Tag Archives: Greece

A World of Problems, by The ZMan

Europe is facing a banking crisis, a reappearance of Greece’s financial crisis, and a crisis in Syria. Hold on to your hats. From The Zman at theburningplatform.com:

Back when the Germans were threatening to shut down Greece and sell it off for parts, it was fairly obvious that there was no way to “fix” the Greek problem. Even it were possible to radically overhaul their public sector, the debt payments are too high to maintain the level of social services expected from a modern social democracy. Default was unthinkable because close to 80 percent of Greece’s public debt is owned by public institutions, primarily the EU governments and the ECB.

The “solution” was to kick the can down the road until a miracle happened, but now the problem is back.

ATHENS—Greece’s economic recovery is proving elusive, challenging the forecasts of the country’s government and foreign creditors still counting on growth reviving this year.

The International Monetary Fund said last week that the economy is stagnating, in the first admission from creditors that Greece’s recovery is off track again. Growth will only restart next year, the head of the IMF’s team in Greece said on a conference call with reporters, without offering details.

Of particular concern is that exports, which are supposed to lead Greece out of trouble, are on a slow downward trajectory, hampered by capital controls, taxes and a lack of credit.

“There is no chance we will see a rebound unless we see some bold political decisions that would introduce a more stable business environment,” said Dimitris Tsakonitis, general manager at mining company Grecian Magnesite.

The bailout agreement between Greece and its German-led creditors assumes rapid growth from late 2016 onward, including an official forecast of 2.7% growth in 2017. Private-sector economists believe next year’s growth could be closer to 0.6%.

Weaker growth would undermine the budget, likely leading to fresh arguments with lenders about extra austerity measures.

Greece is still grappling with the measures it has already agreed to. Late on Tuesday the country’s parliament approved pension overhauls and other policy changes that have been delayed for months, holding up bailout funding.

Greek government officials are sticking to their view that the economy is on the cusp of growth. “We are at the turning point at which we can we say with certainty that we are leaving the recession behind us,” Economy Minister George Stathakis told supporters of the ruling left-wing Syriza party Sunday.

The economy will get a push from investors as of the end of the year, when lenders are expected to provide some debt relief and the country qualifies for a European Central Bank bond buyback program, Prime Minister Alexis Tsipras said in an interview with The Wall Street Journal last week.

In other words, the miracle did not happen and the problem is now worse. This comes at a time when Europe’s biggest bank is in very serious trouble.

To continue reading: A World of Problems

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Greece Is A Nation Under Occupation, by Raúl Ilargi Meijer

From Raúl Ilargi Meijer at automaticearth.com:

Perhaps the best way to show what a mess Europe is in is the €3 billion deal they made with Turkey head Erdogan, only to see him being unmasked by EU archenemy Vlad Putin as a major supporter, financial and who knows how else, of the very group everyone’s so eager to bomb the heebees out after Paris. It could hardly have been more fitting. That’s not egg on your face, that’s face on your egg.

But Brussels thinks it’s found a whipping boy for all its failures. Greece. It’s fast increasing its accusations against Athens’ handling of the 100s of 1000s of refugees flooding the country. Everything that goes wrong is the fault of Greece, not Brussels. The EU has so far given Greece €30 million in ‘assistance’ for the refugee crisis, while the country has spent over €1.5 billion in money it desperately needs for its own people. But somehow it’s still not done enough.

The justification given for this insane shortfall is that Greece doesn’t blindly follow all orders emanating from Europe’s ‘leaders’. Orders such as setting up a joint patrol of the Aegean seas with … yes, Erdogan’s Turkey. Where Greece gets next to nothing as the children keep drowning, Turkey gets €3 billion and a half-baked promise to join the Union sometime in the future.

Which was never going to happen, the EU would blow up before Turkey joins and certainly if it does, and most certainly now that Russia’s busy detailing the link between the Erdogan cabal and Europe’s supposed new archenemies -move over Putin?!, which, incidentally, are reason for France to ponder a kind of permanent state of emergency; ostensibly, this is Hollande’s way of exuding confidence. ‘We must protect our way of life’.

Given Schengen -while it lasts-, which effectively erases all frontiers, this de facto means permanent emergency across the entire EU. And that, to a degree, though the two may seem unrelated, plays into the EU’s insistence to station foreign border guards (military police) at Greek borders. A, we can’t put it in different words, completely insane demand to which Alexis Tsipras’ government has apparently even acceded.

Insane because once you have foreigners deciding who can enter or leave your country, you’re effectively a country under occupation. It really is that simple. This latest attempt at power grabbing on the part of Brussels could have some ‘unexpected side effects’, though. And that may be a good thing.

To continue reading: Greece Is A Nation Under Occupation

Jim Chanos on What Lies Ahead for Greece, by Lynn Parramore

Jim Chanos, a hedge fund manager, made a fortune shorting Enron. He’s been a leading China skeptic, which is looking more and more like another good call. His heritage is Greek and he has made many visits to Greece. Remember Greece? It’s for the most part dropped out of the headlines. This interview of Chanos with Lynn Parramore at inteteconomics.org offers an opportunity to circle back.

Jim Chanos, the well-known hedge fund manager and president and founder of Kynikos Associates, is half Greek on his father’s side. He has been traveling to the country since 1970 and has also been active in the Greek community in the United States. A long-time observer of Greece, he became more involved in 2010 when he was part of a group that met with then-prime minister Papandreou to offer some pro bono advice. Since then, he has been watching closely from the sidelines with increasing levels of concern. In the following interview, he discusses how Greece reached this point of crisis, the upcoming elections, and what lies ahead.

LP: You’ve recently returned from a trip to Greece to visit family and friends. How did you find the mood in the country?

JC: It was grim — away from the vacation spots, of course, which are more international than domestic locations. I’d gotten there just after they’d finally agreed to sign the third memorandum. There was a general sense of resignation and not knowing what else they can do. The feeling of the people I spoke to — whether high level or people in restaurants and tavernas — was that they [the Troika] have them by the short hairs because of the banking system. And I think that was pretty clear. Really, there was no sense of any chance of this working out with an alternative currency. To this day we’re really not quite sure whether they had that planned — various reports differed as to whether they could have even done it — but I think that there’s just this general level of resignation coupled with despair amongst people worried about the long-term growth of the country and its well-being. People are worried about their kids, as they should be.

LP: I think pretty much everybody agrees that the negotiations with the Troika have been a fiasco. How do you assess what’s happened? Who is to blame?

JC: It’s important to understand that while Syriza may have botched the negotiations —and I do I think there’s a general consensus that they did or at least didn’t play it as well for their country as they could have — they didn’t cause this mess.

When the first memorandum was signed and then agreed to by PASOK and Papandreou, and then the follow-on was agreed to by Samaras and New Democracy to the right, in effect they were the same types of understandings. But they couldn’t work from the get-go because, as we now know, there was no net new money in any meaningful way coming into Greece. Whatever new capital was coming in was just a way to keep the banks current. It was going in the front door and out the back door.

Greece really did a decent job from an austerity point of view. They brought down spending, they raised taxes. I know there’s this belief that the Greeks are just world-class tax evaders, but in fact, in terms of taxes collected as a percentage of GDP, they’re now quite a bit higher than a number of European countries because a lot of the taxes are indirect: the Greeks couldn’t evade them if they wanted to. They also cut spending dramatically. Can you imagine what would happen in the U.S. if you cut spending by 20 or 30 percent and cut Social Security? You’d have riots in the streets, more so than we ever saw in Greece.

So this country has gone through a lot of pain. The beginning of the endgame was actually a year ago, in August and September under Mr. Samaras. At the time, even he realized that under the second agreement he needed more breathing room. Greece’s economy did actually begin to show some improvement in 2013, but by 2014, it was hitting stall speed again. What all sides agree — center-left, center-right, and far-left — is that there were lots of investment projects that actually could have paid off really big time in terms of immediate returns to the economy and investors. They just couldn’t get capital. No private investors wanted to come forward in light of everything that was going on with negotiations and uncertainty about the currency. In addition to trying to get some relaxation under the original agreements to get some breathing room, the Greeks were also trying to get a separate track for investment and venture capital. The response was immediate and brutal.

Schäuble and Merkel immediately threw Samaras under the bus in September of ‘14. It was like they were saying, you’re backtracking now: we thought you were one of the good guys and we thought you were going to toe the line but you’re just like everybody else. That began the whole unraveling, from my perspective, of the New Democracy coalition government (the right-center government) and basically led to Syriza’s election in January. Now Syriza comes in and feels it has a mandate. People want change. Varoufakis, under Tsipras’s guidance, approaches the Troika in February and said look, we need breathing room. The previous government said that and we say that. We see the numbers. We want to work within the spirit of the agreement, but you have to give us some concessions because this is just not working.

As it was relayed recently to a group of us (Greek Americans) in Washington, the Troika was initially receptive to Varoufakis. They said, all right, we’ll think about it. But as soon as it sort of got public — the date that comes to mind is February 20 th of this year — it got immediately batted down from that initial private reception to a public rejection. You will toe the line, you will agree to the previous agreement. There’s no wiggle room. The Tsipras government, Syriza, put out a set of counterproposals in March that, while there were a couple of items that were “out there” and were not going to fly from the beginning like a thirteenth month of pension payments, there was a lot of reasonable stuff, and stuff that people on the right thought was actually reasonable in terms of collections and whatever. The counterproposals were rejected outright. At that point it became apparent to me and others that this wasn’t about economics or finance anymore,

This was political. Greece was going to be made an example so that Italy, Spain, Portugal, and France — who, let’s be clear, are one bad recession away from where Greece is today — better toe the line, or else. No wiggle room. No let up. The beatings will continue. All that was very clear from the negotiations from March on. Any time there was any sort of proposal, well, it was said to be about personalities. It was this or it was that. Greece never stood a chance, because, of course, their banking system was being kept alive by the ELA, the emergency liquidity assistance that the European Central Bank provides. In effect, a huge amount of deposits in Greek banks were from the ECB. They could close the banking system in a minute, which they basically did in July. So this really was sort of preordained, I think, come February of 2015. The invitation to negotiate and then the abrupt about-face at the end of February told me, anyway, that this was a political decision.

Germany had decided to cut Greece loose in terms of negotiating in good faith; this is our offer, take it or leave it. If you want to stay in the euro, you’ve got to continue the austerity.

To continue reading: Jim Chanos on What Lies Ahead for Greece

Greece is being taxed to death, by Alan Reynolds

For all the discussion about Greece the last several months, one subject rarely gets mentioned: the Greek tax burden. It is high, punitive even, and the recently agreed deal will make it even higher and more punitive. From Alan Reynolds, at politico.eu:

No debtor ever became more creditworthy by being forced to accept less income.

More than five years have passed since May 2010, when Greece was enticed to borrow €73 billion from the International Monetary Fund (IMF), European Commission (EC) and European Central Bank (ECB) with painful strings attached.

That 2010 program, said the IMF, “had two broad aims: to make fiscal policy and the fiscal and debt position sustainable, and to improve competitiveness.” There was no emphasis on improving domestic economic growth or employment — just “competitiveness” in trade. The IMF speculated that “restoring confidence” would “lead to a growth recovery” in 2012. When that didn’t happen, another €154 billion in loans was provided. And the IMF blamed the bad “investment climate” on a “lack of confidence,” rather than any lack of after-tax income.
Prominent U.S. economists blame the seven-year depression in Greece on savage cutbacks in government spending. “The contraction in government spending has been predictably devastating,” wrote Joseph Stiglitz in February. And Paul Krugman later criticized the period “from 2009 to 2013, the last year of major spending cuts” in Southern Europe. In reality, however, Greek government spending rose from 44.9 percent of GDP in 2006 to 53.7 percent from 2009 to 2012 and to 60.1 percent in 2013. That 2009-2013 “fiscal stimulus” was precisely when the economy contracted — by 4.4 percent in 2009, 5.4 percent in 2010, 8.9 percent in 2011, 6.6 percent in 2012 and 3.9 percent in 2013. By contrast, the economy grew slightly in 2014 when government spending was “only” half of GDP. That is, the economy fell when government’s share rose, and the economy rose when government’s share fell.

What is rarely or never mentioned in the typically one-sided misperception of spending “austerity” is the other side of the budget — namely, taxes.

The latest Greek efforts to appease creditors would raise corporate tax again to 28 percent, raise the 5 percent “solidarity surcharge” on personal incomes, and discourage tourism by raising the VAT on restaurants and island shopping.

Looked at separately, each of these suffocating tax rates might appear almost reasonable. Looked at together, they are totally unreasonable. To offer a Greek employee an extra €100 requires that €42 be first subtracted for Social Security tax, and then up to €46 more subtracted for income tax. Out of the original €100 of marginal labor cost, the remaining €14 of after-tax income going to a skilled worker could only buy about €10 worth of goods after value-added tax is paid.

The tax wedge between what employers pay for labor and what workers have left to spend, after taxes, is 43.4 percent for a Greek family of four with average earnings — the highest in the OECD and more than double the comparable U.S. wedge of 20.6 percent. This demoralizing tax wedge, which grows even larger at higher incomes, clearly depresses hiring and working in the formal economy. It also helps explain why a third of the Greek labor force is self-employed (making tax avoidance easier).

Little wonder that Greece has been suffering a massive brain drain — with hundreds of thousands of the best and brightest emigrating in recent years, including many doctors. At least a fourth of the remaining Greek economy survived by going underground, but that “shadow economy” ran on cash and banks are now sternly rationing cash withdrawals and transfers to delay capital flight.

To continue reading: Greece is being taxed to death

Greece should seize Germany’s botched offer of a velvet Grexit, by Amrose Evans-Pritchard

Ambrose Evans-Pritchard at telegraph.co.uk hits the nail on the head:

One day we will learn the full story of what went on at the top levels of the German government before the villenage of Greece last weekend.

We already know that the EMU accord – if that is the right word – is an economic and diplomatic fiasco of the first order. It does serious damage to the moral credibility of the EU but resolves nothing.

There is not the slightest chance that Greece will be able to stabilize its debt and return to viability under the Carthaginian settlement imposed on Alexis Tsipras – after 17 hours of psychological “water-boarding”, as one EU official put it.

The latest paper by the International Monetary Fund has torn away the fig-leaf. The country needs a 30-year moratorium on debt payments and probably outright subsidies to recover from the devastation of the past six years.

Instead it gets pro-cyclical fiscal contraction of 2pc of GDP by next year.

Some are already comparing the terms to the Versailles Treaty but this does not quite capture the depravity of it. The demands imposed on Germany in 1919 were certainly vindictive and narrow-minded – as Keynes rightly alleged – but they were not, on the face of it, beyond reach.

France was forced to pay reparations after the Franco-Prussian War in 1871 that were roughly equivalent to Versailles, albeit in very different circumstances. It dutifully did so, while plotting revenge.

What Greece is being asked to do is scientifically impossible. Almost everybody involved in the talks knows this. Yet the lie goes on because the dysfunctional nature of EMU politics and governance makes it impossible to come clean. The country is dishonestly kept in a permanent state of crisis.

Wolfgang Schauble is one of the very few figures who has behaved honourably in this latest chapter. As readers know, I have been highly critical of the hard-bitten finance minister for a long time, holding him directly responsible for the 1930s regime of debt-deflation and contraction imposed on much of Europe, and for refusing to accept that the eurozone’s North-South divide must be closed by both sides. Any policy that puts all the burden of adjustment on the South is destructive and doomed to failure.

To continue reading: Greece should seize Germany’s botched offer

IMF Rips Pandora’s Box To Shreds, Demands Greek Debt Relief “Far Beyond What Europe Has Been Willing To Consider”, by Tyler Durden

The first two sentences run on and on, but this Zero Hedge article offers a good summary of the IMF’s view of Greek debt. From Tyler Durden, at zerohedge.com:

Earlier today, Reuters first leaked that just two weeks after the IMF released its first revised Greek debt sustainability report, one which the Eurogroup desperately tried to squash as it urged for a 30% debt haircut and came hours before the Greek referendum vote giving the Oxi camp hope and crushing Tsipras’ carefully laid plan to lose the vote and capitulate with integrity instead of having to capitulate a week later after 17 hours of “mental waterboarding” and have his reputation torn to shreds, the IMF would release a follow up report updating its view on the Greek economy which in just two short weeks of capital controls has utterly imploded.

Just like the first IMF report, which we correctly compared to the opening of a Pandora’s box, and with which the IMF also obliterated the careful plans of the Troika, so with this follow up the IMF effectively crushes the glideslope of the latest Greek bailout process barely scraped together on Monday morning and has torn Pandora’s box to shreds with the following summary assessment: “Greece’s debt can now only be made sustainable through debt relief measures that go far beyond what Europe has been willing to consider so far.”

Yes, debt relief… just the others’ debt: not the IMF’s, please.

So what just happened?

As of this moment the IMF is telling Greece that if nothing changes, it will die of cancer with 100% certainty; on the other hand the Eurogroup is telling Greece it will die of a heart attack also wih 100% certainty if anything changes.

Good luck with the choice.

To continue reading: IMF Rips Pandora’s Box To Shreds

The Curse Of The Euro: Money Corrupted, Democracy Busted, by David Stockman

David Stockman saves SLL the trouble and mauls the Greek-EU debt agreement. SLL may well take a break from this topic until the agreement meets its inevitable political or economic failure. From Stockman at davidstockmanscontracorner.com:

The preposterous Gong Show in Brussels over the weekend was the financial “Ben Tre” moment for the Euro and ECB. That is, it was the moment when the Germans—–imitating the American military on that ghastly morning in February 1968——set fire to the Eurozone in order to save it.

Some day history will judge good riddance……..but that get’s ahead of the story.

According to an American soldier’s first hand recollection of the Vietnam event, it was a Major Booris who infamously told reporter Peter Arnett, “It became necessary to destroy the town to save it”.

After the massacre of Greek democracy in the wee hours Monday morning, Angela Merkel said the same thing—even if her language was a tad less graphic:

“It reflects the basic principles which we’ve followed in rescuing the euro. It now hinges on step-by-step implementation of what we agreed tonight.”

Now no one in their right mind could think that lending another $96 billion to an utterly bankrupt country makes any sense whatsoever. After all, the Greek economy has shrunk by 30% since 2008 and is wreathing [sic] under what is objectively a $400 billion public debt already in place today.

That figure follows from the fact that on top of Greece’s acknowledged $360 billion of general government debt there’s at least another $25 billion loan embedded in the ELA advances to the Greek banking system. The latter is deeply insolvent, meaning that some considerable portion of the $100 billion ELA currently outstanding is not an advance against good collateral in any plausible banking sense of the word, but merely a backdoor fiscal transfer from the ECB to keep Greece’s financial shipwreck afloat.

Likewise, as I demonstrated Friday, given the even deeper deep hole into which the Greek economy has tumbled during the last six months, the fiscal targets extracted from Greece under this weekend’s demarche are utterly ridiculous. Indeed, even if the targeted primary surpluses of 1,2,3 and 3.5% of GDP are miraculously reached through 2018, upwards of $15 billion of budget deficits after interest accruals would be incurred anyway, and a lot more than that if there are material budget shortfalls, which is a virtual certainty.

So even before the latest dose of Troika economic punishment further debilitates its economy, Greece at this very moment has a de facto public debt of $400 billion sitting atop $200 billion of GDP.

To continue reading: The Curse of the Euro: Money Corrupted, Democracy Busted