The New York Times and the Papandreou Family

The New York Times ran an article on the Papandreou family today (“Family Differences, Global Issues”), which relies heavily on the perspective of Nikos Papandreou, the brother of the current Prime Minister of Greece, George Papandreou.

It is interesting to note that the word “corruption” is not mentioned a single time in the article. This is arguable one of the greatest legacies of former Prime Minister Andreas Papandreou's rule, and one which George Papandreou, the son of Andreas and Greece's current prime minister, struggles with today.

There is no mention of the Bank of Crete scandal, in which $210 million were embezzled. Some of these millions were, according to the Bank’s Chief Executive, paid directly to Andreas Papandreou. Although the former Prime Minister was acquitted by a special tribunal, there are few people who do not believe he was involved, that senior PASOK figures did not benefit from this, or that the special tribunal properly investigated the affair.

There is no mention of the Siemens bribery scandal, which began during Andreas Papandreou’s term, and according to the report of the Hellenic Parliament (which was supported by PASOK) may have caused the Greek state up to EUR 2 billion in over-priced purchases. Significantly, there is no mention in the article that the Siemens bribery funds allegedly went to PASOK politicians as well as to PASOK as a political party.

There is no mention of the role of Nikos Papandreou, the protagonist in this article, and his rather mysterious role in the negotiations of the Skaramanga Shipyard from Thyssen Krupp to Abu Dhabi Mar in March 2010. Why was Mr. Papandreou involved in this deal when:

a.     He had, and has, no government position. 

b.   The Greek state had no shareholding in Skaramanga at the time. Why was it involved in the negotiating the deal with Abu Dhabi Mar? Was the price paid to--ostensibly--safeguard jobs at Skaramanga worth it? Was this the only motivation?

c.     Why did Prime Minister George Papandreou not only reverse Greek policy not to accept the first batch of four submarines (one of which was defective), but to order two more, at a time when it was clear Greece could not afford the first four, let alone the second second two?

There is no mention of the fact that Mr. Nikos Papandreou’s name has surfaced as well in the failed Astakos Investment, not least as someone doing somersaults:

Κληθείς να σχολιάσει την εμπλοκή του κ. Νίκου Παπανδρέου στην υπόθεση του Αστακού παραπέμπει σε παλαιότερη δήλωση του πρωθυπουργού, ο οποίος είχε πει ότι οι προσωπικές και συγγενικές σχέσεις δεν επηρεάζουν τη λήψη αποφάσεων. Ωστόσο, ο κ. Παμπούκης καλύπτει απόλυτα τον αδελφό του πρωθυπουργού, καθώς όπως λέει «ο κ. Νίκος Παπανδρέου έχει πει ότι θα έκανε και “κωλοτούμπες” για να φέρει επενδύσεις στην Ελλάδα. Και εγώ λέω ότι πολύ καλά θα έκανε, διότι η χώρα τις χρειάζεται περισσότερο από ποτέ».

I will leave the NYT to attempt to decipher this Greek text on their own—it may be instructive.

Somersaults or no, if I had done the interview, I would have asked at least these simple questions: How is it possible that the brother of the Prime Minister, who does not hold government office, and has no apparent qualifications in investment management, represent Greece at this level? Isn't there a conflict of interest? Doesn't the Prime Minister trust his own Ministers Pamboukis and Katselli who were involved in the negotiations? 

There is also no mention of Mr. Antrikos Papandreou, the other brother of Nikos and George, who is founder and head of the Institute for Climate and Energy Security. This organisation not only benefits from contracts from the Greek government, notably the organisation of the Mediterranean Climate Change Initiative, but is apparently lobbying for the creation of a EUR 200 million investment fund for green energy investments.

There is no mention of the fact that Prime Minister Papandreou’s PASOK party is highly indebted, that it has pre-absorbed its government funding until 2016, and that it has over EUR 40 million in bank loans. Together with its implication in known corruption scandals (the Siemens funds), one has to wonder exactly how much negotiating power Greece’s Prime Minister has when he attends these European meetings in Brussels and Berlin.

As Greece tries to clean up the mess inflicted by two generations of venal and corrupt politicians and their allies, this historical perspective would have been valuable, more so than the anodyne comments made by former Minister Louka Katseli. Andreas Papandreou's dark legacy continues to this day, and it is this legacy that his son, who was an active Minister in his father's governments, is called upon to change.  

© Philip Ammerman, 2011

The Greek Debt Crisis and International Contagion

The Eurozone meeting in Brussels this past Monday confirms that the Eurozone leaders are as far apart as ever on reaching a resolution to the Greek debt crisis. Absent real decisions in the next two weeks, it is likely that contagion will spread not only to Italy and other Eurozone economies, but possibly to the United States and Japan as well.

In any turn-around management situation, the first priority is to diagnose the problem. Following this, a turn-around plan is needed which reduces the financial losses and focuses on creating income and profitability. The first plan for Greece, in the winter-spring of 2010, took far too long to agree, and then was flawed in that is maintained a deficit to 2015, but required a return to the markets even with small-scale Treasury borrowing in 2010.  The second plan for Greece, required by the IMF as a condition for lending, has still not materialised. In the meantime, Greece’s economic situation is worsening.

A key factor of a turn-around plan is to sustainably re-negotiate or restructure outstanding debt. There are two elements to this: reducing interest rates, and extending debt maturities. In a drastic situation, the debt is actually partially reduced, or a “haircut” occurs. These two elements, sadly, have not been addressed. The first bail-out package was a carte-blanche roll-over of private sector debt, with a 1:1 redemption rate and a higher interest rate payable by Greece on the EUR 110 billion sovereign loans. This was intended to buy time, but little else. It certainly didn’t buy confidence. The second bail-out has still not been agreed.

Over the past 2 days, judging by press reports, the Eurozone is debating a mix of policies which for the first time may lead to meeting the two conditions of a debt restructuring: interest rate reduction, and maturity extension.

One proposal under consideration is to use the European Financial Stability Fund to allow buybacks of national debt, presumably on the open market. It is not clear what effective discount this would deliver, since steady buying in large volumes would presumably eliminate the discount in time. Furthermore, it’s not clear what happens next: how long does Greece have to pay off the debt which would be held by the EFSF?

A second proposal, made by Mr. Martin Blessing, Chief Executive of Commerzbank, and reported today by the Financial Times, is to implement a 30% haircut on Greek bonds, and exchange the present bonds for new ones with a 3.5% yield and a 30-year maturity.  Again, it’s not clear whether this represents bonds which have already been purchased (or slated for purchase) in the EUR 110 bln bail-out, or if it refers to the remaining outstanding debt. In any case, this condition would be an excellent suggestion if implemented—far better than the French proposal.

The principle of private sector participation in setting the Greek debt crisis has been confirmed in principle by the Eurozone finance ministers, although the ECB remains opposed, and no one is quite sure what this means.

It is now extremely urgent that a resolution is reached, and it has to be reached in the next 2-3 weeks in order to calm the “bond vigilantes” and the wider debt markets. With contagion knocking on Italy’s door, and with the US embroiled in its own debt negotiations, the international climate is rapidly deteriorating.  Ireland and Portugal have been downgraded to junk by at least one rating agency (each). China’s growth is showing worrying signs of slowing: high inflation is observed alongside slowing imports. International sentiment is likely to worsen in the months to come.

A decision has to be made soon. Waiting until September, as German Finance Minister Schauble suggested, is the height of irresponsibility. 

Although news headlines have been dominated by the economic contagion affecting Greece, Ireland and Portugal, research by Navigator Consulting Group indicates that the public debt situation in major economies, including the United States, Japan, Italy, Belgium and France, is rapidly approaching the danger zone. This is exacerbated by the fact that in many countries, including the United States, the national debt has not been fully consolidated.

In the United States, for example, the debt:GDP ratio is already 98% at the Federal level. However, if state budget and local (municipal) deficits are added, as well as the sub-prime securities and mortgage-backed securities held by the Federal Reserve, then the true level rises to approximately 112% expected 2011 GDP (market values).

Federal Debt*	$ trillion
US Federal Debt	14.32
US GDP	14.66
US Debt:GDP	98%
FY 2011 Deficit Forecast	1.3
Additional Debt: Federal, State & Local Systems	$ trillion
Federal Reserve: Mortgage-Backed Securities	0.914
Federal Reserve: Maiden Lane	0.061
US State Deficits, FY 2010	0.191
US Federal Deficit, FY 2011	1.300
Total Additional Debt	2.466
Total plus Federal Debt	16.786
2011 GDP Growth Rate Estimate	2.5%
2011 GDP	15.027
Debt:GDP	112%
* March 2011
Sources: US Congressional Budget Office; Bloomberg; US Federal Reserve; US Treasury

Of course, the US debt situation is not entirely similar to Greece for the following reasons:

a. It is not exactly clear what share of the Fed’s mortgage-backed securities are toxic or non-peforming, and what the actual market value of these securities are. In our opinion, the Fed’s practise of “investing” in these securities was as distortionary as the Greek government’s practise of guaranteeing the debt of state organisations such as the Hellenic Railways Organisation: it should be avoided if possible. (The same principle applies to the $ 5 trillion in mortgage guarantees issued by Fannie Mae and Freddie Mac: the government has in principle agreed to wind down these positions, but it is difficult to see how this will occur).

b.     A large part of the US debt is due to Federal government borrowings on the Social Security trust fund. In essence, one part of the government is borrowing from the other. Nevertheless, under standard debt consolidation rules, this has to be counted as debt (and does, in fact, count towards the current debate in raising the debt ceiling). Given the strength of demographic change in the United States, counting social security debt as central government debt is probable necessary.

c.     The United States dollar remains a global reserve currency; the US Federal debt remains a global safe haven in times of risk. It remains to be seen how much longer this situation will apply.

Each of these caveats about the United States, however, are overshadowed by the unfunded pension liabilities at the Federal, State and Municipal levels, as well as future costs of the Iraq and Afghan Wars. Together with declining competitiveness, a persistent trade deficit, demographic change and political gridlock in Washington, the future outlook is bleak.

By 2015, we estimate that the public debt in many leading OECD economies, including France, the United States, Spain, Belgium and Italy risk being in a range between 100-130% of GDP unless further, immediate structural adjustment measures are taken. The Debt:GDP ratio of Japan may exceed 220%.

The impact of higher public debt will have an immediate impact on a range of issues, including higher inflation, higher interest rates, and a crowding out of credit for private sector investments.

The situation is so fluid as to change daily. Italy has come under renewed fire this week, for perhaps the first time since the sovereign debt crisis began. The United States has a self-imposed deadline of early August before it reaches its debt ceiling and a technical default. Japan has been largely spared international difficulties, in no small part due to the fact that nearly all its debt is funded from national sources. But between demographic change, Chinese and Asian competition, the tsunami and a range of other factors, it is difficult to see a sustainable exit strategy in the next few years.

As a final note, my corporate and personal policy since late 2009 has been to diversify risk and take every step possible to protect assets. There is little in the economic forecasts of the next 2-3 years which has changed my opinion since then. I encourage everyone to take a very hard look at their financial situation, and see what the worse case scenario could be. It may be closer than we think.

© Philip Ammerman, 2011

Explosion kills 12 people in Cyprus

The explosion of confiscated Iranian munitions reported today at the Evangelos Florakis base in Cyprus has led to 12 deaths and at least 60 casualties. The explosion has damaged the Vasiliko Power Plant, resulting in power cuts across much of Cyprus, and has caused significant damage to houses and property in the vicinity of the base.

I express my deepest sympathy to my friends, clients and all Cypriots for the loss of life. I hope there will be no further casualties and that services will be restored as soon as possible.

Greece, Renewable Energy Investments and the New York Times

The New York Times recently published another article on Greece which provides an extremely biased viewpoint and reveals an unsettling lack of knowledge of the underlying business economics and realities of the topic under investigation.

In “Struggling to Stoke Economic Growth in Greece”, published on June 19, 2011, Liz Alderman describes the alleged government’s reaction of Mr. George Peristeris, Chief Executive of GEK Terna, as follows:

So when George Peristeris, the chief executive of Gek Terna, a large energy company, wanted to plow funds into an offshore wind project, he thought he would be welcomed with open arms. But it turned out that the government decided it could run things better. “Private investors with money in hand were shut out,” Mr. Peristeris said.

In fact, it is hardly surprising that George Papandreou’s government may have given this reaction right after its election. This is due to the simple fact that even today, the government does not have a fully-integrated strategy for renewable energy. This is a highly complex subject, but it boils down to two essential factors:

a.  Energy generated from renewable sources is between 2x and 4x times more expensive than energy from conventional sources. In Greece, the average price per KW produced by the Public Power Corporation from existing conventional sources (and hydropower) is about 11 cents, while the average price/KW for wind power is approximately 20-25 cents, and for photovoltaic power above 40 cents. Given that renewable energy investments are being financed primarily by a high feed-in tariff, it is no surprise that the government needs to expand generation capacity carefully, in order to avoid excessive investment which would further bankrupt the country.

b.  The challenge of renewable energy investments is not to find available land or offshore areas to place them, but to ensure that they are as close to distribution networks and demand centres as possible. Why? Because (a) electric current transmitted over a distribution line loses power the further it is transmitted, and (b) the costs of connecting power generation units to the distribution grid is expensive, and is the responsibility of the investor. One of the major achievements of the former Minister of Environment and Energy, Ms. Tanya Birbili, was to begin the process of approving an energy map and zoning rules for renewable energy investments, including offshore wind farms. With such guidelines, it is unreasonable and illogical to expect that any investor showing up with his or her own plan would receive approval.

I presume, judging by what has occurred in Greece since the purported time of Mr. Peristeris’ contacts with the government, that things have improved significantly as will be explained below. I also presume that the journalist's task is to investigate this situation, not simply rely on passive reporting. To uncritically transmit the personal experience of a single executive, based on a single reported contact with the government, and then generalise from here to all investors and investments in Greece, is poor journalism to say the least.

This is confirmed by fact that renewable investments in Greece are surging and are among the most successful areas of investment:

·   On September 29, 2010, the Greek Public Power Company announced on a strategic investment of up to EUR 2 billion in renewable energy projects in cooperation with EDF Energies Nouvelles, the renewables energy division of Électricité de France (EDF), the world’s largest electricity generator. This joint venture is studying at least two investments: a 250 MW wind park in Florina as well as a hybrid unit in Crete which includes 90 MW generation with energy storage. EDF and PPC are already cooperating on a 38 MW wind park in Beotia.

·    RF Energy, a private firm, is in the process of installing 21 wind parks in Evoia with a total generating capacity of 579 MW, worth approximately EUR 984 billion. This investment has been underway since 2009.

·   DTS Hellas, a private firm, signed an agreement with China's Dongfang Electric International Corporation on June 6^th 2011, for the installation of two wind energy projects, 250 and 750 MW, for a total value of EUR 2.5 billion.

·   The government has greatly expanded the scheme for renewable energy projects, in both photovoltaics and wind energy, concerning both household and commercial power generation. Over EUR 1 billion in projects have been submitted and partially approved since mid-2010. These are “decentralised” projects: they can be submitted by any household or any investor. These calls have been open since mid-2010 and have been widely reporting in the Greek press.

Equally significantly, the Ministry of Development has set up a specific service, the Investor Support Service for Renewable Energy Projects. Together with the Invest in Greece agency, several billion Euros in large-scale projects are currently under review. The government has also passed Law 3851/2010 on renewable energy investments and the acceleration of the licensing process.

None of these investments or regulatory changes is mentioned in the NYT article. Yet taken together, these investments amount of over EUR 10 billion, in a country with a GDP of EUR 220 billion.

Adding insult to injury, the article closes with a quotation from Mr. Demetri Politopoulos, who set up a money-losing brewery in northern Greece, and has apparently become the ultimate authority on investments in Greece for the New York Times:

“What’s happened here in the last few days is Looney Tunes,” said Demetri Politopoulos, chief executive of the Macedonian Thrace Brewery, who himself ran into thickets of regulatory hurdles when he tried to make new investments in Greece. “We’re trying to attract investors? Good luck.”

My opinions on the reason for the failure of this investment and the credibility of its sponsor are seen in my blog entry: “What’s Broken in Greece: Ask an Entrepreneur”.

Again, I have to ask: shouldn’t a responsible journalist seek a fair and balanced opinion on investments in Greece? Shouldn’t a journalist seek out at least one entrepreneur who has actually succeeded in this country? Are failed investment cases the only authority for the New York Times?

I also have to ask why there is such a dearth of objective reporting on Greece. Is it because journalists simply don’t know what they are talking about in terms of business sense? Is it because “fair and balanced”, or “objective journalism” no longer apply? Is it because newspapers have editors who don’t edit? Is it intellectual laziness? Long distance reporting? Bad fixers?

By failing to ask the right questions, interview the right people, and understand the basic business logic of what is being reported, the New York Times is failing its readers and misrepresenting the reputation of a country which, whatever its present difficulties, deserves the benefit of the truth. The fact that this occurs so soon after the Judith Miller scandal on Iraqi Weapons of Mass Destruction indicates that regrettably, little has changed.

© Philip Ammerman, 2011

Proposal for a Solution to the Greek Debt Crisis

Proposals for a solution to the Greek debt crisis, presented at the Barcelona conference on "Small Countries in the Economic Crisis". View the complete slideshow in full screen on Picasa: https://picasaweb.google.com/philip.ammerman/ProposalForASolutionToTheGreekDebtCrisis 

Sixt Advertisement

I was disgusted and offended by the recent Sixt advertisement which shows a car in front of the Parthanon, with the caption: “Dear Greeks: Sixt accepts Drachma again!”


I wonder how Germans would feel if I advertised my consulting services with the line: “Dear Germans: Navigator accepts Reichsmarks again!”


Effective immediately, the companies and projects I am responsible for are terminating all supplier contracts with Sixt. I encourage others to do the same.