Saturday, 26 June 2010
Thursday, 24 June 2010
I’ve just read Michael Hastings' Rolling Stone article on General Stanley McChrystal and
The paradox was that on the one hand, the
The article also points out a salient fact: that the main Taliban rear areas in
Add to this the fact that the surge has been slow in getting off the ground, and that it is timed to end next year. It seems that in terms of strategy, the campaign is bound to fail: all the enemy have to do is remain in the fight. By not losing, they win.
As for General McChrystal: I got the impression of a tremendously competent man, a warrior, who should be out planning missions and kicking down doors than suffering through dinner in
The “trash talk” so magnified by the press honestly seems insignificant. The group of officers in that hotel room were blowing off the not inconsiderable steam that comes from being in a combat zone. While it’s unfortunate their comments had to be relayed in this way, I’m sure hundreds of thousands of other American citizens, government employees and members of the Armed Forces share similar thoughts.
It’s also interesting to note the double standard at work. None of the comments made by McChrystal or his aides were as vitriolic as those made by one senator against another in the 2008 Presidential race. Or by one senator against the President in a State of the Union speech. Both senators and generals are supposed to be leaders, and both are paid by the government, right?
When do you remember a US senator ever resigning for something they’ve said?
Wednesday, 23 June 2010
Dear Prime Minister,
This morning, and all through today, a group of about 100 dockworkers from 2 small unions of marine employees are blocking the departure of several high speed ferries from leaving the
This is despite that fact that a court ruled that the strike was illegal. Hundreds of tourists, businesses and ordinary citizens were prevented from boarding ferries to get to the islands. Besides the inconvenience to ordinary citizens and the damage to Greek enterprises, the damage to Greek tourism and Greece's public image are devastating.
To add insult to the injury, television broadcasts showed policemen protecting the dockworkers by pushing away the hundreds of unhappy travelers who simply wanted to board and get on with their journey. Why are the police protecting an illegal strike against the legal rights of Greek citizens?
It’s your choice.
Please act soon. We are all waiting.
Thursday, 17 June 2010
The Hellenic Statistics Authority (ELSTAT) released quarterly and 5-month economic statistics yesterday which make for grim reading:
· Inflation (CPI) in May 2010 is up 5.4% year-on-year
· GDP fell by 2.5% in QI 2010 (temporary figures)
· Unemployment rose to 11.7% in QI 2010
· Industrial production fell in April 2010 by 5.1% over April 2009
· Construction fell by 35% in March 2010 over March 2009.
These figures are worse than expected, and can be forecast to continue into the future.
The CPI increase is due mainly to the VAT rise as well as excise taxes on fuel, cigarettes and other items. Only about 1% is estimated to by underlying CPI. With the price of oil predicted to top $ 80/bbl this summer, and future tax rises in the works, we can only assume that inflation will continue to rise, despite the dismal economic situation.
The increasingly present danger is that
Figure 1 shows monthly CPI and unemployment figures in
It’s interesting to note that at roughly the same time, the price of oil collapsed from about $ 140/bbl in July 2008 to below $ 40/bbl in January 2009. Figure 2 shows Greek unemployment and CPI, with an added plot of WTI crude prices in $/bbl on the right axis.
That was also the point where Greek GDP started to fall precipitously. In September 2008, Lehman Brothers collapsed and the credit crisis began in earnest. Figure 3 plots GDP (annual change, current prices) with unemployment and CPI. The GDP figures are temporary and subject to revision.
Looking to the future: most economic analysts indicate a GDP decline of between 2-4% in 2010, followed by a further decline in 2011 and possibly 2012. Assuming a continuing inflation rate due to taxes, oil prices and other factors (such as food prices), it’s clear we are in for a very difficult 2-3 years.
Wednesday, 16 June 2010
Perhaps unnoticed by the national or international media, the restructuring of the Greek government’s debt has officially begun. Despite all protestations to the contrary, the restructuring effort has started right here in
What is a debt restructuring? It is a situation in which a debtor is unable to pays its creditors the full amount owed, according to the payment terms agreed. In this case, there are several options for restructuring:
a. A new payment schedule is agreed upon;
b. A “haircut” on the debt occurs, in which the debtor pays back only a certain percentage of his debts to his creditors;
c. An agreement is made to reduce interest charges;
d. Other forms of compensation are agreed.
According to today’s Kathimerini, the government owes EUR 7.1 bln to suppliers of pharmaceuticals, equipment and disposables/consumables. Some of this debt dates to 2005.
According to an agreement reached yesterday, the government has proposed the following payment system:
a. Debts of EUR 1.45 bln dating from 2005 and 2006 will be settled in cash;
b. Debts of EUR 1.1 bln dating to 2007 will be settled with an interest-free, 1-year government bond as well as a further cash payment of EUR 100 mln;
c. Debts of EUR 2.2 bln dating to 2008 will be settled with an interest-free, 2-year government bond;
d. Debts of EUR 2.05 bln dating to 2009 will be settled with an interest-free, 3-year government bond.
Of the total amount of EUR 7.1 bln owed, approximately EUR 6 bln will be repaid, given that the bonds carry a “discount” of about 15%. The bonds can be redeemed at participating banks, who will in turn use these bonds for collateral at the European Central Bank.
So, the restructuring has begun, and fittingly, it has begun in
Make no mistake: this is definitely a restructuring, all protestations to the contrary.
And my next question is: when will this process start with
Tuesday, 15 June 2010
I’m increasingly convinced that at least 25% of the “problem” in
On the “NET” news bulletin today, the final clip just before the athletic bulletin was that of Deputy Minister of Health Fofi Gennimata touring a hospital somewhere, possibly in
Does Greek public television, a mammoth public organisation financed by mandatory household taxes, really need to show a “Star TV” clip of the Deputy Health Minister in
What will PASOK order up next? Reports on
A little while later, the ET3 anchor was presenting the hospital – pharmaceutical provider “crisis”. His sentence was to the effect that “patients are being held as hostages (ομηρία) by the pharmaceutical providers.”
Hello? There are companies which are still trying to collect debts which date back to 2007 and before, and who have stopped supplying the public hospitals because they are owed money. Yes, of course there have been lots of scandals regarding the cost of pharmaceuticals and consumables in the public healthcare system. And we know exactly why: so that administrators and doctors would make bribes off the procurement contracts, just as they take bribes (“fakellakia”) to arrange routine medical treatment. Did anyone force the government or the public healthcare system to enter these agreements?
There is a double standard at work:
· When dockworkers close off the ports and prevent tourists from boarding their ships, is this called “ομηρία”?
· When student unionists prevent university staff from leaving or entering their university offices, is this called “ομηρία”?
· When the government delays payments to fire fighters, teachers and social workers on part-time contracts, is this called “ομηρία”?
· When the government unilaterally decides to delay the refund of VAT until September, is this called “ομηρία”?
Of course not. It’s only when the government realises it has to pay, that it’s erstwhile “opponents” become “hostage takers.”
This may sound like a minor issue, given the state of things today. But to me, it shows a sloppy and politicised approach to public broadcasting, which unfortunately reflects the double standards and lassitude of public sector officials today.
It does nothing to contribute to an objective public understanding of critical issues affecting the Greek taxpayer. When adding this to the fact that ERT employs over 3,500 staff, runs at least 8 TV channels, and 5 orchestras, it’s very clear that the public sector reforms are not nearly as comprehensive as they should be. The opposite is true.
Neither PASOK nor ND have a plan to Reform the Public Sector in Greece
Moody’s yesterday downgraded Greek government bonds to Ba1. This was met by predictable furor in some Greek media. SBC TV, a financial channel, identified this as a conspiracy yesterday afternoon, suggesting that the reasons this happened was so that the European Union did not develop its own ratings agency. Sofokleous 10, a financial blog, termed this a “terrorist act”.
The Ministry of Finance issued a press release, which I quote and translate from Kathimerini:
Today's downgrade of the Greek economy from the Moody's agency in no way reflects either the progress made in the last few months, nor the prospects created by the public fiscal adjustment and improvement in national competitiveness.
The budget execution figures show with great clarity that the programme which Greece has agreed with the European Union, the European Central Bank and the International Monetary Fund is being implemented normally, with the deficit having fallen by 40% compared to 2009. This important improvement has been recognised by the European Commission, the European Central Bank and the International Monetary Fund. In addition, the recession in the first quarter was smaller than that foreseen for the whole year in the Memorandum. VAT revenues collected in the first quarter were higher by 6%, whereas last year they had fallen by 11%.
All structural adjustment activities foreseen by the Memorandum of Understanding are being implemented regularly and many are already ahead of their established deadline. The progress of the debt, although currently rising, is expected to peak in 2013 or perhaps sooner, depending on the creating of more favourable conditions.
The Hellenic Government remains entirely committed to the adjustment of its public debt and the improvement of the development potential of the country.
From the viewpoint of any potential investor, the Greek reform programme is fraught with risk. The good efforts of the Ministry of Finance notwithstanding, the government has been taking serious measures only in the last 3-4 months, and as I recounted in yesterday’s post, there are still very many questions left unanswered. Moody’s had already announced a negative outlook in its last rating on
All three major ratings agencies have now downgraded
Whatever criticism we can raise against these agencies on their previous ratings of Greek government debt, or mortgage-backed securities, or European banking issues, I believe that their current rating on
There remains a critical lack of quantitative data on the full extent of Greek public debt. Beyond this, it is clear that the EUR 110 bln package will not be sufficient to fund Greece's public sector borrowing needs past 2012. Unless it is renewed,
It remains to be seen whether the reform package will actually work. I believe it will, but that at least 10 years of austerity will be needed, together with a more radical reform. At present, it’s clear that neither the wider public sector nor the political party system has made the radical changes needed for competitiveness.
Good intentions and Parliamentary committees notwithstanding, much has been announced, but little accomplished. It requires a major leap of faith to assume that the very politicians and political parties responsible for
I copy the Moody’s press release below.
London, 14 June 2010 — Moody's Investors Service has today downgraded Greece's government bond ratings by four notches to Ba1 from A3, reflecting its view of the country's medium-term credit fundamentals. Today's rating action concludes the review for possible downgrade, which Moody's initiated on
The outlook on all ratings is stable. “The Ba1 rating reflects our analysis of the balance of the strengths and risks associated with the Eurozone/IMF support package. The package effectively eliminates any near-term risk of a liquidity-driven default and encourages the implementation of a credible, feasible, and incentive-compatible set of structural reforms, which have a high likelihood of stabilizing debt service requirements at manageable levels,” says Sarah Carlson, Vice President-Senior Analyst in Moody's Sovereign Risk Group and lead analyst for
Moody's believes that the Eurozone/IMF support package has sheltered the Greek government from the markets while it enacts the very ambitious fiscal austerity measures and structural economic reforms stipulated by the package. These have the potential to restore market confidence, depending on the effectiveness of the government's execution, and place the country on a more stable debt trajectory. The rating agency's base-case scenario envisions Greece implementing the policy changes it needs to stabilise its debt-to-GDP ratio at around 150% by 2013, and reduce its debt burden, defined as the interest payment/revenues ratio, gradually thereafter (expected at 20% in 2014).
Should the economy respond positively to the competitiveness-enhancing structural reforms, debt stabilisation could be achieved earlier. “There is considerable uncertainty surrounding the timing and impact of these measures on the country's economic growth, particularly in a less supportive global economic environment,” says Ms Carlson. “This uncertainty represents a risk that leads Moody's to believe that Greece's creditworthiness is now consistent with a Ba1 rating, a rating which incorporates a greater, albeit, low risk of default.” Moody's outlook on Greece's ratings is stable, reflecting the substantial probability that the rating will not change over the next 12 to 18 months.
The key factors that will influence the rating agency's view will be the performance of the Greek economy, especially that of GDP and tax revenues. Information on these developments will take some time to accumulate and may prove to be either credit positive or negative. For further information, please see Moody's Special Comment “Key Drivers of
Monday, 14 June 2010
This week, officials from the “Troika” of the European Central Bank, the IMF and the Eurozone are due in
The PASOK government has launched a critical, even historic round of reforms, in agreement with the Troika. If implemented correctly, these reforms will greatly improve the Greek fiscal situation and part of its competitiveness.
They will not, however, be enough in themselves to assure
This will be the subject of a future post. What I am most concerned of today is the fact that although the government is moving in the right direction, it is not moving fast enough, and it is clear that it will not meet many of its targets in the agree time frame.
Let’s take the budget progress as an example: according to the 5-month budget estimate published by the Government Accounting Office, the total deficit “fell” from EUR 14.65 bln to EUR 8.97 bln in the first 5 months of 2010 versus 2009 (all figures in EUR mln).
This is undeniable progress. However, both the income and the expenditure lines are “skewed”:
· The government has decided to delay return of VAT to September 2010, unless tactical audits are undertaken. This means that the “Tax Returns” line of “income” is artificially low.
· Several items of “Expenditure” are not reported:
a. The government has put off paying medical sector debt. It is currently locked in negotiations with pharmaceutical and other providers over its proposal to pay recent debts, from 2007 onwards, using Greek government bonds.
b. The government has not counted the retirement cost package of Olympic Airlines, which has a total price tag of EUR 1.3 bln, and which apparently will, despite previous declarations to the contrary, be paid. It is unclear whether this will be booked to the central budget, or towards the insurance funds.
c. The government has not paid a large number of state employees on temporary contracts, such as teachers, medical assistants, social workers and firefighters, for several months.
d. A large range of government ministries have delayed payment to private sector organizations for services provided. Perhaps the most famous example of this is the Hellenic Tourism Organisation (EOT) / Ministry of Tourism, which is rumoured to owe several hundreds of millions of Euro in debt for previous years’ tourism promotion campaigns.
Unfortunately, such full honestly would result in yet another firestorm on European sovereign debt markets. So I can understand if, by the end of this week, the Troika announces itself satisfied with the progress of the SGA and releases the EUR 9 bln tranche.
This causes new questions to arise:
· Moral Hazard: Will the Troika become a willing accomplice in concealing the true measure of Greek debt?
· Medium-term Impact: What will happen in 2012-2013, when the EUR 110 bln package expires, and
The changes that
The Troika should insist on close monitoring, but perhaps increase the amount of lower-cost funding as a form of incentive payment for meeting budget conditions.
Otherwise, we are all deluding ourselves. Let’s not forget that of
Wednesday, 2 June 2010
I owe a debt of thanks to the staff of the Ministry of Finance, who assisted in the issue of our corporate tax residency certificate, which was finally issued on Friday, 28 May and was available on Monday, 31 May.
On Tuesday, May 25th, I wrote an email to Minister of Finance George Papaconstantinou, explaining the situation. On Thursday, May 27th, I received a telephone call from the Ministry, asking for clarifications, and promising to clear up the matter. This was duly accomplished.
On Friday, May 28th, I received a telephone call from the Ministry that the tax certificate was ready, and that I could pick it up on Monday, May 31st.
This entire process started on March 17th, and was completed on May 31st. More than anything else, it has challenged my fundamental belief in
As you can see from one of the certificates (pictured above), the text is entirely simple and indeed innocuous:
I certify that Navigator Consulting Group Ltd, TIN 999496185, registered at 32, 25 March Street, Geraka 15344 Greece, is a corporation of the Hellenic Republic during the calendar year 2010, within the meaning of the double tax convention between the Hellenic Republic and the government of the Hungarian Peoples' Republic."
The Ministry, and its political leadership, are trying to implement an extremely difficult programme, and it’s clear that one of the main barriers is the creaking, inefficient structure of the public administration and its internal processes.
The new government has recently launched some new measures for e-government, pertaining to the payment of automotive circulation taxes and similar measures. I sincerely hope they will be able to stabilise the financial situation of
So, to Minister Papaconstantinou and the staff at the Ministry: Thank you for responding to my email, and looking into the matter. And good luck.