Friday 28 October 2011

October 28th 2011

Today is October 28th, the anniversary of Greece’s refusal to allow Benito Mussolini’s ultimatum to allow Italian troops to enter Greece in 1940. This resulted in the declaration of war between Greece and Italy, and Greece’s entry into the Second World War on the side of the Allied Powers against the Axis.

Today, organised groups of protesters caused the traditional parade which takes place in Thessaloniki to be abandoned. In this city, the parade is synonymous not only with October 28th, but also with October 26th, the name day of St. Demetrius, who is the patron saint of Thessaloniki. The situation was sparked by their insulting of the President of Greece, Karolos Papoulias, by calling him a traitor, as well as by other events.

Similar events occurred at parades all over Greece. Thrown eggs, cries of “traitor”, physical attacks, and in once city, the burning of a German flag took place. In one poignant episode, schoolchildren parading in Athens refused to salute the flag, raising black flags instead. In Florina, the marchers carried a black coffin.

Instead of unifying around a day of Greek history, the country has yet again split itself apart. Apparently ignorant of the sacrifices being made today by the citizens in the Eurozone countries that have granted Greece two emergency loans, these protestors have chosen an apparently mindless “resistance” against the PASOK government and unnamed “foreigners.”

They have done so in such a way which defiles the memory of all Greeks who perished in the Second World War, an event in which it had absolutely no role except to defend its territory, and for which it suffered terribly. By some estimates, over 800,000 Greek deaths occurred during the Axis invasion and occupation, out of a total population of 7.2 million.

No matter how much one can complain against the PASOK government—and I believe I have been pretty critical in these pages—sabotaging a national holiday in this way is unacceptable. It illustrates the depths to which a few political parties or groups have been able to subvert the democratic process and the right to protest. It reminds me nothing less than the events which took place in the winter of 1944, and led to the civil war.

As Skai news reported, there has not been a single arrest made. More on this in a bit.

Changing the subject, today I arrived in Aghios Nikolaos, a small town on the northern shore of eastern Crete, where I am delivering a training programme over the next two days. Aghios Nikolaos is about 10 kilometers from the small village of Kavousi, where I worked as a volunteer at the American School of Classical Studies excavations in the summers of 1987 and 1988. These were among the best times in my life: waking up at 05:30, excavating an early Geometric village and fortress under the cloudless blue skies, seeing history emerge from the dust.

Each weekend I would hike through the mountains, particularly Afentis Christos, the highest peak in NE Crete, from which you can see the Aegean Sea to the north and the Libyan Sea to the south. I spent one Saturday night in July 1988 shivering in a little church at the top of that mountain. I had hiked up to watch the sunrise, alone, and the haunting sound of sheep bells in the distance kept me company in the cold. I remember waiting until around 09:00 or so, and then beginning the long walk down the mountain on Sunday morning, full of resolution and the determination to make my dreams a reality.

These were different times. Back then, consumer goods were much more restricted. Fast food restaurants were practically unknown. Human contact was much more intense. Hiking through small villages up in the mountains, villagers would invite me into their homes for coffee, wanting to know where I was from, what I was doing there, plying me with mountain raki and coffee, and never accepting a single drachma in exchange. The Cretan workers at the dig adopted me as family, inviting me to a series of festivals all summer long. The next step would have been a proxenio, a marriage offer, but thankfully I knew I was leaving for university in the United States the next year.

Today, things are different, as they are everywhere. We have lost much of our humanity and our ability to interact with other humans, as well as with nature. This interaction costs time and honesty, but not money. Instead, we’ve substituted this with an endless search for ephemeral, status-based pleasures—coffee at Starbucks, mindless shopping at The Mall, our latest Facebook post. We are all now double income-earning families. Formerly, we were money rich, time poor. Now we are money poor, time poor. Instead of feeling better about ourselves, we feel that we can never have enough, we feel the insecurity of the unsatiated, unsatiable credit card-wielding consumer. And now, of course, we have the great financial crisis. Was all this consumer frenzy worth it?

But the mountains are the same: craggy ramparts thrusting up into the sky, split by towering ravines, pine forests, and the kalterimnia which criss-cross their flanks. They slumber throughout the day, and seem to glow in the sunrise and sunset. The sea is the same, as is the wind. And I am sure that if we truly wanted to change our situation, we could.

Back to reality: arriving this afternoon to Aghios Nikolaos, as the sun was setting, a unit of 50 riot police were blocking the national highway with two trucks. They were screening cars arriving from Heraklion, no doubt on the lookout for potential demonstrators. Why? Because Greece’s Prime Minister is hosting a meeting of the Socialist International just 5 km down the road, in a luxury hotel.

It’s difficult to think of a more ironic or schizophrenic situation. Greece is falling apart and Europe is heading into an economic crisis, yet the Socialist International is meeting in a yet another luxury hotel, no doubt passing worthy resolutions which like most political resolutions of any ideological slant have little to do with everyday reality.

On October 28th, a day dedicated to democracy and the resistance to facism, Greek police are using facist methods to screen potential protestors. Political face control, if you will. One Fiat Punto with four young people was pulled over: the two women were forced to empty their handbags on the pavement. I didn't see any eggs or hand grenades, but you never know. There was probably no legal basis for this search. And all this to protect a meeting of Socialists in a luxury hotel nowhere near the site of the police block.

Internationally, the latest Italian bond issue cost over 6%, while unemployment in Spain reached nearly 5 million people, or 21.5% of the labour force. Fitch Ratings have termed the Greek haircut a form of default. We are still waiting for specific details from the Eurozone summit—details which have not yet emerged. International analysis and media are increasingly sceptical of the strength of the deal, and I fear that market sentiment will soon follow.

I close this atypical Philip Atticus post with no conclusions, no recommendations, no resolutions. I had promised myself not to work or write today, but the course of events has proved otherwise. Happy October 28th.

© Philip Ammerman, 2011

Thursday 27 October 2011

The October 26th Agreement and Greece

The European Summit of October 26th has led to a significant initial agreement which could potentially bring an end to the Greek debt crisis, providing it is implemented correctly by all sides, and providing further financial contagion does not occur.

The private sector financial institutions have agreed—in principle—to a 50% haircut on their outstanding Greek government bonds. According to a UBS study quoted by Kathimerini, this debt is held approximately as follows:

·       EUR 55 bln by the European Central Bank
·       EUR 18 bln by the International Monetary Fund
·       EUR 48 bln by the Eurozone countries involved in the first bail-out
·       EUR 74 bln by Greek and Cypriot banks
·       EUR 26 bln by Greek pension funds

Approximately EUR 129 bln is held by foreign banks and financial institutions. It is the amount held by the foreign and Greek banking sector, approximately EUR 204 bln, which is to be written down by 50%, or by approximately EUR 102 bln. No mention has been made of a write-down by Greek pension funds, although Greek Prime Minister George Papandreou mentioned that these would either not be written down, or would be recapitalised in some manner.

50% Haircut
2011 GDP (estimate), EUR bln
Total Greek Govnt Debt, EUR bln
Debt:GDP Ratio
Greek sovereign debt held by:
 EUR bln
EUR bln
Eurozone sovereigns
Foreign Banks
Greek & Cypriot Banks
Greek Pension Funds
Total, EUR bln
Total Write-Down, EUR bln

The media figure quoted, incidentally, is EUR 100 bln, meaning that these figures are fairly close to being accurate.

This represents an important possibility for Greece to return to a measure of financial stability. However, there are an important number of risks associated with this operation:

a.     It is not certain whether all financial institutions will comply with the write-down. They cannot be forced to do so, although presumably future Troika lending will not be made to redeem or refinance the bonds held by financial institutions which refuse to participate.

b.     There was no mention of interest rates or maturities in the communiqué. These were important parts of the original PSI agreement of July 21st. We understand that the write-down will occur on a voluntary basis, coordinated by the Institute of International Finance, but details are lacking.

c.     It is difficult to see how this will be classified as a voluntary operation. If involuntary, then creditors can seek to claim any credit default swap policies on the Greek debt. Furthermore, an involuntary event will trigger an automatic ratings downgrade to “default” by the international ratings agencies, creating at least technical difficulties for the ECB to participate in any further secondary market operations for Greek banks or the Greek government.

d.     It will create a major recapitalisation issue for the European banking sector, coming on the eve of at least EUR 600 bln in sovereign debt refinancing needed by Italy, Spain, Turkey and other countries in 2012.

e.     The fate of the Greek banking and pension systems, although theoretically guaranteed by a further EUR 30 billion in funding, is entirely unknown.

f.      It is extremely difficult to see how Greece will return to markets in the near future, or even by 2020, given the scale of losses suffered by the financial sector as well as the continuing high debt:GDP forecast for 2020. Nevertheless, a “scorched earth” policy in terms of lending may be the only option for getting Greek public finances in order.

The immediate situation in Greece is unchanged. Events are dominated by growing unemployment and business failure; falling consumer income; political divisions; social tensions; and a dysfunctional public sector. Superhuman efforts must be made to implement the Mid-Term Fiscal Adjustment Plan, which will almost certainly tip Greece into depression. The fact that the new bail-out plan requires close monitoring of Greek performance by a permanent international mission will exacerbate political tensions. An election in late 2012 is almost certain, if not sooner.

So, everything depends on implementation, and on avoiding a systemic financial crisis brought about by the Greek PSI and far larger prevailing issues already discussed in this blog.

We believe that the 2012 growth forecast for Greece is far too optimistic, and that a nominal GDP decline of 5% is likely, together with an “official” unemployment rate of between 18-20%. This will create further pressure on meeting fiscal targets. We also see a very limited chance for privatisation income in 2012: EUR 5 billion is an optimistic forecast.

Despite this, we see a high chance of achieving a primary state operating surplus in 2012. We also see signs that the austerity programme is taking effect, and that both revenue and expenditure assumptions may be better than anticipated by end-2011 as well as in 2012-2014.

Greece’s ability to implement its obligations consistently with a modicum of political stability are now key drivers of success. Unfortunately, both factors are in grave doubt, as all opposition parties have already declared their “resistance” to the enhanced technical assistance and monitoring programme expressed as a requirement at the summit.

A detailed Greek macro forecast has been developed and will be published soon.

© Philip Ammerman, 2011 

Saturday 22 October 2011

Cleaning the National Park of Marathon-Schinias

Sunday, October 23rd at 10:00 am

The National Park of Marathon-Schinias is a unique ecosystem in Attica and in Greece. It is one of the few areas where a pine forest and wetlands verge onto a sandy beach and coastal dune system. The entire Park is a protected area, but one which neither the government, in the form of the National Park organisation, nor the Municipality, are able to protect.

Illegal tavernas and beach bars have expanded in the area, in clear violation of at least three major zoning laws (proximity to the waterline; the fact that this is a forest area; the fact that it is a national park). Rather than closing these establishments, the government turns a blind eye to the fact that they operate, as well as to the fact that they have gained access to private electricity provision, and operate with what amounts to an illegal restaurant licence.

The second major problem is that of unrestricted access. Schinias is a popular summer swimming destination: one estimate claims that every day, at least 10,000 people in about 3,000 cars visit the park. They leave tonnes of litter behind; their cars destroy the root system of the pine forest; some go as far as to set up grills and cook their food, which is a major fire hazard during the high-temperature, high-wind, dry summer season.

Since 2008, a group of volunteers named the “Friends of Schinias” has organised six clean-ups of the National Park. Initiated by Philip Ammerman of Navigator Consulting Group, and with the support of private sector companies, embassies, schools, NGOs and the media, we have cleaned hundreds of tonnes of litter in an effort to make the park safer and cleaner, and to remove fire and health hazards.

On Sunday, October 23rd, we are meeting for our seventh cleanup, starting at 10:00 am.

This Sunday’s cleaning has been initiated by Elix, one of Greece’s best volunteer organisations, and the Conservation Volunteers Alliance . We will be meeting at the parking lot near the “Dolphin” restaurant, at the end of the asphalt road, at the NE corner of the park near the “Dikastes”.

Register or visit our Facebook page:

For further information, please contact:

Philip Ammerman
tel. 6977-662-450

Friday 21 October 2011

Passing the Third Greek Austerity Vote (and Waiting for Godot)

Yesterday evening the Greek Parliament passed the third major austerity plan, after the initial Memorandum of May 2010 and the Mid-Term Fiscal Consolidation Plan of July 2011. This third plan, nicknamed the “Multiple Law” in Greek, expands the austerity measures, including: 

·       Lifting collective bargaining agreements for a limited period
·     Placing 30,000 state workers in a labour reserve at reduced salary, prior to terminating their employment after one year
·       Reducing the tax free level from EUR 8,000 to EUR 5,000 per year
·       Reducing public sector salaries in the wider public sector by an average factor of 25%
·       Reducing public pensions over EUR 1,200 per year by 20%
·       Reducing public pensions for people who have taken early retirement by up to 40%

This law included measures agreed with the Troika (the representatives of the International Monetary Fund, the European Central Bank, and the European Commission/Eurozone). It met with widespread civil and political resistance.

A two-day general strike on Wednesday and Thursday brought hundreds of thousands of protestors onto the streets of Athens, Thessaloniki and other major cities. In Athens, violence erupted on Wednesday by protesters against the police lines, and on Thursday between groups of protesters, as well as against police. Some 40 people were hospitalised on Thursday; one person died during the protests, either from a heart attack or asphyxiation from tear gas (reports are mixed).

The conflict within the Parliament was no less vitriolic. Former Labour Minister Louka Katselli voted against article 37 of the law, which eliminates collective bargaining agreements for a period of 2 years. She was expelled from the ruling Socialist party. At least 8 additional Members of Parliament for PASOK, including party veteran Vasso Papandreou, declared that they would not be supporting any other austerity measures.

Attention now turns to two critical points: implementation of the law, and the long-awaited Eurozone decision on the second Greek bail-out as well as the wider role of the European Social Stability Fund.

On the record of implementation, the picture in Greece is mixed but does offer some encouraging signs. The main such sign is that the states operating deficit, rose to EUR 17.509 billion in January – September 2011. Deducting interest payments, however, the primary operating deficit is only EUR 3.746 billion.

If capital expenditure in the Public Investment Programme is added, then the total state deficit increases to EUR 19.164 billion, and the primary deficit to EUR 5.131 billion.

As strange as this may sound, this is real progress. Although this expenditure does not include the general government debt (which includes transfers to pension funds), it shows that the Minister of Finance’s contention of a primary state government surplus in 2012 is a real possibility.

Furthermore, I anticipate an improvement in the revenue / expenditure balance, since the tax-free level has fallen from EUR 12,000 per year to EUR 5,000 per year under the law passed yesterday, and since additional taxes are traditionally collected towards the end of the calendar year.

Operating Budget - State
2010 9 mo
2011 9 mo
Gross Revenue
NATO Revenue
Tax Refunds
Total Revenue
Primary Expenditure
Transfer to Hospitals
NATO Expenditure
Military Procurement
Government Guarantees
Total Expenditure
Expenditure less Interest
State Deficit - Operations
Primary Deficit - Operations
Public Investment Programme
Total State Deficit
Primary State Deficit

However, the key question on implementation is the extent to which Greece has a functioning public sector. The strikes and occupation of public facilities continues, the most important of which is perhaps the General Accounting Office and the Ministry of Finance personnel. The fact that PASOK has lost yet another MP, and has an additional 8 who have openly refused to back any more austerity measures, is indicative of the risks that the government could yet lose control of the situation.

One the European front, the situation is not much better. Continued differences between France and Germany on EFSF funding of the banking sector and a private sector haircut on Greek debt led to the inconclusive end of talks in Frankfurt on Wednesday evening. German press reports indicate that Angela Merkel wanted to cancel the October 23rd meeting of Eurozone leaders altogether; reports yesterday indicate that a second summit is planned for Wednesday, October 28th.

These reports indicate that regrettably, there is no clear consensus on how to deal with the crisis which is now gripping the European banking sector as well as the sovereign debt sector. As mentioned in previous posts, the banking sector has been affected by sovereign and commercial debt write-downs, rising non-performing loans, and over-leveraged loans and derivative positions. Economic growth is slowing, and several countries, notably France, Italy and Turkey, face large-scale debt roll-overs in 2012. The recent downgrades of Italian, Spanish and British banks and the negative watch on French sovereign debt illustrate the gravity of the situation.

If a real, workable plan of sufficient scale is not announced next week, a cascade of dominoes will begin to fall in the weeks and months to come. Europe must take action to restore public and financial sector confidence in the Eurozone institutions and the European banking sector before it’s too late.

© Philip Ammerman, 2011