Order Minister Mihalis Chrysohoidis on Skai, a local network.

Panathinaikos FC issued a formal apology for the violent clashes, and could be fined. Together with Olympiakos it forms Greece’s football powerhouse. The two clubs are, with few exceptions, the only ones to represent Greece in European leagues; but rivalry between their fans has plumbed such violent depths that they are no longer allowed to attend matches simultaneously, and are confined to home matches.

“The violence may have been partly provoked by the heavy police presence,” said a fan. “There were seven busloads of police at the game.” But police may have arrived in such numbers anticipating an organized act of violence. “We knew it was going to happen,” said taxi driver Konstantinos Kavdas, a Panathinaikos follower. “One of the more extreme fan clubs was going to pay the police back for heavy-handed behavior during one of their basketball matches last week,” he said.

Greek football teams do have official fan clubs, but the vast majority of fans belong to independently groups not controlled by the teams.

Sunday, 18 March 2012

Venizelos Begins

The socialist Pasok party estimated that about 200,000 people showed up today across the country to vote for Evangelos Venizelos, finance minister, as the party's new boss. Venizelos stood unopposed but voters were able to cast a blank ballot. Registered party members and friends were eligible to vote. So were 16-18 year-olds, legal immigrants and EU nationals residing in Greece, in a bid to broaden participation.

In an odd twist, voters were charged a two euro administration fee. Playing on the fact that the Greek 50 cent coin bears the  profile of Eleftherios Venizelos, Greece's great, liberal statesman, political cartoonist Andreas Petroulakis depicted a Pasok functionary telling a voter, "Give us four old Venizeloi and we'll give you a new one."

Pasok's outgoing president, George Papandreou, pioneered the election of party president by popular vote in 2007, beating out the rival Venizelos at the time. It was a historic instance of glasnost in Greek politics, where parties are run as closed shops. It was also a cunning way to avoid an election by party congress, where Papandreou feared Venizelos' influence. Voter turnout then was impressive at well over a million. If Venizelos was hoping to electrify the party base ahead of a general election expected at the end of April, he rather confirmed the lack of current in it. 

The election of Venizelos is, of course, a foregone conclusion. What is important about this election is the way in which it has led Venizelos to frame his arguments, foreshadowing the rhetoric that is likely to follow in the general election.

Venizelos has taken a staunchly pro-austerity line, supporting fully the painful reforms Greece must still implement as part of its commitment to two eurozone bailout loans amounting to roughly 200 billion euro. Petroulakis' cartoon is apt; Venizelos is largely presenting himself as the man behind the euro. He is banking largely on the freshness in people's memory of a massive debt restructuring that wiped 100 billion euro off Greece's debt pile. But he will have an uphill task convincing Greeks that five years of recession and a 21 percent unemployment rate were necessary or acceptable prices to pay for remaining in the euro. Even harder will be convincing them that the end of that recessionary spiral is now in sight (mid-2013 according to Greece's creditors) and economic growth is around the corner.The power of faith rather than results will have to be his main weapon. Pasok is languishing in opinion polls at roughly 12 percent, a quarter of its election victory performance in 2009.

On the other side of the aisle sit the socialists' reluctant coalition partners, the conservartives, who spent two years running on a pro-growth, anti-austerity, anti-bailout platform. They joined the government after great hesitation in November last year, when Greece's euro area partners made it clear that they would not bail out a country that was divided about what it wanted. In effect, they made conservative New Democracy responsible for imminent, disorderly bankruptcy. ND can now argue that it had the right idea all along, but Venizelos is magnifying as much as he can the conservatives' essential contradiction - of eating the austerity lunch while ranting about its recipe.

Venizelos is doing two things - unapologetically assuming responsibility for Greece's painful economic transition to what, it is hoped, will be a competitive economy by 2015, while owning up on behalf of the entire political class to having been less than honest about the foundations of Greece's former prosperity. "We took a country, developed it as much as possible, put it in the single currency, made it one of the world's 28 most developed economies, and this development had feet of clay," he told Alpha. "Because we did not say the truth amongst ourselves, we did not tell the Greek people in a timely fashion that we have to bring public finances under control. Because without a sustainable state you cannot have a sustainable economy." 

The sum of these two elements is, in Venizelos' view, a break with the past and a re-ignition of Pasok's covenant with Greek voters. "We begin" is his slogan. Looking at Pasok's poll numbers and poor participation in today's vote, the general response may be, "You're history."

Thursday, 8 March 2012

Greek Debt Deal on Track

Senior government sources were telling The New Athenian on Thursday evening that Greece has secured substantial participation in a massive debt restructuring. The level of that participation was close to 80 percent of the face value of privately held Greek bonds, the sources said. That is well above the two-thirds level the government was hoping to secure at an absolute minimum. Sixty-six percent is the participation level that will allow Greece to invoke Collective Action Clauses aiming to corce private lenders who did not participate in the scheme voluntarily. The government needs to ultimately secure inclusion of more than 90 percent of the 207 billion euros in debt held in private hands, in order to achieve a debt writeoff of about 100 billion euro. Anything below that jeopardises the EU-mandated goal of bringing Greek debt to within 120 percent of GDP over the next eight years.

Friday, 2 March 2012

Greek Debt Explainer

Over the past two weeks, Greece has begun the process of asking its private lenders to forgive more than half the outstanding debt they hold. Today its euro area partners also released a 30 billion euro chunk of a 130 billion euro ($170bn) loan that finances the process.

The Institute of International Finance, which represents the majority of private lenders, has declared that “if successfully concluded, the debt exchange will be the largest ever sovereign debt restructuring and could lead to a reduction in the debt stock of approximately €107 billion for Greece,” equal to half its GDP last year.

Here is a brief explanation of where we are in Greece’s second bailout, and what lies ahead: 

1. Where are we in the process of Private Sector Involvement (PSI), as the debt forgiveness exercise Greece negotiated with private lenders is known?

•    Standard & Poor's (and earlier Fitch's) rating agency on Tuesday declared Greece in temporary selective default. This was partly because a week ago Greece voted a framework law on Collective Action Clauses, which prepares the ground to coerce some private lenders to accept the discount, or writedown, of 53.5 percent to the principal of their existing Greek bonds. But it is mostly because Greece issued Letters of Invitation to those private lenders to participate voluntarily in a bond exchange programme, which will be the means of that debt forgiveness. Those lenders hold some 206 billion euro ($277bn) of Greece’s estimated outstanding debt of 350 billion euro ($470bn).
•    The declaration of Greece in selective default (because it will default on a part of its debt) in turn triggered the European Central Bank's statement last week that it can no longer extend liquidity to Greek banks. This stems from ECB rules and is automatically invoked. Like the selective default status, it is temporary and should be revoked with Greece’s securing the 30 billion euro advance on its loan.
•    A third consequence of Greece's passing Collective Action Clauses and officially asking for debt forgiveness is that the International Swaps and Derivatives Association was asked to rule on whether a credit event had occurred. It is under intense pressure from hedge funds and other buyers of default insurance to say yes, triggering payment. At present it has ruled in the negative. The main criterion for its decision is whether the debt reduction is being carried out voluntarily. Lenders had until today to declare themselves. Greece needs until next Friday to gauge what proportion of its private lenders will participate, possibly longer, but it is unlikely to be 100 percent. Greece is hoping for at least 90 percent, but has legislated that it may invoke the Collective Action Clauses if it has a minimum participation of 66 percent. That will be the controversial part of the process. The ISDA will again be called upon to rule on whether a credit event has taken place. Its press releases hitherto suggest that Greece fulfils many of the criteria for a positive ruling if those criteria are combined with a form of coercion. Another potential hiccup is that lenders may legally challenge the CACs, though they will have to do so in Greek court. Legal challenges do not overturn the entire Private Sector Involvement, however. They are adjudicated on a case-by-case basis.
•    The ISDA's declaration of a credit event does not upend the entire PSI process either, but it would be a victory for the derivatives and swaps markets, and could create more market pressure on the euro.

2. How will it take the debt restructuring to be carried out?

•    Willing lenders will surrender their existing bonds. In return, they will receive a basket of new Greek bonds worth 46.5 percent of what the old ones were worth at face value. So if your old bonds were worth $100, your new ones are worth $46.50. But even that is not the full extent of your loss as an investor. That is just what you lose on the principal you lent the government.
•    Bonds also carry an interest coupon, which represents the investor’s profit. That, too, is being cut. Most of the new bonds mature between 11 and 30 years from now and carry interest of just two percent for the first three years, three percent for the following five years, and 4.3 percent for the following 22 years. The weighting is clearly designed to encourage investors to hold onto these bonds for at least a decade, rather than turning around and dumping them, which would duplicate the problem that exists with the old bonds. This is why the IIF says that while the reduction to Greek outstanding debt today is in the order of 107 billion euro ($144bn), the real loss to investors over 20 years is closer to 150 billion euro ($202bn).
•    It took tough negotiations to force the private sector to accept a three-quarter loss on its long-term earnings. IIF negotiators were forced to accept a loss 3.5 percent deeper than previously agreed during a 15-hour Eurogroup meeting on 21February. To get an idea of why it took months of negotiations to nail down the interest coupon of the new bonds consider this: In 2009, a year before it entered eurozone life support, Greece was still able to borrow from markets at 4.3 percent. That rose rapidly as the country’s political system showed itself unable to rapidly cut a 15.5 percent budget deficit. Greece sold its last multiple-year bonds in March the following year at interest of 6.25 percent. Its first eurozone bailout came two months later.
•    As a sweetener, 15 percent of the 46.5 percent of face value investors get to hold onto will be in the form of two-year, short-term bonds, essentially cash, backed by the European Financial Stability Fund.
•    A second sweetener is that Greek banks, which have such a high exposure to Greek debt that their very existence is threatened by the writedown, will be prevented from collapsing and affecting the eurozone financial system through refinancing funds from the government. 
•    There is a third, rather aspirational sweetener for long-term investors. They will receive extra interest equivalent to one percent of their new bonds’ face value from 2015 onwards if Greece has returned to growth exceeding “a defined threshold”.
•    The ultimate goal of the debt forgiveness exercise is to reduce Greek debt to 120.5 percent of GDP by 2020 – the maximum level deemed by the International Monetary Fund to be sustainable by Greece.

3. Will Greece complete the process by March 20, when two maturing bonds worth 14.5 billion euro ($19.5bn) threaten to bankrupt it?

•    Greece will attempt to effect the bond exchange with Greek banks, whose participation is taken as a given, immediately thereafter, on Monday 12 March, and with banks overseas later on. Along the way it will aim to incorporate the holders of the March 20 bonds.