Wednesday, July 27, 2011

Rescue package for Greece - How about a Greek one?

By now of course you know of the rescue package that has been created for Greece. Though large, there is still a lot of work that needs to be done and Greece cannot breathe easy. Many changes - structural ones still need to be done.

While Europe dithered and bickered, economists, policy-makers and dinner ladies all came up with their own solutions. Mr Economides from the Stern Business School New York, highlighted 7 key aspects that a rescue package should cover. He writes...

"A national strategy for Greek sovereign debt needs to achieve the following:

1. Convert present debt to long term debt to avoid a default in the next two years. No matter how successful the reforms are, Greece will default if it does not convert its short term debt to long term debt.

2. Reduce the size of the total Greek debt. To pay the total amount of debt, Greece needs very fast sustained growth year after year over a fifteen years – not impossible but very unlikely. Otherwise, Greece requires a significant reduction of the total debt burden and has to focus on the way that this can be done best in the national interest.

3. Keep Greek banks afloat, liquid, and with sufficient trust to them. Greek banks have been subject to a prolonged bank run for over a year, as depositors have withdrawn large amounts. Every day that the debt problem is not solved, there is a chance that the bank run will become acute with truly disastrous consequences for the banks and the Greek economy. Such events may be triggered by the idiotic remarks of prominent Greek politicians that Greece is leaving the Euro, a Spiegel story, or practically any rumor in the Greek or foreign media or the Internet. The danger to Greek banks alone is sufficient to require the immediate solution of the Greek debt problem.

4. Improve the quality of Greek debt to be able to achieve lower interest rates. The present market rates for Greek sovereign debt, from 11% to 26%, are prohibitive for Greece. Greece cannot afford to borrow at interest rates above 4-5%. It will achieve these interest rates only if it increases the quality of the bonds. That can be done by either by buying high quality liquid collateral such as Eurobonds or by a guarantee from the European Stability Mechanism (ESM).

5. Be based on the true reality of the situation and should not expect Greece or its partners to do the impossible. In their attempt to please voters, politicians in Greece and the EU with very short horizons have often agreed on terms that are unfeasible. For example, the first aid agreement said that Greece would come back to the financial markets in 2012, even though no one believed this to be feasible.

6. Should be a comprehensive solution and not an attempt to kick the can further down the road.

7. It would be useful but not absolutely necessary for any refinancing not to create a 'credit event' that would lead the rating agencies to declare Greece in default."

His full article can be read here

Tuesday, July 26, 2011

Stiglitz - Still not good enough to work in Greece

Right now, Greece is going through some tumultuous events and the decisions being made now will have important ramifications for generations to come.

For now however I would like to talk about Stiglitz and his presentation. Actually I want to write on the irony of his talk. Over 200 people attended his poorly publicised talk. Only a couple of politicians turned up, one of whom Stefanos Manos is a former politician. So the front rows of around 50 seats were empty as the invited politicians didn’t show up, obviously scared to show their face in public or be seen listening to - what the communists and far left call - “That Jewish Economist”, in a tone that makes one fear for public safety. In the audience there were those who challenged him on a couple of his economic points – and rightly so, but on the whole everyone enjoyed his talk and it was not raided by a Student Union demonstration happening down the road.

The irony lay in the fact that it occurred in a country where he is technically not allowed to work as an economist or university lecturer or is even recognised as an English speaker.

Stiglitz cannot work as an economist because he never completed his 'guild' like training at a Greek University. Only those who graduated economics from a Greek University are recognised. To have his degree recognised as good enough, he has to prove his university exists which may include translating a university handbook into Greek at a price of 1.5 euros a page. Once proven - he can then proceed to get his Degree recognised. If he is lucky he can have it recognised in 2-5 years, and involve ancillary costs of up to 18 000 euros. Then he has to wait from the Economists guild to invite him as a member, once a member he can set up his shingle and head off to work.

However it is now slightly easier. One of the new ‘Austerity Measures’ passed by parliament recently – which was one of the reasons we saw the terrific riots happening down in the centre - was the 'Opening up of professions.' The Greek work landscape is littered with closed professions. Reading the list of 136 professions that were opened it - it is no surprise that unemployment is where it is - or the number of luxury cars that still roam the streets. A list can be found here in Greek. These professions include dentistry technicians, tour guides, hairdresser and of course - economists. Not included in the list are truck drivers, lawyers and pharmacies - three of the most powerful lobby groups that still remain closed to competition.

Closed professions in Greece are a result of a 'guild' like recognition system and a restriction of licenses to operate. Licenses to operate trucks were given out during the Military Dictatorship in the early 70s and when PASOK came to power in early 80s - and never again. These can be sold or inherited - hence the signs outside pharmacies saying Inherited Pharmacy (Pharmacies are also guaranteed 33% profit margins by the government and lack of competition means they can charge higher prices on certain goods compared to the rest of Europe).

Ostensibly the new legislation will make it easier to become a taxi driver, run a currency exchange business, or a beauty shop. However as a student of Economic Development and History i am not praising the legislation just yet. Some of you may have heard of a Japanese expression "Turning it in the belly". During Allied Occupation the Allies - read USA - encouraged opening up of trade and changes to the legal system. The Japanese bureaucrats followed these changes to the letter of the law, but implemented other changes to make the law meaningless. One famous example was allowing American baseball bats to be sold. This they allowed no problem - they just implemented an administrative decision to check that all bats imported were made of wood, and so all bats imported had a hole drilled right through to ensure that they were wooden. Similar stories occurred with tyres (Japanese snow was different to American snow) and other goods.

Which is why I - and most of my friends are cheering the 'opening up of professions' just yet. We wait to see what administrative barriers exist to see if Greek bureaucracy will 'turn it in the belly'.

So until then, Mr Stiglitz - come and talk to Greece and (if rumours are true) advise Greece, but know that you're not good enough to work here.

Wednesday, July 20, 2011

Initiatives for development from Mr Azariadis and Mr Ioannides

Lets turn our attention to yesterdays enthralling discussion organised by AXIOTIS - which is a scientific, non-profit organisation dedicated to dialogue and promoting the principles of meritocracy, transparency and the modernisation of public administration, the business sector and civil society.

Speaking at the event was Costas Azariadis, from Washington University, St Louis, and John Ioannides, Tufts University, Boston, both of whom spoke on the much talked about subject of development. Mr Azariades’ talk was titled “A country seeking work.” He reminded those gathered that Greece has 3.2 million souls working in the private sector, 1.1 million in the public sector and 1.8 million pensioners. In other words One in two is waiting on the state. However, Greece has 1/3 of the Mediterranean coastline which is underdeveloped when it comes to private capital. What this means post Memorandum is that we may see a boom and a shift towards extensive infrastructure development with private financing. Along with opening up of the education system to private initiative, this could jump-start the economy.

For the rest of the article click here

Monday, July 18, 2011

Joseph Stiglitz in Athens

For those of you residing in Athens, you may like to know that Joseph Stiglitz will be in town speaking on the subject 'Eurozone's debt crisis and possible solutions'.

This event will be held at the National Bank Auditorium, Aiolou 82-84 this Wednesday July 20 at 19:00.

Wednesday, July 13, 2011

Up and running again...

Yes this blog is getting back on its feet.

Its been a hectic period - full of ups and downs, both for the nation and personally.

So in order to sate your thirst for information, here is an insight from one of Greece's preeminant thinkers, Mr Papagiannidis.

Greek politicians, may they live long, are an especially short-sighted race. As remarkable as they are short-sighted. (Correction: maybe not 'Greeks' in general, but perhaps better defined as Greek residents.)

And as a result of their shortsightedness - deeply self-destructive! Look at how they cried out in response to the capital flight in personal deposits. Let's look at examples of the impact of wild enthusiasm on the one hand, and of pragmatism on the other. The wild enthusiasm: In comes Theodoros Pangalos sounding alarm bells that the medium term financial plan would not pass into legislature, he describes a situation wherein Greece returns to the drachma, sending people running to the banks to withdraw their money, and the only thing that can stand in their way are the tanks and the armed forces.

Leaving aside the fact that Theo has most probably not seen a soldier, or any kind of military figure up close (hence his notion that they would be protecting beleaguered banks), lets also ignore the fact that the interview was given to Spanish newspaper (hence limited risk that it would be read by the natives), but given his statements, what is one to think, and what did he think would be the outcome of his statements. The exuberant and quick tempered Theo invited the people to withdraw their deposits and send them abroad, hide them under the bed, buy gold sovereigns, throw them down a well, put them in a bag and head of to Albania or Turkey, do anything to save them.

The rest of the article can be read here.