Tag Archives: Greek bailout

Greece and the troika, dancing in the dark

IMFmics_350Finance Minister Yannis Stournaras felt compelled last week to call into a TV news show to deny rumors about imminent property tax hikes for Greeks. He argued there had been a lot of “scaremongering” by the media and politicians relating to the creation of a new property tax, which would unify several levies on real estate that currently exist.

Tax has become an increasingly sensitive issue in Greece. As wages shrink and jobs disappear, nobody is looking forward to the prospect of paying more into public coffers. But anxiety has been spurred by the voting of a new tax bill in January, which increased income and corporate tax and scrapped the tax-free threshold with the aim of raising 2.3 billion euros.

Furthermore, a recent international study by KPMG showed that Greeks pay the second-highest effective income tax and social security contributions at 46.5 percent of their income. Given this burden and the slow progress on ensuring that a sizable minority does not consistently get away without paying its share, it is no surprise that the issue of tax raises hackles in Greece each time it enters the public debate.

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When silence is the best policy

KaramanlisPapandreou_Gump

Despite receiving a bullet in the post and having an MP from the Independent Greeks suggesting it won’t be long before someone shoots him, Finance Minister Yannis Stournaras is more likely to be concerned by this week’s “friendly fire” rather than any other kind.

Unhinged Cretans and boorish opposition MPs are hardly the worst that Stournaras is going to face during his time in the scorching hotseat at the Greek Finance Ministry. Attacks from within are a different matter, though.

A number of New Democracy lawmakers lined up to take pot shots at him over the past few days for a number of reasons, top of which was his decision in recent interviews to discuss the fiscal derailment that took place between 2004 and 2009, when Greece was led by Costas Karamanlis and his conservative government. In doing so, Stournaras has broached a somewhat taboo subject.

“I will show you a chart with annual public spending as a percentage of GDP,” he told Sunday’s Kathimerini in an interview. “From the early 1990s until 2006, when it reached 45.2 percent, there were few fluctuations. Immediately afterwards, in 2007 it rose to 47.6 percent, in 2008 to 50.6 percent and in 2009, it skyrockets to 53.8 percent. The only way I can describe what happened after 2006 is an economic derailment.”

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An issue of statistical significance in Greece

A Greek flag flies behind a statue to European unity outside the European Parliament in BrusselsThe head of Greece’s statistics agency, Andreas Georgiou, is to face a criminal inquiry. An ex-employee of the Hellenic Statistical Authority (ELSTAT), Zoe Georganta, has accused him of colluding with the European Union’s statistical arm, Eurostat, to inflate Greece’s deficit figure for 2009, thereby justifying Greece’s EU-IMF bailout, signed in May 2010, and  its drastic austerity measures. Georgiou vehemently denies the charges.

Financial prosecutors have referred the matter to a special magistrate and the Greek justice system will have to decide on the validity of each side’s arguments.

Beyond the judicial process, some observations about the case are needed as it goes to the very heart of understanding how Greece’s public finances veered dramatically off course and the country turned to the eurozone and International Monetary Fund for emergency loans.

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Hold the applause

SamarasBrussels

BRUSSELS – What a difference a few months makes. It was not so long ago that Antonis Samaras – as opposition leader – was being shunned by pretty much all his fellow conservatives at European People’s Party meetings in Brussels but Hungary’s Viktor Orban, who was fighting his own futile battle against the International Monetary Fund in Budapest, while Samaras tilted at troika windmills in Athens.

They were more sole mates than soul mates. But now that Samaras is prime minister, he’s made an 180-degree turn, agreeing to troika demands and working hand in glove with eurozone leaders who had previously kept him at arm’s length. On Thursday, Samaras received enthusiastic applause from his peers at the EPP meeting in the Belgian capital.

Thursday proved to be quite a day for Samaras’s morale as the long wait for the eurozone to approve Greece’s next loan tranche ended. Euro-area finance ministers agreed the release of 49.1 billion euros, which, along with another 3.4 billion, means Athens is due to receive 52.5 billion euros by the end of March.

Of this, 34.3 billion is to be disbursed next week: 16 billion euros will go toward bank recapitalization, 7 billion for budgetary financing and 11.3 billion to finance Greece’s bond buyback program. French Finance Minister Pierre Moscovici insisted this was no “Christmas present” for Greece but recognition of fiscal and reform efforts that had been made over recent months and come at some cost for the Greek people.

“This will allow Greece to exit the crisis standing, not on its knees,” Samaras said of the release of further bailout funds following the completion of the buyback of more than 30 billion euros in Greek government bonds, reducing the country’s debt by almost 10 percent of GDP.

Samaras indicated that the release of the funding was a vindication of his strategy to drop the intransigence he displayed in opposition in favor of total cooperation with the country’s lenders.

The release of the funding certainly gives his three-party coalition government a little breathing space, particularly as most of it – some 40 billion euros – will be allocated within Greece to complete bank recapitalization, pay state arrears of around 9 billion euros and cover the declining budget deficit. This is significant as it is a complete reversal of the way that bailout funding has been allocated so far, with close to 80 percent of the money Greece received exiting the country to repay existing debt.

The government is banking on its tactic of meeting the fiscal and legislative demands made by the troika paying off. The release of the funding, Samaras hopes, will to some extent address the lack of liquidity in the Greek market. His thinking is that if banks gradually resume normal activity, and state suppliers – as well as ordinary citizens – are paid the money they’re owed by the state, then businesses will be under less pressure and jobs will stop disappearing.

“This is the end of the decline,” said Samaras on Friday, although he added that recovery would not be straightforward. “It will be an uphill process.”

Samaras is betting his, and his government’s, future on the hope that the positive impact of the next disbursements and structural reforms will outweigh, or at least counter, the negative impact of the continuing recession (a contraction of 4.5 percent has been forecast next year), rising unemployment (already at the 25 percent mark) and the overall gloom that pervades the country. It is a massive gamble that will face a number of serious challenges.

One will be the need for Greece to keep to its reform commitments. Without this, the process could derail very quickly as the next loan tranches are dependent on bailout “landmarks” being met and an automatic fiscal adjustment mechanism kicking in if spending and revenues targets are missed. While the legislative part of reforms has largely been completed, the implementation still lies ahead. This is the main reason that Finance Minister Yannis Stournaras has been cautious in welcoming the release of more funds. “The journey starts now,” he said on Thursday.

Another challenge is the sense of political instability that is being created by the crumbling of coalition partner PASOK, the firming up of support for SYRIZA, the continuing menace of Golden Dawn and the implosion of Independent Greeks. In this environment, it will be very difficult to focus the public debate on the need for reforms or to call for patience.

However, Thursday’s decision also poses another, unexpected, challenge as it was revealed that the 11.3 billion euros Greece is borrowing from the European Financial Stability Facility would be coming out of the 109 billion euros that make up Greece’s second bailout.

While the eurozone had never said this money would come from elsewhere, when the second bailout was agreed in March, there was no indication that borrowing for a future buyback would come from this package. Could this create a cash shortage further on down the line? Will it have a damaging impact on the process to reduce Greek debt to 124 percent of GDP by 2020, thereby satisfying the IMF that it’s sustainable?

On this, there were no concrete answers but there were suggestions that the process of reducing Greek debt did not end with the bond buyback this week.

The clearest indication was Samaras’s reference in Friday’s news conference to the possibility of the cost of the 48 billion euros for the recapitalization of Greek banks being taken on by the European Stability Mechanism rather than being recorded as national debt.

Greece’s premier was buoyed by the agreement to create a single supervisory mechanism (SSM) for the EU’s major banks. Germany, among others, insisted that this supervision be in place before the ESM could issue funds to support eurozone banks. The Germans, and the other AAA-rated countries in the euro, also added another obstacle by saying that an ESM recapitalization could not apply to “legacy assets” – debt that had been built up before the ESM was created.

This announcement in September appeared to kill any hope of Greek recapitalization costs being passed over to the ESM. However, Samaras’s comment indicates the EU position on this issue may be softening. If taken in the context of the statement by Eurgroup chief Jean-Claude Juncker on Thursday – suggesting that additional measures to bring down Greek debt might not be needed – then it appears that the possibility of the ESM covering recapitalization costs is still alive.

Considering that the impact of such a move on reducing debt would be 2.5 times that of the recent buyback, it is clear that this is a goal Greece will have to pursue closely.

Certainly, such a move would give Samaras’s claims that Greece is turning a page added conviction. It would also lift lingering doubts about Greece’s future membership of the euro, which Stournaras admitted have not disappeared as a result of decisions taken this week but are only “beginning to disappear.” It would have the potential to act as a spur for investors and be a genuine driver for growth and job creation. Who knows? It might even earn Samaras another round of applause.

Nick Malkoutzis

Giving Greece a chance, not just a tranche

It is a sad indictment of the manner in which the Greek crisis has been handled by all sides that for probably the first time since the economic unravelling began about three years ago, moderates in Athens as well as other eurozone capitals looked at each other in the wake of another inconclusive Eurogroup meeting on Wednesday and wondered: “Why did we ever get involved with these guys?”

The rest of the eurozone’s grievances with Greece – many justified, some the product of stereotyping – have been well documented but the inconclusive 11 hours of discussions between eurozone finance ministers in Brussels this week tipped the balance the other way. It was the turn of level-headed Greeks, fully aware of their own country’s shortcomings, to fume about their euro partners’ footdragging and failings.

Yet, just as it has been unfair for Europeans to have undue expectations of Greece, so it is excessive for Greeks to expect 16 eurozone countries to each easily overcome their national concerns and promptly agree a strategy that would make Greek debt sustainable.

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Midnight at the oasis

It’s a measure of the absurd situation that Greece and its lenders have got themselves into that it’s highly doubtful whether there is a single Greek MP or European official that believes the austerity package due to be voted through Parliament around midnight on Wednesday will contribute towards the country’s recovery.

Apart from the dewy-eyed optimists (it would be a shock if there are any of those left), there is unlikely to be anyone who has confidence that the 13.5 billion euros of spending cuts and tax hikes over the next two years will play a part in halting Greece’s incessant decline.

The 2013 budget foresees a primary surplus – the first in over a decade – of 0.4 percent of GDP on the back of the latest measures. While achieving this surplus is one of the milestones on the road to stability, there are serious questions about how it should be achieved. With approximately 9.5 billion euros of measures (equivalent to 4.5 percent of GDP) to be implemented next year, the program of cuts demanded by the troika makes a mockery of assertions by leading economists and even the International Monetary Fund managing director Christine Lagarde that frontloading will end up being destructive, not just counterproductive.

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Mrs Merkel goes to Athens. Why?

Illustration by Manos Symeonakis

One of the first tasks young Otto von Wittelsbach and his regency council undertook shortly after the Great Powers appointed him king of Greece in 1833 was to try to subdue the people of Mani. Greece’s first head of state, Ioannis Capodistrias, had met his death two years earlier after attempting to bring some of the Maniots into line over their refusal to pay taxes. The newly-arrived Germans launched three military operations involving thousands of Bavarians soldiers marching into the southern Peloponnese. They all proved fruitless as the wily and determined Maniots made best use of their limited resources and inferior numbers.

Then, the council decided on a more nuanced approach. They dispatched a Bavarian diplomat called Max Feder to the area. Feder spoke Greek and had good knowledge of Mani. He travelled the region, sat in village squares and met with locals face to face. Rather than force the Maniots into submission, Weber convinced many of the local kapetans, or clan chiefs, to join a new military unit consisting just of locals that would be responsible for policing their own area. It proved a significant move in bridging the gap between the Maniots unruliness and the emerging establishment. “Kindness and tact succeeded where coercion had been powerless,” wrote Patrick Leigh Fermor in his magnificent book, “Mani”.

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