Sunday, July 31, 2011

Greece Parties. Euro Cracks.

Even on a stiflingly hot summer's day, the Athens underground is a pleasure. It is air-conditioned, with plasma screens to entertain passengers relaxing in cool, cavernous departure halls - and the trains even run on time.

There is another bonus for users of this state-of-the-art rapid transport system: it is, in effect, free for the five million people of the Greek capital.

With no barriers to prevent free entry or exit to this impressive tube network, the good citizens of Athens are instead asked to 'validate' their tickets at honesty machines before boarding. Few bother.

This is not surprising: fiddling on a Herculean scale — from the owner of the smallest shop to the most powerful figures in business and politics — has become as much a part of Greek life as ouzo and olives.
Indeed, as well as not paying for their metro tickets, the people of Greece barely paid a penny of the underground’s £1.5 billion cost — a ‘sweetener’ from Brussels (and, therefore, the UK taxpayer) to help the country put on an impressive 2004 Olympics free of the city’s notorious traffic jams.

The transport perks are not confined to the customers. Incredibly, the average salary on Greece’s railways is £60,000, which includes cleaners and track workers - treble the earnings of the average private sector employee here.

The overground rail network is as big a racket as the EU-funded underground. While its annual income is only £80 million from ticket sales, the wage bill is more than £500m a year — prompting one Greek politician to famously remark that it would be cheaper to put all the commuters into private taxis.

‘We have a railroad company which is bankrupt beyond comprehension,’ says Stefans Manos, a former Greek finance minister. ‘And yet, there isn’t a single private company in Greece with that kind of average pay.’

Significantly, since entering Europe as part of an ill-fated dream by politicians of creating a European super-state, the wage bill of the Greek public sector has doubled in a decade. At the same time, perks and fiddles reminiscent of Britain in the union-controlled 1970s have flourished.

Ridiculously, Greek pastry chefs, radio announcers, hairdressers and masseurs in steam baths are among more than 600 professions allowed to retire at 50 (with a state pension of 95 per cent of their last working year’s earnings) — on account of the ‘arduous and perilous’ nature of their work.

This week, it was reported that every family in Britain could face a £14,000 bill to pay for Greece’s self-inflicted financial crisis. Such fears were denied yesterday after Brussels voted a massive new £100bn rescue package which, it insisted, would not need a contribution from Britain.

Even if this is true — and many British MPs have their doubts — we will still have to stump up £1billion to the bailout through the International Monetary Fund.

In return for this loan, European leaders want the Greeks’ free-spending ways to end immediately if the country is to be prevented from ‘infecting’ the world’s financial system. Naturally, the Greek people are not happy about this.

In Constitution Square this week, opposite the parliament, I witnessed thousands gathering to campaign against government cuts designed to save the country from bankruptcy.

After running battles with riot police, who used tear gas to disperse protesters, thousands are still camped out in the square ahead of a vote by Greek politicians next week on whether to accept Europe-imposed austerity measures.

Yet these protesters should direct their anger closer to home — to those Greeks who have for many years done their damndest to deny their country the dues they owe it.

Take a short trip on the metro  to the city’s cooler northern suburbs, and you will find an enclave of staggering opulence.

Here, in the suburb of Kifissia, amid clean, tree-lined streets full of designer boutiques and car showrooms selling luxury marques such as Porsche and Ferrari, live some of the richest men and women in the world.

With its streets paved with marble, and dotted with charming parks and cafes, this suburb is home to shipping tycoons such as Spiros Latsis, a billionaire and friend of Prince Charles, as well as countless other wealthy industrialists and politicians.

One of the reasons they are so rich is that rather than paying millions in tax to the Greek state, as they rightfully should, many of these residents are living entirely tax-free.

Along street after street of opulent mansions and villas, surrounded by high walls and with their own pools, most of the millionaires living here are, officially, virtually paupers.

How so? Simple: they are allowed to state their own earnings for tax purposes, figures which are rarely challenged. And rich Greeks take full advantage.

Astonishingly, only 5,000 people in a country of 12 million admit to earning more than £90,000 a year — a salary that would not be enough to buy a garden shed in Kifissia.

Yet studies have shown that more than 60,000 Greek homes each have investments worth more than £1m, let alone unknown quantities in overseas banks, prompting one economist to describe Greece as a ‘poor country full of rich people’.

Manipulating a corrupt tax system, many of the residents simply say that they earn below the basic tax threshold of around £10,000 a year, even though they own boats, second homes on Greek islands and properties overseas.

And, should the taxman rumble this common ruse, it can be dealt with using a ‘fakelaki’ — an envelope stuffed with cash.. There is even a semi-official rate for bribes: passing a false tax return requires a payment of up to 10,000 euros (the average Greek family is reckoned to pay out £2,000 a year in fakelaki.)
Even more incredibly, Greek shipping magnates — the king of kings among the wealthy of Kifissia — are automatically exempt from tax, supposedly on account of the great benefits they bring the country.

Yet the shipyards are empty; once employing 15,000, they now have less than 500 to service the once-mighty Greek shipping lines which, like the rest of the country, are in terminal decline.

With Greek President George Papandreou calling for a crackdown on these tax dodgers — who are believed to cost the economy as much as £40bn a year — he is now resorting to bizarre means to identify the cheats. After issuing warnings last year, government officials say he is set to deploy helicopter snoopers, along with scrutiny of Google Earth satellite pictures, to show who has a swimming pool in the northern suburbs — an indicator, officials say, of the owner’s wealth.

Officially, just over 300 Kifissia residents admitted to having a pool. The true figure is believed to be 20,000.

There is even a boom in sales of tarpaulins to cover pools and make them invisible to the aerial tax inspectors!!!!!

‘The most popular and effective measure used by owners is to camouflage their pool with a khaki military mesh to make it look like natural undergrowth,’ says Vasilis Logothetis, director of a major swimming pool construction company. ‘That way, neither helicopters nor Google Earth can spot them.’

But faced with the threat of a crackdown, money is now pouring out of the country into overseas tax havens such as Liechtenstein, the Bahamas and Cyprus.

‘Other popular alternatives include setting up offshore companies in Cyprus or the British Virgin Islands, or the purchase of real estate abroad,’ says one doctor, who declares an income of less than £90,000 yet earns five times that amount.

There has also been a boom in London property purchases by Athens-based Greeks in an attempt to hide their true worth from their domestic tax authorities.

‘These anti-tax evasion measures by the government force us to resort to even more detailed tax evasion ploys,’ admits Petros Iliopoulos, a civil engineer.

Hotlines have been set up offering rewards for people who inform on tax dodgers. Last month, to show the government is serious, it named and shamed 68 high-earning doctors found guilty of tax evasion.

‘We will spare no effort to collect what is due to the state,’ said Evangelos Venizelos, the new Greek finance minister of the socialist  ruling party. ‘We promise to draft and apply a new and honest tax  system, one that has been needed for decades, so that taxes are duly paid by those who should pay.’

Yet, already, it is too late. Greece is effectively bust — relying on EU cash from richer northern European countries, but this has been the case ever since the country finally joined the euro in 2001.

Two years earlier, the country was barred from entering because it did not meet the financial criteria.

No matter: the Greeks simply cooked the books. Two years later, having falsely claimed to have met standards relating to manufacturing and industrial production and low inflation, the Greeks were allowed in.

Funds poured into the country from across Europe and the Greeks started spending like there was no tomorrow.

Money flowed into all areas of public life. As a result, for example, the Greek school system is now an over-staffed shambles, employing four times more teachers per pupil than Finland, the country with the highest-rated education system in Europe. ‘But we still have to pay for tutors for our two children,’ says Helena, an Athens mother. ‘The teachers are hopeless — they seem to spend their time off sick.’

Although Brussels has now agreed to provide the next stage of its debt payment programme to safeguard the country’s immediate economic future, the Greek media still carries ominous warnings that the military may be forced to step in should the country’s foray into Europe end in ignominy, bankruptcy and rising violence.

For now, the crisis has simply been delayed. With European taxpayers facing the prospect of saving Greece from bankruptcy for the second year in a row, some say even the £100bn on offer will pay off only the interest on the country’s debts — meaning it will be broke again within two years.

Meanwhile, there are doom-laden warnings that the collapse of the Greek economy could be the catalyst for another global recession.

Perhaps if the Greeks themselves had shown more willingness to tighten their belts and pay taxes due to the state, voters across Europe might not now be feeling such anger towards them.

But having strolled the streets of Kifissia, and watched the Greek hordes stream past the honesty boxes on the underground, it does not take a degree in European economics to know when somebody is taking advantage — at our expense.

Saturday, July 30, 2011

Turkey: Istanbul’s Greek Schools Struggle amid Funding Shortage

July 29, 2011 - 2:26pm

On Istanbul's main shopping street, Istiklal Caddesi a Greek flag flutters from the Şişmanoğlu Megaron, a 19th century baroque building that contains Turkey's first private Modern Greek language school. But this is more than just another language school. It is, according to Greek Consul General Vasileios Bornovas, an experiment in intercultural relations.

“In order to have access to the core of your neighbor, you have to know their language,” Bornovas said. “Even though Greeks and Turks are close geographically, we are too far [apart] sociologically, linguistically. There is a deficiency in the knowledge of the other.”

Beginning in the 1920s, use of Greek and other minority languages was discouraged in Turkey with the “Citizens, please speak Turkish!” policy. The campaign intensified in the 1950s with the Cypriot conflict, which contributed to riots against Istanbul’s ethnic Greeks, or Rums, on September 6-7, 1955.

Out of the 55 Greek-language schools open at the time, three remain in operation today. An estimated 2,000 to 1,500 ethnic Greeks with Turkish citizenship still live in Istanbul; in 1955, their population numbered about 100,000, according to data cited in Spyros Vryonis’ work on the riots, “The Mechanism of Catastrophe.”

The three remaining Rum schools operate as private institutions with funds from donors and local foundations outside of the Turkish education system. Bureaucratic delays have kept any other Greek-language schools from opening, despite the 1923 Lausanne Treaty’s stipulation for non-Muslim minorities’ right to open schools for instruction in their own language.

Most of the Rum schools’ graduating students leave Istanbul to continue their Greek-language education and to pursue what has been perceived until now as a better future in Greece. That trend means that much of the Greek language’s future in Istanbul will depend on the Turkish students at the private, Şişmanoğlu school, which reopened in 2009 after 21 years in disuse.

The school’s 200 students come mainly from academic and cultural professions, and often have Greek-related research interests. Many of the non-professional students come from Istanbul University's Modern Greek Language Department to take advantage of learning Greek from native Greek speakers. The Greek government covers fees for tuition and books and other supplies.

Teacher Angeliki Melliou, who started studying Turkish in Greece, sees the lessons as “a step for both countries to start learning one or two things which are more important.”

“There are very many similarities in the culture and the language. It is wonderful for us to discover them,” said Melliou, who came to Istanbul to pursue a master’s degree in Turkish-Greek Comparative Literature at Bilgi University. “I think most people from Greece or Turkey don't know the other country, and so, little by little, they learn [about] the enigmas and it becomes very interesting.”

A recent poll by the Foundation for Political, Economic and Social Research, a non-profit think tank in Washington, DC, that specializes in Turkish affairs found that overall views in Turkey toward ethnic minorities remain negative, particularly among individuals with lower levels of education. Sixty-seven percent of 3,040 respondents had negative views about Greeks; 71.5 percent expressed adverse views about Jews and 73.9 percent held unfavorable opinions of Armenians.

Conditions have improved in non-Muslim schools, according to Umut Özkırımlı, director of Turkish-Greek Studies at Istanbul’s Bilgi University. Yet, schools in Istanbul for the native Greeks of the city continue to be underfunded, noted Nikolaos Ouzunoglu, president of the Ecumenical Federation of Constantinopolitans, a Rum Diaspora organization in Greece.

Delays in distributing minority-language books to schools are still common, Ouzunoglu said, citing a three-month delay in securing approval from the Turkish Education Department for a set of Greek-language textbooks.

Zografyon Rum High School, which has 60 students, tried in the past to run an after-school Greek language school, but was denied permission on the grounds that a working school may not operate a for-profit educational program on its grounds.

Officials at the Turkish Education Department could not be reached for comment.

Özkırımlı stressed that the problems involved with Greek language education in Turkey is connected to politics. “You must not forget that the issue of mother-tongue education is problematic in Turkey not because of non-Muslims, but because of Muslim minorities, notably the Kurds, whose minority status is not recognized by the state,” said Özkırımlı.

Additional options for Greek-language education would not cause the same type of public outcry that widespread Kurdish education initiatives would generate, he added.

For now, with relatively limited options for that education, the Greek language remains under threat of going silent in Turkey.

Editor's note: 

Maria Eliades is an Istanbul-based writer whose Istanbul-born father and his immediate family left Turkey in 1959 due to the effects of the 1955 rioting.

Turkey: Istanbul’s Greek Schools Struggle amid Funding Shortage |

Friday, July 29, 2011

Greece debt: Austerity-hit Spartans resent Athens

By Paul Henley BBC News, Sparta 29 July 2011 Last updated at 00:46 GMT

Statue of ancient Spartan King Leonidas

King Leonidas, taking aim at ancient Sparta's old enemy, Athens

Greece crisis

The BBC's Paul Henley detects stirrings of dissent in Sparta as middle-class Greeks hit by the country's economic woes aim their ire at the Athens government.

Yiannis did not expect to be back in his sleepy home town of Sparta, in the Greek Peloponnese, at the age of 30.

He sees his return as a personal defeat.

Up until 18 months ago, the business graduate had a career in Athens for a finance company.

But his job was a casualty of a national economic collapse that dwarfs most others in Europe and, ever since, he has been unable to find work.

He ended up moving back in with his parents where he grew up.

Having made constant unsuccessful applications for work, he says the growing feeling of uselessness is reducing him as a person.

"Now," he says, "I can't dream as I did before, I can't be optimistic about life or have any real ambitions. Perhaps my only chance is to move abroad."

War against Athens

Yiannis is one of a group who call themselves the "Indignant Spartans" and who went on a 250km protest march to Athens.


Yiannis, in Sparta

Yiannis - one of the "indignant Spartans"

The three-day march, in May, was a vent for their anger and a way of publicly underlining their belief that ordinary Greeks had been betrayed by their political elite and by the murky world of international finance.

About 10 of the group are sitting around a table, at dusk, at a friend's pavement cafe.

They are, frugally, drinking water in the shadow of a statue of Sparta's ancient king, Leonidas, a symbol of the days when Sparta waged a bitter war against Athens.

These days, much of that bitterness is returning.

The "Indignant Spartans'' stories are a microcosm of the troubles facing citizens everywhere in Greece, as another national austerity package kicks in, living costs and taxes rocket, consumers rein in spending, wages fall and jobs are lost.


“Start Quote

I want people to understand that my personal revolution must become a national revolution”

End Quote” Panagiotis

And although the calm, olive and palm tree-lined streets these Spartans inhabit, amid the constant hum of cicadas, seem a world away from the tear gas and the pitched battles outside parliament in Athens, the spirit of provincial rebellion seems to be growing fast.

Vasilis, who is 33, puts it like this: "Sometimes during the past two months I have started to understand how easy it would be to turn, in an instant, from being a good, law-abiding, tax-paying citizen - into a terrorist."

He is not the idle, state-reliant Greek familiar from mocking articles in the foreign press recently.

'Angry inside'

Vasilis is an entrepreneur who built up a highly successful business chain from scratch during a working life which began, he says, at the age of 12 and has regularly involved 18-hour days.

In the past year, he says he has lost €800,000 ($1,150,000; £700,000).


Vasilis, in Sparta

Vasilis's restaurant and catering business faces bankruptcy

A single cafe became a collection of restaurants and a mobile catering business with regular wedding and business contracts.

As customers began to trail off, Vasilis put his capital into a scheme to build a hotel on the coast.

But the scheme was reliant on government-approved loans and grants which disappeared in the crisis. The hotel was never finished and he is looking bankruptcy in the face.

"I feel very angry inside," he says.

"When you try to do the best for your country and your children and your neighbours, you still get treated like garbage by the authorities," he says.

"It is psychological violence. Maybe the terrorists we see on the television - this is the process they have gone through."

His words are greeted with nods around the table.

Personal revolution

Constantina says she has been independent since she was 17 and now, at the age of 43, finds herself borrowing money from her parents.

She set up a graphic design business eight years ago. Labels for agricultural products and flyers for local shops are her mainstay.

Constantina, in Sparta

Constantina's graphic design business is starved of business

All her clients are desperate to save money. She feels penalised by a tax system she predicts will be the final straw for her business within the next year.

"Maybe marching is the only way I can remain an active citizen of this country," she says.

George, who is 45, is a secondary school teacher and one of those supposed to feel thankful for the relative security of his job.

"I do not feel at all lucky," he says.

"Civil servants' salaries were a number one target in the cuts and that will continue."

He feels the faith he had in the future has gone. A house he was building for his family has been left a concrete shell.

"The next few years will be the hardest of our lives," he says. "The Ministry of Education has already begun closing schools."

"The situation makes me want to revolt," says Panagiotis, a pastry chef in his 40s.

The business he set up with his nephew is at risk from a dramatic loss of customers recently and a simultaneous hike in costs.

The macaroons, mini ice-creams and chocolate eclairs he makes are among the first to be crossed off people's shopping lists in difficult times.

The handful of people they employ have already taken pay cuts. Some could soon be made redundant.

"I worry for my family," he says.

"What will happen if I can not pay back the loans on the business? I want to go out into the streets and shout about it."

His words are a thinly-veiled warning to Athens: "I want people to understand that my personal revolution must become a national revolution."


More on This Story


BBC News - Greece debt: Austerity-hit Spartans resent Athens

Thursday, July 28, 2011

Changes in Greek economy baffle

Published: 8:18PM Tuesday July 19, 2011 Source: Reuters

Greek economy baffles (Source: Reuters)

Source: Reuters

If you want to be a dancer in Greece, you can now swirl freely into your new career. But if your heart is set on opening a pharmacy, things are not that easy.

As part of its overhaul of the economy to send investors a message it is making changes to tackle its debt crisis, the Greek government is opening up professions but the jobs market is still far from an even playing field.

Athens has promised international lenders to untangle a web of rules on about 135 "closed" professions, allowing anyone who wants to drive a Greek taxi, open a bakery or guide tourists on the Acropolis to do so without restriction as of July 2.

But in practice, the much-touted liberalisation has so far been limited, with the government bowing to the demands of powerful unions and keeping regulations on many sectors.

"Ballets and dancing schools have been liberalised but more complicated professions such as civil engineers, pharmacists and lawyers have not opened at all," Yannis Stournaras, head of the IOBE think-tank,said.

"The political system resists."

IOBE estimates a complete opening up of professions would benefit the economy by 17 percent of GDP in the long run.

"The problem is that the law that liberalises a profession passes through parliament and then the implementation law includes such complicated rules and regulations that it is effectively not open," Stournaras said.

In place for decades to protect professions from internal and foreign competition, the controls must be lifted to boost lagging Greek competitiveness and meet strict conditions set by the EU and IMF in exchange for handing Greece a 110-billion-euro lifeline last year to avoid bankruptcy.

After a rocky start with the raucous truck drivers' union, whose walkouts and protests caused fuel and other shortages last year, the government has effectively watered down measures.

Policies muddled, watered down

Sectors such as sea-faring are already suffering from rising unemployment, seen reaching 17 percent this year, as Greece plunges into its deepest recession in 40 years.

Facing almost daily protests, sometimes violent, from a public incensed with lender-prescribed austerity and declining popularity, the government is struggling to balance social stability with tough reforms needed to turn the economy around.

But the strikes are damaging. Taxi drivers staged a 48-hour strike from Monday this week to protest against the deregulation of the sector which relaxes the licensing process for drivers, some of whom paid up to 200,000 euros (NZ$333,700) for a permit.

They blocked access to the Athens airport and main port of Piraeus, causing flight delays and affecting 10 cruise ships and about 16,000 tourists at the height of the summer season.

Controls are widespread across a variety of sectors. On the ancient Athens Acropolis, a Greek tour guide often stands silently next to a Japanese guide lecturing his compatriots in their native tongue about the glory that was Greece.

A 1977 law allows only licenced tour guides to operate in Greece, so foreign visitors must have a guide for their own language plus a Greek guide to comply with the rules, which if broken carry a penalty of one year in jail and a 2,000-euro fine. The practice remains in place despite liberalisation laws.

But even where the law was meant to free up a sector, such as pharmacies, the government cut a deal instead of truly freeing the profession from strict zoning rules, fixed drug prices and regulated opening times.

After intensive talks and strikes, the Health Ministry agreed to open 300 pharmacies on top of the existing 12,000 in exchange for a discount on drug prices.

Pharmacists are still not pleased. They say they can't face even the competition of a few hundred more shops while the state, whose health funds and hospitals make up 80 percent of their business, does not pay its debts.

"The state hasn't paid us since January," Constantine Lourantos, head of the Attika region pharmacists' union told Reuters. "One fund hasn't paid since 2008. State debts may well be up to half a billion euros (NZ$834 million)."

The government said it was premature to criticise its reforms and that it was committed to liberalising professions.

"The deadline expired on July 2. Isn't it a bit early to evaluate the result? All restrictions have been lifted by law and there are only some left for bailiffs and some medical professions," said a finance ministry official, who requested anonymity.

No free sailing

But industry officials say the government's half-hearted approach is already costing Greece, especially in the lucrative cruise ship business, a main contributor to tourism that makes up nearly 20 percent of GDP.

In an archaic system called "cabotage", non-EU flagged cruise ships could not moor overnight at Greece's ports and white-washed islands unless they had Greek-only crews.

In practice, even EU-flagged ships followed the system just to avoid protests despite the high costs involved.

When the government tried to lift cabotage last summer, seamen's unions blocked ports and turned some ships away. But ensuing legal changes have made it almost equally difficult for ships to sail around the azure Aegean waters freely.

"The new law requires contracts with conditions that don't apply anywhere else in the world. To put it simply, the law is not applied in practice," said Michalis Nomikos, head of Donomis, the port agent for cruise ship companies, including the Royal Caribbean group.

Nomikos said the state is now burying cruise companies in bureaucracy, demanding company charters, three-year contracts describing exactly which islands they will visit, and other paperwork equivalent to setting up a company in Greece.

The restrictions are turning off companies which prefer other Mediterranean destinations, costing Greece about one billion euros (NZ1.7 billion) in revenues a year, he added.

Analysts and industry officials said Greece won't be able to protect professions for much longer, as it undergoes regular inspections by the so-called "troika" before every EU/IMF loan instalment is granted.

The inspectors said in their latest review that although some steps had been taken, the reform was not complete and further progress was needed.

"The troika has realised what is going on and it's a lot stricter. The government has been given until 2012 to truly liberalise professions," Stournaras said.

Changes in Greek economy baffle | WORLD News

Wednesday, July 27, 2011

Argentine crisis survivors: Greece should take heed

Economists debate pros and cons of Argentine case

By Stephen Brown

Protests outside the palace, IMF warnings to cut spending, people in suits avoiding the mob, fear of a run on the banks, the spectre of default, a currency fixed to a much stronger economy: Greece, 2011, or Argentina, 2001? ”Que se vayan todos!” (They must all go!) was the slogan of the protesters forcing out the Argentine president who locked away their bank savings, triggering default and devaluation.

”Thieves!” and ”Leave us alone” Greeks yelled.

The parallels between the Greek crisis and Argentina’s collapse 10 years ago were not lost on Athens protesters last month when parliament voted through more cuts. They floated a balloon asking: ”Yesterday, Argentina; Today, Greece; Tomorrow?” That vote cleared the way for a second EU/IMF bailout for Greece that has pacified financial markets for the time being.

But opinion is divided over what the future holds and whether Greece should be daunted or encouraged by Argentina’s example.

Some economists argue that Argentina’s default and exit from the peso’s one-to-one peg to the dollar -- the ”Convertibility” system lasting a decade -- set the scene for sustained economic growth that reached 9.2 percent last year.

Others argue that because Argentina’s crisis was preceded by a decade of free-market reforms, and followed by a huge surge in world commodity prices benefiting its farm exports, it would be unwise for Greece to attempt to take the same fraught path.

Argentines watching from afar often say it is ”just like 2001 but, unlike Greece, we were on our own”. This underlines the gap in their strategic significance: dollarised Argentina held no risk of contagion for the United States, but an uncontrolled crisis in Greece could spread to Spain and Italy.

In Argentina’s case, the buck stopped there, in more than one sense, and while bondholders around the world sued it for years over the default, there was no real contagion.

But policymakers and economists who were deeply involved in the Argentine crisis draw parallels that could help Greece find solutions and avoid some pitfalls.

Guillermo Nielsen, who as Argentine finance secretary led talks with creditors after the default and was later ambassador to Berlin, recalls ”huge arguments with people in Germany who told me ’we’re not going to restructure, we’re Europeans, not Argentine’ -- as if one had a choice in the matter”.

”By not reacting quickly or studying the mistakes that were made in Argentina, they lost a lot of time,” he told Reuters.

Jose Luis Machinea was economy minister from 1999 until 2001, a period of deep recession that undermined faith in the currency system.

”I see lots of similarities, though many of the problems Argentina had are even more serious in the Greek case. Our debt was 50 or 55 pct of GDP but in Greece it’s 150 percent,” said Machinea, who is now a university professor in Buenos Aires.

From his own experience of imposing tough and ultimately fruitless cutbacks, Machinea concludes that the government in Athens will only convince its public to accept such savings ”if the other side also makes sacrifices” -- meaning creditors.

The latest Greek bailout foresees private sector creditors taking a 21 percent loss on their bond holdings.

”Without that component, when you just ask the people for more and more, the cutbacks just keep coming and they are never enough, because the recession eats it all up,” he told Reuters.

He left before the most calamitous moment of 2001 when his successor, Domingo Cavallo -- arch-defender of Convertibility in his first period as minister from 1991-1996 -- stopped a run on the banks with the ”corralito” (enclosure). This stopped people withdrawing more than 250 pesos a week from their bank accounts.

The ensuing deadly riots forced President Fernando de la Rua to quit and his successor Adolfo Rodriguez Saa lasted a week -- time enough to declare the world’s biggest sovereign default.

The next president, Eduardo Duhalde, freed the peso from its peg, leading to its depreciation by 300 percent in three months, and then ”pesified” bank deposits and debts.

Some analysts believe Greece should follow the same path -- by defaulting and leaving the euro zone so that the competitive advantages of a cheaper currency will help it recover strength.

Nobel-winning U.S. economist Paul Krugman says Argentina’s recovery suggests Greece should follow its example. Dean Baker of the Center for Economic and Policy Research believes Greece cannot accept ”never-ending demands for austerity” and Argentine ”provides the model” for bringing back a domestic currency.

”Greece needs to return to competitiveness and what they lack is a mechanism for the euro to take a ’leave of absence’,” agreed Guillermo Nielsen.

As an interim measure, Greece should consider the Argentine ”quasi currencies” or scrip issued by the central and provincial administrations after the crisis to pay state employees and suppliers, which Nielsen managed to redeem in full in 2003.

Those survivors of the Argentine crisis who advise against a devaluation include Mario Blejer, who briefly ran the central bank after the default and later advised the Bank of England.

Blejer writes that if any country tries to quit the euro, there could be a run on the banks in ”anticipation of forced pesification”, the same way that Argentines began fleeing the peso fearing devaluation a year before it eventually came.

Steve Hanke, economics professor at Johns Hopkins University in Baltimore, played a major role in setting up currency systems around the world from Argentina to Lithuania.

He believes Greece should have carried out a voluntary debt restructuring ”on day one” and needs ”huge internal devaluation” by reforming its taxes and privatising inefficient assets.

”If you want to wait 10 years to get your per capita income back up to where it was before the crisis then do what Argentina did: blow the thing up, default, have a huge devaluation,” Hanke told Reuters, saying that it took Argentina a decade to get per capita income (in dollars) even back to depressed 2001 levels.

Hanke and others say Argentina’s recovery boils down to external factors including, crucially, a commodities boom.

”Argentina recovered for three reasons: devaluation, debt restructuring -- and soybeans,” said Nielsen, pointing out that soybean prices have shot up to around $500 a tonne from about $180 at the time of the Argentine crisis.

”But what will be the locomotive that gets Greece out of the crisis?” asked Nielsen. ”That is not clear.” Cavallo, whose association with the ”corralito” makes him an unpopular figure in Argentina, like De la Rua and Carlos Menem, the president who brought in Convertibility, says the Greeks are wise to be wary of devaluing like Argentina, fearing a fall in real salaries and chronic inflation.

Prescribing instead privatisations and reforms like the ones he and Menem launched in the 1990s -- which have been partially undone by later Peronist leaders -- Cavallo said on his website: ”The Greeks are quite rightly terrified that what happened in Argentina from 2002 on could happen to them.” [Reuters] , Monday Jul 25, 2011 (18:35)  

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Greek debt swap process to start in August says minister

Procedures for a voluntary swap of privately-held Greek government bonds for longer maturity paper will start in August, Greece's deputy finance minister said on Tuesday. Greece's private se...

Finance minister upbeat at Washington visit

Greece needs “national unity” and a “less expensive state,” Finance Minister Evangelos Venizelos said in a talk at the Peterson Institute for International Economics on Monday evening in Was... | Argentine crisis survivors: Greece should take heed

Political unity? Good luck, Greece


Greek Finance Minister Evangelos Venizelos is pictured. | AP Photo

The Greek finance minister says political unity is needed for his country to execute its plan.  AP Photo Close

By JOSH BOAK | 7/26/11 10:26 PM EDT

What starts out as a financial problem can quickly become a huge political one, the Greek finance minister readily acknowledges

Visiting Washington this week, he was talking about his own debt-torn country, even if his observation also might apply to the combative debate still raging here over raising the U.S. debt ceiling.

Evangelos Venizelos – his first name literally means “messenger who brings good news” – was here to shore up support from the International Monetary Fund and the Treasury Department for Greece’s second rescue package over the last two years.

Before a suit-clad audience on a muggy evening at the Peterson Institute for International Economics, he said, “We can breathe easier now, but the problem is to implement the program.”

European leaders announced last week they would provide the already dangerously indebted country with aid worth $157 billion. As part of the deal, private investors would have to swap their current Greek holdings at a 21 percent loss for $72 billion in new debt, a move that triggered a ratings downgrade by the credit agency Moody’s.

With Europe bound by the common Euro currency, the bailout is meant to stop the Greek crisis from infecting the rest of the continent. If Ireland or Spain, or even Italy, succumbed to their own debt troubles, the turmoil could roll across the Atlantic.

The latest rescue package is a test of the Greek political system with a suspect track record. Since 1826, Greece has roughly endured a combined 50 years in some form of default, according to research by the economists Ken Rogoff and Carmen Reinhart.

Saving Greece entails cutting into a bloated government. The country controls state-owned enterprises worth $63 billion and real estate valued at more than $280 billion.

Much of the bailout depends on a privatization plan to sell $72 billion of government holdings by 2015, the finance minister acknowledged. Besides generating revenue, the sales would in theory promote the kind of private sector efficiencies that fuel economic growth.

The telephone company, a rail service, the gas company, seaports, airports, highways and a weapons contractor are likely to be on the auction block. An Australian reporter asked if a recently ordered pair of submarines were available as well – an inquiry the finance minister brushed off.

He had come to the U.S. this time, he explained, in part to find investors, particularly Greek-Americans.

“This field of real estate is very important for foreign investors,” he said.

Executing the plan, the finance minister noted, will require political unity in the country’s parliament. His own party has been in power since 2009, so it will face elections in the middle of fixing the nation’s finances.

“During a period of historical and existential crisis,” he explained, “it’s necessary for the government and the opposition to organize a common national platform.”

And that’s something that analysts certainly might see as easier said than done.

Political unity? Good luck, Greece - Josh Boak -

Tuesday, July 26, 2011

Moody's cuts Greek debt rating after second bailout

Greece's second bailout will have a "limited" impact on its massive debt burden, warned credit rating agency Moody's, as it put the country's debt further into "junk" territory.

Moody's cuts Greek debt rating after second bailout

Moody's cut the rating of Greek government debt to its second-lowest rating, to reflect the 'substantial economic losses' expected for debtholders. Photo: AFP

Emma Rowley

By Emma Rowley

10:24PM BST 25 Jul 2011

"Greece will still face medium-term solvency challenges: its stock of debt will still be well in excess of 100pc of GDP for many years and it will still face very significant implementation risks to fiscal and economic reform," said Moody's in a statement.

The warning came as the agency said the €159bn (£140bn) rescue deal thrashed out by eurozone leaders on Thursday means the likelihood of Athens defaulting is "virtually 100pc."

The package agreed by the 17 eurozone leaders includes a second €109bn bail-out from Europe and the International Monetary Fund, plus €50bn from the private sector via a series of bond exchanges and buy-back - the element which will be classed as a default.

The agency cut the rating of Greek government debt from Caa1 to Ca, its second-lowest rating, to reflect the "substantial economic losses" expected for debtholders.

Moody's also put the ratings of eight Greek banks on review for a possible downgrade, citing the dangers around their likely losses.


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Assessing the impact of the eurozone deal, Moody's said it had benefited all governments in the region by containing the risk of contagion stemming from a disorderly default or a large "haircut" or losses on Greek bonds. It also meant the path of Greece's debt would be reined in - albeit only "slightly".

However, Moody's suggested that the rescue package could ultimately threaten the positions of other countries.

"Despite statements to the contrary, the support package sets a precedent for future restructurings", said Moody's, implying other struggling euro nations could follow Greece into some sort of default. For creditors of some debt-laden states, "the negatives will outweigh the positives and weigh on ratings in future".

Supporting that fear, there were signs yesterday that investors' worries about Spain and Italy could be engulfed by the crisis continued, as their borrowing costs rose. The yields, or implied interest rates, on 10-year Spanish debt touched 6pc while 10-year Italian debt neared 5.7pc.

"We feel ... the contagion has moved to Italy and Spain and without an increase in the size of the EFSF (the eurozone rescue fund), there's no buffer being built up," said a trader.

Markets were also worried by reports that the Slovak politicians may try to block the Greek deal, flagging up the risks over getting the nod from the various parliaments. European shares dipped, with the FTSEurofirst 300, a pan-European index, slipping 0.3pc.

Moody's cuts Greek debt rating after second bailout - Telegraph

Monday, July 25, 2011

Beware Greeks bearing debts

July 15, 2011

Greek tragedy.

You didn't really think the global financial crisis was over, did you? While no one officially declared victory, it has become commonplace, in Australia at least, to talk of the GFC as an episode passed.

But, unfortunately, the GFC is one case where the parrot really isn't dead, just sleeping - and a rather troubled slumber at that, which threatens at any moment to give way to much squawking and flapping of wings.

Governments around the world have had some success soaking up the bad debts of greedy banks and pump-priming their economies with stimulus spending, thereby averting the onset of another Great Depression. But in doing so, the debt problem has simply passed from private to public hands. And as governments bow to pressure to slash spending to restore damaged balance sheets, economic growth in the US and Europe remains anaemic, at best, with jobless rates hovering near double digits in many countries.

Fears over the future of debt-laden nations intensified this week. Ratings agency Moody's warned it would downgrade the US's AAA credit rating if Congress does not pass legislation to increase its already indecent $US14.3 trillion ($13.4 trillion) debt ceiling. That the opinions of credit ratings agencies such as Moody's - who helped cause the GFC by assigning their vaunted AAA credit ratings to junk assets - continue to hold sway is only further evidence of how much further financial markets have to go before emerging from their current mess.

Across the pond, the rip tide of the global recession has revealed the extent to which a handful of Mediterranean nations (plus the pasty-skinned Irish) spent the past decade swimming naked and pissing in the pool of good budget and economic management.

The Greeks lied about their debts. Portugal, Spain, Ireland and now Italy - the world's seventh biggest economy - have also been exposed for various degrees of lazy budgeting and failure to pursue economic reforms to drive anything but the most sluggish of economic growth.

What spooks investors most about Italy is not whether it is too big to fail - it is - but whether, as home to the second biggest public debt in the European Union, it is too big to save.

But despite this week's jitters, the budget position in Rome is recoverable. While its stock of public debt is large, its yearly budget deficits are more modest than most, and are forecast to return to surplus in 2014. If anything, market tremors have fired the warning shot the Prime Minister, Silvio Berlusconi, and his coalition partners needed to push ahead with planned austerity measures.

As for the US, it must be hoped that legislators there realise the potential fallout from failure to increase the debt ceiling is simply too big to ignore.

The Greeks are a different story.

No one seriously believes the Greeks have any near-term, or even medium-term, prospect of paying their bills without help. Despite this, European leaders have pushed ahead with two separate bailout packages to stave off a messy default by the Greek government on its debts to foreign banks, mostly French and German.

For 20 months now, European leaders have forced an increasingly downtrodden and violent Greek nation to accept euro loans so it can continue to finance existing debts. The hope is to keep Greece on oxygen until 2013 when a new bailout fund, the European Financial Stability Facility, comes online.

But, increasingly, analysts think it is only a matter of time before the Greek government defaults on its debts. Austerity and spending cuts can get you only so far. By sucking demand out of the economy, such cuts, while cutting the deficit in the short term, will cripple any hopes of a recovery fast enough to achieve the revenue growth needed to get on top of debt payments.

The worst-case scenario, of course, is if Greece unexpectedly falls short on its regular repayments, defaults and sparks a seizure of the entire global credit system on fears other countries could do the same. Alternatively, a decision by Greece or any other member nation to abandon the European Union and break with the single currency could also set off waves of instability.

European leaders will hold an emergency summit tonight to advance efforts to avoid such outcomes. While many leaders favour continued bailouts, markets are hoping for a plan that recognises the failure of the current approach. One way forward would be a negotiated agreement with private creditors - largely French and German banks - for an orderly write-down of some Greek government debts or a rescheduling of interest payments.

Of course, no single creditor will voluntarily agree to write off debts if they think their debtor has a sugar daddy - the EU - waiting in the wings to pay the bills. Arguably, however, European banks should be forced to wear some of the losses. They bought Greek bonds in the first place, and every investment carries risk.

The only real policy question is what level of losses the European banking system could withstand before it seized and banks became unwilling, or unable, to continue making new loans. Such a strategy, of limited but forced losses, could be the equivalent of radical surgery to amputate a leg to stop an infection spreading to other parts of the body.

No one has the answers here. But Euro leaders would do well to recall the definition of insanity offered by Albert Einstein: that state of ''doing the same thing over and over again and expecting different results''.

Beware Greeks bearing debts

Saturday, July 23, 2011

European Leaders Achieve Greek Deal Through Compromise

By NICHOLAS KULISH and STEVEN ERLANGER Published: July 22, 2011

BERLIN — The latest bailout in the Greek rescue has all the elements of what is fast becoming almost commonplace European intrigue.


Chancellor Angela Merkel of Germany had resisted using European resources and Germany's wealth to ease Greek debt.


The French president arranges a private summit meeting with the German chancellor. Europe’s top central banker resists calls to allow Greece to write off some debt, fearing it could undermine the euro. The Greeks cry out that their sovereignty is infringed.

And only when markets teeter toward panic is a deal finally reached in Brussels to stave off more attacks on the euro zone’s vulnerable southern countries and prevent, for the moment at least, a broader run on financial markets.

The dramatic elements in the latest round of messy European compromise are not in themselves new. The question is whether the deal reached Thursday for another Greek bailout, this time valued at $157 billion, and relief for Portugal and Ireland is a decisive step to calm Europe’s financial storm or simply postpones another reckoning for the weakest southern European economies and the euro itself.

The consensus emerging is that European leaders went farther than ever before, crossing even their own red lines to shelter their decade-old currency. But many also worry that the intensive bargaining necessary to make an agreement possible resulted in a weak accord, saving face for all the key parties.

Jean Pisani-Ferry, director of Bruegel, an economic research institution in Brussels, said Thursday’s meeting “clarifies the horizon and pushes it forward.” But relief was not the same as solutions, Mr. Pisani-Ferry said, adding that he thought the private sector had not made enough concessions for the long run. Greece is almost sure to need further debt restructuring, he said.

The deal involved delicate compromises from all parties, especially Chancellor Angela Merkel of Germany and the European Central Bank. Each gave something and could claim a prize as well. The Europeans eased the burden on Greece, gave a modest bill to the private financial institutions and empowered a European-wide fund to act more broadly to buy up bad debt. The moves seemed to appease the markets, for now.

Babis Papadimitriou, an analyst for the Kathimerini newspaper in Greece, warned that its government had not shown great skill at putting into effect measures it had approved, including the opening up of closed professions and the privatization of over $70 billion in state assets.

The issues are political as much as economic. European democracy is fraught with the complications of 27 member nations, 17 of which use the euro, plus European institutions with shifting responsibilities. It was all on display in this crisis — internal German politics, the qualms of the European Central Bank, the plight of the Greeks and market anxieties over Italy and Spain, which are too big to bail out.

The biggest sticking point in reaching a broader accord to relieve Greece of some of its crippling burden of debt is Germany, where Mrs. Merkel has steadfastly resisted using European resources — meaning the wealth of Germany and other relatively prosperous members of the union — to write down Greek debt. Past bailouts provided new loans to Greece to help it pay off old ones, but ultimately just added to the country’s overall debt load.

But as markets swooned again this past week, pressure mounted in Germany. Even members of her own party attacked her with a ferocity unseen during the slowly unfolding crisis, saying she was jeopardizing European unity. President Obama called Mrs. Merkel on Tuesday to remind her how fragile the world financial system had become and of Germany’s responsibility.

Jean-Claude Trichet, president of the European Central Bank, was also pressed to consider steps he had previously insisted were impossible. On Wednesday, he called the bank’s 23-member governing council together in the bank’s high-rise headquarters in Frankfurt to discuss allowing the first default by a country that uses the euro.

Though staunchly opposed to compelling private banks to share the costs on Greece, which would mean at least a partial default in the eyes of bond rating agencies, the members of the bank council recognized that Germany was determined that any new bailout involve some pain for the private sector. But the council would insist on several conditions. European countries must guarantee Greek bonds so they will remain eligible as collateral for central bank lending. The bloc must support Greek banks and step up assistance for Greece’s economy.

And if private investors took losses on their holdings of Greek debt, that step must not been seen as a precedent that might be extended to other nations like Ireland or Portugal. “It should be unique,” said a bank official.

President Nicolas Sarkozy of France was described as worried that Mrs. Merkel might not even attend the meeting Thursday. They had spoken by phone in what he described as a “sterile” conversation. He decided to fly to Berlin Wednesday afternoon.

“I need to deploy my energy,” Mr. Sarkozy told his cabinet before leaving, “but at the same time I need to not hurt anyone’s feelings.”

After negotiating all afternoon and into the night, they were joined around 10 p.m. by Mr. Trichet, who had come from Frankfurt, and a call was placed to Herman Van Rompuy, president of the European Council. The meeting ended past midnight.

A possible deal had been reached, but Mr. Trichet left looking unhappy, as the French daily newspaper Le Monde reported. He had been cajoled into accepting the possibility of a selective default, meaning an organized write-down of some debt.

Everyone had to give something up. Mr. Sarkozy let go of his plan to tax banks to pay for bailout funds. Mrs. Merkel accepted a reinforcement and expansion of the region’s rescue fund, called the European Financial Stability Facility. The fund would be allowed to buy sovereign debt on the secondary market and from the European Central Bank.

The fund would also stand ready to inject new capital into troubled European banks. It would be instructed to tender its loans at a wholesale price, with none of the punitive extra interest Mrs. Merkel once favored.

The fund would begin to look like a European monetary fund, making all euro zone taxpayers responsible for guaranteeing most of the debts of countries like Greece, Portugal and Ireland. German officials and voters were cool to the idea. But not as wary as the austerity-beaten Greeks to further deep spending cuts.

The 20-member Greek delegation arrived the day before the meeting with significant apprehension. Until Thursday evening they were not sure they would get a deal. Evangelos Venizelos, the finance minister, met with Josef Ackermann, chief of Deutsche Bank and chairman of the International Institute of Finance, the international bank group.

Mr. Ackermann acted as an intermediary between politicians and bankers, knowing it was impossible “to bring this package through Parliament without private sector participation,” as he told German television.

Mr. Ackermann’s involvement helped clear the way for big private banks to accept a modest write-down on the value of their Greek bonds. And a meeting over Gummi bears, cookies and a thermos of coffee between Mrs. Merkel, Mr. Sarkozy and George A. Papandreou, prime minister of Greece, opened the door to a broader agreement that other European nations might accept.

After opening statements at the Thursday summit, José Manuel Barroso, president of the European Commission, said the crisis had not been handled correctly. “We should have solved some of these issues before,” he said, according to a senior European Commission official.

But a diplomat said the financial stakes seemed higher this time. Mrs. Merkel and Mr. Sarkozy “were speaking with one voice,” the diplomat said.

The Dutch and Finnish delegations inserted language demanding that the Greeks secure loans with buildings, land and companies slated for privatization. “We are a sovereign country, not a company,” said one member of the Greek delegation. “It was very insulting.” Mr. Papandreou made it clear that would create a political crisis at home, possibly prompting the government’s fall.

In the end, no one emerged with all demands met, but no one emerged an obvious loser, either.

Mrs. Merkel won contributions from private banks she desperately wanted, but let the euro zone slide closer to the sort of economic government that German taxpayers abhor. Her shift reflected growing panic at home that her dithering had endangered the European integration project central to German policy since the end of World War II.

While the European Central Bank conceded on private sector participation and the prospect of a selective default on Greek debt, the bank achieved its goal of tightening euro area fiscal discipline and shifting responsibility for supporting Greece to European countries. The pact also allows the European stability fund to buy European government debt in open markets, relieving the central bank of that task.

Mr. Sarkozy, for his part, hailed the new powers for the stability fund as “the initiation of a European monetary fund,” a longstanding French goal.

As she faced reporters in Berlin Friday, Mrs. Merkel seemed confident. “All of Europe has undertaken reforms that a year and a half ago would not have been conceivable,” she said, pointing to the higher retirement age in Spain, the sale of state-owned assets in Greece, savings packages in Ireland and Italy and even a new commitment in France to bring down its budget deficits.

“You have to tackle the problem at the root,” she said.

Contributing reporting were Landon Thomas Jr. in London, Jack Ewing in Frankfurt, Stephen Castle in Brussels, Rachel Donadio in Rome, Judy Dempsey in Berlin and Niki Kitsantonis in Athens.

European Leaders Achieve Greek Deal Through Compromise -

Friday, July 22, 2011

Eurozone approves 159 billion euro Greek bailout

Updated July 22, 2011 10:24:15

Lasers used during clashes Photo: New bailout: Greece's austerity measures have provoked months of sometimes-violent protests in Athens (Yiorgos Karahalis: Reuters)

Related Story: Euro shares surge on Greek deal

Related Story: EU Greek bailout agreement close

Map: Greece

Eurozone leaders have agreed on a new Greek bailout worth nearly 159 billion euros ($211 billion) and including the participation of the private sector, according to a final summit declaration issued in Brussels this morning.

The aid from European governments and the IMF will total 109 billion euros, while the private sector will contribute 49.6 billion euros.

The net contribution from banks and other investors is estimated at 37 billion euros with an additional 12.6 billion euros from a debt buy-back program.

To ease Greece's debt repayments on its loans, the summit agreed to extend them from 7.5 years to between 15 and 30 years in some cases, and at a rate of 3.5 per cent, down from 4.5 per cent.

Figures released by the leaders after the summit said the measures would reduce Greece's debt by 26 billion euros - equal to 12 per cent of its gross domestic product - by the end of 2014.

Greece and Ireland have long advocated easier loan conditions from the eurozone's crisis fund, the European Financial Stability Facility (EFSF), arguing the terms were too strict for them to clean up their finances.

The draft summit statement showed the EFSF would be able to lend to states on a precautionary basis instead of waiting until they are shut out of market funding, and to recapitalise banks via loans to governments, even if they are not under an EU/IMF assistance program.

"To improve the effectiveness of the EFSF and address contagion, we agree to increase the flexibility of the EFSF," it said, listing those three key steps, all of which Germany had previously blocked.

The proposed expansion of the EFSF's role would have to be ratified by national parliaments, and could fall foul of critics in Germany, the Netherlands and Finland.

Dutch Finance Minister Jan Kees de Jager said a short-term or selective default for Greece, long vehemently opposed by the European Central Bank, was now a possibility.

"The demand to prevent a selective default has been removed," he told the Dutch parliament.

Euro, stocks rally

The euro and European stocks, which had fallen on reports of a possible selective default, rallied sharply on news of the draft conclusions.

The risk premium investors demand to hold peripheral eurozone government bonds rather than benchmark German Bunds fell.

Senior European bankers were present in the corridors of the Brussels summit but not at the table, officials said.

They included Baudouin Prot of BNP Paribas, the French bank with the biggest exposure to Greek debt, and Deutsche Bank chief executive Josef Ackermann, chairman of the International Institute of Finance, a banking lobby that has led talks among bankers.

Top Greek bankers were also present.

Leaders said their twin aims were to make Greece's debt more sustainable and prevent contagion from poisoning access to the bond market for other eurozone states.

Worried about the impact on financial markets and wary of angering their own taxpayers, eurozone governments have struggled for weeks to agree on major aspects of the plan, especially a contribution by private sector investors.

The head of the European Commission, Jose Manuel Barroso, warned earlier this week the global economy would suffer if Europe could not summon the political will to act decisively.

The summit's resolutions are very unlikely to mark a complete resolution of the crisis, as Ms Merkel herself acknowledged earlier this week.

A second bailout may simply keep Greece afloat for a number of months before a tougher decision has to be made on writing off more of its debt.

Many economists believe the only way out of the eurozone's debt crisis in the long run may be closer integration of national fiscal policies such as a joint eurozone guarantee for countries' bonds, or issuance of a joint eurozone bond to finance all countries.


Eurozone approves 159 billion euro Greek bailout - ABC News (Australian Broadcasting Corporation)

Thursday, July 21, 2011

A euro crisis... but also an opportunity for Britain

A new eurozone bond looks the most likely solution to stop the euro blowing apart.

A crisis meeting will decide the euro's fate  - and the effects will be felt far beyond the eurozone - A euro crisis... but also an opportunity for Britain<br />

A crisis meeting will seal the euro's fate - and the effects felt far beyond the eurozone

By Daniel Hannan 9:03PM BST 20 Jul 2011

While Britain was chuckling about custard pies this week, the debt cancer was metastasising across the Mediterranean. Bond yields in Spain and Italy have surged, leading to doubts over whether those countries can meet their existing liabilities. For the first time since the euro turmoil began, EU leaders are panicking. While Greece takes up just 1.9 per cent of the EU’s economy, Spain and Italy account between them for 24 per cent. A default in Athens might be a controlled explosion, but Rome and Madrid cannot repudiate their debts without blowing the entire European banking system to smithereens. The effects of such a blast would be felt far beyond the eurozone. The Bank of England, dispensing with its normally staid vocabulary, describes the turbulence as a “serious and immediate risk” to the United Kingdom. The IMF frets that, if EU leaders carry on with hand-to-mouth bailouts, the resulting crash might trigger a global recession.

The markets are starting to anticipate a euro break-up. The reason that borrowing costs in Spain and Italy have shot up is not that those countries are inherently destitute, but that investors are demanding a premium to compensate for the possibility that they might revert to devalued and inflationary currencies. Such fears have a way of becoming self-fulfilling. Italy must roll over €69 billion in August and September; it needs €500 billion by the end of 2013. If it cannot borrow at lower rates, it will struggle to remain solvent, and the entire European monetary system might become unsustainable. This is the tempest long foretold, slow to make head, but sure to hold.

EU finance ministers are meeting in emergency session today, groping for a way to prevent an unplanned collapse of EMU. They have two options: one is to oversee an orderly unbundling of the euro into more manageable units; the other is to establish what José Manuel Barroso calls “fiscal federalism”. Economic logic points to the first option. The reason Europe is in this mess is that it turned out to be ruinous to apply uniform monetary policies to widely divergent economies. The low interest rates dictated by the needs of the core economies were calamitous for the periphery, encouraging an artificial boom and a crash. Now, as the wheel turns, those countries are getting high interest rates just when they need low ones.

Sundering the single currency would allow Spain, Italy, Portugal, Ireland and Greece to export their way back to growth. One idea doing the rounds in Brussels is that, rather than expelling the southern countries, Germany and its satellites might withdraw and establish a new, hard currency, bequeathing the legal carcase of the euro to the Mediterranean states (and possibly also to Ireland, though a currency link with sterling would almost certainly suit Dublin better).

Monetary union, however, was never about economic logic. Rather than admit that the euro was a mistake, EU leaders are preparing the mother of all bailouts. One-off grants are no longer enough. What Euro-federalists now plan – what, indeed, they have been demanding for years – is a single eurozone bond market. Holders of junk national bonds will be invited to exchange their debt for new EU-backed bonds. The European Central Bank, or perhaps some new legal entity, will assume the bad debts of some of the stricken governments.

A euro crisis... but also an opportunity for Britain - Telegraph

Wednesday, July 20, 2011

A fight broke out for my dinner tab in Greece

by Simon Black

July 13, 2011
Thessaloniki, Greece


I went to dinner last night in an upmarket area of Thessaloniki. It wasn’t a touristy part of town at all, nearly everyone there was local.

As we walked down a narrow cobblestone path flanked by traditional Greek restaurants, all the various hostesses and proprietors ran out to greet us and pitch their menus.

“We have the freshest seafood!”

“We have the cheapest prices!”

“We offer free drinks and dessert!”

Within seconds, outright calamity ensued with each thrusting menus in our faces, pulling at our shirtsleeves, and shouting over the competition. Then a shoving match… and then finally an all out physical altercation, literally coming to blows over what amounted to a $20 dinner tab.

Now, aggressive behavior is common in this part of the world; it gets even worse in Turkey and North Africa. But there is an element of desperation that I have not yet seen before here. Given the graveyard of former restaurants gone bust nearby, it’s clear that last night’s owners are trying to stay afloat at any cost.

Later in the evening, I dropped by the city’s ancient agora ruins. Inside I could see a number of stray dogs marking their territory as they saw fit, and it was the perfect metaphor.  This place has literally gone to the dogs.

Coincidentally, the Greek government held a ‘successful’ bond auction yesterday, unloading 1.6 billion euros of six-month bills.  This sounds like a lot of money until you figure that it just barely covers this month’s interest payments on the roughly 340 billion euro debt that they already owe.

Just last month alone, the Greek budget deficit was 2.2 billion euros. Greece must continue indebting itself not only to make interest payments, but simply to keep the lights on. Meanwhile, the principal balance owed keeps rising while tax revenues are falling… making the situation perpetually worse.

Bailouts can’t fix this problem. Think about it like this: say your best friend is swimming in debt, paying $5,000 per month in interest. His best job prospect is $1,000 per month, so he’s in the hole $4,000 per month and rising.

If he receives a new $10,000 line of credit, would this fix his problems? Not at all. He’d be staring at bankruptcy again within 3-months.

Living bailout to bailout while going deeper into debt is simply an unsustainable Ponzi scheme. And given the Greek government’s current cash position and bond auction calendar, the next do-or-die bailout should come to a head this summer.

Europe will have to make a decision: (a) continue financing Greek largess and hope that taxpayers don’t care or notice; (b) take cover and allow the Greek government to default; or (c) an ‘orderly restructuring’ that combines loan workouts,  haircuts for bondholders, and strings-attached cash injections from the ECB and IMF.

The most likely is the third option, but no matter how you dress it up, it’s still a default.

We’ve seen this play out once before in Dubai. The emirate underwent a steep restructuring period on roughly 50% of its $59 billion debt load in late 2009 and 2010, and it caused a deep recession and losses in the local market. Two big differences, though.

First, Dubai had a wealthy big brother in Abu Dhabi. Europe has angry German taxpayers.

Second, Dubai was isolated. Europe has a number of insolvent countries whose collective debts far exceed the capacity for any bailout.

If the market is allowed to function, the consequent derivatives chain reaction from default will cause a wave of bankruptcies among a number of large financial institutions, triggering even more government intervention (read: taxpayer bailouts) and a deflationary sell-off in financial markets.

Barring a miraculous, no-strings-attached emergency bailout, I think we can expect the opening salvos within the next few months.

So why should you care if you’re not Greek? Because the ensuing capital controls, raids on public and private pensions, and social chaos met with overwhelming police brutality will be a preview of things to come when the rest of Europe and the United States arrive at their financial reckoning days.

S.A.-Sovereign Man

A fight broke out for my dinner tab in Greece | Sovereign Man: Finance, lifestyle design, Offshore Business and Expat news

Tuesday, July 19, 2011

Greek Economics: Drachmas, debt and Dionysius



Sweeping old drachmas into a furnace, Athens, November 1944 (Getty Images / Time Life / Dimitri Kessel)

In 1929 the Harvard economist Charles Bullock published a magnificent essay on a monetary experiment conducted by Dionysius the Elder, ruler of the Greek city state of Syracuse from 407 BC until his death in 367. After running up vast debts to pay for his military campaigns, his lavish court and spectacles for the common people he found himself painfully short of ready cash. No one wanted to lend him any more money and taxes were drying up. So Dionysius came up with a great wheeze. On pain of death he forced his citizens to hand in all their cash. Once all the drachmas were collected he simply re-stamped each one drachma coin as two drachmas. Simple. Problem solved. Syracuse was rich again.

Except, of course, it wasn’t. Bullock used it as an early example of why just minting more money out of thin air was seldom a reliable way of creating more wealth. There was, however, another lesson to be learned. When it comes to making a mess of the economy and fiddling the figures the Greeks have been at the top of their game for a very, very long time.

As the rioters storm through Athens, as the beleaguered Prime Minister George Papandreou patches together a coalition government and as the French and German governments wrestle with the second bail-out for their wayward partner in the euro in a little over a year it is worth remembering that this is not just a financial story, but a historical one as well.

If Europe’s leaders had looked more closely at the country’s past they would probably have never allowed Greece to merge its currency with Germany and the other euro-zone members of the EU. Its credit record is truly awful. After the formation of the modern Greek state in 1829 the country went on to default on its debts in 1843, 1860 and 1893. According to calculations by the economists Carmen M. Reinhart and Kenneth S. Rogoff Greece has spent more time in default to its creditors than any other European country. It has been skipping its repayments for 50 per cent of the years since 1800, compared with a mere 39 per cent of the time for the next worst offender, Russia. Indeed, even if you moved it across to Latin America – generally regarded among bond traders as default central – it would still be among the worst offenders. Only Ecuador and Honduras have a worse record of meeting their debts.

One reason for this is that the Greeks simply don’t have much money. All of the southern European countries that are struggling to stay in the euro zone – Spain, Portugal and Italy as well as Greece – are relatively economically backward compared to their richer northern neighbours. In all of them poor quality Mediterranean soils prevented agricultural development and the emergence of the prosperous middle class that drove the Industrial Revolution in the rest of Europe. But Greece was the most extreme example. Cut off by the Carpathian mountains it was far removed from the mainstream of European science and culture. For much of the last millennium it was dominated by the Byzantine Empire – not much known for its industrial prowess. Even after independence it struggled to earn a living for itself.

While much of Mediterranean Europe modernised rapidly in the postwar years, Greece barely caught up. Occupation by the Nazis followed by a civil war didn’t help. During the late 1960s and early 1970s, when much of peripheral Europe was starting to industrialise for the first time, it was ruled by a buffoonish clique of colonels who resisted any form of modernity, either cultural or economic. In a number of ways Greece still remains a pre-industrial economy, dominated by the state, by cartels and by a handful of wealthy families. Few multinational companies have found it possible to do business there.

The interesting question is why anyone thought Greece could survive in a monetary union alongside countries such as Germany, Austria, Holland and France that have always been far richer?

In reality everyone was trying to escape their history. The Germans and the French committed themselves to the euro as the next stage in cementing the European Union together; the 1957 Treaty of Rome, the European Coal and Steel Community, Euratom, the EEC, the EC and the earlier monetary union have all been put forward as ways of cementing France and Germany (and others) together. The Germans, and particularly the Bundesbank, knew Greece should not join the euro. But it wasn’t really possible to tell countries they were not welcome in the single currency. It would fatally undermine the whole European project, an ideal to which an entire generation of politicians had committed themselves.

And the Greeks? Like the rest of the financial and political elite in southern Europe, they believed the euro would be a catalyst for modernisation. Replacing the drachma with a new currency would, they argued, be a transformative act which, in a single step, would turn Greece into a vibrant, free-market economy.

But in that respect, as in so many others, the euro was simply not up to the job. Dionysius couldn’t make Syracuse richer by re-stamping the coins. And the European Central Bank couldn’t change the course of a few hundred years of Greek history by enforcing a one size fits all monetary policy. That simple truth is now catching up with all of them.

Matthew Lynn is a columnist for the Wall Street Journal Market Watch and the author of Bust: Greece, The Euro and The Sovereign Debt Crisis (John Wiley, 2011).

Greek Economics: Drachmas, debt and Dionysius | History Today

Greek Union Opposes Premier Over Sale of Power Company

By RACHEL DONADIO Published: July 18, 2011

A banner in Athens opposing the sale of Greece's state-owned Public Power Corporation. Lefteris Pitarakis/Associated Press

ATHENS — Sitting in his office on a recent morning beneath photographs of Marx, Lenin and Che Guevara, Nikos Fotopoulos, the leader of Greece’s most powerful labor union, took a freshly printed flier from a stack. “We are ready for new battles,” it read.


“And we are,” Mr. Fotopoulos said, sipping an energy drink and then chasing it with an espresso. “We will continue with street protests because we still have unfinished business with the government and the troika,” he said, referring to Greece’s three foreign lenders: the International Monetary Fund, the European Central Bank and the European Commission.

Last month, amid violent protests, Prime Minister George A. Papandreou narrowly managed to push a new package of austerity measures through Parliament, including plans for selling $71 billion in state assets, a step that economists and the troika say is crucial to overhauling Greece’s bloated public sector.

But whether Mr. Papandreou will be able to carry out the plan will depend to a large extent on people like Mr. Fotopoulos. His union, Genop, represents workers at the Public Power Corporation, which is owned jointly by the government and by private investors.

The union vehemently opposes privatizing public entities and is known for its aggressive protests, including walkouts at the Public Power Corporation that have caused rolling power failures, costing Greece $42 million to $57 million in recent weeks, the company estimates.

Genop represents a particularly thorny problem for Mr. Papandreou. It is a creation of the governing Socialist Party, which over the years helped build up the labor-centric jobs-for-votes system that the prime minister is now forced to dismantle. To carry out the reforms, Mr. Papandreou will have to strike at the heart of his own party — and it remains to be seen whether he has the muscle, let alone the stomach, to do so.

“That’s a real war, and a very uncertain war,” said Takis Pappas, a political science professor at the University of Macedonia. “Is Papandreou’s army strong enough to withstand this storm? Let’s wait and see.”

The battle with the power company’s workers and their union is even more personal for Mr. Papandreou. In 2007, Mr. Fotopoulos endorsed Mr. Papandreou as Socialist Party leader.

Sitting at his desk, Mr. Fotopoulos pointed to photos showing Mr. Papandreou visiting the power corporation’s office with union workers. Next to them is a photo of George Papaconstantinou, now Greece’s energy and environment minister — responsible, among other things, for selling off more of the government’s stake in the power company.

Above Mr. Papaconstantinou’s head, someone had written a cartoon bubble that read, “O.K., Mr. Fotopoulos, if you don’t agree, then I’d better leave.”

The government owns 51 percent of the power corporation and controls its board. The state sold the other 49 percent in a partial privatization in 2000.

Mr. Fotopoulos, 49, a compact, bearded man with an iron handshake, said the union endorsed Mr. Papandreou as Socialist Party leader in 2007 because he seemed “more approachable, warmer, closer and more concerned about our problems.”

“We still respect him as a politician and a person,” he said, “but we believe these are barbaric policies that go against the interests of the Greek people.”

To many analysts, the coziness between the Socialist Party and the union is a sign of the difficulties the government is likely to encounter in selling off more of the power corporation, as it is scheduled to do in 2012.

This month, Mr. Papaconstantinou said that rather than selling more of the Public Power Corporation at the current lower market rates, the government might explore alternatives, including selling off some of its hydroelectric or lignite-powered plants while looking for a strategic investor.

Arthouros Zervos, the power corporation’s chief executive, said in a telephone interview that there was some wiggle room in the agreement between Greece and its lenders that was approved by Parliament. Under the accord, the government has agreed to sell $71 billion in state assets by 2015.

“I think there is a possibility of a negotiation there,” Mr. Zervos said. “This commitment is mainly in terms of bringing a certain amount of money from the privatization to pay down the debt. So my reading is if you have some alternative ways of bringing that money, that could be discussed with the troika.”

Unlike other public sector companies in Greece, the power corporation is profitable, producing a return of $790 million in 2010 from $8.2 billion in sales. But analysts are worried that its future profit picture is clouded by regulatory uncertainties and, most crucially, the sway of its unions.

To many people, the issue is not simply about selling a stake in state-run companies, but about how to transform Greece’s public sector. “It’s not about making money; it’s about changing a culture,” said Panagis Vourloumis, who was chief executive of the Greek telecommunications monopoly OTE under the previous center-right government and oversaw the sale of a 30 percent stake in the company to Deutsche Telekom in 2008.

The culture of formerly public companies is proving resistant to change. “Irrespective of price, it is really about, ‘Do you have the leverage to run a company that has never been private before?’ ” said Jens Bastian, an economist at the Hellenic Foundation for European and Foreign Policy in Athens.

Analysts say the government has not convinced voters that privatization is a long-term remedy for the Greek economy. Selling off public corporations is deeply unpopular among Greeks, who fear a fire sale of state assets and applaud Genop and other unions for protesting.

But in the growing divide in Greece between public-sector and private-sector workers, an increasing number of Greeks regard the power company workers in particular as an overpaid, overprotected caste. According to Mr. Fotopoulos, Genop’s 21,000 members are paid an average net salary of $1,980 a month and its 35,000 retirees an average net pension of $2,122 a month — much higher than the Greek average.

“The unions are even worse than the politicians,” said Theodoros Yiannopoulos, as he sold bread rolls from a street cart in downtown Athens. “They were going to five-star hotels in Europe and sending the bill here.”

He was referring to a recent report by Greece’s public administration inspector, which found that since the 1980s, the power corporation had paid Genop more than $32 million, largely for “social tourism,” or vacation subsidies — but also to pay for protest demonstrations against the company itself, a surreal twist that captures the complex vested interests that are proving so hard for Mr. Papandreou to untangle.

Mr. Fotopoulos called the report “a smear campaign” and said the subsidies were part of the contract negotiated by the company and the union.

Others say the battle is as much political as economic. “The biggest challenge is for the politicians to believe that there’s still a future without unions,” said Takis Athanasopoulos, who clashed bitterly with Genop as chief executive officer of the Public Power Corporation under the previous government.

The telephone interview was interrupted at one point when his line went dead — from a power failure caused by a Genop protest.

Niki Kitsantonis contributed reporting from Athens, and Landon Thomas Jr. from London

Greek Union Opposes Premier Over Sale of Power Company -