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

Sunday, October 12, 2014

Μηνύματα από το ΔΝΤ

της Μιράντας Ξαφά


12 Οκτωβρίου 2014

Στο τέλος του έτους λήγει η χρηματοδότηση από τον Ευρωπαϊκό Μηχανισμό Σταθερότητας (ΕΜΣ), με 1,8 δισ. ευρώ να απομένει προς εκταμίευση. Η κυβέρνηση δηλώνει ότι δεν προτίθεται να ζητήσει νέο δάνειο, ενώ σκοπεύει να αποδεσμευτεί ταυτόχρονα και από το ΔΝΤ, παρόλο που εκκρεμούν 16 δισ. ευρώ προς εκταμίευση μέχρι τον Μάρτιο του 2016. Αν η κυβέρνηση αποφασίσει να θέσει τέλος στο Μνημόνιο και στη χρηματοδότηση που το συνοδεύει, θα πρέπει να αναζητήσει γύρω στα 10 δισ. ευρώ από τις αγορές για να καλύψει τις χρηματοδοτικές ανάγκες του Δημοσίου το 2015.

Το ποσό αυτό είναι πιθανό να μπορεί να αντληθεί από τις αγορές, υπό προϋποθέσεις: Πρώτον, να κλείσει η τρέχουσα διαπραγμάτευση με την τρόικα ώστε να εισπράξουμε τα 11 δισ. ευρώ που συνδέονται με αυτήν και να σταλεί το μήνυμα ότι το πρόγραμμα παραμένει σε τροχιά. Δεύτερον, η κυβέρνηση να δεσμευτεί να συνεχίσει τις μεταρρυθμίσεις προς την κατεύθυνση της βελτίωσης της ανταγωνιστικότητας και της δημοσιονομικής πειθαρχίας. Για να είναι αξιόπιστη, η δέσμευση αυτή πρέπει να είναι συγκεκριμένη. Θα πρέπει δηλαδή η κυβέρνηση να ανακοινώσει κάποιο πλαίσιο οικονομικής πολιτικής με μετρήσιμους στόχους στη μεταμνημονιακή εποχή, που θα συνοδεύεται από επιτήρηση στο πλαίσιο του αναμορφωμένου Συμφώνου Σταθερότητας της Ε.Ε. και της εποπτείας μιας χώρας που χρωστάει 240 δισ. στους επίσημους δανειστές. Χωρίς πρόγραμμα και εποπτεία, η ΕΚΤ δεν προτίθεται να αποδέχεται τα ομόλογα του Ελληνικού Δημοσίου ως ενέχυρο για την άντληση ρευστότητας, εφόσον παραμένουν στην κατηγορία «σκουπίδια» (junk), ούτε να αγοράζει τιτλοποιημένα δάνεια από τις ελληνικές τράπεζες ώστε να τους δοθεί η δυνατότητα παροχής νέων δανείων. Οπως δήλωσε ο πρόεδρος της ΕΚΤ Μ. Ντράγκι την περασμένη εβδομάδα, «no program, no purchases». Τέλος, πρόγραμμα και εποπτεία είναι απαραίτητη προϋπόθεση για να συνεχίσει η Ελλάδα να εισπράττει τα κέρδη της ΕΚΤ και των κεντρικών τραπεζών της Ευρωζώνης από τα ομόλογα Ελληνικού Δημοσίου που κατέχουν, ύψους 2,5 δισ. ευρώ το 2015.


Saturday, October 11, 2014

Greece’s shadow economy: The treasures of darkness

October 11, 2014

Two out of three Greek workers either understate their earnings or fail to disclose them to the taxman altogether, according to Stephen Hall, an adviser to the Bank of Greece. Last year an estimated 24% of all economic activity in Greece went undeclared to evade tax and regulation, well above the European average of 19%.

The IMF, which was in Athens this week to check up on Greece’s public accounts, would like to bring more of this activity into the sunlight, to boost government revenues. After a calamitous recession in which the economy shrank by 30%, government debt now stands at 174% of GDP; the budget deficit last year was almost 13% of GDP. But there is a risk that an overly aggressive tax-raising drive will compound the problem.

Greeks, even more than their counterparts elsewhere, feel that their taxes are wasted. One study, using data from the 1990s, put Greece’s “tax morale” fourth-lowest of 26 countries. Greece’s public sector is more corrupt than that of any other EU state, according to Transparency International, a pressure group. Satisfaction with public services is extremely low. No wonder, then, that many Greeks have few qualms about not paying their share.


Tuesday, September 30, 2014

Mario Draghi pushes for ECB to accept Greek and Cypriot ‘junk’ loan bundles

Financial Times
September 30, 2014

Mario Draghi is to push the European Central Bank to buy bundles of Greek and Cypriot bank loans with “junk” ratings, in a move that is set to exacerbate tensions between Germany and the bank.

Mr Draghi, ECB president, will this week unveil details of a plan to buy hundreds of billions of euros’ worth of private-sector assets – the central bank’s latest attempt to save the eurozone from economic stagnation.

The ECB’s executive board will propose that existing requirements on the quality of assets accepted by the bank are relaxed to allow the eurozone’s monetary guardian to buy the safer slices of Greek and Cypriot asset backed securities, or ABS, say people familiar with the matter.

Mr Draghi’s proposal is designed to make the programme of buying ABS, which are bundles of packaged loans, as inclusive as possible. If it is backed by the majority of members of the ECB’s governing council, the central bank would be able to buy instruments from banks of all 18 eurozone member states.

However, the idea is likely to face staunch opposition in Germany, straining already tense relations between the ECB and officials in the eurozone’s largest economy.


Monday, September 29, 2014

Private Bad Debt Buildup Casts Shadow on Greek Rebound

by Eleni Chrepa and Nikos Chrysoloras


September 29, 2014

To Aristides Belles, it’s clear what’s blocking Greece’s recovery: a quiet build-up of about 164 billion euros ($208 billion) in bad loans.

“The inability of Greek companies to repay their loans to banks and their dues to the state is clearly holding back Greece’s return to growth,” said the chief executive officer of Athens-based Nireus Aquaculture SA (NIR), a producer of sea bream, sea bass and processed fish. “It’s more necessary than ever for all parties involved -- banks, corporates and the state -- to agree on an arrangement.”

As Greece and its euro-area creditors meet tomorrow to prepare for talks on repayment terms for its public debt, a less-visible crisis is looming on another front: bad debts of households and companies. The borrowings, amounting to about 90 percent of Greece’s gross domestic product, are weighing on the country’s hopes of recovering from the steepest and longest recession on record.

Non-performing loans at Greece’s banks have reached almost 80 billion euros, according to the country’s Growth and Competitiveness Minister Nikolaos Dendias. To top that, Greek households and corporations had overdue taxes of 69.2 billion euros in August, data from the public revenue secretariat show. Also, “collectible” social arrears to pension funds exceed 14.5 billion euros, according to labor ministry figures.

“Some of this debt can never be recovered and should be written off,” said Panos Tsakloglou, a professor at the Athens University of Economics and Business who was Greece’s representative in the working group of senior euro-area finance ministry officials until June.


Friday, September 26, 2014

Greek Debt Gives Best Return as Stocks Show Samaras Woes

by Nikos Chrysoloras


September 26, 2014

As Prime Minister Antonis Samaras tries to convince Angela Merkel that Greece can handle an early exit from its bailout program, bond and stock investors offer contrasting verdicts on the health of the country’s economy.

Even after a sell-off this week, Greek debt delivered the highest returns among sovereign securities so far this year, based on Bloomberg World Bond Indexes, jumping 27 percent. At the same time, the trend in the country’s equity market is less encouraging. Having surged 28 percent last year, the benchmark Athens Stock Exchange Index has lost 6.4 percent during 2014.

“There is progress and determination in some areas, like reform of the public administration, but elsewhere, the momentum is problematic,” said Kevin Featherstone, a professor of contemporary Greek studies at the London School of Economics. “Greece’s path would be eased by continuing external support, but Samaras needs to show that the country can be freed of the troika well ahead of possible elections in spring 2015.”

Samaras came to power in June 2012 on a pledge to keep his country in the euro area, a strategy which culminated in April when Greece ended its four-year exile from the bond market. The yield on Greece’s 10-year bonds, which reached a record 44.21 percent in March 2012, has since plummeted and fell to 5.469 percent as recently as this month, less than Iceland or Mexico.


Wednesday, September 24, 2014

German Central Bank Head Weidmann: 'The Euro Crisis Is Not Yet Behind Us'

September 24, 2014

An extended period of calm on the bond markets has led many to conclude the euro crisis is over. But German central bank head Jens Weidmann says in an interview that the coast still isn't clear and that there is still great need for reforms.

SPIEGEL: Mr. Weidmann, you are notorious for being a tough critic of European Central Bank President Mario Draghi. But the euro crisis seems to be over, largely thanks to ECB intervention. Has he not been proven right?

Weidmann: It's not about being right or a personal confrontation. When it comes to extremely important monetary policy decisions, the ECB Governing Council does its utmost to find the correct path. And the decisions are so difficult because the crisis is not yet behind us, even if the current calm on the financial markets might suggest as much.

SPIEGEL: Yet Spain, once wracked by the euro-zone crisis, can today borrow money more cheaply than ever before in the history of the monetary union. Do you not think that is a consequence of Mario Draghi's 2012 pledge to save the euro "whatever it takes"?

Weidmann: You shouldn't mistake the thermometer for the illness. I have never disputed that the ECB could impress and move the markets with the announcement that it would make massive purchases of sovereign bonds if necessary. But such measures focus on the symptoms and don't cure the causes of the crisis. As such, the current calm is misleading and even dangerous, because it takes pressure off of the governments to implement badly needed reforms. If they are not undertaken, investors could quickly change their risk evaluations.

SPIEGEL: But if the ECB hadn't intervened, the euro zone patient may well have died from its 2012 fever.

Weidmann: I don't believe that is the case. In reaction to the crisis, policymakers established a multibillion euro bailout fund to assist the crisis countries in exchange for their adherence to certain stipulations. That was the correct, democratically legitimate path. Even more so given that the bailout fund can also purchase sovereign bonds. The central bank in the euro zone, by contrast, is forbidden from providing credit to countries and from purchasing sovereign bonds on the primary market. By making targeted bond purchases on the secondary market, the ECB opened itself to accusations of skirting this ban.


Tuesday, September 2, 2014

Investors Returning to Greece's Real Estate Market

by Stelios Bouras

Wall Street Journal

September 2, 2014

Since the European debt crisis erupted in 2009, foreign investors have mostly ignored Greek real estate even as they have jumped back into Spain, Italy and Ireland.

But now buyers are returning to Greece amid signs that Europe's hardest-hit economy is starting to recover.

Toronto's Fairfax Financial Holdings Ltd. FFH.T -0.33% , Colony Capital LLC of Los Angeles, Invel Real Estate Partners of the U.K. and Jermyn Street, an Arab-Turkish real-estate fund, are among those that have been buying commercial-property assets from distressed financial institutions, the Greek government and others.

In the past 18 months, investors have purchased €1.2 billion ($1.58 billion) of properties, primarily from banks and the Greek agency charged with privatizing state-owned assets, the Hellenic Republic Asset Development Fund, according to commercial real-state company Cushman & Wakefield. That compares with about €900 million in deals from 2008 to 2012.

New players such as international real-estate firm Hines, which controls assets valued at more than $25 billion, also are shopping around. "Hines believes that Greece is transforming and that the real-estate sector will require significant foreign investment," Michael J.G. Topham, chief executive of Europe for Hines, said in an email. "It's a difficult market but we feel that there are opportunities worth pursuing."