Tag Archives: George Papandreou

Greece: Bloodbath & Beyond

This may very well be another case of wishful thinking. On the other hand – if these experts are right – there may be a light in the end of the tunnel for the people of Greece after all. This analysis is provided by three high-profiled London-professors and syndicated by http://www.eurointelligence.com. They conclude that a new government in Greece may be able to do what Papandreou never managed – create confidence in the nations economic recovery.

” If political forces miss this opportunity, they should be held individually and collectively accountable by the Greek population for the collapse of their financial sector, the destruction of productive forces, and the wealth reduction and re-distribution (from the poor to the rich) that inflation and a return to the Drachma would entail.” 

Michael G Jacobides/Richard Portes/Dimitri Vayanos  

“Time is running out fast for Greece. This is the last opportunity to use the crisis as an occasion to change the structure of the Greek economy and allow Greece to enter the growth path of which it is capable. A cross-party government should not have a narrow mandate on securing the restructuring deal; rather, it should seek consensus to engage in far-reaching reforms that no party alone would dare to initiate,” the three professors writes.

Well, the quote above is quite obvious…

However, the rest of the article, including arguments, suggestions and  proposals, are interesting.

Anyone involved in the current  “Greek Tragedy” should read this piece:

The dramatic political developments in Athens have focused international attention on Greece. Papandreou’s ill-fated initiative to hold a referendum was partly an effort to increase popular support for the bailout and reform package. A new interim government with a strong mandate to engage in far-reaching reforms could achieve exactly that.

That the biggest bailout plan in history has become unpopular among its supposed beneficiaries may seem paradoxical. But this is not only the result of a populist stance from the opposition and of lopsided coverage by the media.

It is also because the plan’s implementation, as run by the government and monitored by the Troika (IMF, EC, ECB), has focused disproportionately on fiscal targets, as opposed to structural reforms.

Over the last eighteen months, fiscal discipline has been limited to reducing capital and discretionary expenditure,  cutting public-sector wages uniformly with no relationship to productivity, and raising tax rates to unsustainable levels.

We have not seen real progress on tackling tax evasion or on a far-reaching rationalization of the public administration.

While there have been some steps in the right direction, effecting real change has been slow.  But deep institutional change is necessary for popular acceptance and hence success of debt relief, to avoid an eventual default and disastrous exit from the euro.

Greece must not waste this opportunity. Structural reforms, including the aggressive pursuit of tax offenders, would reduce the need for unpopular austerity measures.

More important, they would restore faith in the government by reducing the feeling of inequity and cutting waste, corruption and rents held by interest groups, whether in the private or public sector.

Creditors and the IMF should consider whether the proposed debt relief is sufficient for sustainability and growth.

The focus in Greece, however, should now change from fiscal targets and debt restructuring to operational restructuring.

Politically difficult but often economically evident decisions need to be made.

The debt overhang in Greece is the symptom and indeed consequence of the underlying inefficiencies of Greek public administration and of the current economic model. Without addressing the causes, any debt reprieve will surely be temporary.

Three weeks ago, we hosted a meeting at London Business School where former ministers and current MPs of both major parties met with senior policy makers, bankers, regulators and academics from Greece and abroad.

It is sobering to note that this was the first event of its kind, whether inside or outside Greece. Very positively, despite the range and diversity of the participants, a remarkable consensus emerged on the way forward.  

We are thus convinced that a set of bold structural reforms can be supported by many parties, if only they take the courageous step of severing their own ties to practices which led to the onset of the problem.

Our report, informed by the meeting, focuses on four key areas: tax evasion, public administration, privatizations, and the financial sector.

Reform in the public administration is essential for the better functioning of the state and hence for the success of all other reforms.

The main directions of reform are to make the public administration more independent from the politicians, while also introducing greater accountability and incentives.

In the area of tax collection, for example, lack of accountability and incentives have generated a highly inefficient and corrupt system, which strongly resists change.

  • We propose to abolish the current tax collection offices – which would result in minimal loss of tax revenue – and move tax assessment and collection to a new independent authority.
  • This authority should have an arm’s-length relationship with the Ministry of Finance, and its staff should be hired on limited-term contracts and be evaluated based on Key Performance Indicators (KPIs).Independent Authorities with  tight governance and accountability could be useful in other areas as well.
  • We propose three additional such authorities:  one charged with the overall monitoring of structural reforms, one on healthcare procurement (a big expenditure item, where waste is rife), and one on corruption reduction. These authorities may help jump-start the change effort throughout the Greek government and its associated institutions.
  • All authorities should be staffed by competent technocrats and be accountable to the Parliament as opposed to the government.
  • An additional measure, which would bring technocratic skills, continuity and accountability, would be to reinstate Permanent Undersecretary of State, appointed for periods longer than a parliamentary term, accountable to Parliament.
  • We argue that the privatization process has been hastily designed: targets are unrealistic and the mandate does not, as it should, include the increase in value of the assets for ultimate disposal. The resources of the Privatization Fund must increase, and its mandate should be the increase of long-term value of formerly state-owned assets.
  • We propose that the programme’s focus shift from immediate sales to a scheme supported by a moderate amount of debt financing using the assets as collateral. This would provide an incentive to the government to increase the value of assets to be sold, while also avoiding fire-sales.
  • We further point to the risk of increased political interference in banks as an unwanted side-effect of their recapitalization process. Such interference has been common in the past, and has harmed the corporate governance and efficiency of the affected banks, as well as their sound supervision.
  • We suggest ways to promote good corporate governance during the recapitalization process, and we emphasize the need to  strengthen financial supervision.

Time is running out fast for Greece. This is the last opportunity to use the crisis as an occasion to change the structure of the Greek economy and allow Greece to enter the growth path of which it is capable.

A cross-party government should not have a narrow mandate on securing the restructuring deal; rather, it should seek consensus to engage in far-reaching reforms that no party alone would dare to initiate.

Anything short of this will quickly lead to Greece being marginalized and expelled from the euro zone.

A caretaker government with a weak mandate, focusing on elections, will send the ultimate wrong message and risks losing the waning creditor and EU partner support.

It is thus critical to launch a concentrated effort now, and not just a caretaker government.

If political forces miss this opportunity, they should be held individually and collectively accountable by the Greek population for the collapse of their financial sector, the destruction of productive forces, and the wealth reduction and re-distribution (from the poor to the rich) that inflation and a return to the Drachma would entail.

Download: Greece Looking Ahead White Paper

Michael G Jacobides, holds the Sir Donald Gordon Chair for Innovation and Entrepreneurship.

Richard Portes  is Professor of Economics at the London Business.

Dimitri Vayanos is Professor of Finance at the London School of Economics and Political Science.

 

 

Comments Off on Greece: Bloodbath & Beyond

Filed under International Econnomic Politics, Laws and Regulations, National Economic Politics

Writer Returns From Vacation in Greece – Shocked and Disillusioned

Jean Quatremer is an well-known author and a professional reporter with the French paper Libération. He recently returned from his summer vacation in Greece. Apparently shocked and disillusioned; tax evasion has become a national sport, 30 – 40 percent of the GDP is generated through the black economy and the country is run by a real mafia, he writes in an outburst on his weblog.

“Everywhere, signs of easy money are there: Easy money obtained through European regional aid, and the umbrella of the euro which allowed the state to borrow more than is reasonable, and hire several hundred thousands of civil servants who now owe their position to their political loyalty.”

Jean Quatremer

Personally, I don’t quite understand why Mr. Quatremer is so upset. He says he’s been on regular vacations in Greece  for the last 30 years, and what he’s seeing and describing has been there all the time. (I have been on vacation in Greece, too.). But maybe his anger represent the rude awakening for many Europeans who now realize they are being forced to pay for someone else’s party?

What’s also ironic, is that the things Jean Quatremer now is observing as signs of corruption, greed and mismanagement – the fleet of brand new cars, the roads and buildings under constant construction and the huge piles of cash behind the bars at the waterfront – not long ago was seen as signs of progress.

But that makes Mr. Quatremer’s commentary even more interesting, known for his “behind the scenes” books about the European community.

The scenery of Europe is obviously about to change.

Here are a few samples of Jean Quatremer’s writing:

“After a dinner attended by a dozen guests, we ask for the bill. It arrives on a piece of paper that has nothing official: I am surprised and asks if we can have tax receipt.  Gene my Greek friends. No, the boss does not provide official documents.  Is it possible to pay by credit card? Sorry, we truly regret that the tavern does not have a terminal ad hoc. In other words, here we are in the black economy: no receipt, only the liquid and therefore no tax or a tax symbolic. This tavern is far from an isolated case: none of the restaurants on the island does not issue official receipt, and you can pay in cash.”

Yeah, that’s the Greece we know…

“Prime Minister George Papandreou and Minister of Finance Evangelos Venizelos can not say that fraud is discreet,” Mr Quatremer notes.

Well, I don’t think they ever said that. Anyway, the French writer hammers on:

“The whole island seems to work in black: the work in the houses are without a receipt, as evidenced by a friend crossed the exit port of a bank with an envelope full of notes 100, 200 and 500 euros. “You understand is that or a 23% VAT.  Anyway, if you ask for an invoice, the work will fall behind.” While the bars on the waterfront issue receipts, “but only on the terrace, because it is in public. Inside, however, all is not received,” says a veteran.”

“Tax evasion remains a national sport, the black economy is estimated between 30 and 40% of GDP. If the tax was not corrupt and efficient, it is not (I refer you to Transparency International Chapter of corruption), much of the Greek problems could be resolved.”

“Without a thorough investigation, simply to walk through Greece, as I do during the month of August, to realize that this country is still far from Europe, far away.”

Wow! After 30 years?!

“I made several reports in Greece over the last eighteen months.  But it is a country I know for a long time to spend regular vacations (the first was in 1981, just after his accession to the EEC at the time). I saw the European structural funds flowing into this country, like a bottomless pit. If, since 1988, the Union paid the equivalent of 3 to 4% of Greek GDP per year, which is huge, much has been diverted: for example, the Athens-Thessaloniki highway, which is still not completed more than thirty years after the start of work has been funded two or three times the minimum, thanks to European funds.”

Interesting. That’s exactly what Polish analyst Jaroslaw Suplacz says is happening in Poland, too. (Except nobody cares about Poland at the moment).

See also: 

“The European money was mainly used to support consumption instead of being invested in infrastructure projects, research (Greece is the laggard in the EU public and private investment in this strategic sector ) or education to prepare tomorrow’s growth,” Mr. Quatremer writes.

“Everywhere, signs of easy money are there, an easy money obtained through European regional aid and the umbrella of the euro which allowed the state to borrow more than is reasonable, and hire several hundred thousands of civil servants who now owe their position to their political loyalty.”

“It is no accident that Greece imports three times more than it exports.  It is, for example, became one of the leading European markets for luxury cars: During my vacation, I’ve never seen, except in Germany, all of Porsche, Audi, Mercedes, BMW (1 Series to X5), Lexus and all the rest .., A fleet (there are more cars per capita than in France) unrelated to the real wealth of the country.  In front of a modest house of the historic center of Ioannina, and I saw two German cars in the garage that were worth about 100,000 euros.”

“Europeans may have to pay a long time for the Greek error,” Mr. Quatremer concludes.

Jean Quatremer

Well, thank you very much! Some of us have figured that out, already…

However, the Travel Notes of a tourist in Greece” by Jean Quatremer is well worth a read, and herby recommended.

Original post here.

Google-translation to English here.

Related by the EconoTwist’s:


2 Comments

Filed under International Econnomic Politics, Laws and Regulations, National Economic Politics, Philosophy

Greece Ends Week In Absurdum

In spite of the alleged deal of another bailout package for Greece, the spreads on Greek CDS rose to the absurd level of 2150 basis points, that is 21,5 percentage points above the benchmark – the German bonds. Yesterday Chinese Prime Minister Wen Jiabao arrived in Europe to check on China‘s investments. Dear God!

“Given its obvious interest in the stability of euro zone it will be keen to find what progress, if any, has been made in tackling the region’s fiscal problems.”

Gavan Nolan

"Reductio ad absurdum" by Rodion Tikhomirov

The Chinese premier Wen Jiabao arrives in Europe Friday, and the main topic of discussion when he meets Europe’s leaders is likely to be Greece. China has been taking a keen interest in Europe’s periphery over the last few years.

The European Council on Foreign Relations estimates that 40% of Chinese investment in the EU is in eastern Europe and the peripherals, excluding Ireland.

  • In Greece the Chinese shipping company Cosco in 2008 signed a 35-year lease on a container port in Piraeus.
  • Jiabao’s deputy Zhang Dejiang visited Greece in 2009 with more offers of investment.

Of course, the reason China is so interested in Greece at the moment is that it is at the heart of the euro zone debt crisis.

China has made several public proclamations of support in favor of Greece and the other peripherals, though it is not clear if it has backed this up by buying large amounts of government bonds.

“Nonetheless, given its obvious interest in the stability of euro zone it will be keen to find what progress, if any, has been made in tackling the region’s fiscal problems,” credit analyst Gavan Nolan at Markit Credit Research writes in his weekly Market Wrap.

Of course, the reason China is so interested in Greece at the moment is that it is at the heart of the euro zone debt crisis.

China has made several public proclamations of support in favor of Greece and the other peripherals, though it is not clear if it has backed this up by buying large amounts of government bonds.

“Given its obvious interest in the stability of euro zone it will be keen to find what progress, if any, has been made in tackling the region’s fiscal problems,” Gavan Nolan points out.

So, what will Wen Jiabao find?

Well, the news that Greece and the EU had agreed a new five-year austerity plan last night was trumpeted as a great success.

But according to Markit the market participants are aware that the passage of the austerity bill through the Greek parliament is far from a formality.

Prime minister George Papandreou is in a stronger position after winning the no confidence vote earlier this week.

“But his control over his own party is still tenuous,” Nolan notes.

Another member of PASOK  declared Friday that he would vote against the bill, shrinking the already slim majority.

The vote begins on Tuesday but could last until Thursday.

Greece’s spreads closed the week at an unprecedented  record of 2150 basis points, reflecting the political uncertainty.

“But that is not the only doubt that the CDS markets are grappling with,” Nolan writes.

“The extent and form of private sector participation in the proposed bailout are still not clear. It seems that there will be an “informal and voluntary” rollover of debt similar to the Vienna Initiative.”

Nicholas Sarkozy and other European leaders have said Friday that they have been in discussion with financial institutions about a rollover, and there will be “no difficulties or concerns”, according to Sarkozy.

“But it remains to be seen just how “voluntary” this rollover is, and how they will incentive bondholders to participate,” Nolan comments.

Adding: “The answers to these questions are crucial for the CDS market and will influence spread direction. It should also be remembered that the total net notional outstanding for Greek sovereign CDS is just over EUR5 billion, and has been falling for some time.”

“This is small beer compared to the government bond market.”

“Unfortunately there have been several media reports that have been quoting the misleading gross notional figure; the lessons of the Lehman Brothers credit event auction clearly haven’t been learnt.”

China, on the other hand, has seen a considerable increase in its CDS net notional, particularly in recent months. It is now the 10th largest sovereign in terms of CDS exposure, according to DTCC figures.

The sovereign’s spreads have also widened in recent weeks, though they are nowhere near the levels they reached in the darkest days of the recession.

Premier Jiabao declared victory over inflation in an op-ed article in the Financial Times, Friday.

“Perhaps he is right, but the activity in the CDS market suggests that the Chinese economy faces more than one challenge in the months and years ahead,” Gavan Nolan concludes.

See also:

Markit Economic Research: HSBC Flash China Manufacturing PMI. 23062011.

Markit Economic Research. China PMI Flash Comment. 23062011.

MORE@Scribd

Related by the EconoTwist’s:

7 Comments

Filed under International Econnomic Politics, National Economic Politics