Wednesday, November 25, 2015

A Greek Bank Tragedy

by Emilios Avgouleas

Greek Public Policy Forum

November 25, 2015

The recent attempt to cover the needs of Greek banks in fresh capital via a mix of a private and public infusion of funds amounts to nothing else than a fire sale. The recent rights issues of Greek banks were fully covered because Greek bank shares were sold for a few pennies with offer prices ranging from 0.02 to 0.04 cent per share. At the same time, the Greek taxpayers’ stake in Greek banks, held via the so-called financial stability fund, is sharply diluted, e.g. in Alpha Bank the state’s stake is reduced to 11% from 66,4% today, in the Eurobank from 35% to 2,4%, in Piraeus Bank, which sold its new shares for 0.03 cent per share, from 67% today to 22%, although the bank will still receive 2.6bn Euros state aid, 2bn in the form of CoCos purchased exclusively by the Greek state, and 0.6bn in shares. Then, for the greatest Greek bank, the National Bank of Greece that didn’t manage to cover even 1/3 of the total amount sought while its shares were offered at 0.03 pence per share, the reduction of the Greek state’s stake will be 24% to 33% from 57% today. This while the state will still inject 2.75bn Euros in fresh funds, 2.06bn of this in CoCos and the rest in shares. At the same time, the state waives its rights on 1.45bn Euros preference shares, which will now be converted to common shares. In addition, the National Bank will have to sell its most valuable asset, its Turkish subsidiary at 2bn Euros while its acquisition in 2006 cost the Greek bank 5bn EUR.

These are horrendous figures and show both the scale of the fire sale that takes place and that very little is left from the injection of borrowed state money of nearly 45bn in cash in the previous recapitalisation rounds. Given that this gigantic fire sale is done with the blessings of European creditors, it is very hard to brand it asset looting as would be the case if the exercise had been solely conducted by the Greek vested interests, but still the amount of end loss for the Greek taxpayer stands at dizzying heights. Some of it is due to SYRIZA’s catastrophic negotiation strategy between January and July and the ensuing flight of deposits, liquidity crunch and imposition of capital controls, and some due to the recessionary dynamic of the Greek economy and the very optimistic provisioning forecasts incorporated in previous recapitalisations that plainly proved inadequate.


The Greek Shipping Myth

by Tom Bergin


November 25, 2015

On the day he took office as Greece’s shipping minister in June 2012, Kostis Moussouroulis received a visit from a 90-year-old shipowner. He still remembers the older man’s words: “Don’t forget, the best minister of shipping and maritime affairs is the minister who is doing nothing for the shipping industry. He is the one who is leaving us alone.”

That’s the way Greek shipowners like it. The magnates who run one of the biggest merchant marine fleets in the world have long argued that if Greece tried to tax them, they would leave - and that their departure would devastate the economy. In recent years, as international institutions repeatedly bailed out Greece, the lenders have also pushed Athens to beef up its tax take. Shipowners have resisted any effort to ditch the tax breaks they enjoy, and no government has dared touch them.

“Shipping is a pillar of the Greek economy,” says the Union of Greek Shipowners, the ocean-going industry’s main association.

Greece’s statistics office says shipping contributes around $9 billion - or 4 percent - of the country’s Gross Domestic Product (GDP). When you include related business, the industry says, the figure jumps to 7.5 percent of GDP, or about $17 billion a year. Deep-sea shipping and related trades employ more than 192,000 people, it says. That’s 4 percent of all Greek workers.


Tuesday, November 24, 2015

The $400 billion ripoff that could destroy the Greek bailout

by Nasos Koukakis


November 24, 2015

As if Greece didn't have enough economic market woes, last week foreign investment funds managed to take control of four of the country's largest banks — Alpha Bank, Eurobank, National Bank of Greece and Piraeus Bank — through $6.42 billion worth of capital increases and a complex set of legal manipulations. As a result, bank shares sold like penny stocks, diluting state ownership in these important institutions that have assets totaling $358 billion.

The country's stake in the National Bank of Greece dropped to 24 percent from 57 percent, and in Eurobank it fell to 2.4 percent from 35 percent, while its stake in Alpha Bank was reduced to 11 percent from 64 percent and in Piraeus Bank it dropped to 22 percent from 67 percent. This translates to a loss of almost $44 billion that Greek taxpayers gave to bail out the banks over the past three years.

Greek stock market and legal experts believe that the maneuvers were engineered after a statutory legal provision was amended by the Greek Parliament that allowed private investors to price bank shares using a so-called "book-building method." Under this method, the share price in capital increases is not predetermined, and investors set the price at which they want to buy the shares.

It also made it mandatory for the country's regulatory body, the Hellenic Financial Stability Fund, to accept book-building prices, even if they were not properly reflecting share values.


Sunday, November 22, 2015

Pelagidis & Mitsopoulos, "Who's to Blame for Greece? Austerity in Charge of Saving a Broken Economy"

by Theodore Pelagidis (Brookings Institution and University of Piraeus) & Michael Mitsopoulos (Hellenic Federation of Enterprises)

Palgrave, November 2015

The Euro constitutes the crowning achievement of a prolonged process of integration between European states. It incarnates the vision for a united and prosperous Europe: the attainment of major political goals through the promotion of closer economic cooperation. However, the 2009 crisis brought the EU head-to-head again with its perennial threat – the short-term interests of member states. Greece's economy symbolizes in many ways the Euro area's economic problems and divergent interests as it amasses most of the economic disadvantages characterizing the Euro area's economy itself.

After almost five years since inception of the crisis, Greece's economy today is in the headlines again – this time for the so-called political risk. This book discusses the economic and political challenges to Greece and the EU member states.

Friday, November 20, 2015

Greece Presents 2016 Budget and Revamps Recession Prediction

by Niki Kitsantonis

New York Times

November 20, 2015

Greece on Friday presented an optimistic budget for 2016, predicting a recession milder than expected in previous forecasts.

The government also said that final numbers for 2015 would indicate the economy will have been flat for the full year, rather than the deep contraction of 2.3 percent that had been expected. One reason is that the capital controls the government imposed on banks over the summer were less damaging to the Greek economy than had been feared.

And next year, the government said, the economy will shrink by only 0.7 percent as it continues carrying out cost cuts required by its 86-billion-euro, or $92 billion, international bailout package. As recently as last month, the government had predicted an economic contraction of 1.3 percent in 2016.

The new assessment came as the finance minister, Euclid Tsakalotos, on Friday presented the budget to Parliament, which is to vote on the package early next month.

“The Greek economy endured, disproving disaster scenarios,” according to a statement by the finance ministry that accompanied the budget.


Athens backs reforms to unlock bailout funds

by Kerin Hope

Financial Times

November 19, 2015

Greece’s parliament has backed additional reforms needed to unlock €12bn from the latest, €86bn, bailout to recapitalise struggling banks and pay off overdue debts to government suppliers.

The reform bill was approved by 153 to 137 votes following a stormy debate that brought the sacking of two deputies from the governing Syriza-led coalition. They had refused to support a measure limiting protection for mortgage holders in default.

Stathis Panagoulis, a long-serving leftwing deputy, said that he was leaving Syriza “because I won’t accept seeing hardworking homeowners thrown into the street”.

His departure and that of Nikos Nikolopoulos from the rightwing Independent Greeks, the junior coalition partner, leaves the government with only a two-seat majority.

Euclid Tsakalotos, finance minister, said that more than 90 per cent of homeowners with unpaid mortgages would be eligible for some protection, even though only those with an annual income below €23,000, would be safe from foreclosures.


Thursday, November 12, 2015

No time for Tsipras to go wobbly on Greek reform

Financial Times
November 12, 2015

Alexis Tsipras’s first administration flirted with sovereign default in the summer before ending a bruising stand-off with Greece’s eurozone partners by signing a document that was in spirit almost identical to the one it had hitherto rejected. Now, two months into his second term and with the ink barely dry on that deal, Mr Tsipras seems determined to start another fight with his creditors.

The prolonged period of political brinkmanship from both sides of the negotiating table inevitably weakened the mutual trust between Greece and its single-currency partners. The bailout deal has been signed, but the possibility of Grexit has never been fully eliminated. While the current frictions are no more than that, they are heading in the same way as the last.

By now, Greece should have already received the first €2bn of its bailout funds. Instead, the October instalments are still in Brussels’ coffers. The eurozone will only release them once the Greek parliament has passed 48 “milestones”, mostly leftover pledges from Greece’s previous two bailouts. But not only is Mr Tsipras three weeks late with these reforms, he wants to reopen the negotiations over a contentious issue, home foreclosure protection.

The Greek government wants to keep the existing generous legal protection from house repossessions. Greeks already beaten down by the thinning prospect of finding a job and shrinking welfare support should not also be forced to move out of their homes.


First general strike since Syriza win brings Greece to standstill

by Kerin Hope

Financial Times

November 12, 2015

Government offices stayed shut and public transport closed down on Thursday as Greece’s resurgent trade unions staged the first 24-hour general strike since the leftwing Syriza party came to power in January.

Thousands of public sector employees, pensioners and jobless workers shouted anti-austerity slogans as they marched to the Greek parliament in Athens, giving voice to a growing mood of despondency over looming foreclosures on family homes and further pension cuts agreed with creditors under Greece’s €86bn third bailout.

Riot police clashed briefly with a group of protesters throwing petrol bombs and stones in the square outside the parliament building. Three people were detained, according to police.

Some protesters held pink balloons labelled “Alexis’ promises” — harking back to the bold threats made while he was in opposition by Alexis Tsipras, prime minister, to roll back bailout reforms and default on repaying Greece’s public debt.

“We are resuming the struggle to reverse the bailout measures and win debt writedowns,” declared a large banner held up by members of Adedy, the civil servants union, the country’s largest labour organisation.


Greece Comes to a Standstill as Unions Turn Against Tsipras

by Nikos Chrysoloras


November 12, 2015

As Greek workers took to the streets in protest on Thursday, Alexis Tsipras was for the first time on the other side of the divide.

Unions -- a key support base for the prime minister’s Syriza party -- chanted in rallies held in Athens the same slogans Tsipras once used against opponents. Doctors and pharmacists joined port workers, civil servants and Athens metro staff in Greece’s first general strike since he took office in January, bringing the country to a standstill for 24 hours.

Greece’s biggest unions, ADEDY and GSEE, are holding marches accusing Tsipras of bowing to creditors and imposing measures that “perpetuate the dark ages for workers,” as the country’s statistical agency released data showing that 1.18 million Greeks, or 24.6 percent of the workforce, remained unemployed in August.

The 41-year-old Greek premier, who was among anti-austerity protesters in previous general strikes, is now racing to complete negotiations with creditors on belt-tightening in exchange for the disbursement of 10 billion euros ($10.7 billion) to be injected into banks. Failure to reach an accord with euro-area member states and the International Monetary Fund on policies including primary residence foreclosures, and stricter rules on overdue taxes, would put the solvency of the country’s lenders in doubt.


Wednesday, November 11, 2015

Greek economy on ice as lenders battle capital shortfall

by Kerin Hope

Financial Times

November 11, 2015

Piraeus Bank used to be a lifeline for small entrepreneurs such as Evgenia, a 33-year-old Athenian who received a loan from the neighbourhood branch to finance her start-up selling fresh flowers.

“Other banks didn’t want to know me,” she says, declining to give her surname. “Even when the crisis came and I couldn’t make interest payments they [Piraeus] still cut me some slack.”

A reluctance to pursue distressed borrowers is one reason why Piraeus is judged to be the most precarious among Greece’s four top lenders, according to the European Central Bank’s latest health check of the sector.

As Greece’s biggest bank, shoring up the finances of Piraeus, and those of its peers, will be crucial in kick-starting lending to the country’s economy, helping it to climb out of a brutal recession that has shrunk the economy by almost a quarter since 2009.

The bank’s dire straits has revived debate about the aggressive expansion strategy pursued by Michalis Sallas, Piraeus’s long-serving chairman, at the height of the Greek crisis.


Tuesday, November 10, 2015

What Europe Owes to Greece

by Yannis Palaiologos

Wall Street Journal

November 10, 2015

More refugees crossed the Mediterranean into Europe last month than in all of 2014. The vast majority of them landed in Greece, but many other European Union members have also been affected and are now reconsidering their open-border policies.

Meanwhile, Athens continues to struggle with the terms of its latest bailout, an orphan program unloved by both the government that signed it and the creditors that imposed it. The two greatest achievements of European integration—the free movement of people and the common currency—are now threatened, and in both cases Greece is on the front line of the crisis.

Critics can point to many things that Greece did wrong to bring its economy to its present situation: reckless spending, corruption, a lax attitude to tax collection, the unwillingness of successive governments to go beyond austerity and meaningfully reform the way the public sector and the economy work.

In the government of Prime Minister Alexis Tsipras these critics have found the perfect foil. The ruling party, Syriza, is made up of unreconstructed, Marxist-minded leftists who are hostile to the free market, willing to perpetuate the worst practices of the precrisis era, in an alliance with a party of hard-right nationalists and conspiracy theorists. This coalition is again resisting administrative and economic reforms that would both boost growth and help build the government’s capacity to manage crises.


Monday, November 9, 2015

Greece plans a return to capital markets

by Elaine Moore & Kerin Hope

Financial Times

November 9, 2015

Greece is making preparations to rejoin global debt markets less than six months after a stand-off with bailout lenders pushed the country close to a forcible ejection from the eurozone.

Relations between the government and the office responsible for arranging sales of Greek debt broke down earlier this year after Alexis Tsipras, leader of the leftwing Syriza party, was elected in January with vows to move away from the old political regime and end austerity.

However, the situation has eased following the government’s deal with European creditors for a €86bn bailout in July and Greece is now preparing for a market return that could come as early as the first half of next year.

“It won’t be in the first quarter but summer has been talked about,” said a person familiar with the situation. “It depends on a positive chain reaction of events but discussions have been held.”


Thursday, November 5, 2015

Greek Banking Crisis 2015 Update: What Will Recapitalization Mean For Average Greeks?

by Jess McHugh

International Business Times

November 5, 2015

The four leading banks in Greece are expected Friday to lay out their plan for recapitalization, less than four months after the debt-stricken nation's financial institutions reopened following a near-collapse in July. The long-awaited recapitalization process, however, which is likely to include a mix of private investment and bailout money from eurozone lenders, is not an instant solution for average citizens suffering under continued debt.

Greater liquidity and more stability in the long term will follow from the recapitalization, according to economists, as the short-term outlook for average Greeks remains bleak. Average Greek citizens and local businesses will continue to live under strict capital controls, such as account withdrawal limits, as growth in the cash-strapped country stalls and faith in the ruling government wanes.

“The growth issue is a big question mark,” said Marco Vicenzino, director of the Global Strategy Project, a geopolitical risk and international business advisory firm. Vicenzino described Greek citizens worrying about how recapitalization will affect daily activities, such as whether families can provide necessities or if small businesses will be able to pay their employees. Many Greeks are not optimistic, according to Vicenzino: “Most people don’t see the light at the end of the tunnel.”


Monday, November 2, 2015

Tsipras’ biggest stress tests yet to come

by Hugo Dixon


November 2, 2015

One stress test is over, but several more are looming. Alexis Tsipras received good news at the weekend when a stress test showed the top Greek banks need to raise a lowish 14.4 billion euros in capital. But the leftist Greek prime minister has to implement more tough measures before he can get the economy growing. Until then, he faces political risks, which could yet tip Greece back into crisis.

An assessment by the European Central Bank found that the four banks – Alpha Bank, Eurobank, National Bank of Greece and Piraeus Bank – have a collective capital shortfall of 14.4 billion euros in the so-called “adverse” scenario. This is less than the 25 billion euro maximum earmarked for bank recapitalisation as part of Greece’s latest bailout programme. What’s more, the banks will only need to find perhaps around half that amount in state aid. The rest they can probably get by swapping bondholder debt into equity capital, issuing shares to private investors and selling assets.

What this means is that Greece’s headline debt may be roughly 15 to 20 billion euros lower than earlier projections – peaking at a still eye-popping level of 190 percent of GDP, rather than 200 percent.


Saturday, October 31, 2015

ECB says Greece’s banks need more than €14bn in fresh capital

Financial Times
October 31, 2015

The European Central Bank has said Greece’s troubled banks need more than €14bn in fresh capital pumped into them to survive.

The results of the ECB’s health check of Greek banks show the top four lenders are short of €14.4bn in capital under supervisors’ so-called “adverse scenario”, where lenders must be able to withstand a worsening of economic and financial conditions. Under the standard scenario of what is known officially as the “comprehensive assessment”, the capital shortfall is €4.4bn.

Piraeus Bank needs €4.9bn in fresh capital, the National Bank of Greece €4.6bn, Alpha Bank €2.7bn and Eurobank €2.1bn.

The banks have until 6 November to say how they plan to plug the capital hole. They have already moved to pre-emptively boost their capital in advance of results of the tests, which are a key part of the €86bn Greek bailout that euro area leaders agreed in July. That bailout deal earmarked as much as €25bn in support for the banks.


Friday, October 30, 2015

Greece reconsiders a tax on private education

October 30, 2015

Before Greece’s snap elections in September, the outgoing left-wing government laid out plans for a value-added tax of 23% on private education. The measure, dreamed up by the governing Syriza party as an alternative to raising tax on beef, featured in their manifesto as a blow against plutocracy. It looked like a double win that would simultaneously please creditors and demonstrate the government’s commitment to helping the underprivileged. Unsurprisingly, it did neither.

Some of the country’s reasonably priced private schools were forced to close, leaving staff jobless. Elsewhere, fees rose. Those affected were not just rich families. Greece has more than 300 full-time private schools, attended by about 6% of school-age children, many of whom come from middle- and lower-income families. With tuition fees as low as €2,500 ($2,750) a year, some operate in working-class areas and attract parents who are keen to give their children a leg up.

Those whose parents were unable to pay higher fees moved into the already overwhelmed state system. At the beginning of term in September, Greek schools were short of some 12,000 teachers, according to the ministry of education. Some predict the shortfall will soon exceed 20,000.


Thursday, October 29, 2015

Greece: Dynastic divisions

by Peter Spiegel

Financial Times

October 29, 2015

Until Alexis Tsipras swept to victory in national elections nine months ago, Greece had been governed almost continuously by scions of the country’s most politically-connected families for over a decade.

Antonis Samaras, Mr Tsipras’s immediate predecessor, descends from a family so prominent that the street running into the entrance of his Athens prep school was named for his maternal grandfather. George Papandreou, premier at the outset of the eurozone crisis, is the son and grandson of prime ministers. And Kostas Karamanlis, the longest-serving of the group, is the nephew of another prime minister who founded the country’s main centre-right party, New Democracy.

Kyriakos Mitsotakis, one of the politicians seeking to revive New Democracy after it was crushed by Mr Tsipras’s far-left Syriza party in elections last month, says it is time to end the dominance of the Greek political dynasties.

“New Democracy, if you look at the party, it’s almost feudal in its structure,” Mr Mitsotakis says, sitting tieless in his Athens office. “You have the big political families . . . the big players, the old prime ministers, and everyone is sort of bargaining for power. This is rubbish.”

But Mr Mitsotakis — arguably the most prominent of four candidates seeking to lead New Democracy — acknowledges he may be a somewhat awkward messenger. Not only is he the son of a former prime minister, but his sister, Dora Bakoyannis, is a former mayor of Athens and Greek foreign minister who ran for party leader against Mr Samaras six years ago.


ECB Check of Greek Banks to Show 14 Billion-Euro Hole

Reuters/New York Times
October 29, 2015

The European Central Bank's health check of Greece's four big banks will show a total capital shortfall of up to 14 billion euros ($15.34 billion) if economic conditions become "adverse", two banking sources told Reuters on Thursday.

The ECB's Single Supervisory Mechanism (SSM) is assessing the capital needs of National Bank of Greece, Piraeus, Alpha Bank and Eurobank. Results will be released on Saturday.

The ECB's so-called comprehensive assessment of the banks' books included a scrutiny of their loan portfolios and stress tests carried out using baseline and more adverse scenarios for the course of the Greek economy to project possible credit losses up to 2017.

Under the baseline scenario, the stress test will show a capital gap of about 4.5 billion euros for the four banks, one of the sources said. Factoring in the adverse scenario, it could be as high as about 14 billion.


Tuesday, October 27, 2015

EU's Dombrovskis: Greece must recapitalize its banks by year end

October 27, 2015

Greece and international lenders must recapitalize its banks by the end of the year and swiftly finalize an assessment of the country's bailout-mandated economic reforms, EU Commission Vice-President Valdis Dombrovskis said on Tuesday.

Unless Greece's four biggest banks are recapitalized before legislation takes effect in January, depositors will be liable for plugging capital shortfalls, he said.

"Euro group conclusions on this question are quite clear, that recapitalization of the banks is to take place after the first review, but no later than the 15th of November," Dombrovskis told Greece's Skai TV in an interview.

Dombrovskis - in Athens to discuss the reforms Greece needs to complete under terms of an 86-billion-euro ($95-billion)bailout - said that things would get "more complicated" if that did not happen.

"Then you need to apply the Bank Resolution and Recovery Directive ... which may imply a bail-in," he said, referring to bank depositors being forced to contribute to recapitalization, similar to a raid on deposits in Cyprus in 2013.


Monday, October 26, 2015

Greece’s Long Road From ‘No’ to ‘Yes’

by Nikos Konstandaras

New York Times

October 26, 2015

Greeks will commemorate the Oct. 28 national holiday in a very different country from what it was a year ago. The anniversary marks the day in 1940 when a Greek government rejected an ultimatum from Fascist Italy to allow its troops to enter the country. The “No” (“Ochi” in Greek) united a deeply divided country behind a right-wing dictatorship and thrust Greece into World War II on the side of the Allies. “No” is a symbol of defiance. But now Greeks must decide what they want, rather than what they reject.

On “Ochi Day,” military parades and patriotic speeches hail a small nation’s resilience against insurmountable odds. After initially pushing Italian invaders deep back into Albania, the Greeks were overwhelmed by a German blitz that led to four years of brutal occupation and determined resistance. After the war, the old divisions roared back, with a civil war between Communist forces and a government that was backed first by Britain and then by the United States leaving a lasting legacy of pain and suspicion between left and right.

Despite divisions and strife, the “No” of 1940 has stood as a unifying memory of a nation that will tolerate no foreign master. Recently, though, in the throes of a devastating economic crisis, the Greeks were divided once again, and the talismanic “No” was commandeered by one side.