Thursday, July 28, 2016

IMF internal probe exposes failings in response to Greek crisis

by Arthur Beesley

Financial Times

July 28, 2016

An unsparing assessment of the International Monetary Fund’s intervention in the eurozone debt crisis prompts new questions over its approach to Greece, the origin of the saga and its epicentre.

At issue is an IMF decision expected this autumn on whether to take part in a third bailout of Greece, which has been under international tutelage for six long years. Germany has threatened to stop lending to Athens if the fund pulls out.

The IMF has warned repeatedly that it cannot participate in any further bailout without meaningful debt relief. Amid ructions in Turkey after a failed military coup two weeks ago, the US has stepped up pressure on European creditors of Greece to settle its finances so it can serve as a regional anchor. But this remains deeply contentious in the eurozone, where Germany leads resistance to far-reaching debt forgiveness.

The report by internal IMF inspectors makes clear that this question goes right back to the beginning of the crisis in 2010, when the fund was drawn into Europe’s chaotic campaign to shore up the single currency. A succession of huge bailouts for Greece and other weaker states followed. It paints a picture of poor pre-crisis surveillance, followed by problems in the design and execution of rescue programmes. Improvisation was the order of the day and rules were stretched, not least in the IMF where there was doubt from the outset about the Greek rescue.

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Read the Report

How the refugee crisis turned waiters into goatherds on the Greek islands

by William Booth

Washington Post

July 27, 2016

This is a story about war and waiting tables, about how a line can be drawn between the chaos in Syria and why Theodore Kourniaris lost his job on the Greek island of Lesbos.

In the eastern isles of Greece, the hidden face of the European refu­gee crisis is an everyday dude like Kourniaris, who suspects he has been cheated — not only by Syrian President Bashar al-Assad, who drops barrel bombs on his own people, but also by leaders such as German Chancellor Angela Merkel, who threw open the door to refugees and then slammed it shut.

Kourniaris, 27, is a Greek waiter who lives with his mom. He has spent every summer season since he was a kid humping bottles of chilled retsina and plates of grilled octopus to German and British and Dutch ­merry-makers in packed tavernas in his picture-postcard-perfect village on the sea.

The tourists?

“They’re gone, man,” said Kourniaris. The April-to-October trade that sustains the island has — poof! — vanished, as middle-class European pensioners and young families with children decided they would not spend their holidays on an island that hosted 600,000 war refugees and economic migrants over the past 18 months.

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Wednesday, July 27, 2016

Erdogan Should Look Across the Aegean

by Nikos Konstandaras

New York Times

July 27, 2016

Military coups have been an integral part of politics through most of the modern history of Greece and Turkey, shaping them domestically and determining relations between them. If war is diplomacy by other means, in these two neighbors and NATO allies, military coups were politics by other means. The recent attempt by military forces to overthrow Turkey’s elected government underlines the different course the two countries have taken in the past few decades. What follows may lead them even further apart.

Turkey’s president, Recep Tayyip Erdogan, appears determined to use the failed coup as an opportunity to wipe out opposition from every quarter, ordering a sweeping purge of the military, the judiciary, the police, academia, the civil service and some journalists.

Before the July 15 mutiny, Mr. Erdogan was already showing increasingly autocratic tendencies: curbing media freedom, cracking down on anti-government demonstrators, flirting with Islamist extremists, cultivating tension with his country’s Kurdish minority, deposing his own prime minister for not being enthusiastic enough in his support, allowing readings of the Quran in the Hagia Sophia museum — formerly the greatest cathedral of eastern Christendom.

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Tuesday, July 26, 2016

Greece loosens capital controls to win back deposits

by Kerin Hope

Financial Times

July 25, 2016

Greece’s central bank has loosened capital controls it imposed 13 months ago in the hope that depositors will return some of the cash they pulled from banks during last year’s panic.

George Chouliarakis, deputy finance minister, said he expected that lifting various restrictions on cash withdrawals would soon attract some €3-4bn in fresh deposits.

The controls were imposed in June last year to stem a run on Greek banks as the government’s negotiations with its international creditors foundered and many feared the country was poised to crash out of the euro. Among other measures, they set strict limits on how much money depositors could withdraw from their accounts each week.

Lifting the controls will pose a critical test of confidence in the leftwing Syriza-led government of Alexis Tsipras, the prime minister. Specifically, it will show whether Greeks now feel safe holding their cash in the country’s banks.

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Friday, July 22, 2016

Tsipras Loses Bid to Apply New Rules in Next Greek Election

by Eleni Chrepa

Bloomberg

July 22, 2016

Greece won’t immediately implement new electoral rules which scrap a 50-seat bonus for the winning side after Prime Minister Alexis Tsipras failed to raise enough support to make the changes effective immediately.

Tsipras’s Syriza government failed to secure a majority of 200 lawmakers in the 300-seat chamber to make the new rules, approved in a session that ended early Friday, effective immediately. A total of 179 lawmakers voted to abolish the bonus, with 83 voting against and 19 abstaining. That means the bonus remains in place for Greece’s next election, scheduled for 2019, and will be scrapped for the subsequent vote.

With the bonus seats still in play, “the scenario of snap elections now looks completely distant, as it would only move Syriza further from governance,” said Aristides Hatzis, a professor of law and economics at the University of Athens. Syriza has struggled in recent opinion polls, which show that rival New Democracy could finish first if elections were held now.

“Greece dodged the worst,” by voting to maintain the old system for the next election, Hatzis said. Given political divisions in the country, any parliament formed under the new law “would be so fragmented it could be impossible to form a government.” Coalitions under the new law would likely consist of “many partners with vetoes to block any decision they don’t like.”

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Thursday, July 7, 2016

Greece was once the fast lane to Europe for refugees. Now it’s a grim waiting room.

by William Booth

Washington Post

July 7, 2016

The human traffickers who brought a million desperate asylum seekers through Turkey to the Greek islands have been stopped. Where once thousands a day were smuggled by the mafias on cheap rubber rafts, very few are making the trip this summer.

To shut down the Eastern Mediterranean route, countries such as Macedonia, Hungary and Bulgaria acted independently and threw up razor-wire fences along their southern borders, defying Europe’s central authority in Brussels.

The European Union itself struck a deal that threatens to send the migrants back to Turkey from Greece en masse.

It wasn’t pretty.

Human rights activists called it cruel.

But it worked.

The unimpeded flow of humanity, dominated by Syrians, Iraqis and Afghans, to Europe is over, at least for now. Arrivals in the Greek islands are down 97 percent.

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Marinopoulos: decline and fall of a retail giant

Economist
Intelligence Unit

July 7, 2016

On July 1st the Athens Court of First Instance handed a temporary reprieve to supermarket operator Marinopoulos in the face of bankruptcy claims by its creditors. The retail giant won temporary protection from bankruptcy until September 21st, when the court will consider its petition for a reorganisation process. The privately owned group, which employs more than 12,500 people and runs more than 800 stores, had sought protection from creditors to allow for a restructuring of its business. The decline and fall of the retail giant mirrors the travails of the Greek economy since 2010. If Marinopoulos goes under it is likely to worsen the country's already dire economic plight.

The Marinopoulos family's first foray into business was in the form of a pharmacy, back in 1893, the year that the then prime minister, Charilaos Trikoupis, famously declared Greece bankrupt. The pharmaceutical business developed independently and the family started its first supermarket much later, in 1962—another landmark year for Greece, as its association agreement with the EU came into force. In 1999 the family entered into a partnership with a French multinational retailer, Carrefour, and the business grew to the extent that Marinopoulos became a leading retailer. The partnership ended on the eve of Greece's second general election in 2012, when Carrefour pulled out, although it sanctioned continuing use of the brand. By 2015 Carrefour had slipped into second place behind Belgium's Delhaize in terms of market share, but still had a sizeable 6.3% share of the Greek retail market.

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Wednesday, June 22, 2016

Opposition leader Mitsotakis warns Greek tax rises will stifle growth

by Kerin Hope

Financial Times

June 22, 2016

Kyriakos Mitsotakis, Greek opposition leader, has a blunt message for the country’s international creditors and Alexis Tsipras, its leftwing leader: tax rises that the prime minister insists are central to Greece’s recovery are a costly mistake.

He said the fiscal measures rolled out this month as part of a €5.4bn austerity package agreed with the EU and the International Monetary Fund in return for more bailout cash will stifle growth, cut revenues and push many more Greeks into tax evasion and the black economy.

“What you have is the cumulative impact of taxation that goes well beyond … capacity [to pay]”, Mr Mitsotakis told the Financial Times. “After five years, many people have literally run out of money.”

Following a warning from the Greek central bank that “excessive emphasis” in higher taxes could backfire, Mr Mitsotakis insisted the government should have focused on structural reforms, such as to the public sector, which would have made tax increases unnecessary.

“This country has both a culture and considerable expertise in tax evasion,” Mr Mitsotakis said. “That’s why the Tsipras [plan], which the EU ended up approving, isn’t going to work.”

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Tuesday, June 14, 2016

Greek Startups Say Tsipras’s Taxes Are One More Reason to Leave

by Paul Tugwell

Bloomberg

June 14, 2016

Greek startups have weathered political turmoil, violent riots, a withering economy and brinkmanship that nearly drove the country out of the euro. Now, a new round of tax increases may be the last straw for fledgling companies with dreams of making it big.

What startups need is a break, says Vassilis Sioros, chief executive officer of Ardustech P.C., a small company with big plans for the use of olive oil in the pharmaceuticals, food and cosmetics industries.

“No startup is asking the government for money,” he said in an interview from Athens. “The state can invest without giving money by allowing startups to pay no tax or social security contributions for one year, or at least reduce them. This can help give at least another year of life to a startup allowing for the creation of one or two more jobs.”

Startups have become a key piece of any revival for Greece’s economy, which has shrunk by more than a quarter since 2008 and where almost 25 percent of the workforce is without a job. The number of such firms has almost doubled each year since 2010. With many still struggling to find funding, startups see the taxes and charges agreed to between Prime Minister Alexis Tsipras’s government and European creditors as adding yet another wrinkle to their already difficult environment.

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Monday, June 13, 2016

Greece needs a new deal with its European partners

by Yannis Stournaras

Financial Times

June 13, 2016

Greece is the only country in Europe that still remains under an adjustment programme. The Greek political system failed the country in the second half of the previous decade. Successive Greek governments promised to fix the tax collection system, uproot the deeply entrenched vested interests and implement ambitious reforms and privatisations. But, with few exceptions, they did not deliver.

At the same time, our European partners have yet to deliver on their commitment to provide further debt relief. They agreed to it in November 2012 and it should have occurred in 2014 after Greece achieved, with considerable pain, a primary surplus of €1.5bn in 2013. It never happened. The decision was delayed due to the domestic electoral cycle of various European countries. The same happened on May 24 this year when the eurogroup of finance ministers yet again postponed the relevant decision, to 2018, despite the fact that it explicitly recognised the need to keep the Greek government’s gross financing needs at manageable levels and the ratio of debt to gross domestic product at a declining trend.

It should be stressed that the eurogroup postponed the decision for debt relief in spite of the following: first, that the Greek government had honoured its commitments; and second, that current market interest rates are very favourable to debt relief decisions for both borrower and lenders. In addition, the threat of Grexit, used against Greece by a number of eurozone politicians whenever negotiations seemed to stall, weighed heavily on sentiment, further fuelling uncertainty and negatively affecting the economic and social climate in Greece.

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Wednesday, June 8, 2016

Move over Croatia, this year festival goers are heading to Greece

by Tess Reidy

Guardian

June 8, 2016

Clubbing in Greece has come a long way since the days of drinking ouzo and climbing partially lit mountain trails to listen to Cretan music in ancient ruins. This summer, there are quality electronic music festivals taking place, with lineups including DJ Harvey, Midland and Jeremy Underground. You can snorkel in the day, party on the beach at night and even hike down a gorge to recover if you want.

Could Greece’s music scene restore its reputation as a tourist hotspot after years of economic downturn, social unrest and the human crisis that has led to overcrowded refugee camps?

Sean Tipton, from the Association of British Travel Agents, says yes. “More than 2 million visits were made to Greece from the UK last year and so far bookings for 2016 are looking set to overtake this figure,” he explains. “It is really positive for Greece after some years of decline.”

One explanation is to be found in the revival of dance music. The electronic music scene is the driving force behind a whole host of events this summer such as Odyssia festival in Alepokhóri, Attiki, Rhythmatic open air festival in Pelion and Reworks festival in Thessaloniki.

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Tsakalotos Says Greece Will Soon Qualify for ECB’s QE Plan

Bloomberg
June 8, 2016

Greek bonds will soon become eligible for the European Central Bank’s asset-purchase program, paving the way for an easing of capital controls, and the gradual recovery of investor confidence, Finance Minister Euclid Tsakalotos said.

The continent’s most indebted state is currently excluded from the quantitative easing program, while its lenders have lost access to regular financing lines, as a quarrel between Prime Minister Alexis Tsipras and Greece’s creditors in 2015 raised doubts about its solvency and place in the euro area. The flow of bailout loans keeping Greece afloat is slated to resume this month, after the government committed to additional austerity.

“QE could follow as soon as July’s maturing debt is paid,” Tsakalotos said in an interview, referring to a July 20 payment of notes held by the ECB. “I feel confident Greek debt will be eligible” by September, he said.

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IMF Go Home

by Daniel Gros

Project Syndicate

June 8, 2016

The curtains are up on another act of the Greek debt drama. Eurozone finance ministers and the International Monetary Fund have agreed with Greece to begin, per the IMF’s demands, providing some debt relief to the country, and to release €10.3 billion ($11.6 billion) in bailout funds. Greece, for its part, has agreed to another round of austerity and structural reform.

Until recently, the IMF insisted that it would participate in the next Greek rescue program only if it deemed Greek debt to be sustainable. Based on the IMF’s most recent debt sustainability analysis, that is not the case. Germany, however, insisted that the IMF remain on board – and, with the latest deal, it seems to have prevailed, in exchange for agreeing to debt relief that it opposed.

The victory may well not have been worth the sacrifice. In fact, it would have been better to let the IMF pull out, for two reasons. First, the IMF’s assessments of debt sustainability in Greece are undermined by a deep conflict of interest. Second, and more important, IMF credits are too expensive.

In a normal bailout procedure, the IMF acts as an impartial judge of the troubled country’s debt sustainability; then, if it so chooses, it can step in as the lender of last resort. This is what happened in 2010, when the private sector wanted to flee from Greece and a systemic crisis loomed.

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Tuesday, June 7, 2016

Painful choices still hang over Greece

by Martin Wolf

Financial Times

June 7, 2016

Is there a path towards making Greece a successful self-financing economy within the eurozone? What would be required to put it on that path? These are the big questions about the economic plight of Greece and its ghastly relations with its partners. Neither has much to do with what is going on, which is “extend and pretend”: the eurozone pretends Greece is not in default; Greece pretends it will reform; and both play for time. What would an honest reckoning look like?

A starting point must be with the latest debt sustainability analysis from the International Monetary Fund. One can sum this up simply: we would like to apologise for the mess we have made.

The fund admits that the programme agreed in 2010 was wildly unrealistic. Moreover, even the debt relief imposed in 2011-12 was insufficient, unless one believed in the plausibility of the “very ambitious targets for growth, the fiscal surplus, and privatisation” proposed by the Greek government, with support of its eurozone partners.

Subsequent events, however, demonstrate that these targets were indeed unachievable. Finally: “In all key policy areas — fiscal, financial sector stability, labour, product and service markets — the authorities’ current policy plans fall short of what would be required to achieve their ambitious fiscal and growth targets.”

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Monday, June 6, 2016

EU sees progress on Greek reform, '95 percent' of work done to unlock funds

Reuters
June 6, 2016

The European Commission is confident that Greece will conclude the reforms needed to unlock bailout funds before next week's meeting of euro zone finance ministers, top officials said on Monday.

Greece and its international lenders wrapped up the bulk of reforms needed for badly needed bailout cash in May, but left some loose ends which must be tied up before Athens can receive instalments of 10.3 billion euros ($11.48 billion) by September.

"The Greek authorities have done 95 per cent of changes necessary but not all is finalised. Some changes have to be made in the coming hours," Economic Affairs Commissioner Pierre Moscovici told EU lawmakers in Strasbourg.

"I am confident Athens will use the time before the Eurogroup to finalise the limited issues that are still open," Moscovici added, saying that a disbursement of a first tranche of 7.5 billion euros could be decided as early as next week and be made this month.

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Thursday, June 2, 2016

ECB holds back on ultra-cheap loans to Greek banks

Financial Times
June 2, 2016

The European Central Bank has dealt a blow to Greece’s attempts to rehabilitate its ailing financial system, saying it would wait at least three more weeks before allowing Greek banks access to its ultra-cheap loans.

The delay came at Thursday’s ECB meeting in Vienna where policymakers left interest rates on hold even though they marginally raised forecasts for eurozone growth and inflation. The cautious stance defied market expectations of a more robust upgrade in economic projections.

Senior officials in Athens had believed the ECB governing council would use the Vienna meeting to reinstate a waiver that allows the central bank to accept Greek government bonds as collateral for their cheap loans, despite the bonds’ junk credit rating. Greek optimism stemmed from last week’s deal to release €7.5bn in EU bailout funds next month after a long stand-off.

Instead Mario Draghi, the ECB president, said while the council discussed the waiver, no decision would be made until Athens had completed all elements of the first review of its €86bn bailout, a prerequisite to getting the €7.5bn tranche.

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Monday, May 30, 2016

Greece and Creditors Spar Over Legislation Changes

by Nektaria Stamouli

Wall Street Journal

May 30, 2016

Greece is arguing with its international creditors about a few small but politically sensitive measures creditors want implemented before they release some €7.5 billion ($8.4 billion) of badly needed bailout funds.

A teleconference between Greek officials and representatives of the country’s lenders failed on Sunday to reach agreement on whether and how Greece should amend recent legislation to comply with the conditions of its bailout program.

Creditors, represented by the European Commission, other eurozone institutions, and the International Monetary Fund, say Greece must make specific changes to recent laws on areas including banking regulation, retiree benefits, and privatization. But Greek Finance Minister Euclid Tsakalotos has written a letter to the commission, the IMF and the European Central Bank saying his government can’t carry out all of the lenders’ demands, according to Greek officials, citing political obstacles.

Greece needs its bailout funding by mid-July at the latest, when it must repay heavy debts, including bonds held by the ECB. Considering the amount of legislation that has already passed, it is unlikely the deal would be scuttled over the issues.

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European Money Doesn’t Like Greece

by Mark Whitehouse

Bloomberg

May 30, 2016

Greece and its creditors may have averted a crisis by agreeing on the release of another dose of bailout money, but the deal does little to address a deeper problem: Europeans still don't want to put their money there.

The flow of capital between the rest of the euro area and Greece offers a useful indicator of confidence in the integrity of the currency union. It can be tracked by looking at the Bank of Greece's liabilities to other central banks in the currency union -- a number that rises, for example, when concerns that Greece will abandon the euro prompt people to move currency out of the country.

The ascendance of Prime Minister Alexis Tsipras's leftist Syriza party to power, and its prolonged standoff with creditors, prompted an exodus: During the year through June 2015, an amount equivalent to more than 40 percent of Greece's annual economic output fled the country. This stopped after Tsipras did a U-turn in July, agreeing to harsh deficit-reducing measures in return for more loans. Not much private money, though, has come back since then -- reflecting both the effect of capital controls and persistent concerns about whether Greece will remain in the euro area.

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Friday, May 27, 2016

Greece’s debt deal is not a game-changer

by Yannis Palaiologos

Financial Times

May 27, 2016

On Wednesday, Greece’s creditors agreed to release more than €10bn in bailout money and to consider ways of restructuring the country’s debt. Some breathed a sigh of relief that a renewed escalation of the Greek debt crisis had been averted. Others observed that, once again, the path of messy compromise had been chosen and the day of reckoning postponed.

It is useful to recall how we got here, and ask whether there is any chance that Greece will escape the fate of being seen as Europe’s eternal problem child. The thoughts of seasoned observers of Greece’s travails over the past half-decade will have turned back to the spring of 2010, the early days of the crisis, when there appeared to be some movement on the issue of possible relief to go along with any eventual bailout programme.

The International Monetary Fund, its fingers burnt in the Argentine debt crisis of 2001, seemed resolved not to make big loans to members unless it could be near-certain that their debt was sustainable, which Greece’s clearly was not. There were meetings between IMF staff and French and German officials. In Athens, the investment bank Lazard did a study on ways to lighten the country’s Olympian debt load.

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Thursday, May 26, 2016

Deal Between Greek Creditors Doesn’t End Saga

by Marcus Walker & Gabriele Steinhauser

Wall Street Journal

May 25, 2016

A truce between Greece’s creditors averts an immediate panic over Greek bankruptcy this summer, yet as officials and onlookers digested the deal, it became apparent that less was agreed than meets the eye.

The deal, struck in the small hours of Wednesday morning at the Eurogroup meeting of eurozone finance ministers in Brussels, broke an impasse between Germany and the International Monetary Fund that was holding up Greece’s bailout funding for this summer.

But by papering over deeper differences, the deal sets up tough haggling over the country’s debt and economic overhauls for this fall and beyond.

The main breakthrough, heralded by German Finance Minister Wolfgang Schäuble, is that the IMF agreed in principle to rejoin the Greek bailout effort this year with new loans. In return, Germany and other eurozone countries pledged to restructure Greece’s rescue loans in 2018 “if…needed.” That promise fell short of the IMF’s demand that Europe should decide now how it would relieve Greece’s debt in coming years.

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Greece’s Inconclusive Debt Deal

by Simon Nixon

Wall Street Journal

May 25, 2016

Greece has a new debt deal—but then it was always going to get a new debt deal.

Time and again, the eurozone has demonstrated that it is bound together by impressive reservoirs of political will: not only the will of debtors such as the Greeks, for whom the euro is both a trusted store of value and a symbol of their common European destiny, but also the will of creditors, who have been unwilling to risk the great costs and inevitable political upheavals of a eurozone breakup. Indeed, the determination to reach a deal was even greater at a time the breakup of the European Union itself is on the table in the U.K.’s Brexit referendum.

Even so, the deal agreed on Tuesday night is hardly the decisive break in the Greek debt crisis originally envisaged under the bailout deal thrashed out last summer. By now, Athens was supposed to have undertaken far-reaching reforms of its tax and pension system, the eurozone to have delivered meaningful debt relief, and the International Monetary Fund to have agreed to help finance the program.

Instead, Greece has promised to tackle the reforms “if needed” to hit its 2018 budget target, the eurozone will deliver the debt relief “if needed” when the program ends in 2018, and the IMF will join the program by the end of this year, subject to technical clarifications. This is a classic euro-fudge, whose purpose is to kick the can decisively down the road, deferring the grittiest political decisions until 2017 and 2018.

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