Friday, November 21, 2014

Greece Submits Budget With Troika Talks Still at Impasse

by Marcus Bensasson and Christos Ziotis


November 21, 2014

Greece submitted its 2015 budget to parliament without prior sign-off from its international creditors as talks with them remained stalled.

The plan sees the government posting a budget surplus before interest payments of 3 percent of gross domestic product next year, or 5.6 billion euros ($7 billion) compared with a forecast of 2.9 percent of GDP in an earlier draft of the budget last month, Alternate Finance Minister Christos Staikouras told reporters in Athens today. Hours earlier, talks between the government and officials representing the European Commission, European Central Bank and International Monetary Fund, known as the troika, ended without an agreement over those forecasts.

“The risk of a complete breakdown is quite high,” said Aristides Hatzis, an associate professor of law and economics at the University of Athens. “This is a pre-electoral message. There’s a competition going on between the government and Syriza over who can unshackle Greece from the bailout accord the quickest.”


Give Greece a Chance

November 21, 2014

Greece's creditors are testing the country's endurance -- again. If they keep pressing, they could split the euro area apart, which would be a disaster for them as much as for Greece. They need to stop insisting on the impossible, and find a way to relieve the country's debts.

The European Commission, the European Central Bank and the International Monetary Fund have told the government of Prime Minister Antonis Samaras to cut the country's debt burden, the biggest in the euro area, by reducing public spending even further. In return, they propose a last injection of bailout money and an emergency credit line.

The offer is toxic because further efforts to reduce debt through fiscal tightening are almost certain to fail. And that's assuming they don't plunge the country into political instability, as they well might. Polls suggest that the radical left-wing Syriza party, led by Alexis Tsipras, is in a strong position to replace Samaras's moderates in elections next year. (A few months back, Syriza rode a wave of anti-Europe sentiment to victory in elections to the European Parliament.)



November 22, 2014

The euro area stayed in the doldrums in the third quarter, according to data released on November 14th. Output rose by 0.2% compared to the second quarter, equivalent to just 0.6% on an annualised basis. That was only slightly faster than the meagre 0.1% growth in the second quarter (0.3% annualised). Against this dismal backdrop there was one nice surprise: of the 14 countries in the 18-strong currency union that reported data, Greece fared best, growing by 0.7%.

It turns out that the Greek recovery started in the first quarter of this year, when it grew even faster, by 0.8%, according to the new figures (for technical reasons quarterly figures had been suspended since 2011); it then slowed to 0.3% in the second quarter. The upturn has meant that the economy is now growing on a yearly basis (see chart). Apart from a blip in early 2010 just before the first of two bail-outs, this is Greece’s first spell of annual growth since the start of 2008. Between the pre-crisis peak, in the second quarter of 2007, and the trough at the end of last year, GDP contracted by 27%, a decline rivalling America’s in the early 1930s.

Even though the euro zone as a whole is doing badly, the Greek recovery looks set to continue, at least in the short-term. An economic-sentiment index compiled by the European Commission stood at 102 in October, well above its level a year before, when it was 92, let alone during the worst of the euro crisis, when it sank below 80. Since the indicator tends to track GDP growth this suggests a decent start to the current quarter.


Thursday, November 20, 2014

Aristides Hatzis: The Economic Crisis and the Economic Science

Crisis Observatory

November 19, 2014

Aristides N. Hatzis, Associate Professor at the University of Athens (Department of Methodology, History & Theory of Science), answers the following questions of the Crisis Observatory, concerning Economics and the way it is being taught since the beginning of the crisis.

Question 1: In the wake of both the financial crisis and the economic crisis that ensued (and continues to cause problems, especially to the European economy), Economics came under harsh criticism. This criticism involved its failure to foretell the crisis, but also the validity of its established models and approaches in general, as well as their capacity to correctly diagnose economic problems and to offer appropriate policies therefore. In your opinion, is this criticism justified and, if so, what do you think are the lessons that Economics should draw from the recent crisis?

Question 2: Based on your previous response, what do you think that ought to change in the way Economics is being taught in universities, considering that the economic policy makers of tomorrow are today's the students of Economics?


Tuesday, November 18, 2014

Greek Bailout Review Stalls as Troika Demands Final Steps

by Nikos Chrysoloras


November 17, 2014

Greece’s government and its international creditors are deadlocked over a final round of measures required to release the last tranche of the country’s bailout, two people familiar with the negotiations said.

Prime Minister Antonis Samaras’s government is resisting pressure from the so-called troika of creditors for additional budget savings in 2015 of as much as 2.5 billion euros ($3.1 billion), said the people, who asked not to be named because the negotiations are private. The impasse risks leaving Greece without a backstop on Jan. 1 after the program ends, they said.

Troika representatives are furious because the Greek government has failed to come up with any concrete measures to plug the fiscal gap since euro-area finance ministers warned earlier this month about a lack of progress in Greece meeting its commitments, one person said. With the government in Athens refusing to concede there is a funding hole, the standoff means Greece may miss a Dec. 8 deadline for agreement on the steps required to unlock the aid and what comes after it, both said.


Friday, November 14, 2014

Greek Economy Returns to Growth

by Stelios Bouras & Alkman Granitsas

Wall Street Journal

November 14, 2014

Greece’s crisis-stricken economy has returned to growth following six years of recession, official data showed Friday, marking an end to one of the steepest and longest economic contractions in postwar European history.

According to figures from the Hellenic Statistical Authority, or Elstat, gross domestic product in the third quarter rose 1.7% from a year earlier, thanks in large measure to a record summer tourism season.

The figures were better than expectations—making Greece one of the fastest-growing economies in the eurozone—and confirm that a promised recovery is now under way. Economists had forecast between 1% and 1.4% growth compared with a year ago. On a seasonally adjusted basis, Greece’s GDP rose 0.7% quarter-on-quarter.

Output was also revised higher for the first six months as part of Europe-wide changes to GDP estimates. They showed that Greece technically emerged from recession in the second quarter when the economy grew 0.4%. The latest figures confirm that Greece is now on track to record its first full year of growth in more than half a decade this year.


The disabled children locked up in cages

by Chloe Hadjimatheou

BBC News

November 14, 2014

Disabled people in Greece are often stigmatised and can struggle to get the support they need. Some disabled children who live in a state-run home are locked up in cages - staff say they want to improve conditions but money is short.

Nine-year-old Jenny stands and rocks backwards and forwards, staring through the bars of a wooden cage.

When the door is unlocked she jumps down on to the stone floor and wraps her arms tightly around the nurse. But a few minutes later she allows herself to be locked back in again without a fuss.

She is used to her cage. It's been her home since she was two years old.

Jenny, who has been diagnosed with autism, lives in a state-run institution for disabled children in Lechaina, a small town in the south of Greece, along with more than 60 others, many of whom are locked in cells or cages.

Fotis, who is in his twenties and has Down's syndrome, sleeps in a small cell separated from the other residents by ceiling-high wooden bars and a locked gate. His cell is furnished only with a single bed. There are no personal possessions in sight anywhere in the centre.


Thursday, November 13, 2014

Greece on Track to Achieve Primary Budget Surplus For Second Year

by Stelios Bouras

Wall Street Journal

November 13, 2014

Greece has taken a further step in achieving a primary budget surplus for a second straight year, according to data released by the Finance Ministry Thursday.

Greece’s primary budget surplus, which doesn’t take into account interest payments, for the January to October period reached €2.4 billion ($3 billion), amounting to 1.3% of gross domestic product, in line with targets set by the Greek government and its international creditors.

Revenue for the 10 months hit €41 billion, below the €42.9 billion target, due to increased tax returns, the ministry said in a statement. Outlays, or government spending, were lower than expected at €43.7 billion.


Tuesday, November 4, 2014

Sun Sets on Golden Dawn: Greek Party Accused in Killings and Racist Attacks

November 4, 2014

The 697-page report from the public prosecutor's office reads like a thriller. But it addresses things that people in Greece long would have considered inconceivable. It paints a picture of a neo-Nazi party that is both openly and forcefully attacking the democratic system in a way not seen in Europe in decades.

Directly or indirectly, the report accuses 69 members or supporters of the Chrysi Avgi, or Golden Dawn, political party -- among them 16 members of Greek parliament -- of participation in murder or attempted murder, serious bodily injury, violent hate crimes, theft, blackmail or arson. Chief Prosecutor Isidoros Dogiakos describes in meticulous detail the structures of a criminal organization that is being directed from inside the Greek parliament.

Eight members of parliament from the party are currently being held in pre-trial detention, including party spokesman and chief ideologist Ilias Kasidiaris in addition to party chief Nikos Machaloliakos. Three additional parliamentarians are currently under house arrest while five others have been forbidden from leaving the country. Investigators are hoping to take the case to trial early next year.


Monday, November 3, 2014

EU leaders weigh plan for Greek exit from bailout

Financial Times
November 3, 2014

Eurozone leaders are weighing a plan to allow Greece to exit its four-year-old bailout at the end of the year by converting nearly €11bn of unused rescue funds into a backstop for Athens for when it raises cash from the markets on its own.

The plan, which will be discussed at a meeting of eurozone finance ministers in Brussels on Thursday, would allow Antonis Samaras, Greek prime minister, to declare an end to the quarterly reviews by the hated “troika” of bailout monitors ahead of parliamentary elections, which could come as early as March.

At the same time, backers of the plan believe it would give financial markets the security of knowing Athens could draw on the credit line in an emergency.

The credit line would come from the eurozone’s €500bn rescue fund, meaning it would still require monitoring from Brussels, albeit less onerous than at present. By tapping €11bn originally earmarked for shoring up by Greek banks, eurozone officials hope to avoid political resistance from Germany.

“In political terms, the money has already been made available to the Greek authorities,” said an EU official involved in the negotiations.


Wednesday, October 29, 2014

Where not to invest in Europe

October 29, 2014

Doing business in Europe's periphery is hampered by slow legal systems

The World Bank released its annual "Doing Business" report on October 29th, ranking the world's 189 countries by how attractive they are to companies. That tiny Singapore led the list again this year and Eritrea was stuck in last place was not particularly surprising. Other performances were less easy to explain. Ukraine—which since February has been embroiled in a conflict with neighbouring Russia—leapt up the rankings, partly because some of the data capturing improved administrative practices was collected before hostilities flared.

Yet the report's most interesting data—on the time it takes to settle a dispute, or wind up a company—sheds light on the lacklustre business investment in Europe's periphery since the financial crisis. Countries where it is quick and easy to enforce contracts or wrap up failing firms are usually more attractive to investors than places with lethargic legal systems. In Greece and Slovenia, hit hard by the financial crisis, it takes much longer to do these things than countries such as France and Germany, whose economies have generally performed better. The situation has got much worse over the last few years. It now takes over two months longer to enforce a contract through the Slovenian court system than it did a year ago. And to do that in Greece now takes more than four years, up around 18 months from 2010. The only bright spot is that there may be a lot more business for Greek lawyers in the near future.


Read the Report

Sunday, October 26, 2014

ECB stress tests: Three out of four Greek banks fail

Financial Times
October 26, 2014

Three out of the four participating Greek banks failed to pass the European Central Bank’s Comprehensive Assessment on Sunday but the picture is completely reversed when the banks’ approved restructuring plans are taken into account in the dynamic balance sheet assumption.

The aggregate capital shortfall for Eurobank, National Bank and Piraeus Bank amounted to about €8.7bn at the end of 2013 with just Alpha Bank exhibiting a capital surplus. Piraeus featured the smallest capital deficit with €660m at end-2013.

But the Comprehensive Assessment, which included capital accretive measures and projected future earnings in the banks’ restructuring plans approved by the European Commission in 2014, showed three banks met the capital requirement while the fourth, Eurobank, just missed it for 5 basis points with an adjusted CET I ratio of 5.45 per cent under the adverse, dynamic scenario.

“We are pleased with the results of the Comprehensive Assessment under the dynamic balance sheet projections as taken into account net capital already raised, our bank has practically no capital shortfall,” said Christos Megalou, chief executive of Eurobank.


Patronage and bribery will persist in Greece

by Tony Barber

Financial Times

October 26, 2014

At first sight it is puzzling that Greece should be in a hurry to exit the EU-International Monetary Fund bailout on which it has depended since 2010. The yield on Greek 10-year sovereign debt soared above 9 per cent a couple of weeks ago.

Even at 7 per cent, the market rate is much higher than the rate at which Athens borrows from its official creditors. Like a sprinter falling at the last hurdle, Greece is in danger of tripping up because it wants to beat the clock.

For Antonis Samaras, prime minister, and his colleagues, however, this is not primarily a financial matter. It is about national dignity and, as is to be expected in a democracy, political calculation.

A yearning for restored national dignity pervades Greek attitudes to the EU-IMF bailout. The social and economic costs of the rescue, from mass unemployment to business closures, have been punishingly high.

The bailout reminds Greeks of how big powers have often exercised control over their country since the 1821-32 war of independence against Ottoman rule. For older Greeks, the 1941-44 Nazi occupation and British and US influence over postwar Greece are vivid memories. A quest for self-determination is central to the Greek identity.


Saturday, October 25, 2014

Not so fast: A spike in bond yields is bad news for the government

October 25, 2014

Greece's plans for a clean exit from its international bail-out are in disarray. A sharp rise in bond yields has stymied the government’s plan to borrow about €9 billion ($11 billion) abroad in 2015 to meet debt repayments and ease the impact of austerity measures, which have left more than 35% of Greeks at risk of poverty. Instead, the prime minister, Antonis Samaras, will have to negotiate a new credit line with the European Union or, worse, accept 15 more months of tough supervision by the IMF, in return for €12 billion.

Mr Samaras still insists the “era of the memorandum” (as Greeks call the bail-out) is ending, and talks up renewed foreign investment. Following a record summer tourism season, international hotel chains are eager to snap up properties on popular Aegean Islands. The Greek privatisation agency, Taiped, is considering three bids from international groups seeking to manage 14 regional airports. China’s Cosco group is spending €230m to enlarge its container-handling terminal at Piraeus. According to the EU and the IMF, Greece’s economy will grow by 0.6% this year and 2.9% in 2015.


Wednesday, October 22, 2014

Misrule of the Few: How the Oligarchs Ruined Greece

by Pavlos Eleftheriadis

Foreign Affairs

November/December 2014

Just a few years ago, Greece came perilously close to defaulting on its debts and exiting the eurozone. Today, thanks to the largest sovereign bailout in history, the country’s economy is showing new signs of life. In exchange for promises that Athens would enact aggressive austerity measures, the so-called troika -- the European Central Bank, the European Commission, and the International Monetary Fund -- provided tens of billions of dollars in emergency loans. From the perspective of many global investors and European officials, those policies have paid off. Excluding a one-off expenditure to recapitalize its banks, Greece’s budget shortfall totaled roughly two percent last year, down from nearly 16 percent in 2009. Last year, the country ran a current account surplus for the first time in over three decades. And this past April, Greece returned to the international debt markets it had been locked out of for four years, issuing $4 billion in five-year government bonds at a relatively low yield -- only 4.95 percent. (Demand exceeded $26 billion.) In August, Moody’s Investors Service upgraded the country’s credit rating by two notches.

Yet the recent comeback masks deep structural problems. To tidy its books, Athens levied crippling taxes on the middle class and made sharp cuts to government salaries, pensions, and health-care coverage. While ordinary citizens suffered under the weight of austerity, the government stalled on meaningful reforms: the Greek economy remains one of the least open in Europe and consequently one of the least competitive. It is also one of the most unequal.

Greece has failed to address such problems because the country’s elites have a vested interest in keeping things as they are. Since the early 1990s, a handful of wealthy families -- an oligarchy in all but name -- has dominated Greek politics. These elites have preserved their positions through control of the media and through old-fashioned favoritism, sharing the spoils of power with the country’s politicians. Greek legislators, in turn, have held on to power by rewarding a small number of professional associations and public-sector unions that support the status quo. Even as European lenders have put the country’s finances under a microscope, this arrangement has held.


Monday, October 20, 2014

'Poets and Alchemists': Berlin and Paris Undermine Euro Stability

October 20, 2014

Following three hours of questioning at European Parliament, a visibly exhausted Pierre Moscovici switched to German in a final effort to assuage skepticism from certain members of European Parliament. "As commisioner, I will fully respect the pact," he said.

Moscovici was French finance minister from 2012 until this April and will become European commissioner for economic and financial affairs when the new Commission takes office next month. But can he be taken at his word? There is room for doubt.

In response to the unprecedented euro-zone debt crisis, the European Union agreed to strengthen its Stability and Growth Pact in recent years. Member states gave the European Commission in Brussels greater leeway to monitor national budgets and also bestowed it with rights to levy stiffer fines for countries that violate those rules. Smaller member states have already been forced to comply. Still, as German Chancellor Angela Merkel herself has told confidants, the real test will come when a major member state is forced to submit to the EU corset.

That time is now. And the big EU member state in question is France. The development is creating a dilemma for Merkel.


Sunday, October 19, 2014

The Eurozone’s Problems Are Based in Politics

by Simon Nixon

Wall Street Journal

October 19, 2014

Some say the euro crisis is back; others argue that it never really went away. A gloomy forecast from the International Monetary Fund suggesting a 40% chance of a slide back into recession and a flurry of weak data pointing to a faltering recovery, particularly in Germany, have spooked markets.

Once again, the eurozone is the focus of global attention amid fears that low growth will tip the Continent into outright deflation. European equities fell last week to their lowest level for 10 months, German bunds rallied and peripheral-country bond yields rose. Most eye-catching: Greek government 10-year yields briefly soared above 9% and ended the week just below 8%.

A bit of perspective is necessary. First, the origins of this slowdown lie not in the eurozone but in emerging markets. This emerging-market downturn, which caught the IMF by surprise but has in fact been under way for most of the year, was the inevitable result of the U.S. Federal Reserve’s decision to start turning off the monetary taps.

As the extraordinary liquidity flows that fueled developing-country booms and commodity-price bubbles have unwound, developed countries with major export sectors such as Germany have been hit too.


Friday, October 17, 2014

Greek Exit Plan Lacks Backing From Economists

October 17, 2014

Antonis Samaras’s plan for Greece to exit its bailout early is crumbling in the face of a market rejection. Economists say it might not have been such a good idea anyway.

Eighty-five percent of respondents to a Bloomberg News survey said the prime minister’s proposal didn’t make economic sense, partly because of Mario Draghi’s insistence that junk-rated countries must remain under some kind of surveillance program to benefit from new European Central Bank measures.

Greek 10-year bond yields have surged to the highest in nine months as Samaras’s plan for a year-end exit unraveled. The prime minister’s push met resistance from euro area and International Monetary Fund creditors, with finance ministers from the 18-nation currency bloc publicly voicing doubts at an Oct. 13 meeting in Luxembourg.

“What’s important from an economic perspective is that Greece continues to commit to a strong reform program,” said James Nixon, an economist at Oxford Economics Ltd. in London. “The government is to a certain extent desperate to take its foot off the reform gas pedal and ease back a bit to try to boost its popularity.”

Samaras has said his government may pass on IMF funds available in 2015 and cover its financing needs from markets after selling bonds for the first time since 2010 this year.


Greece Still Needs Intensive Care

by Mark Gilbert


October 16, 2014

Being hooked up to beeping machines in hospital is no fun, so it's understandable Greece wants to discharge itself from the supervision that came with a 240 billion euros ($307 billion) transfusion of emergency aid in 2010. The bond market, however, is saying Greece still needs intensive care.

Greece's 10-year yield has surged to 9 percent from 6.5 percent this week. While the scale of the move partly reflects current market turmoil, the direction of travel was established before global stocks decided to head south for the winter:

As a condition of Greece's rescue, the country has had to submit to regular examinations by the so-called Troika -- the European Central Bank, the International Monetary Fund and the European Commission -- which then prescribes various economic medicines, mostly in the form of financial dieting pills. Prime Minister Antonis Samaras, starry-eyed after his 10-year borrowing cost dipped as low as 5.56 percent at the beginning of September, said last week he'd like his freedom back.


Wednesday, October 15, 2014

Greek Financial Markets Slump

Wall Street Journal
October 15, 2014

Greek financial markets slumped Wednesday, extending steep losses from a day earlier amid growing fears of renewed political instability and worries that the country may leave its bailout program before it is ready.

As stocks fell elsewhere in Europe and in the U.S., the Athens Stock Exchange’s general index closed 6.2% lower, recovering from earlier double-digit percentage declines, at 899 points, the lowest level in more than a year. Greek government bonds were also hit hard, with the yield on the 10-year bond reaching an eight-month high of 7.8%.

“Greece clearly has its own issues, but against a global market backdrop where we’re seeing such huge losses across so many different areas, any market with even a chink of weakness is going to get hammered and that’s exactly what we’re seeing here,” said David Vickers, a senior portfolio manager at Russell Investments, which has around $280 billion of assets under management.

Those issues have gained prominence in recent days. The current government is aiming to leave the bailout program, or scale back the degree of control international authorities exercise, at the end of the year, 18 months earlier than the rescue plan now calls for. The prospect that the antireform, radical-left Syriza party could come to power shortly after that, in elections early next year, has added to the concerns.


36 Hours in Athens

by Joanna Kakissis

New York Times
October 15, 2014