“Island of Dreams” or “Island of Nightmares”: Finding Ozymandius in Eretria

The "Island of Dreams": Pezonisi, as seen from Eretria Harbour

Readers of Greek press will recall that every so often the Municipality of Eretria announces with fanfare the privatisation of the so-called “Island of Dreams”. This is a forested island connected to Eretria town by a short causeway and bridge. The project was originally developed in the 1980s, and since then has gone to ruin.

The project was developed by a Municipal Company called the Δημοτική Επιχείρηση του Νησιού των Ονείρων (ΔΕΝΟ). DENO built a total of 46 bungalows and 52 hotel units, together with a restaurant and reception centre, on a 66,000 square meter island just off Eretria harbor. The work was extremely basic and almost no attempt was made to develop quality architecture or design.

The project has not aged well: there is practically nothing you can do with this accommodation standard today

The “resort” functioned for a number of years, most recently hosting children from Russia. DENO collapsed, with over EUR 2 million in debts, and is undergoing liquidation. For the past few years, the site has been abandoned and is literally crumbling to ruin.

Bungalow bathroom view

I visited Eretria in late August and took the opportunity to visit the site, slipping into the abandoned resort through a hole in the fence and spending an hour walking through garbage and abandoned buildings. This reminded me of nothing so much as some factory tours in the former Soviet Union in the 1990s.

Bungalow bedroom view

The present situation is unacceptable in too many ways, and this site may in fact illustrate exactly why Greece must to privatise some of its under-utilised assets, and why it can do this without any danger of “bloodsucking capitalists stripping the wealth of the people.”

a.     The facilities have simply been abandoned. Equipment such as refrigerators, kitchens, air conditioners, and furnishings are simply rotting away, having fallen to the ground or floor. There has not even been an attempt to loot the place: it’s simply crumbling to pieces. I don’t understand why the Municipality which is responsible for the site, has not closed the units properly.

b.     The entire site has been poorly designed. Incredibly, not a single one of the 46 “bungalows” actually has a proper sea view, despite the fact that the island offers panoramic sea views on three of four sides. The bungalow entries face inwards, not outwards, and are not built near the edge of the island, but along a central avenue. Simply design elements, such as verandas and large windows overlooking the sea, are missing.

Garbage lies uncollected since the hotel last operated. 

c.     The accommodation standard is unacceptable by today’s standards. I can imagine this place being built as a student hostel in the 1980s in some grand PASOK project for its “young pioneer” youth organisation, but today it is imply impossible to house paying guests in such rooms.

At one point, the littoral was used a garbage dump. 

d.     The coastal littoral surrounding the island is an unmitigated disaster. At one time, it was used as a garbage dump. It has also been bulldozed and landfilled, and resembles a vast, barren dirt parking lot. It is difficult to understand how this will be rehabilitated, but a massive effort is needed.

The Municipal Council of Eretria is simply in no condition to develop and manage a hotel resort. The Greek government should exit any type of attempt to do so, and to its credit, is trying to privatise the “Xenia” hotel chains which were set up by the Greek National Tourism Organisations in the 1970s and 1980s, most of which have collapsed into dust in the same way the “Island of Dreams” has.

The Municipality has just launched an international tender for leasing the island to 2045. My company, Navigator, has published a short analysis of this development opportunity, together with some more photos from my visit.

Island of Dreams: The Abandoned Restaurant

Besides being reminded of some factory tours in the wreckage of Communism, the other inevitable reminder was of Ozymandius. I’m wondering if any of Greece’s recent prime ministers have read the same poem.

Ozymandius

I met a traveler from an antique land 

Who said: "Two vast and trunkless legs of stone 

Stand in the desert...

Near them, on the sand, 

Half sunk a shattered visage lies, whose frown, 

And wrinkled lip, and sneer of cold command, 

Tell that its sculptor well those passions read 

Which yet survive, stamped on these lifeless things, 

The hand that mocked them and the heart that fed; 

And on the pedestal these words appear: 

"My name is Ozymandius, King of Kings, 

Look on my works, ye Mighty, and despair!"

Nothing beside remains. 

Round the decay 

Of that colossal wreck, boundless and bare 

The lone and level sands stretch far away.

Percy Bysshe Shelley

© Philip Ammerman, 2012 

Your Tax is in the Mail (and at the Pump)

This week starts with the unwelcome news that long-announced new taxes are being implemented in Greece. This is seen in the heating oil distribution “season” which started today, and in the mailing of the 2010 property tax.

Heating Oil Distribution

The reality of tax increases on heating oil for housing hits this week, as distribution has officially started. Tax increases announced since last year have the effect of raising the price from about EUR 0.95 cents per litre at the beginning of 2012 to EUR 1.40 cents per litre now. Obviously, everyone is up in arms. Greece has benefitted from very warm weather so far this month, with daily temperatures running at 25 degrees. This will end as winter sets in.

This is one of the more regressive measures, despite the theoretical mechanism put into place to support lower-income families by giving them (yet another) subsidy. Rather than liberalising the sector, for instance by promoting competition at the refining, importing and distribution, and allowing year-round distribution, the Greek government is piling bureaucracy upon bureaucracy and tax upon tax upon what should be a simple task, and punishing the poor and middle class in order to collect higher taxes.

Even competition will not result in a significant change in fuel prices: of the EUR 1.40 charged for 1 litre of fuel, only about 20 cents are refiner, distributor and retailer margins. The rest is tax.  

2010 Property Tax Mailed Today

Today also marks the date when the 2010 property tax is mailed to property owners. This astounding story of delay dates back to the Karamanlis and Papandreou administrations. To make a long story short, the current government is finally implementing this measure, with their customary excellent timing (in the middle of a depression).

We should remember that this year, property is already being taxed via a special contribution on electricity bills (which has been split into 5 instalments). So this property tax is in fact the second such tax to be paid this year, and is entirely separate from additional municipal or broadcaster taxes levied on the electricity bill, and also separate from the “solidarity” tax on incomes levied on the income tax statement. There is also a third property tax, for high value properties. And there is also value-added tax on property transactions, which adds a fourth layer of taxation.

This plethora of taxes on immovable property is indicative of just how badly planned the tax system is, particularly when one considered that there is no independent valuation of a property involved, but it is based on district zoning coefficients, “objective values” and other purely theoretical means of valuation.

The direct impact of these taxes are clear: new construction and housing sales have plummeted; there are thousands of builders out of work; hundreds of construction firms have closed; and the burden of taxation remains disproportionately on the poor and middle classes.

Hundreds of thousands of households have not been able to pay the previous property taxes. The Greek Public Power Company reports that over 500,000 household electricity bills remain unpaid (this number may in fact be higher).

So the government is doubling down, by increasing the number of taxes that people are unable to pay. In the meantime, the “Lagarde disk” of some 2,000 names of account holders at HSBC Geneva together with several other lists of suspicious transactions make their merry way through the media, while the transactions holders presumably make their way further offshore.

PASOK's well-nourished head, Evangelos Venizelos, who was apparently responsible for the "disappearance" of the Lagarde list, continues to speak of social justice. 

It should come as absolutely no surprise that in the latest Public Issue poll carried out for Skai (October 2012), SYRIZA is polling at 43% in voter intentions, versus 33% for New Democracy. 

"The most difficult choice a politician must ever make is whether to be a hypocrite or a liar."

Proverb

© Philip Ammerman, 2012

Philip is Managing Partner of Navigator Consulting Group and European Consulting Network.

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