Posts Tagged ‘Greece’

Iran deal is done, Bibi unhappy, Greek deal done, Greeks unhappy.

July 14, 2015

Reuters and other anonymous sources are reporting that an Iran deal has been done.

Greece yesterday, Iran today, what’s for tomorrow?

Bibi is neither pleased nor amused. A “pre-emptive” strike by Israel on Iran now becomes that much more difficult. Saudi Arabia will not be too pleased either. If sanctions are  lifted and also on weapons sales by Iran then we can see the pro-Iranian factions across the Middle East getting a boost. Which will probably constrain the advance of ISIS somewhat (and whatever the Saudis might say it is private Saudi money funding the barbarians). The pro-Iranian factions in Syria and Iraq will not only get a boost, they may also be more successful on the ground than the US-led coalition.

However Saudi Arabia will not be too unhappy about the additional downward pressure on oil prices. It will be sometime before Iran can ramp up production and during this time, low-cost Saudi oil will win further market share. Though Saudi Arabia failed to wipe out shale oil from the US, it is still increasing production and contributing further to the current oil glut. Saudi seems to be pursuing a revised strategy of keeping oil prices relatively low for 2 years or more in a war of attrition against the higher-cost oil producers. Market share is perceived as their prime weapon to try and get rid of the higher-cost producers. But I think they have miscalculated even here. A discontinued shale oil well can be restarted with very little investment and at very short notice. Production costs of shale oil have decreased sharply. Shale oil developers will just ramp their production up and down depending upon the prevailing oil price. And the larger shale oil wells can make money even with oil prices down at $40/ barrel.

It isn’t quite time for vacation yet in Europe (apart from Sweden which is closed for July). Some kind of framework resolution for the whole package of the 3rd bailout needs to be passed by the Greek parliament by tomorrow. Some resistance is showing today but the resolution will surely pass. Of course that says nothing about the Greek government’s implementation of all they have signed up for. Their track record of implementing what has been solemnly promised is not good. And if the reports today that the ECB will not be pumping liquidity willy-nilly into the Greek banks are correct, then the banking system will have to start issuing IOU’s to keep functioning while the negotiations are concluded. That will effectively be an alternative currency and it won’t be long before the IOU’s start trading at a different value to par. A currency by another name than “Euro” is still a Grexit for as long as that currency is used.

But an Iran back in the international fold is undoubtedly a good thing.

Greek deal will be done: Bread rather than Guernica

June 22, 2015

I was listening to Swedish, UK and German radio this morning and one could be forgiven for being utterly depressed. But surprisingly, the blackness went over the top. It was too much. The picture being painted by all the pundits and commentators seemed a little surreal. The picture left in my mind is of  Salvador Dali’s “Basket of Bread” rather than Picasso’s “Guernica”.

bread rather than destruction

bread rather than destruction

So instead, I am feeling remarkably upbeat. Maybe I am just an optimist and would rather see bread than destruction. But I am sufficiently “moved” that I shall make a forecast for the next few weeks.

Tsipras will make statements which seem like that he will do something about curtailing pensions. These will be worded sufficiently loosely such that the Eurozone Finance Ministers can accept the assurances and still have their posteriors covered. Tsipras will have sufficient face-saving text so that he can argue domestically that pensions will not actually be cut when the turnaround occurs and that the turnaround is just around the next corner (or maybe the one after that).

The ECB will make further emergency arrangements so that the current run on Greek banks will not be unmanageable. (By some accounts Greek banks have seen some €20 billion withdrawn).

The payment due to the IMF will be paid.

A short-term (6 month?) deal will be done and the whole problem of a non-homogeneous and splintered Eurozone will be patched up for the short term

Which is good for the short term but which, in the long term and if the Eurozone does not become homogeneous, will give a very big bang when it implodes.

There is a little more brinkmanship to go through until the Greek payment actually falls due at then end of the month.  But I expect a real jump in European markets – and followed by the Asian markets – when Greece makes the payment due and a “deal” is announced. Probably by the end of June.

Maybe it is time to pick up some equity bargains.

Corruption is in the genes of the EU

October 20, 2013

In the developing world venality is often a matter of survival. In Europe venal behaviour is a matter of choice. The EU bureaucracy in Brussels has corruption in its genes and tax-payer’s money running through its veins. It is remarkable that so many ostensibly democratic countries (at least in name) have so easily surrendered their powers to a bloated and corrupt group in Brussels.

It is not Best in Class that applies. The Least Common Factor applies in Europe. Brussels is as corrupt and as wasteful and as inefficient as the worst country in Europe. In this case the corruption and the condoning of corruption in Brussels is as bad as in Greece. And corruption in Greece was not a small contributor to their financial problems.

Der Spiegel writes:

Anti-corruption officials in Brussels have failed to investigate reports of squandered EU funds at a training institute in Greece, a German paper reported Friday. Well-connected teachers were allegedly paid up to €610 per hour for up to 225 work hours per month.

The European Anti-Fraud Office (OLAF) has reportedly ignored repeated tip-offs about squandered European Union funds in Greece, according to an article in the Friday edition of the Süddeutsche Zeitung. The German daily reports that a Greek civil servant uncovered multiple cases of nepotism and vastly inflated salaries while inspecting the finances of a vocational training institute. Officials in Brussels have apparently not acted on any of the whistleblower’s suspicions, which he communicated in several letters, the paper added.

According to the newspaper report, Giorgos Boutos, a government finance official in Athens, began auditing the books of the Organization for Vocation Education and Training (OEEK) in 2006. The institute receives and distributes EU funds earmarked for vocational training in Greece. Boutros repeatedly stumbled upon irregularities and documented the cases in numerous letters to OLAF.

…. The case involves at least €6 million ($8.2 million). It’s not an excessive sum of money, but it is well documented. Boutos was able to substantiate the irregularities in his letters to the EU with contracts, hotel bills and bank statements. He reportedly found that 75 percent of the misappropriated money had come from the EU.

The details provided by the Süddeutsche Zeitung are sure to raise eyebrows. Some of the instructors are said to have been paid for up to 225 hours per month, even during periods when they were abroad. Hourly wages for teachers were reportedly as high as €610. The alleged corruption was compounded by apparent instances of nepotism: The son of a cabinet member taught a course on silver-plating watches, the wife of a Socialist politician led classes on both dentistry and geography, and relatives of the institute’s leader held jobs there.

….. It wasn’t until seven months — and several more inquiries — later that Boutos received fresh news about the case. Still, that letter merely stated that OLAF was in the process of “a comprehensive reorganization,” and asked him to be patient. 

Meanwhile, Boutos told the newspaper, many similar cases of misspent EU funds now fall under the statute of limitations because the EU took too long to address them. Exactly €516,000 of misappropriated EU funds have been repaid. But Boutros stressed that the EU could demand that all such funds be paid back — that is, if it really wanted to.

Boutos also questioned whether investigations had been delayed because some suspected fraud cases involved relatives of government and party officials — or whether Brussels even cared at all about such instances.

Stealing by the state from depositors in Cyprus is a dangerous precedent for all weak banks in the Euro zone

March 23, 2013

A one off tax is not a regular tax but just confiscation. When done by a State it is Grand Theft. It is some kind of nationalisation where some selected private assets are appropriated. Whatever it is called, it is just plain stealing from bank depositors. When banks are weak or badly managed it is the owners of the bank who should be held both responsible and accountable. But to blatantly and arbitrarily just “confiscate” a part of some of the depositors holdings  is a dangerous precedent.

If this is what happens in Cyprus and seemingly with the acquiescence –  if not the encouragement – of the Euro zone then it bodes ill for all depositors in weak Euro zone banks or banks in weak Euro zone countries. Cyprus can set a precedent of what is acceptable behaviour in the Euro zone. Certainly the banks and the owners will like this. After all it shifts risk from the bank’s equity to the bank’s depositors. And for profligate countries it provides a cover for stealing the money of large depositors.

For depositors having more than €100,000 in Cyprus it is already too late. Robbery by the State has been sanctioned by the European Union including Germany. Rationalising such a move by saying it is to get at black Russian money is disingenuous. If this is acceptable in Cyprus today then it may well be acceptable for banks – and not just the State – to confiscate their customer’s savings whenever an “emergency” arises.

For those with substantial deposits  – and not just over €100,000 – in Greece or Spain or Italy or Ireland it is probably high time to get out.

Thessaloniki: One Greek city running a budget surplus and showing how it can be done

November 17, 2012
Thessaloniki Map

Thessaloniki

If anything proves that he Greek crisis is essentially due to past profligacy it is the current improvement in the status of the finances of the city of Thessaloniki. And I have no doubt that it it was the entry into the European Union and the mirage which the EU creates of getting something for nothing which lay behind much of the public employees “jobs for life” attitude and the spendthrift behaviour that any self-respecting household would have eschewed. But of course the Greek crisis has been caused by just a small minority of Greeks. I suppose the analogy would be of a household where the husband was spending the family jewels on drink and a good time while his wife and family made do with whatever that was left. But what Thessaloniki is apparently showing is how to get out of the pit. And if Greece could have devalued their drachma and did not have the high value of the Euro as a millstone around their necks, the return of tourists and an escape from the depths would probably be faster.

Reuters reports:

With his craggy face, diamond earring and tattooed wrist, Thessaloniki mayor Yannis Boutaris looks an unlikely candidate to turn around the finances of Greece’s second biggest city.

But the 70-year old, who stands apart from the political mainstream, is pulling off reforms that have so far evaded the national government in a three-year-old debt crisis that has sucked in some 150 billion euros of international aid.

In contrast to the rest of Greece, this sea-front city of one million is shrinking debt, cutting business taxes to help firms and paying city employees and contractors on time.

(more…)

More turmoil awaits Europe as Sarkozy loses and Greeks vote against Europe

May 6, 2012

Sarkozy has lost in France according to Belgian and Swiss sources though the exit polls in France are not yet out. Hollande is expected to win by 5%.

The exit polls are also out in Greece.

In Greece, the only two parties supporting the Eurozone bailout and the austerity measures – PASOK and New Democracy – will probably not be able to form the next government. And that means that the chances of Europe leaving the Euro are greatly enhanced. In the short term this will cause massive turbulence in the Eurozone.

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Berlusconi bungas while Italy burns

November 7, 2011
CONSTANTINE PALACE, STRELNA. Italian Prime Min...

Image via Wikipedia

Il Cavaliere , Sylvio “bunga-bunga” Berlusconi is 75 years old, has a personal fortune of some $9billion, and has been Italy’s Prime Minister for longer than anyone else. He is clinging desperately to power as Italy slides towards a Greece-like crevice and it is not apparent as to why he bothers. Whereas the Greek debt is only about 4% of Eurozone debt, Italy’s debt is closer to 20%. Italy’s public debt in 2010 was 118.4% of GDP. The annual budget deficit was 4.6% of GDP. Italy’s public debt-to-GDP ratio is the second highest in the euro zone after Greece’s, while its debt in absolute terms, which stood at 1.84 trillion euros at the end of 2010, is second to Germany’s.

It might seem to be just a powerful politician in denial of the approaching flames when Berlusconi declares that “Life in Italy is good. The restaurants are full. It’s difficult to get a seat on a plane they’re so busy; holidays are all booked up”.

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“Only way out of the Eurocrisis is for Greece to leave the Euro”

June 16, 2011

Dagens Industri’s panel of finance and economy experts have a bleak view of Greece remaining within the Euro. Emergency loans will be necessary anyway but in the long term, they feel, Greece has to leave the Euro not only for their own sake but also for preventing a collapse of the EMU.

The only way out of the euro crisis is with Greece’s exit from EMU, says Dagen Industi’s expert panel. But only after a lengthy process with more emergency loans to avoid the risk of a new financial meltdown a la Lehman Brothers in 2008.

“Greece is actually already bankrupt. Market prices speak for themselves. The country would not survive a day without an emergency loan from the European Union and IMF” said Marie Giertz, chief economist at Länsförsäkringar.

A new global financial crisis threatens if Greece does not get emergency loans and are forced to suspend payments to private lenders, including German and French banks, warns the European Central Bank ECB and the large rating agencies. Germany and others complain that European taxpayers cannot just continue to sponsor Greece’s debt tangle with never-ending emergency loans.

Cecilia Skingsley, chief analyst of Swedbank’s foreign exchange and fixed income trading, believes that the new emergency loan is the solution only for the short term. But that Greece must eventually leave the EMU. “With a further loan program maybe the market calms for a while. Then in a few years we realize again that this is not sustainable. Therefore I think that Greece must leave the monetary union. In return, they may get a little waiver of some of the emergency loans from the EMU ” said Cecilia Skingsley.

Jan Häggström, chief economist at Handelsbanken, points out that the euro country taxpayers have to bear the Hellenic liabilities no matter how it goes. The alternative to providing further emergency loans is credit losses in the European banking system, which in turn would require government bailouts. “In the end somebody has to write this down and it is not unlikely that Greece will have to leave the euro, but that is further ahead in time” says Jan Häggström.

Greece, in principle, needs to step out of the EMU in order not to drag down other crisis countries into a major depletion of their treasuries, reasons Tomas Pousette, chief economist at SBAB. “Otherwise it is difficult to see why, for example, Portugal should endure ten years of very tough fiscal policy while Greece simply chops off their debt. For a Greece outside the EMU, debt would be burdened by high interest rates and bankruptcies would threaten the country’s banking sector. But the country would also get a chance to revive its tourist industry with its own, lower, exchange rate “, says Tomas Pousette.

German exports at all time high – proof of two-speed Eurozone

May 9, 2011

No doubt the value of the Euro which is being held back by the economically weak countries helps but it does not explain the strength of the recovery in Germany led by exports. It is not surprising that there are many Germans who are troubled by the burden placed on the European currency by Greece, Portugal and Ireland and begin to yearn for the return of the Deutschmark. There is a real fear among German savers that the achievements will be diluted by the weaker countries which in turn will destroy the value of their savings. The growth rate in Germany is second only to Sweden in Europe but the sheer size of the German economy makes it the real motor in Europe.

There is also an attempt by the German media to create a narrative that it is not unthinkable for a country to leave (or be pushed out from) the Euro. Last Friday’s media rumours about Greece leaving the Euro generally started in Germany. Even though the rumours were hastily denied by everybody, just the fact of bringing it up makes it less unthinkable.

Returning to the Deutschmark?

BBC: 

German exports surged in March to their highest level since records began, as the growing global economy lifted demand for its products and services. The country’s exports for the month totalled 98.3bn euros ($142bn; £87bn), 7.3% higher than February.

Its imports also reached an all-time high, up 3.1% to 79.4bn euros. Both imports and exports are the most since data started to be collected in 1950.

Germany is the world’s second-largest exporter.

Only China exports more than the European nation, and the latest monthly figure for German exports was much higher than market expectations.

“Germany is on the verge of a ‘golden decade’,” said Christian Schulz of Berenberg Bank. Fellow analyst, Carsten Brzeski at ING, said the German economy was now “cruising along smoothly”.

The latest German export figures provide yet more evidence of a “two speed” eurozone, with the German and French economies continuing to grow strongly, while others, such as Greece and Portugal are struggling against a backdrop of high national debt levels. 

Eurozone crisis: Greece considering leaving the Euro and bringing back the drachma

May 6, 2011

The economic and fiscal variations within the Eurozone have become too large to be hidden away and perhaps it is time for the Euro to split. A two-tier Euro could be an interim solution but it makes no sense to force the currency to compensate for and match the wildly different shapes of the member economies.

Greece going back to the drachma or to an “olive” Euro may not be such a bad thing for the rest of the Eurozone though it will only probably lead the Greeks to delay taking the actions that will anyway be necessary. Fiscal profligacy cannot be sustained.

back from the euro to the drachma?

Der Spiegel:

The debt crisis in Greece has taken on a dramatic new twist. Sources with information about the government’s actions have informed SPIEGEL ONLINE that Athens is considering withdrawing from the euro zone. The common currency area’s finance ministers and representatives of the European Commission are holding a secret crisis meeting in Luxembourg on Friday night.

Greece’s economic problems are massive, with protests against the government being held almost daily. Now Prime Minister George Papandreou apparently feels he has no other option: SPIEGEL ONLINE has obtained information from German government sources knowledgeable of the situation in Athens indicating that Papandreou’s government is considering abandoning the euro and reintroducing its own currency.

Alarmed by Athens’ intentions, the European Commission has called a crisis meeting in Luxembourg on Friday night. In addition to Greece’s possible exit from the currency union, a speedy restructuring of the country’s debt also features on the agenda. One year after the Greek crisis broke out, the development represents a potentially existential turning point for the European monetary union — regardless which variant is ultimately decided upon for dealing with Greece’s massive troubles.

Given the tense situation, the meeting in Luxembourg has been declared highly confidential, with only the euro-zone finance ministers and senior staff members permitted to attend. Finance Minister Wolfgang Schäuble of Chancellor Angela Merkel’s conservative Christian Democratic Union (CDU) and Jörg Asmussen, an influential state secretary in the Finance Ministry, are attending on Germany’s behalf.

…… Sources told SPIEGEL ONLINE that Schäuble intends to seek to prevent Greece from leaving the euro zone if at all possible. He will take with him to the meeting in Luxembourg an internal paper prepared by the experts at his ministry warning of the possible dire consequences if Athens were to drop the euro.

“It would lead to a considerable devaluation of the domestic currency against the euro,” the paper states. According to German Finance Ministry estimates, the currency could lose as much as 50 percent of its value, leading to a drastic increase in Greek national debt. Schäuble’s staff have calculated that Greece’s national deficit would rise to 200 percent of gross domestic product after such a devaluation. “A debt restructuring would be inevitable,” his experts warn in the paper. In other words: Greece would go bankrupt.

It remains unclear whether it would even be legally possible for Greece to depart from the euro zone. Legal experts believe it would also be necessary for the country to split from the European Union entirely in order to abandon the common currency. At the same time, it is questionable whether other members of the currency union would actually refuse to accept a unilateral exit from the euro zone by the government in Athens.

What is certain, according to the assessment of the German Finance Ministry, is that the measure would have a disastrous impact on the European economy…..



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