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Wednesday, August 16, 2017

Voluntary Austerity?

The Ministry of Finance reported that for the period January-July 2017, the State's primary surplus (not to be confused with the General Government's primary surplus which includes the social security and local administrations and which is the basis for memoranda compliance) amounted to 3.053 MEUR. That was 12% higher than in the same period of 2016 AND 46% higher (!!!) than the 2.098 MEUR which had been the target. Hurrah?

Not really. State revenues were 2% below 2016 so that one would generally have expected a lower primary surplus. The opposite being the case, the answer is obvious: a significant limitation in expenses, i. e. austerity.

In 2016, State expenditures had been 29.755 MEUR. The target for 2017 had provided for an increase to 30.232 MEUR. In actual fact, State expenditures in 2017 were 'only' 28.663 MEUR, i. e. significantly below target and even lower than in the previous year.

Where did the State keep its expenditures below target? Grants to hospitals -199 MEUR, social solidarity income -99 MEUR, family allowances -60 MEUR, earmarked revenues -302 MEUR and public investments -522 MEUR.

By all considerations, the Greek State must be flush with cash: the year 2016 had closed with a budget surplus of 1,3 BEUR; there have been disbursements under the program; fresh funds were raised from markets; the State is not reducing arrears; etc.

In view of the above, it is difficult to understand why the State would voluntarily limit expenditures in such critical areas as hospitals, social solidarity and public investments below the levels provided for in the agreements with creditors. Voluntary austerity at times when creditors are being accused of imposing austerity?

Here are the figures published by the Ministry of Finance and here is the Ministry's commentary.

Thursday, August 10, 2017

Andreas Georgiou - A Never-Ending Story

It is in the nature of some situations that a final verdict will never be accepted, regardless how often a final verdict is rendered. The debate about who killed JFK will never be closed. Even if the Special Counsel were to clear President Trump of all charges of a possible Russian collusion, the debate about that would go on.

It looks like the case of Andreas Georgiou has a fair chance of becoming one of those situations where a final verdict will never be accepted, regardless how often a verdict is rendered. I am personally contributing to this phenomenon by writing another article about the case when in actual fact I thought that my previous, very recent, article had closed the case from my point of view.

I re-open the case because I have just read two very interesting articles on the Georgiou case. In "The case of Georgiou: When the Greek justice system is cast aside", the author, Minas Konstantinou, reaches the following conclusion:

"Whatever the outcome, the case of the former ELSTAT chief has already irrevocably exposed all parties, both inside and outside of Greece: the current SYRIZA -ANEL government and the preceding ones who for years accepted the ultimate humiliation of public demands; the Justice Department that permits such flagrant intervention into the country’s internal affairs as a prerequisite for receiving payments towards loan financing, the European and American partners, who can no longer conceal the terms on which their game is being played internationally, on the backs of democracy and justice. And of course, there are the major Greek and foreign media, who are yet again proving blind to the bigger, anti-democratic picture." (n. b.: the emphasis is mine)

In "The whole truth and nothing but the truth", Nick Malkoutzis reaches a far shorter conclusion:

"Anyone who believes that it is imperative for a country’s economic data to be grounded in reality rather than fantasy has understood that the case against the former head of the Hellenic Statistical Authority (ELSTAT), Andreas Georgiou, is a farce."

I think these two articles serve as evidence that the debate about Georgiou is likely to go on for a very, very long time. However, I wish to add a somewhat different perspective on the case.

According to Wikipedia, Andreas Georgiou was born and raised in Greece and completed his secondary education there. Thereafter, he went abroad, first to study and then to work. From 1989 - 2010, he worked for the IMF in Washington. In 2010, he returned to Athens to take up the job as Head of ELSTAT. At that point, Georgiou had spent about 30 of his then 50 years outside of Greece, his entire adulthood.

I myself had left my home country Austria at age 18, after completing secondary education. I went abroad first to study and then to work. When I returned to Austria, I had spent 23 of my 41 years outside my country of origin. My passport still showed Austria as my nationality but initially I thought I had landed on a different planet. Books have been written about the experiences of 'internationalists' returning to their country of origin. Andreas Georgiou clearly was an internationalist who had returned to his country of origin in 2010.

The 'returner' runs into suspicion from all sides, disguised as alleged curiosity. Whatever the new professional environment, the returner's qualifications are scrutinized by his superiors, peers and subordinates. Was he really successful abroad? Is he really competent? What does he know about the local business environment? Etc., etc. Certainly at the peer level, there tends to be very high suspicion coupled with behind-the-back maneuvers.

Georgiou's case was slightly different from mine. He did not return to Greece to start a new life there. Instead, he was 'brought in' by other outsiders to run a domestic agency and bring it up to speed, which agency before had been accused of incompetent, if not criminal conduct. It is clear that in a situation like that, the newcomer will not be given a chance, not to mention a fair chance, by the existing management. On the contrary, the existing management - now publicly degraded for incompetence and, possibly, criminal conduct - will now watch every step of the newcomer to see if and when they can entrap him.

Georgiou had another thing working against him: he was/is not a statistician by training and profession. Yes, he had been deputy division chief in the IMF Statistics Department but that is no match for professional statisticians who have been in that business all their lives, like apparently members of Georgiou's management team were.

For one person to come in and turn a situation around by himself is a mission impossible. One needs to have a support structure. Apparently, the only support structure which Georgiou had was Eurostat, his functional superiors. He seems to have gotten strong support from Eurostat in his work, which is only one more reason for his domestic resisters to watch even more closely every step he takes.

It is impossible for a manager in Georgiou's position/situation to always be 100% perfect. There will be comments which, in retrospect, should not have been made; there will be emails which, in retrospect, should not have been written; there will be other things which can always be misinterpreted by people of ill intent. And, clearly, Georgiou's professional loyalty undoubtedly went to Eurostat and not to his board of directors. In such circumstances, anyone who wants to build a case against Georgiou will find something which appears to justify such a case.

Georgiou has now been sentenced to two years in prison with three years of parole for breach of duty, on the charge that he had failed properly to inform the administrative committee of ELSTAT about the transmission of data regarding the 2009 deficit. That was the maximum penalty. No mitigating circumstances were considered. His lawyer considers the verdict a 'victory' because it concerns only a small misdemeanor. Georgiou's lawyer is wrong. A small misdemeanor or not, being convicted is being convicted. From there it is only a short step for others to later claim "would you believe a convicted person?"

Georgiou's supporters are making a mistake by portraying him as Mr. Perfect who never made any mistake. Whenever then mistakes are uncovered, however small, they will be used to show that Georgiou's supporters were/are wrong. The way Georgiou's job performance should be appraised is as follows: he was brought to ELSTAT to report correct statistics to Eurostat; it is Eurostat who defines what correct statistics are; and Eurostat has confirmed unequivocally that Georgiou's reported correct statistics. Full stop.

Minas Konstantinou focuses on all the alleged scandals which came to light following Georgiou's first indictment back in 2013. He puts particular blame on Greece's European and American partners.

Nick Malkoutzis focuses on all the scandals which made the above alleged scandals possible in the first place. Malkoutzis rightfully points to the previous ND and PASOK governments for having led Greece into the calamity which exploded in 2010. And he also points to EU authorities who cannot have been so naive as to think that the statistics submitted by Greece were correct.

Only these 3 institutions can put the Georgiou matter to rest by coming out and stating their responsibilities.

Wednesday, August 2, 2017

Of Course It Was Georgiu's Fault!

"The reason I find the ELSTAT case so interesting and important is that in my view it’s a test case for the willingness of the Greek political class to face the misdeeds of the past, the corruption and all the things that hinder prosperity in Greece. In addition, a country without reliable statistics can’t really claim to be a modern and accountable country.

As it is now, Greece is heading towards a political trial where those who fixed the fraud are being hounded and punished, not the perpetrators. As long as the charges against Georgiou and his colleagues are upheld it is clear that the forces who want to keep Greece as it was – weakened by corruption and unhealthy politics – are still ruling. That isn’t only worrying for Greece but for Europe as a whole."

This comes from my article "The ELSTAT Case And A Messenger By Name Of Andreas Georgiu". Nothing more needs to be said.

Wednesday, July 26, 2017

Greece's New (Euro)Bond: Volume Too Low, Yield Too High

According to media reports, Greece successfully sold 3 BEUR new 5-year bonds which carried an interest rate of 4,375%. The bonds were offered at a small discount, thereby raising the yield to 4,620%. The issue was oversubscribed by a margin of 2:1.

Reviewing the media reports, one cannot help but get the impression that a major effort is being made to describe the issue as a great success. Was it?

Yes, the yield was slightly lower than the 4,95% yield which Greece achieved the last time it sold 5-year bonds (4,95% back in 2014). The government's conclusion is obvious: 2-1/2 years of SYRIZA governance increased Greece's creditworthiness substantially!

The yield of 4,62% is more or less the same as the yield on 5-year Icelandic paper. From that standpoint, one could argue that it is a fair yield because Iceland, too, had to overcome a major financial disaster and rebuild its creditworthiness. However, that comparison would not be appropriate for one reason: Iceland is not a Eurozone-country! As a result, Iceland does not operate with the implied support of the Eurozone.

Greece, on the other hand, operates with the implied support of the Eurozone. Even though that support was frequently severely tested since 2010, it seems fairly obvious by now that the Eurozone is not going to walk away from Greece. From that standpoint, one could consider Greece's new bonds as a Eurobond of sorts.

Germany's 5-year yield is currently a negative 0,16%. Is a yield difference of nearly 5% between Germany and Greece really justified when one considers Greece as a Eurozone risk of sorts? Definitely not! Are there any obvious reasons why the markets would not consider Greece as a Eurozone risk of sorts? Hardly! Particularly the events of 2015 have shown that the Eurozone simply does not have the backbone to walk away from Greece, even when people like Yanis Varoufakis literally defy the Eurozone to do just that.

So why was the new bond issue at such a high yield not oversubscribed by a ratio of at least 20:1? At a time when it is difficult to find First World countries yielding above 1%, why wasn't there a run on a sort of Eurozone risk Greek bond yielding 4,62%?

Less than 2 months a ago, the Greek industrial group Mytilineos raised 5-year debt at a yield of 3,1%. Why would the Greek state have to pay so much more than a Greek private borrower?

A few weeks ago, someone invited proposals on twitter at what yield Greece would issue 5-year bonds. I submitted "below 3%", thinking Greek sovereign risk would yield slightly less than Greek private risk. That's what logic would have suggested to me. That's what I would have considered a success.

The markets did not behave on the basis of my logic. There was something which the markets obviously did not like very much about this bond. Was it the timing? Or was it perhaps more doubts about the Eurozone's implied support than I would have?

It will remain the Greek government's secret why they think that borrowing from the markets at 4,62% is so much more attractive than borrowing from the Eurozone at near-zero rates. Perhaps they wanted to surprise the world with a smashing success.

A smashing success this was not!

Wednesday, July 19, 2017

Some Interesting Debt Issues

This article from the Ekathimerini suggests that the Yanis Varoufakis who had just become Finance Minister was quite different from the Yanis Varoufakis who had been seduced by fame only a few months later. The article quotes a document which Greece had submitted at the February 16 Eurogroup meeting (February of 2015, that is). In it, views were expressed by the Greek side which were reasonable and appropriate. Here is an excerpt:

"In this document, the debt-to-GDP ratio is calculated in terms of net present value and estimated at 135 percent. The document dating from just three weeks after the elections – and repeatedly citing the head of the European Stability Mechanism, Klaus Regling – states in a special appendix that: “The misunderstanding regarding Greece's solvency is owed to the fact that the blunt 175 percent debt-to-GDP number does not fully describe the actual burden of public debt over the Greek economy.” The borrowing conditions of the European Financial Stability Facility (EFSF) as well as Greek Loan Facility (GLF) loans (the latter being the bilateral arrangements of the first bailout) are characterized as highly concessionary."

I should add that in my communications with Varoufakis prior to his becoming Finance Minister, we had exchanged views along the same lines and I felt confident that he would pursue negotiations along these lines. Well, somewhere along the lines there was an abrupt personality change!

On a separate front, Bloomberg reported that the reason why Greece had to shelve the idea of returning to the markets with a new bond issue was that it would have exceeded the debt ceiling set by the IMF. Presumably, there will be a bit of an uproar about the fact that the IMF would restrict, prohibit and/or disable Greece from borrowing in international markets.

The uproar would not be justified. It is only natural that the creditors would put a ceiling on total debt which their borrower can accumulate. According to Bloomberg, Greece's creditors do not allow the country to increase its indebtedness beyond the levels set out in the program. The program provides for enough new funding to refinance maturing debt. If Greece can secure funding for the refinancing of maturing debt from third party sources, the creditors would be more than happy but then they would reduce their commitments in a corresponding amount. 

Monday, July 17, 2017

Social Justice: Greece Ranks #28 Out Of 28 EU Countries!

The German Bertelsmann Stiftung surveyed all EU countries for the level of social justice. The 6 criteria measured were: poverty, education, labor market, health service, intergenerational solidarity and civil cohesion & non-discrimination.

Greece ranks #28 out of 28 EU countries.

Saturday, July 15, 2017

The Spanish "El Mundo" On The Blind Arrogance Of Yanis Varoufakis

Below is an absolutely outstanding analysis of Yanis Varoufakis and his accomplishments as Finance Minister of Greece from the Spanish "El Mundo". Regrettably, I cannot find an English translation.

Adults in the Room: The blind arrogance of Varoufakis