Tilting at the Greek Rumour Mill

These past few months, both the serious press and its yellow equivalent in Greece have launched or transmitted one rumour after another as to the outrageous demands or developments made by the Troika or the panacea to the Greek debt crisis. Here are some of them, in reverse chronological order:

The Troika demanded the emptying of all Greek islands with a population under 150 people

This rumour apparently originated in the office of Minister of Interior Evripides Stylianides yesterday*. It is not clear what benefit a depopulation is supposed to have achieved, unless of course this was a preliminary step to selling off the islands. This afternoon, Minister Stylianides retracted this claim, and further on stated that there had never been such a claim to begin with. 

It should be obvious for numerous reasons why this cannot possibly be true:

a.  The Greek government is already trying to lease a number of uninhabited islands, and has gotten precisely nowhere. It makes little sense to evacuate inhabited islands (which is illegal and expensive) when there are so many islands which cannot be sold.

b.  There is obviously no conditionality relating to the first or second bail-outs requiring the depopulation of Greek islands. The complete conditionality in the second bail-out (which is what is being negotiated right now) can be seen here.

I make it a rule to be extremely careful every time a Greek politician—or anyone connected to a Greek politician—speaks about the Troika. Given the absolutely abysmal failures of Greek public policy and the political class since 2010, I can’t imagine any serious observer of Greek politics does not do the same. Ask yourself the simple question: “Would I buy a Greek government bond used car from this man?”

The Greek-American NGO called “END” has accumulated $ 650 billion to bailout Greece and Cyprus.

This rumour originated in cyberspace among some extremely marginal blogs. The idea is that a Greek-American NGO called “END” (End National Debt) accumulated $ 650 billion in a bank account, which would be used to pay off Greece’s debt ($ 600 billion) and Cypriot debt ($ 50 billion). The only condition that END attached was for a comprehensive forensic audit on what the existing debt of the two countries had been used for.

This is so obviously a fraud, that it’s painful to have to explain it:

a.  Greek sovereign debt is EUR 320 billion; Cypriot sovereign debt is EUR 12 billion. Converting this to US Dollars at a rate of 1.25 gives you $ 415 billion. What’s the remaining $ 235 billion for? Souvlakia in Monastiraki?

b.  Greece’s problem is not paying down the full debt of EUR 320 billion, but servicing this bet. If someone did have $ 650 billion, all they need to do is invest it at a net 4%, earning EUR 21 billion, and use this to pay down Greece’s annual interest costs (roughly EUR 15 billion) and some capital. This would be the surest way to actually press for some kind of sanity in the Greek public sector while not wasting your capital. Oh, I forgot—that’s what the Troika is trying to do.

c.  Greek Americans do not have liquid assets of $ 650 billion. It’s probably a major achievement if their total asset base, including [illiquid] real estate, exceeds $ 50 billion. And I don’t see many Greek-Americans selling their diners to pay down Greek government debt.

d.  Total US banking deposits in the US banking system was $ 8.939 trillion on September 26^th, according to the most recent Federal Reserve Bulletin. An END deposit of $ 650 billion would represent 7.3% of total US deposits.  In 2011, the largest bank by deposits in the US was JP Morgan Chase, with $ 1.093 trillion. Deposits of $ 650 billion in this bank would represent 59.5% of total deposits, which is obviously impossible.

Greece is “floating on a sea of gas”, enough to pay down the national debt: this is the reason for the Troika conspiracy against Greece.

This is an extremely popular rumour, with numerous articles quoting a reserve estimate by a company named Flow Energy to the extent that state earnings valued $ 599 billion are possible over 25 years.

While there are definitely hydrocarbons out there, there are a number of factors which cast some doubt over the facility with which this conspiracy theory is being bandied about:

a.  There has been no real hydrocarbon exploration in Greece since the 1970s: any estimates are usually made using extrapolation from the Leviathan Field off Israel. Even assuming the Exclusive Economic Zone can be legally established (which is NOT a foregone conclusion) much of gas is deepwater, making recovery difficult, expensive and time-consuming. With global gas production at record highs, there are also no guarantees that historical prices will be maintained. Any future valuation is therefore suspect, particularly since we don’t know the costs of extraction or the terms of a production sharing agreement with the government.  

b.  If the Troika thought there were gas reserves available, you can be sure that they would have included this as a loan conditionality, similar to the EUR 50 billion privatisation programme.   

c.  If the international oil and gas industry thought reserves were available, it is almost certain that they would quite simply “buy” the Greek government, as so many other Greek and international businesses already have, and extract at their leisure. This is, after all, what the Tsochatzopoulos scandal, the Bank of Crete scandal, the structured bond scandal, the current state of the oil refining and distribution sector, and so many other scandals in Greece teach us.

Indeed, the only mystery regarding Greek hydrocarbons is why the Greek government hasn’t done anything about them in the first place. But I can imagine two home-grown reasons why, and if you think about it a little, so can you.

Banque d’Orient Shares worth EUR 670 billion will end the Greek debt.

This rumour also originated on various blogs, and was championed by Zougla. According to this, Mr. Artemi Sorras owns a certain number of shares in the now defunct “Banque d’Orient” (BdO), which was originally founded by the National Bank of Greece (NBG), which are in turn guaranteed by the Banque de France (BdF) using gold-denominated guarantees. Although the Banque d’Orient failed and was re-absorbed by NBG in 1932, the liquidation “never took place”. It is claimed that NBG, under Mr. Provoloulos, recently offered EUR 1.5 billion to buy back 10 shares of the BdO. Mr. Sorras has kindly offered to contribute these shares to Greece in order to pay back its debt. The wider idea, of course, is for Greece to claim back the guarantees from the Banque de France and Deutsche Bank, which took over NBG during the Nazi occupation. The claimants have gone so far as to register a “Banque d’Orient” website.

Assuming the facts are as Zougla presents them, then this idea is so absurd it is difficult to understand how anyone takes it seriously:

a.  Assuming an “absorption” did take place in 1932, then every shareholder would have automatically been offered shares in NBG at an established rate via a share exchange. If the shareholders did not accept, then they would have had a certain time frame to make a legal case. Anything else exceeds the statute of limitations.

b.  Assuming the liquidation of BdO did not take place, as maintained by Zougla (which is confusing, since Zougla also states that BdO was absorbed by NBG: you can’t have both scenarios in parallel), then the guarantor of BdO is NBG. NBGs total assets were EUR 111.5 billion in Q1 2012. Any claim from shareholders of BdO would have to be settled by NBG, which, if upheld in court, would effectively bankrupt both NBG and Greece. Good luck with that. 

c.   Assuming that for some reason legal responsibility is indeed that of Deutsche Bank (which theoretically administered NBG during the Nazi occupation), then a legal case has to be made that the failure to liquidate BdO during the occupation was that of Deutsche Bank. The plaintiffs will be forced to prove a double negative: (a) that Deutsche Bank was in charge, not NBG (or the Nazi authorities); and (b) that the BdO was not liquidated. This will be extremely difficult, given that the Nazi Occupation occurred from 1941 to 1944, but that according to Zougla, BdO was “absorbed” by NBG in 1932, which Greece was independent.

d.  The Banque de France (BdF) is mentioned as being a “guarantor” of “gold-denominated” shares in BdO. Yet this is plainly impossible, because then the BdF would have been a co-owner of the bank, and its responsibility would have ended once BdO was re-absorbed by NBG in 1932.

This is elementary practise in corporate law. To suggest otherwise is to build a non-existent case out of thin air, which would have to be proven in courts. Why Mr. Triantafyllopoulos and so many others have invested so much in this case is beyond me, except of course to improve their fading television ratings.  

These are a few of the more popular cases: there are hundreds of others out there.

It is continually a surprise to me how educated, experienced people who have lived and worked all over the world believe these rumours. Some of my Facebook friends, God bless them, distribute these ideas faster than the Greek government issues debt.

Caveat lector.

© Philip Ammerman, 2012

* Correction on October 13th: The rumour apparently started by ND Minister of Mercantile Marine & Aegean Kostas Mousourlis, who stated at an event last week. This was subsequently denied by the Troika. 

“Truth is beautiful, without doubt; but so are lies.”

Ralph Waldo Emerson

The Greek Collapse

In the wake of Angela Merkel’s visit to Greece, I find myself reflecting once more on how much longer Greek society will tolerate the “structural reform” programme.

The cuts in pensions and salaries planned for 2013, together with tax revisions reducing tax deductions for children and increasing tax brackets will probably provide the final nail in the coffin of Greek popular acceptance.

To illustrate some examples of the impact of the new tax code, as it is currently planned:

·    The starting tax-free basic income falls from EUR 12,000 in 2011 to EUR 8,000 in 2012 to EUR 5,000 in 2013. In Cyprus, in contrast, the starting tax-free bracket is EUR 19,000.

·    After years of providing tax incentives for families with over three children, the government is reversing its policy and reducing the tax deductible from EUR 2,000 per child to EUR 400 per child. This will render an additional EUR 1,200 in taxes on average for the same income reported under the new tax code.

·    Taxes on independent professionals will be levied at a flat rate of 35%, starting from the first Euro of income. 

·    Lump sum severance payments are being cut once again, as are ordinary pensions and salaries in the public sector.

·    Retirement ages are being increased from 65 to 67.

·    There are negotiations underway to cut the minimum wage from EUR 586/month in 2012 to a lower amount: some reports suggest EUR 420/month.

These tax changes come at a time when indirect taxation is creating massive problems for ordinary members of society. The special tax on property, for instance, remains unpaid by hundreds of thousands of taxpayers, as are the one-time “solidarity” taxes. This fall, the equalisation of the tax on motor and heating fuel will cause hundreds of thousands of households to go without heating this winter, because they cannot afford to pay for heating fuel.

This tax code is a mistake for any number of reasons:

·    It is the third major change in as many years. This contributes to instability, higher bureaucracy, and higher corruption, and will constitute a major driver of companies and individuals either relocating their head offices from Greece (such as FAGE’s relocation to Luxembourg) or to not declare their income. 

·    It is inconsistent and illogical. The new tax brackets on independent professionals, for example, are entirely different from the taxation on salaries employees, and do not include a progressive scale. The 35% rate is also higher than the rate of both shareholding corporations and limited liability companies, which is levied at 20%.

·    It is extremely regressive, punishing taxpayers honest enough to declare taxes, while doing nothing to control capital flight and tax evasion by larger firms or well-connected individuals. 

·    It is being implemented in the middle of an inflationary depression, where real GDP will have declined by over 20% in 5 years, and real unemployment is over 25%. Inflation remains above 2%.

·    It is typically heavy-handed, being introduced without any real public consultation, and without any regard for either pre-election promises or economic sanity.

To be fair, the Troika has been insisting for years that Greece improve its tax collection and enforcement mechanism. But this has only partially been accomplished. While the Tax Police (SDOE) has made some progress in arresting and charging business owners for non-payment of taxes, the overall record is mixed.

In the last two weeks, for instance, a scandal involving the concealment of the identity of nearly 2000 undeclared Greek depositors at HSBC Geneva has incensed the public. The record of Greek capital flight also shows that sums as high as EUR 120 billion may have been transferred out of Greece, in transactions where the amounts transferred are far higher than the income declared by the individuals making the transfer.

The government’s latest attempt to tax independent professionals is an attempt to crack down on widespread tax evasion in this sector. But it will fail, for the reasons discussed.

This tax code is delusional because it ignores the basic reality of the Greek economy or workforce:

·    Wages in the public and private sector have already been cut by as much as 50%.

·    The minimum wage is already far below the poverty line, and for independent professionals will be taxable from the first euro of income.

·    Most employers have pressured their workers to accept far lower wages (illegally): I know of people being paid EUR 250 for a 40-hour workweek, without social insurance.

·    Unemployment is at 25%; youth unemployment at 55%: there is no wage bargaining possible in the private sector under these circumstances.

·    All other costs—heating fuel, real estate taxes, solidarity taxes—are increasing. Our neighbours are living on monthly pensions of EUR 350 and have been handed a real estate tax of EUR 750 for an 80 square meter apartment. 

·    Loans have not been reduced in line with income. As a result, there are hundreds of thousands of workers who now have a monthly net income marginally higher or lower than their monthly mortgage payment.

The new tax code will have a terrible impact on consumer spending, which is the mainstay of the Greek (and every other OECD) economy. By reducing the amount of net disposable income through higher taxes, the government, at the instruction of the Troika, will drive the economy into another 5-7% real GDP decline in 2013.

I’ve seen reports that the IMF is using a multiplier of 0.5 as a rule of thumb for calculating the effect of cutting government spending on GDP. In Greece, it is likely that this multiplier is 1.0 or even higher, perhaps as high as 1.5, given the abysmal situation with low employment, high unemployment, low wages, high imports, oligarchical markets and higher indirect (taxation) costs. 

The net result is a collapse. It is impossible to see how this situation will continue, or how the coalition government will survive, particularly in the midst of scandals like the HSBC or deposit flight issues.

The Troika and the Greek government appear to be making their policy decisions in an ivory tower. There has been abundant talk of “solidarity”, but no visible or tangible signs of it, at least for the large majority of society. Instead, there is a succession of talking heads who fly into Athens and fly out, but alienating the society in the process.

Instead of supporting real reform, the three successive governments since October 2009 have catered to the worse instincts of demagoguery and political patronage, and done everything possible to preserve and expand their own power structures. The few true reformers (and they are indeed very few) have been outnumbered and outflanked. While much has been accomplished, it is nowhere near what is should be.

And along the way, the PASOK-ND political elite has lost touch with its voters, and has failed to make any kind of case for reform, or provide any positive vision for the future.

The rise of Golden Dawn and SYRIZA indicate that society is already at the breaking point and is looking for new “solutions”, no matter how improbably these may be.

As a result, I do not expect the current government to last beyond May or June of next year. And with at least two political parties actively arming and equipping their paramilitary networks and engaging in what amounts to protection rackets in urban areas, one does not have to be a genius to see what comes next.

© Philip Ammerman, 2012

“The great masses of the people will more easily fall victims to a big lie than to a small one.” 

Adolf Hitler 

Rhetorical Weapons of Mass Destruction

One inevitable benefit of the Merkel visit to Athens is the opportunity to sample the florid political prose spewed out by the indefatigable Greek political class. 

Indeed, if words were hundred Euro notes, Greek politicians would be richer than Warren Buffet. And ironically, the left would be much, much richer than the right.

Alexis Tsipras, head of SYRIZA, is quoted by Skai.gr this afternoon as saying:

“Merkel has come to support the “Merkelistes” of Greece: Samaras, Venizelos and Kouvelis.”

“The Europe of the Peoples will win over the Europe of memorandums and barbarism.”

“The democratic tradition of Europe will not allow a European people, the Greek people, to be converted into the guinea pig of the crisis, and for Greece to become an impassable social cemetery. We will win in the end, because we have the right on our side, and we are more.”

Aleka Papariga, head of the Communist Party, was not to be outdone:

“The purpose of this visit is to encourage the government to exercise the maximum possible blackmail and fearmongering of the people, in order to literally muzzle it against the new slaughtering measures which are coming.”

Mrs. Papariga has some of the most creative rhetoric I’ve ever seen, on par with “running dog capitalists” and “commanding heights”. Her jibe that SYRIZA represented the “pampered urban classes” or her references to the “janissaries of the international financial system” have been, until the advent of Mr. Tsipras to the national stage, unsurpassed.

Golden Dawn issued a wonderfully laconic press statement replete with an obscure reference to Virgil’s Aenid, entitled “Beware of Greeks bearing gifts”:

The dismal Greek leadership did not dare to demand the self-evident from the loan shark Merkel: participation of the European Central Bank in the restructuring of the Greek debt. The political subjugation of the coalition government will lead to a new Memorandum and the permanent surrender of national sovereignty.

Golden Dawn’s statements, replete with references to enemies of the state, traitors, criminals, foreign elements, religious minorities, homosexuals and other undesirables, increasingly resemble those of another German leader, as do its economic policies and political strategy. The irony of using this against a visiting German leader has perhaps been overlooked. As has the fact that Virgil’s reference was a warning against a Greek victory, in contrast to the very real and present Greek defeat.  

It is perhaps a testament to just how far removed from reality the Greek political class is that they feel no compunction about making statements of this sort. Statements which offer absolutely nothing by way of a solution, embitter the Greek voter with the idea of foreign conspiracies and enemies, alienate anyone in Europe who actually bothers to listen to this, and absolve their own dismal records of failure, corruption and mediocrity since 1981. 

Mrs. Merkel, speeding safely back in her armoured limousine to the airport, should count her blessings that, not speaking Greek, none of these rhetorical weapons of mass destruction could be deployed against her. 

I can only imagine the amusement and bewilderment of the political analysts at the German, US and other embassies who have to translate this crap for their foreign offices, year in, year out.

Simply dreadful. 

© Philip Ammerman, 2012

“I prefer tongue-tied knowledge to ignorant loquacity”

Marcus Tullius Cicero

Skai Report - Tsipras

«Η Μέρκελ έρχεται να στηρίξει τους μερκελιστές της Ελλάδας, τον Σαμαρά, τον Βενιζέλο και τον Κουβέλη», δήλωσε χαρακτηριστικά ο επικεφαλής του ΣΥΡΙΖΑ, Αλέξης Τσίπρας, ο οποίος συμμετέχει στο συλλαλητήριο των ΓΣΕΕ-ΑΔΕΔΥ.

Παρά ταύτα, ο κ. Τσίπρας εξέφρασε τη βεβαιότητά του πως «η Ευρώπη των λαών θα νικήσει την Ευρώπη των μνημονίων και της βαρβαρότητας».
«Η δημοκρατική παράδοση της Ευρώπης δεν θα επιτρέψει να μετατραπεί ένας ευρωπαϊκός λαός, ο ελληνικός λαός, σε πειραματόζωο της κρίσης και να γίνει η Ελλάδα ένα απέραντο κοινωνικό νεκροταφείο. Θα νικήσουμε στο τέλος, γιατί έχουμε το δίκιο με το μέρος μας και είμαστε περισσότεροι», συνέχισε ο κ. Τσίπρας.

Communist Party Press Release

Σκοπός αυτής της επίσκεψης είναι να συνδράμει την κυβέρνηση για να ασκήσει το μέγιστο δυνατό εκβιασμό και τον εκφοβισμό κατά του λαού, ώστε να βάλει κυριολεκτικά φίμωτρο απέναντι στα νέα σφαγιαστικά μέτρα που έρχονται.

Golden Dawn Press Release

Φοβού τους Δαναούς και δώρα φέροντες

Η θλιβερή ελλαδική ηγεσία δεν τόλμησε να απαιτήσει τα αυτονόητα από την τοκογλύφο Μέρκελ, δηλαδή: συμμετοχή της Ε.Κ.Τ. στην αναδιάρθρωση του ελληνικού χρέους και απαλλαγή του κράτους μας από το κόστος ανακεφαλαιοποίησης των τραπεζών. Η πολιτική υποταγής της συγκυβέρνησης θα οδηγήσει σε νέο μνημόνιο και οριστική εκχώρηση της εθνικής κυριαρχίας.