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Monday, March 30, 2015

Greece: Payment Via Pre-Dated Checks?

Among the various alternatives open to Greece in the event of Euro-illiquidity, one option being discussed is the government's making its payments via the issuance of IOUs denominated in Euros. Some (Northern) commentators have described this as proof that Greece is financially becoming fit for the stone age.

Before rushing to such premature judgments, one should remember that paying via such IOUs or pre-dated checks is one of the pillars of commercial finance in most Northern countries. Except: it is not called 'IOU' or 'pre-dated check' but, instead, 'bill of exchange'. The commercial debtor pays his commercial creditor by signing a bill which confirms that cash payment will be made in, say, 90 days. The debtor can discount this bill at his bank and receive cash.

In short: there is nothing illegal or immoral about paying via IOUs or pre-dated checks. In fact, any check is nothing but an IOU on the part of the issuer. And if that check is issued by the United States of America as a Federal Reserve Note, then it represents an IOU on the part of the US Treasury which serves as 'legal tender for all debts, public and private'.

Now to Greece. My understanding is that the use of pre-dated checks has been a standard, albeit not official, form of payment among small (and perhaps even larger) businesses. My brother-in-law has an earth-moving and building supplies business and long before the crisis he used to show us the stack of pre-dated checks he held in safekeeping. He told me that a pre-dated check would have numerous endorsements before finally being presented for payment. Put differently, pre-dated checks were sort of a shadow payment system long before the crisis.

So what would be wrong if the Greek state started to make its domestic payments with pre-dated checks? There could be a legal problem. I am sure that the Euro-treaties stipulate that the Euro is the sole legal currency in all Eurozone countries. I wouldn't worry much about that because if the Eurozone has proven one thing so far, it is its skill to find 'creative lawyers' who can make a convincing case for just about everything.

Sure, there would be an initial shock where Greeks might fear that the end of the world has arrived when they receive a pre-dated check for their pension instead of cash but it should not take too long for Greeks to realize that if they receive money from the state in the form of pre-dated checks, they can also make their payments to the state in the form of pre-dated checks. Domestic payments by the state and domestic payments to the state are more or less in balance. Thus, by the time everyone gets used to the new system, there should be a well-functioning secondary market which intermediates pre-dated checks between payers and receivers.

What exactly would be the difference between a 'real Euro' and a 'pre-dated check Euro'? The 'real Euro' is backed by the full faith and credit of the ECB (and its shareholders) whereas the 'pre-dated check Euro' would only be backed by the Hellenic Republic. Naturally, people outside Greece will only accept the 'real Euro' as payment by the Greek state. However, to any Greek citizen, the Hellenic Republic ought to represent sufficient faith and credit. After all, the Greek citizens themselves are the Hellenic Republic!

Saturday, March 28, 2015

Greece: Powerful But Preposterous Rhetoric

"That (i. e. Merkel's suggestion that Germany is only one among equals) is a myth, as Mr Tsipras ceaselessly points out. He is turning a crisis of the Greek economy and the eurozone’s monetary institutions into a showdown between two nations, pitching his own as a righteous warrior against Germany’s arrogant Goliath. It is a canny attempt to influence governments and voters across the continent. Greek pleas for forbearance are portrayed, not as the ungrateful demand of a nation that has already been rescued twice, but the last stand of a country victimised by a mighty Germany that might soon visit its wrath on other nations, too. To surrender to Ms Merkel, the Greek prime minister suggests, would be to concede a German victory over all of Europe.

This rhetoric is as powerful as it is preposterous".

Here is the full article in the FT.

Thursday, March 26, 2015

Mohamed El-Erian: The Five Mistakes of the New Greek Government

Mohamed El-Erian writes in the FT: "The new government led by the leftwing Syriza party was elected with a manifesto that contains three policy changes that many economists agree on: reducing excessive austerity, revamping structural reforms to unleash broader economic dynamism, and removing crippling debt overhangs that undermine existing productive activities and discourage the stimulus that comes with new investments. But in translating intentions into actions, Greek officials with little or no governing experience have mishandled five issues that now risk eroding their credibility".

Here are the five issues.

Sensible Yiannis Stournaras!

What a breath of fresh air coming out of Greece when Mr. Yiannis Stournaras, the Governor of Greece's Central Bank, talks about financial matters. Just a couple of quotes from this article in the Ekathimerini:

"Grexit would deliver no benefit but a lot of pain”.

“The new Greek government has a unique opportunity to implement bold structural reforms, which would be backed by a large majority of political forces in the country".

"If Greece implements “bold” reforms in pensions, social security and labor markets, it could hope for some relief on the cost and duration of its debt".

“Extending maturities and reducing interest rates on the outstanding debt may improve the growth outlook of the Greek economy. Alternative options could also be considered to improve the sustainability of Greece’s public debt. However, they might be more contentious, as they likely involve some costs for euro-area partners".

And here is another report about Mr. Stournaras.

Wednesday, March 25, 2015

Greece: Solidarity and Adjustment In Times Of Crisis

This is a 140-page study made by Tassos Giannitsis and Stavros Zografakis for the Macroeconomic Policy Institute of the Hans-Boeckler Foundation. Below is the abstract: 

"This report attempts to examine the impact of the crisis and crisis policies on incomes, inequality and poverty in Greece. Based on extensive income and tax data, it investigates changes in incomes, direct, indirect and property taxation and their incidence between 2008 and 2012-13, their impact on pre- and post-tax inequality and the resulting social reclassifications within the Greek society. The report is distinguishing income by sources at the deciles level, including the top 1% and 0.1%, household and individual income while focusing also on the sub-groups of the ‘same households’ and the ‘same individuals’. Furthermore, the analysis combines unemployment and income data and uses an ‘index of despair’ reflecting the pressure felt by households hit from salary drop and unemployment. The findings suggest that pauperisation hit large parts of the society, that policies had very differentiated effects on different groups and that, therefore, average values obscure contrasting changes in inequality regarding particular sub-groups, that during the crisis all income classes comprise winners and losers and last, but not least, that many macro-variables and social indicators were the result of a deficient crisis management approach and ideological inflexibility coupled to established political interests, making the exit from the crisis more complicated and painful. The findings of this analysis should be assessed in the light of the severe economic depression caused by the Troika‘s policies".

As interesting as the study is, the last sentence of the abstract sets the wrong tone because it is biased (and wrong, too!). One always has to remember what really caused the economic depression. The Greek economy, from 2001-2009, had become an engine whose performance was a direct function of the amount of gasoline which was put into it. That gasoline was the capital inflows from abroad which averaged over 30 BEUR annually during the period. The depression was caused by the fact that the capital inflows no longer came voluntarily and the involuntary capital inflows ('rescue loans') were reduced to about 20 BEUR in 2011 and about 10 BEUR in 2012. Thereafter, Greece needed capital inflows only for the payment of interest. Put differently, the depression was caused by the unwillingness of the Troika to lend more than the roughly 40 BEUR which were put at Greece's disposal from 2010-12. The conditions of the 'rescue loans' (i. e. primary surplus, etc.) had to be set in order to achieve the Troika's objective of not having to provide Fresh Money for Greece's operational needs after 2012.

The extreme depression could only have been softened if the Troika had been prepared to put more than the roughly 40 BEUR at Greece's disposal. And yes, more intelligent Troika measures could also have ameliorated the situation but this would not have had a major impact on the objective fact, namely: if one is addicted to alcohol but the alcohol supply disappears, there are enormous deprivation pains.

Saturday, March 21, 2015

Greece - An Accident Waiting To Happen

"Next year Greece is scheduled to repay 8.4 billion euros to the IMF, just short of 6 billion in total interest payments, bonds held by the ECB and other eurozone national central banks (NCBs) worth 6.7 billion euros at the end of July and August plus 300 million of other bond and senior note maturities. This is over 21 billion euros of debt obligations and forms a pretty sizable funding hump that will need to be addressed irrespective of who is in power. Wanting to re-negotiate aspects of Greece's programme and insist on the debt relief the eurozone had agreed to are justifiable policies and would in many respects be welcome. But doing so without a clear plan or strategy is an accident waiting to happen".

Yiannis Mouzakis wrote in MacroPolis on December 18 of last year that "the one question SYRIZA needs to answer" is how they plan to come up with a minimum of 21 BEUR to pay obligations in 2015. After almost 2 months of governing, it is becoming crystal-clear that SYRIZA has not yet answered this question. Or: SYRIZA has already concluded that there is no positive answer to this question and thus the priority should be to engineer a default in such a way that the blame for it is put anywhere else but Greece.

Interestingly, at the time of writing, Mouzakis still assumed that the primary surplus for 2014 would be just over 3 BEUR. Those were the days, my friend... Those were the days when Greece had just passed the lowest point after 5 years of decline; when Greeks were still paying taxes; when there was still a primary surplus; when Greeks still kept their deposits at banks. Those were the days before a maverick decided to cause political turmoil; before the primary balance recorded a deficit of 2,1 BEUR in December; before Greeks started pulling their deposits from banks.

Those were the days when 2015 looked like it could be a stable year for Greece with a recovery, albeit it a very, very slow recovery.

SYRIZA has not answered the one question which Yiannis Mouzakis asked in December. When all of this is over, the one question which SYRIZA should answer then is: Was it really worth it?

Thursday, March 19, 2015

The Geopolitical Importance of the 'Finger'!

The importance of FinMin Varoufakis' finger is exactly - zero! There have been significantly worse offenses from people who were holding official positions at the time they committed them whereas Varoufakis was far from political office at the time of the 'finger'. The French President Sarkozy allegedly called PM Papandreou a ' psycho'. An Assistant US Secretary of State suggested to ' the EU', etc. Politics is a dirty business, some say.

Regrettably, the affair reflects the political inexperience of the new Greek government. A seasoned politican, when confronted with the 'finger-video', would have said something like this: “You know, I don’t know offhand where you picked this up. I have given so many speeches in so many different forums that it may well be that I made a gesture like that. Certainly long before my time as Finance Minister. If anyone today still feels offended by it, I apologize. Offhand, I am surprised by the video because I really can’t remember that I have done something like that. Who knows? It may even be a fake”.

As it turned out, a mountain was made out of a molehill.

Wednesday, March 18, 2015

SYRIZA - Are We Witnessing The Fourth Round?

On March 10, Alexis Tsipras gave a speech as part of the Inter-party Parliamentary Committe for Claiming the German Reparations. The following paragraph caught my attention:

"Some people tell us – why do you tackle the past, look at the future. But what country, what people can have a future if it does not honor its history and its struggles? What people can move forward, erasing the collective memory and leaving historically unjustified its struggles and sacrifices?"

How true a statement this is! A society indeed has a collective memory. Particularly experiences of humiliation can and will influence the feelings of identity of a society, just like with an individual, for many generations. Examples thereof are manifold. On the other hand, an individual and/or society which is at peace with itself will be free to develop its own identity. As Nick Portokalos said so nicely to his sister on the eve of her wedding: "Don't let your past dictate who you are, but let it be part of who you will become" ("My big fat Greek Wedding"). 

What PM Tsipras refers to is part of the struggle for Greece but the struggle for Greece did not take place from 1941-44. Instead, it lasted from 1941-49, as C. M. Woodhouse has described in utmost detail in his famous book (Woodhouse was head of the British Military Mission in Greece during the anti-Nazi resistence). I am not sure which of the two phases (1941-44 or 1946-49) have more influence on today's Greece and on Greece's future.

A few years ago, I became enamored with the subject of the Greek Civil War. Normally in a civil war, there are 'good guys' and 'bad guys'. In the Greek Civil War, particularly in its roots during the Nazi-occupation, I was never sure as to who the 'good guys' and 'bad guys' were. The more I got interested in the 1946-49 period, the more I wanted to discuss it with Greek friends. Not exactly dead silence but very much close to it! Either they knew very little about it or they simply didn't want to talk about it. Actually, it came across to me as though they didn't really care about it. With the younger generation, I got the impression like they didn't even know that there had been a civil war. But all of them remembered the 1941-44 period and had a lot to say about it.

We take at least one trip a year out to the Northwest and I have criss-crossed the region of Epirus for traces of the Civil War. I have been to Greece's most famous hamlet Lia where Nicolas Gage grew up and later wrote the book about his mother "Eleni". I visited Konitsa to better understand how General Vafiadis had attacked the town and why he failed. The only comment which I could elicit from a local Greek in a café was: "Brother was fighting against brother". All over the region of Epirus I was looking for memorials about the Civil War but did not find any.  

In short, it seems to me that there is a concensus in Greek society that the second half of the 1940s had better be scratched from memory. All I can say about this is: "Good luck! It will never leave memory". To prove this point, I quote what a very well known Greek once told me in writing about the subject: "The Civil War is in us, deeply embedded in our cultural and spiritual DNA!"

Ever since SYRIZA came to political prominence, I had the impression that the faultlines of 1946-49 are again permeating Greek society. SYRIZA seems to me as the ideological successor of ELAS ("It is for you that we all embark on this struggle! To put shoes on your feet, food in your children's mouths! We are fighting to change your life, to raise you up from poverty and humiliation, to make you men!"). And 'the others' today seem to be the ideological successors of 'the others' then ("Any fool can throw a stone into the sea, but once he does, a hundred wise men can't pull it out!").

I have watched videos on YouTube about ELAS-Greeks returning to Greece after the statute of limitation expired. Two old woman recounted with passion how they had brutally butchered an EDES leader after they had seen that man execute ELAS fighters. They looked like they would be happy to do it all over again. On the other hand, I watched an interview with General Vafiadis who, I must admit, impressed me. I don't want to get into any of the massacres which were committed by both sides. I do, however, remember one of Woodhouse's conclusions: "The damage of the Civil War is difficult to calculate but suffice it to say that the material and human damage was far greater than damages during WW2".

To sum it up: I can't help the feeling that what we are seeing today is the Fourth Round of the conflict between the Greek Left and 'the others' with SYRIZA's intent being to finally turn Greece into the type of society which the Left has been dreaming of for decades. PM Tsipras plans to invest in education so that young Greeks learn more about the 1941-44 period. I think he should invest that money so that young Greeks learn more about the entire struggle for Greece from 1941-49.

Monday, March 16, 2015

Views Of A "Man Of The Left"

Manos Matsaganis describes himself as a 'man of the left'. He fells that there are several things about the rise of SYRIZA that absolutely terrify him. A very interesting article with a wonderful conclusion:

"What worries me is that the revival of the European project requires citizens who feel proud to be European as well as Greek, German etc. Instead, a key development of recent years is growing mutual incomprehension, at times verging on outright hostility, between Greeks and Germans (and other Europeans). It would have been nice if Greeks accepted responsibility for the disconnect between rising living standards and deteriorating economic performance pre-crisis, of which the fiscal deficit was only one manifestation. And it would also have been nice if other Europeans accepted that the Greek bailout was (at least partly) a bailout of German and French banks, who had been unwise enough to throw huge amounts of money into loans to Greeks (and other south Europeans). As we all know, none of this happened. Greeks went into denial, and Germans reverted to the moralistic finger-pointing which eventually proved so successful in paving the way for the rise of anti-establishment / anti-EU forces in Greece and elsewhere.

And this could well turn out to be the greatest political failure of all".

Wolfgang Münchau on FinMin Yanis Varoufakis

This column by Wolfgang Münchau in SpiegelOnline totally surprised me, to say the least. I believe Münchau first met Varoufakis at the INET Conference in Berlin in April 2012 where Münchau headed a panel on "The Future of Europe" where Varoufakis was one of the speakers (George Soros was on the same panel). Incidentally, this is where Varoufakis introduced himself famously as follows: "Until this crisis erupted 2 years ago, I used to be a fairly decent, second-rate economist".

I remember Münchau's positive writings about Varoufakis right up to election time and even during the first weeks thereafter. Both clearly seemed to be comrades in thought.

Something happened since then and today's column by Münchau concludes with the following assessment:

"I always thought that Varoufakis' job was to win sympathies for Greece which it certainly would need in case of a Grexit. Owing to his clumsy diplomacy, he has contributed to the situation where Greece is politically isolated within the Eurozone. He has accomplished that it is now not Germany which stands as the perpetrator of a Grexit but, instead, Greece itself".

My advice to FinMin Varoufakis: Call up Wolfgang Münchau and ask for his advice how to move forward.

Sunday, March 15, 2015

In defense of Germany (and Germans)

To be sure, I am Austrian, not German. Also to be sure, Austria has had its share of German aggression and humiliation over the centuries. In 1740, the Prussian Frederick the Great did not even wait 2 months after the death of the Habsburg Emperor to invade and occupy one the of Habsburgs' most prosperous provinces, Silesia. Particularly when considering that his Habsburg counterpart, Maria Teresa, was an inexperienced, if not a bit helpless young lady of 23 years' age at the time, that wasn't necessarily an act of honor. Over 100 years later, in 1871, Bismarck kicked out the Habsburgs from the German Nation which he had unified. Allegedly, Bismarck felt that the Austrians with their proximity to the Balkans had assumed traits which were not quite compatible with the noble German traits. When considering that the Habsburgs had been the rulers of the Holy Roman Empire (of the German Nation) for about 600 years, and particularly when considering that from the viewpoint of the millennia-old Habsburg dynasty the Prussians were regional upstarts at best, this was a classic addition of insult to injury. And then there was the year 1938 when Nazi-Germany invaded Austria, thereby turning Austria into the "first free country that should fall prey to the typical aggressive policy of Hitler" (Moscow Declaration).

And yet - I like Germany and the Germans and I am appalled by the Germany-bashing and the blasting of the national character of the Germans which is taking place in many corners of Europe these days, for the simple reason that I feel that it is totally unjustified and only reflects lack of knowledge of today's Germany and Germans.

I have spent 13 out of my 40 working years in Germany, 6 years during the 1970s and 7 years during the 2000s. I have lived in Munich and I was always responsible for the South German Market, that is the states of Bavaria and Baden-Württemberg. These two states I know really well. The rest of Germany I know only from short trips, mostly business trips.

First of all, Germany is a beautiful country which seems to have everything from the Alps to the forests to the rivers to the plaines to the seas. The Germans take extremely good care of their country. Looking down from an airplane, the entire countryside seems manicured. On the ground, everything is indeed very well taken care of, public properties no less than private properties. That is always a key aspect for me because there are countries where the private properties are in excellent shape whereas the public properties are reminiscent of garbage disposals.

I have found the Germans to be a very friendly people with no fear of foreigners. My Austrian nationality was always a plus because the Germans have a soft spot for 'these charming people from that beautiful small country'. Most importantly, I have always found the Germans honest and frank in their communications. No sly maneuverings like in the more Alpine areas of Central Europe. Doing business with Germans was always rather pleasant: handshake quality, clear arrangements, no hidden agendas. I had only one major credit loss during my 13 years in German banking and that was with --- an Austrian forestry entrepreneur in Germany who had cheated us!

I was fascinated with German solidarity and the Germans' acceptance that solidarity carries a cost. After German re-unification, a temporary solidarity tax was implemented to finance the reconstruction of the former DDR. I believe 8% was added to every tax bill and it translated into about 100 BEUR per year, initially intended for 5 years. That solidarity tax is still in place today, 25 years later, which means that the have's of the West have contributed over 2.000 BEUR to the have-not's of the East so far! There is a domestic transfer union where for years now only 3 states (Bavaria, Baden-Württemberg, Hesse) have been payers and the other 13 states have been receivers. And, not to forget: Germany has been the largest net payer to the EU since inception.

If the Greek have's would show a similar kind of solidarity with the Greek have-not's, Greece's humanitarian crisis would be over tomorrow!

In summary, not once during my 13 years in Germany have I come across that German stereotype which is currently being created in some corners of Europe and in some intellectual circles. On the contrary, if the rest of Europe were more like the Germans whom I have met, Europe might be a better place. I have my family roots in Austria but if that were not the case, I might prefer living in Bavaria or, particularly, in Baden-Württemberg.

Interestingly, after googling the subject a bit I found that I am not alone with my opinion of Germany and the Germans:

May 2013: BBC announced that Germany is the most positively viewed nation in the world in this year's annual Country Ratings Poll for the BBC World Service.
November 2013: Germany was ranked 2nd after the USA in the annual Anholt-GfK Nation Brands Index which measures the image of 50 countries.
November 2014: Germany was ranked 1st in the Anhold-GfK Nation Brands Index and surpassed the USA for the first time.
January 2015: Even in Israel, Germany is ranked as the most popular European country.
July 21, 2013: Boris Johnson, the mayor of London, writes in The Telegraph: "Forget about trying to contain Germany - we should copy it!" His article is one long love declaration to Germany.

Finally, the greatest surprise. I came across an article in The Telegraph by Ambrose Evans-Pritchard titled "Germany is the ultimate victim of the EMU". AER starts out by saying: "Enough is enough. Please stop defaming Germany out there in the blogosphere. The Germans are not engaged in a mercantilist conspiracy to subjugate and milk southern Europe. They are not conducting 'warfare by other means', or heaven forbid, trying to establish a Fourth Reich".

I think many Germans would feel very good after reading this article. They would feel understood why it is that they are so reluctant Eurozone members nowadays. They didn't really want the Euro; the 'strong Deutsche Mark' was their symbol of national self-confidence. But they were promised by their elites that the Euro would be just as strong as the DM. In national advertisement campaigns they were promised that it was 'absolutely impossible for a EZ member state to become over-indebted' because it was 'absolutely impossible for a EZ member state to run budget deficits in excess of 3%' (the Germans and the French were the firsts ones to exceed the 3%...). The Germans were cheated by their elites just like the Greeks were cheated by their elites.

I am glad that I am not German because I would feel terrible in today's Europe. On one hand, I would think that my country had really become a 'Musterschüler' after the Nazi-disaster; that we would always have done what we thought was objectively right and morally defensible. Not without self-interest, of course. And on the other hand, I would read and hear all the time that we are modern-day Nazis who employ financial waterboarding to achieve what our predecessors had not achieved with arms - the complete subjugation and Germanization of Europe. And I would cry to myself: "What kind of an idiot thinks that we have only the slightest intention to subjugate Europe?!? Don't they understand that we have learned from our past?!? Have they not troubled to find out what Germany and Germans are about today?!?"

Will today's Germany and the Germans ever get a fair trial in the judgment of their national character? I am afraid, not. That's the price which the grandchildren are paying for the sins of their grandparents.

Tuesday, March 10, 2015

Draghi's Deal

"As Draghi pressed Varoufakis to accept the return of the troika officials, the minister said that the idea that Greece was opposed to such a move was a misunderstanding, according to one of the officials with direct knowledge of the exchange. 

Can they start soon? Draghi asked. 

Varoufakis agreed. 


And the deal was done".

Source: Bloomberg

Friday, March 6, 2015

A "Tax Corps" Instead Of A "Peace Corps"!

On March 2, 1961, President Kennedy, in only his 3rd month as President, established by Executive Order the Peace Corps whose mission was defined as follows:

"To promote world peace and friendship through a Peace Corps, which shall make available to interested countries and areas men and women of the United States qualified for service abroad and willing to serve, under conditions of hardship if necessary, to help the peoples of such countries and areas in meeting their needs for trained manpower".

FinMin Yanis Varoufakis has announced that he will hire part-timers to help in the campaign against tax evasion. One could call them the "Tax Corps" and define its mission as follows:

"To promote individual responsibilty as well as solidarity through a Tax Corps of men and women qualified for service to the country by helping to promote the volunatry payment of proper taxes on the part of Greeks".

The twitter world has made quite a bit of fun of this idea today. Socalled 'undercover agents' (possibly even including tourists) were alleged to go after tax evaders in James Bond style. I think they are mistaken.

Four priority areas come to mind immediately when I think about such a Tax Force and I have written about this before (here and here):

1. Anonymous offshore companies doing business in Greece.
2. Recipients of EU subsidies.
3. Owners of offshore banking accounts (Lagarde list, etc.).
4. Private individuals with major foreign bank transfers.

The Tax Corps could not be expected to be tax experts. They would be like the scattergun which shoots into the forest. Wherever the scattergun bullets scratch a tree, the professionals follow-up with a shotgun.

Think of 1.000 clever young people who could be trained within a few weeks to work through a questionnaire which allows them to make a judgment whether professional follow-up is appropriate or not. After training, give them lists of names they should work on and expect them to make one personal interview per day. That would make 1.000 personal interviews per day. Or about 20.000 interviews per month. Or about 240.000 interviews per year...

One reader of my blog wrote the following comment: "You would find recruitment of young Greeks very difficult. They would be pariahs even in their own families. They would 'work against Greeks' for the 'banksters'".

True, this could happen. However, everyone should be reminded that you really can't consider yourself a proud nation if you don't take pride in performing civic duties. Have the cake or eat it, but you can't have both!

Wednesday, March 4, 2015

Piraeus, MIG and Cyprus - Here We Go Again?

I had quite a bit of fun last year delving into the mysterious dealings of Piraeus Bank. What I could not understand was that such mysterious dealings would not catch the attention of Central Bankers and/or banking supervisors. Piraeus had taken a 3,4 BEUR profit on the purchase of the Greek branches of Cypriot banks which catapulted its equity. Either those were book profits to be written off over time or they were real profits in which case one should ask why someone sold branches at 3,4 BEUR below value. It's either or, you can't have both.

Thanks to the media website ThePressProject, the subject is coming to the surface again. Hopefully, it will not die away as it has died away in the past. As a matter of fact, this should be a wonderful gift to the new government whichhas committed to look into all untoward major financial deals. Good luck!

Greece - The East Or The West?

This is an interesting article which would undoubtedly trigger a lot of debate if it were in English (it is in German). The article reminds me of the historical debate in the Greek parliament where Konstantinos Karamanlis fought with Andreas Papandreou over the question of whether Greece belonged to the East or the West. Karamanlis emphatically argued that Greece belonged to the West. Papandreou deadpanned him by saying: "Greece belongs neither to the East nor the West. Greece belongs to the Greeks!" I mean, how can one top that?

In the North-Eastern corner of Europe, I never had any doubts that the Finns felt that they belonged to the West. In the South-Eastern corner of Europe, I often wondered whether Greek mentality was not closer to the mystic (and Orthodox) East than the rational West. To me, it was (and is) always very noticeable that Greece is a society which has not experienced some of the major European currents such as the Reformation, the Counter-Reformation, the Rennaisance, the Enlightenment, the Industrial Revolution, etc. Perhaps that is what makes Greece such a pleasant place to visit for rational Westerners...

The author makes the issue even more interesting because he recognizes today the same faultlines through Europe which had existed at the outbreak of WW2 over 100 years ago. I envy historians for understanding such long-term societal trends!

Monday, March 2, 2015

Keynesians - Stop Talking! Start Working!

I will make a note not to read articles by Prof. Paul Krugman on Fridays because they have the potential of ruining my weekend... Well, not quite, but it is certainly a test to my blood pressure when I read articles like "What Greece Won" which was published in the NYT last Friday. 

I just wish all those Keynesians like Krugman & Co. would – instead of spending their time explaining who won/lost at each stage of the negotiations – read up on Keynes’ “The economic consequences of peace”, particularly the chapter on “Germany’s capacity to pay”. I don’t remember that things like GDP, fiscal and monetary policy, primary surplus, etc. were even mentioned there. Instead, Keynes went painstakingly, industry by industry, through Germany’s economy and calculated how much Germany could produce and what it needed to produce that. I remember the cute observation that, if one wanted Germany to maximize steel production/exports, it would not be a smart idea to cut off Germany’s import capacity for those imports which it needed for steel production.

I do not tire of using the analogy that debt is the ‘derivative’ and the real economy is the ‘underlying’, and that one cannot solve the problem of the ‘underlying’ by playing around with the ‘derivative’. To me, it is high time that the learned people of Greece and elsewhere start getting busy with the ‘underlying’. If they don’t know where to start, they could start with McKinsey’s “Greece Ten Years Ahead” report of 2011. It went through industry by industry and suggested over 100 steps about how 500.000 new jobs could be created over ten years and how quite a few billions could be added to Greece’s GDP. I think Varoufakis & Co. would benefit greatly if they spent some time with down-to-earth, common sense Mid-Western Americans like Warren Buffett. Buffett would in all likelihood focus their attention swiftly on the essentials. Or he would sell his shares in Greece, Inc.

And, by the way, if Varoufakis & Co. did the above, they would quickly discover that Greece’s economic value creation capacity is far from justifying the living standards of the past and if they wanted to keep the living standards, they would rapidly have to do something about the economic value creation capacity. McKinsey recommended one set of measures. If SYRIZA doesn't like them, they should develop alternative sets of measures. But only discussing negotiation strategies and hitting the headlines of the world's media with ideas as to how to improve the world will not do anything for the economic value creation capacity of Greece!