Wednesday, 29 December 2010


I often complain that Greece has a poorly performing labour market which is partly to blame for our substantial current account deficit. Part of our challenge over the next few years will be to liberalise this, and indeed the Government has taken some very bold steps in this direction.

In a mythical labour market with no rigidities, employers would snap up the most suitable employees for their vacancies immediately and the first job one would be offered would be the job they are best suited to. Hence people would snap up the first job they were offered, or at any rate one of the first jobs they were offered. This, as we've discussed a couple of times, is not the case in Greece, or indeed anywhere in the world. Some 52,000 Greeks are in fact unemployed by some degree of choice - in that they were offered a job and turned it down for some reason.

This may not sound like much but these people were enough to fill every last vacancy in Q2 2010 with a good deal to spare, and of course by drawing down their (or their folks') savings or taking welfare payments they actually cost us a pretty penny. Now, the fewer these people become, the better the prospects for our labour market. As the figure below shows, we are slowly getting there. The six-year trend points downwards even after allowing for the effects of rising unemployment, and has been accelerating rapidly since mid-2009, when people finally realised the state the country was in.

So far so good, but this doesn't really sit well with me. Why would there be such substantial differences in work-shy-ness from quarter to quarter, even after allowing for unemployment? This is not culture at work - culture doesn't change in three months. It must be something else, and I think I know what.

The figure below takes the 'excess' workshy (the percentage of unemployed turning down job offers that cannot be explained by the unemployment rate) and correlates it with public admin vacancies as a share of the labour force. The intuition is that the public sector recruitment process is extremely bureaucratic and takes a substantial amount of time, during which time the better-qualified applicants will receive other job offers. The problem is that people who think they have a good chance of getting a public admin job but don't know for certain (i.e. the best qualified, with the least access to corrupt 'facilitators') will turn down jobs offers until the results of their applications have come in.

Feast your eyes, friends:

This is amazing because it suggests that the way in which the public sector recruits could be responsible for wasting some of the best of Greece's human resources as well as a lot of money. Which is really beyond tragic. It also means I've been very unfair to these people, calling them workshy and worse on occasion. Many of these people are actually victims of the system.

I suspect I can see another determinant peeking out here: subjective forecasts of short-term GDP growth. 2006 was almost certainly an aberration in the above chart, but it was also the year in which the Greek economy grew the fastest in this dataset. A look at my figures suggests that the residuals in any regression fitted to the above would correlate very well with the next quarter's y-o-y GDP growth.

If all of the above is true I predict that unemployment will become more stable in 2011, as reduced public sector spending and very poor economic forecasts will force many of these people to take up their job offers. The potential gains are in the order of perhaps 0.5% to 1%, which in our case is brilliant. If the Government or the IMF bother to produce a forecast based on realistic projections of economic growth, unemployment could end up surprising them on the upside.

UPDATE: From a seasonal point of view, Q2 was traditionally the quarter in which public sector vacancies made up the greatest share of the total. If you're working off seasonally adjusted estimates of unemployment, remember to factor this in next time.

Now all I need is some economist to test all of this for me. Volunteers most welcome!

UPDATE: I have now run this regression on my small sample. It works very well. The GDP variable is the strongest one while the other two are less statistically significant. Strictly speaking, the public sector vacancies variable is only significant at the p= 0.055 level, just shy of the 0.05 that would have made me entirely comfortable. Then again, with 22 observations I am lucky to get any singificant variables. And I'm not too sure about the linearity of the relationships anyway. See the results below:

Thursday, 23 December 2010


Tomorrow is LOLGreece's first birthday - it's been a terrible year for my beloved country but also a brilliant year for econblogging. The latter is worth celebrating.

From Statcounter:

If you're still browsing tomorrow afternoon, please join me in a little virtual toast to Greece and to the LOLZ

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Or, if you'd rather not be identified, you can just leave an anonymous comment under this post.

Saturday, 18 December 2010


Another day, another little bit of vindication. Our government's latest Letter of Intent to the IMF is so hilarious they have taken a bit of extra time to respond compared to the last time. Half of the IMF staff are in tears, the other half are ROFLing; it will amount to the same thing in the end.

After denying the obvious for as long as they could, both our Government and the IMF have managed to admit that their growth projections for Greece were bullshit all along. The new target for 2010 is -4.2%, which is still over-confident. The IMF points out all past projections have been off by 0.5%, so my money is still on -4.6%, after two or three years' worth of inevitable reviews. Amazingly, although growth figures are disappointing, we don't seem to expect any corresponding disappointment on the Government revenue side. Hint: there will be. The IMF can always turn to its own report and look at where retail sentiment and spending are heading - ah, screw it. Here are the tables. The retail indicators spell out A-P-O-C-A-L-Y-P-S-E. If our exports can continue to grow in the fact of a renewed global recession, maybe something will be salvaged. What's the chance of that though?

We're also using our newly-disclosed debt and deficit figures to make more politically palatable the inevitable cuts to our wider public sector.  Eurostat's cynical decision to sit on these figures in order to maintain our delicate political balances ahead of the municipal elections of 2010 has turned out to be utterly pointless as everyone and their dog had by now realised the cuts were coming.

I will draw the readers' attention to one major WIN before I go on to my catalogue of FAILZ:
"Government reforms the mechanism for collective bargaining at the firm level in close cooperation with social partners. The new law establishes that firm-level agreements prevail over those under sector and occupational agreements without undue restrictions (for this purpose, Law 1876/1990, Article 10 is amended). The conclusion of firm-level collective agreements should not be restricted by law, notably by requirements regarding the minimum size of firms entitled to engage in collective bargaining." 
"Government amends Law 1876/1990 (Articles 11.2 and 11.3) to eliminate the extension of sector and occupational agreements to parties not represented in negotiations." 
This was honestly well done. If you don't know why, you can catch up with the facts here.

What is amazing is that our tertiary union for the private sector, GSEE, headed by my distant relative, Giannis 'punchbag' Panagopoulos, has responded anaemically  (what is a strike these days anyway?) to this development, which is essentially like turkeys failing to show up to the vote on whether or not to celebrate Christmas. As a result, GSEE's socialist-aligned faction is about to go rogue and either topple Panagopoulos or split in two. The result will not be fewer strikes, by the way. It will be wildcat strikes and of course the Union falling into the hands of the opposition, who have not to date shown any signs of being a responsible stakeholder.

And now for those gems:

Gem #1:
"Anti evasion plan. Based on the work of the task forces, the government will launch the anti-evasion plan by January 2011, including with a public communications campaign. The plan will include quantitative performance indicators to hold the revenue administration accountable. Information about the achievements of the plan will be regularly published."
You mean - we don't have a plan yet? Did we peak with that Google Earth business? And is this really the type of accountability we need? For background, consider this.

Gem #2:
"The Bank of Greece will continue to safeguard banking system liquidity. The legislation enabling a new tranche of government guaranteed bank bonds in the amount of EUR 25 billion was voted at the end of August, and Greek banks are now able to issue, if needed, those additional securities. The Bank of Greece, in close cooperation with the ECB will continue close monitoring of the liquidity situation of the banking system and stands ready to take the appropriate measures to maintain sufficient system liquidity."
The BoG is safeguarding banking system liquidity? I thought that was the ECB, which is 'safeguarding' liquidity by being its sole provider. Do people even care whether the BoG exists anymore?

Gem #3
"ATE Bank will be thoroughly restructured as a stand-alone institution. [The] management will announce a rights issue by end November 2010. [...] [A]n updated assessment of the capital needs of the bank will take place by the end of January 2011. This will be based on an additional review of the loan portfolio by an audit firm. [...] The government intends to keep this capital increase fiscally neutral, potentially by drawing from the resources available from the surplus of reserves within the Hellenic Loan and Consignment Fund (HLCF)." 
Fittingly, the Treasury-run HLCF's symbol is a Chimaera. [ed: it isn't. It's a Gryphon. That's why you should never blog when sleep-deprived.] The Fund, which we're turning into a slush fund for propping up our financial institutions, only has about EUR7bn of assets and less than EUR700m of reserves and was built with the explicit purpose of lending to civil servants and quango employees. Hence its assets are strong only because its debtors' income is essentially guaranteed by the state, and its creditworthiness will decline as we take the knife to the wider public sector and its pensioners. That would be a good time to call in its reserves but obviously we will have poured them down the black hole that is the Agricultural Bank of Greece by then. As the IMF notes:
"[The HLCF's] banking activities are unregulated, it does not have access to established facilities to help manage its liquidity risk, it is exposed to significant interest rate risk, and both its internal and external control procedures are deficient. While small, it can amplify liquidity shocks through the system by competing aggressively with banks for deposits. It was agreed that the HLCF should be unbundled through legislation, with the banking activities transferred to an institution able to properly manage them. Its sizeable surplus of reserves could be extracted to fund the capital increase in ATE." 
There's nothing fiscally neutral about using the HLCF as a slush fund; it's cash neutral but the taxpayer is essentially offering an implicit guarantee. As plans to spin off its profitable financial arm have surfaced, it was recently occupied by its own staff. Good luck guys.

Gem #4:
"The National Actuarial Authority provides by 15 December 2010 interim long-term projections of pension expenditure up to 2060 under the July 2010 legislation covering the main pension schemes (IKA, OGA, OAEE and OPAD)." 
This is massive. The interim report was already overdue months ago and there is no way the actuaries will come back with good news. Remember, Greek pensioners are more powerful than employees, but employees are on the ropes. Things are going to get ugly over pension reform.

Btw, where is that interim report? In case no one has noticed, the Letter of Intent was published on the 17th. Ironically, our mass media are so dependent on the Government for a steer on this as a news item they are happy to  repeat the whole 'by the 15th' point without even putting it in the past tense.

Gem #5:
"Government presents a report analysing the potential contribution of the tourism sector to growth and jobs. It should identify legislative, administrative and other obstacles hindering competition and market entry to the realisation of sector potential.
Government presents a report analysing the potential contribution of the retail sector to price flexibility, growth and jobs. It should identify legislative, administrative and other obstacles hindering competition and market entry to the realisation of sector potential." 
The former report has the advantage of not being another ludicrous tourism strategy, but in zeroing in on regulation it's missing the point. As the World Economic Forum has demonstrated. the point is quite simple - Greece is no longer price-competitive (see pg. 206), partly because of the Euro and, I suspect, because our public spending on tourism is opaque and inefficient (see pg. 72). Only employment law is a real hurdle, mostly with regards to the use of seasonal foreign labour.

The latter report is being pushed as some kind of bizarre industrial policy piece when in fact it's a review of the potential for price controls. Or perhaps a bargaining chip that, it is hoped, which will force retailers to exercise restraint. Par-tay!

Gem #6:  
"Services directive"
Which LOLmonger thought to include this in the Memorandum? Implementing EU Directives is our Treaty obligation. We'd have to do it if we didn't owe a penny to anyone. Although perhaps we'd get away with dragging our feet. We are, as it happens, one year behind already.

Friday, 17 December 2010

Tuesday, 14 December 2010


Readers will know by now that I love stats; you will also be suspecting that I rather fancy myself too. So I spend a good deal of time monitoring traffic to this blog. I've noticed a trend in the past months and I keep going back to check it. Can you guess what it is?

That's right! Four out of ten of the top search keywords sending traffic my way refer to a tedious conspiracy theory I have helped debunk here. Another refers to the equally discredited Troktiko. Simply amazing.

Watch out for my next post "EPSILON TEAM OF SPACEFARING GREEK DEMIGODS UNVEILS BEVATRON SUPER-WEAPON UNDER ACROPOLIS" which is sure to propel me to blogging superstardom.

You see, some people in Greece really believe this crap.

Monday, 13 December 2010


Alphaville has just published the following enlightening table of foreign banks' exposures to Greece, compiled by the Bank for International Settlements (BIS):

While this is an elegant presentation, it tells us precious little that we don't know. But Alphaville hasn't reproduced my favourite BIS table, which can be found on pg. 18 of this, and which I reproduce with only minor editing below. All data refer to Q2 2010:

What does this tell us? The French banks are still the most exposed to Greece, but they've been cutting their exposure the fastest. At the current rate, the French banks could have no exposure direct to Greece whatsoever in 5-6 quarters from Q2 2010, i.e. in late 2011.  Now I know this isn't likely to materialise, but how hypocritical is it for the French to play good cop to Germany's bad cop, when they're the ones net selling EUR110m of Greek debt, mostly bonds, per day! At least the German banks are net buyers - in fact, the only net buyers of Greek bonds in their industry.

My eyeball estimate is that just short of EUR20bn of exposure to Greek bonds is being shifted out of banks' balance sheets each quarter - which means exposure could, in theory, reach zero in mid-2012. Which raises three issues:

1. Who's buying this stuff? Sovereigns, pension funds and the ECB.
2.  The closer we get to mid-2012, the more willing banks will be come to consider a Greek default
3. European taxpayers will pay for the Greek default.

UPDATE: Cross out the ECB: This just in. Also note that ECB's increasing share of Greek debt could just be the result of capital flight from Greek banks.

Btw. One wonders how well this policy of ECB as bank asset purgatory will last as the ECB becomes increasingly insolvent. Or as its bond purchasing programme becomes impossible to sterilise.


While browsing through a friend's Facebook feed the other day, I was infuriated to read the following passage in a hideously simplistic NYT op/ed:

Which do you prefer: a world in which 5 percent of the population accumulates 95 percent of wealth and the rest remain poor and excluded or a world dominated by a vast, growing and politically powerful middle class? Europe still strives to achieve this second scenario.

Now I have a great deal to say about this ridiculous steamroller treatment of the subject ('Did you hate G.W. Bush? Then you will love the European Commission!) but this really isn't the place for it. However, this got me thinking: if the European project is about the rise of the middle class (which it isn't), what of the Greek middle class? How will it fare in these difficult times? I really think the op/ed might be on to something in saying that the current crisis is threatening the dominion of the European middle class, but the subject is strangely elusive.

What is this middle class? As sociologists point out, the middle-class is distinguished by its values more than its income or assets – these values lead people into middle-class occupations which tend to pay middle-class wages and lead to the accumulation of middle-class wealth.

In Greece as in much of the world, middle-class values include an emphasis on home ownership; professional or managerial status; self-improvement and socialisation through higher education; an experience of the wider world through the media, travel and politics; and childrearing at a relatively mature age.

Putting a number to this definition is nearly impossible so I will try to triangulate as follows:


35% of the Greek labour force are currently in professional, technical or clerical office occupations (source) against 43% of the European labour force (source). 37.7% of Greeks would pick one of the two middle points in a six point range of financial difficulty to describe their personal and family circumstances. (source). 32% of Greeks can afford one major holiday per year without any problems, against 41% of EU citizens. (source)


56% of working age adults in Greece have a positive view of the liberal professions (architects, lawyers, etc) vs. 58% in the EU (source). 35% of Greeks say they 'frequently' discuss national politics with their friends, against an EU average of 19%. 31% express a high level of interest in politics against an EU average of 14% (see pp. 3-6 here). 38% of Greeks say they are aware or very aware of their rights as European citizens , against a European average of 32% (see p. 13 here)

Ask Greeks to define poverty and you will find that, perhaps more than any other nation in Europe, we think of poverty as the inability to participate in society rather than the lack of goods or reliance on public subsidies (see here). 35% of the Greek population identify with this essentially middle-class way of looking at the world, v. 24% of the EU population.


As of 2001, 38% of Greek employees thought of their jobs as being very secure, against 28% in the EU (source). It's amazing how rare statistics on this are, mind you. If any readers have more recent stats from a large sample I'd love to reproduce them here.

To cut a long story short, my point here is that about a third of Greece's working-age population is middle-class under a broad definition. Greece has a small middle class by European standards if judged by economic standards alone, but it has a large one in terms of the prevalence of middle-class values. But is our middle class going to get bigger or smaller? I think I've got an idea.

Having middle-class values is a matter of education and family background. What makes the middle-class life possible, however, is the relative absence of risk to one's livelihood. Without this, values begin to change to match the reality on the ground. Living the middle-class dream requires the near-certainty that one will have a decent-paying job at any given moment for one's entire working life. There's only so many factors that can produce this, so let's consider them one by one:

A short working life: On average Greeks retired at about the same age as other Europeans for most of the past decade – although according to Eurostat we started off with higher exit ages and eventually converged. These figures are, of course a little problematic because they are not weighted by the value of each retiree's pension. Going forward, the parlous state of our pension fund finances means that retirement ages will rise, putting pressure on the middle class.

High productivity growth: EU KLEMS reveals that we achieved this through most the 70s and noughties, but both cases were exceptional and suspicious – we spend a good deal of the 70s with low debt and no elected government and the noughties were, as we now know, a public sector debt bubble. Going forward, it is possible that regulatory reform will deliver some measure of productivity growth, but estimates point to an incremental gain comparable to a single year's productivity growth, so that's unlikely to give us much of a boost. Essentially, this one could go either way for the middle classes, depending on the pace of reform.

High fertility rates: Contrary to popular perceptions, Eurostat reports that fertility rates have been on the rise in Greece since the turn of the century. Of course it can be argued that 'true' Greeks are not contributing to this trend as much as immigrants are, but unless said immigrants plan to leave the country and take their kids with them, we're better off counting them towards the total. If Greece can manage its intellectual capital properly and invest in public goods with strong externalities, such as education, the middle class should benefit.

The existence of commercial monopolies: Commercial monopolies, including by state-owned corporations, can create permanence by creating barriers to entry not to a profession but to entire sector. See for instance our incredibly thick coal-loving engineers. With increased privatisation these should also begin to disappear.

Barriers to entry into certain professional occupations: We have had many of these in the past, as the OECD's data show. However, we are now in the process of tearing these down.

Strong labour market regulation and high levels of unionisation: We have had both for many years and, as I have discussed, they are particularly focused on erecting barriers to entry. Our latest batch of reforms aimed at relaxing the stranglehold of collective bargaining could reduce this.

Income redistribution: I doubt this has contributed to the growth of our middle classes, or if it has it has fuelled the growth of an upper middle class. On the spending side, our public spending apparatus has throughout the last decades been one of the least efficient in the developed world at narrowing income inequalities. On the income side, middle income taxpayers are the least effective tax avoiders and evaders in Greece. With the public finances in trouble, we will not be able to waste money, but then we also won't be able to redistribute very well, which bodes ill for the middle classes. Unless of course we manage to tackle tax-avoidance, which has a very strong effect on income distribution.

So there you have it. Our middle classes have been built mostly on labour regulation that is in the process of being dismantled. A new middle class could rise if we can drive productivity gains and battle tax avoidance quickly enough, but the pressure against our existing middle class is irresistible. The shape of Greek society will change radically depending on how well we reform.

[To be continued].

Sunday, 12 December 2010


From the latest Eurobarometer, November 2010 edition (pg. 121). Note that the fieldwork was carried out in May. The question asked of respondents was:

Tell me whether you totally agree, tend to agree, tend to disagree or totally disagree with the following statement: (OUR COUNTRY) would have been better protected in the face of the current financial and economic crisis if we had kept the (FORMER NATIONAL CURRENCY).

The table below highlights the results by country as well as the difference between the latest Eurobarometer survey and the one directly preceding it. Happy spinning Commissars!

UPDATE: Our orange blogs have already started reporting on the new wave of this survey as part of a plot to take Greece out of the Euro.

Thursday, 9 December 2010


It now appears to be a foregone conclusion that Greece will get an extension on our bailout loans - adding one year and a half to the amount of time for which our national sovereignty will remain suspended.

Apparently our Government cannot believe their luck. Armed with this new-found confidence our PM was able to dismiss Roubini's latest batch of prophesies and the Government reiterated its bizarre fantasies about there being no need for default (there isn't; there's national interest though). In fact, some members of the Government even claimed there's no need for further layoffs in the wider public sector. Come the inevitable, these pronouncements will fuel unimaginable anger, so they really ought to be more careful.

This is of course only a rehearsal for the refinancing of ever more Greek debt via IMF/EU funds, swapping ever more debt agreed under Greek law (which is easy for us to default on) with debt agreed under English law (which is harder to default on).

Once again, our creditors in the banking sector win as our supposedly super-senior creditors are forced to take a small haircut in their place. So far, so Vampire Squid - like, until one stops to consider who it is that holds all of these Greek bonds.

Because last time I heard (i.e. today), the European Central Bank was pretty much the only buyer.


How far can our obligations be extended? Here's the benchmark case of the extremely intelligent Icelanders, who saw the writing on the wall and defaulted when they could. They're now paying off the British and Dutch over 30 years, starting from 2016.

This is going to become a blueprint for other countries - although my concern is that by dragging our debt saga out so much we're becoming too political, too iconic in way, to be given this way out.

Tuesday, 7 December 2010


As my readers should probably know by now (and could probably guess anyway), the Greek government and many of my compatriots spent months blaming evil specuLOLtors for our problems before discovering that deep-seated, decade-old distortions were a little bit closer to the heart of the matter and that the most active speculators in Greek CDS were in fact Greek banks.

For a while, Brussels was keen on this version of events because in what seemed to be a golden age for Euro power-grabbing the popular outrage over evil CDS gave it the right to intervene in yet another lightly regulated market. So it commissioned a report by way of justification. The report, however, prepared in May 2010, found that CDS prices actually reflected fundamentals quite well and that the CDS market was actually often more transparent than bond markets. So the Commission simply buried it.

Having had some experience of EC research bids I immediately assumed that this was a report commissioned from one of the magic circle of monster consultancies (or even the Big Four) that hover around EU tenders like vultures around a battlefield. So I put the EC's embarrassment down to either covert lobbying from the financial industry or over-zealous tendering requirements. [If you ask people to demonstrate in their tenders their ability to provide a thorough and rigorous analysis, you shouldn't be surprised to find that you've bound them contractually to actually perform a thorough and rigorous analysis.]

However, I was wrong. The report was compiled by EC staff, which is why it was so easy to bury in the first place. Technically, the Commission did nothing wrong. Politically, however, they were definitely in the wrong as against the advice of their own staff the Commission decided to appease politicians, blame specuLOLtors regardless, and try to regulate them away. How ironic, given what we now know, is this amazing quote from Commissioner Barnier? 
"These people don't like to come out in the light of day. We are going to flood them with light."
A few months later, Europe knows it is in a worse shape than those specuLOLors dared imagine at the time. It is literally plunged into darkness. The only thing that has finally seen the light, is the Commission's report exonerating the CDS markets.

How do we know all this? Because the Netherlands' Het Financieele Dagblad (Financial Daily) put in a Freedom of Information (FoI) request and obtained the actual report, which can be read here. I'm sure this goes some way towards exonerating the Dutch for their bizarre love of Zwarte Piet

Btw, this episode shows clearly how some journos are vastly better than others. The Telegraph's triumphant coverage of Eurocrats messing up provides no link to its source, merely mentioning that it has 'seen' the report, as though the authors were handed a copy by a man in dark glasses while feeding ducks at Regent's Park and lowly peons couldn't possibly access it. Bloomberg's coverage duly links back to the original Dutch article. The Dagblad links back to the actual report. 

UPDATE: The full report can now be found here

Monday, 6 December 2010


Two readers have already asked what I think the future holds for the world, Europe and Greece in particular. I don't like forecasts because they usually make me look stupid, but I do like telling a good story so I am happy to oblige.

At the top of the blog, you will now find a new tab entitled: TEH BIIG PIK-CHUR. It is directly accessible here.

This forecasting page is under development and I will make changes as I go along. For the time being it only refers to the very big ultra-macro picture but it will start to zoom in very soon.


UPDATE: I have just realised that Blogger turns comments on Pages (as opposed to Posts) off by default. I have now corrected this. I don't know yet that any readers have tried to comment but if you have I am sorry for any frustration or disappointment caused. Your comments are even more welcome in the Scenarios section.

Sunday, 5 December 2010


Greece and Britain. Two nations once on the opposite sides of the labour market sanity, EU subsidy and pro-americanism lines; now brought together by debt. Both are on the top of the IMF's death list. Both have recently kicked out their latest governments. Turns out, my two homelands now have one more thing in common. The suspicious absence of our ex-PMs, respectively Kostas Karamanlis Jr. and Gordon Brown, from Parliament.


Did you know? Greece is near bankruptcy.

This tends to mean money is tight. But in light of the amazingly damaging effect of our fudged debt and gdp statistics, even a near-bankrupt country probably does need 200 new statisticians. Foreign readers will not be able to read this notice in English because, in violation of our obligations to the EU, these jobs are not really intended for foreign nationals, even if they are EU citizens.

What are these people meant to do? Well judging from the distribution (114 in ELSTAT HQ and the rest thinly scattered in tiny statistical outposts throughout the country) and the 8-month contract terms of their employment, my guess is that they are supposed to address not only our flawed central government statistics but also - crucially - to finally catch up with the IMF's demands that we take stock of local government  finances. This work, as you may recall, was kindly put on the back burner by the IMF, as they feared that this kind of disclosure would destabilise our fragile politics ahead of this year's municipal elections.

I cannot begrudge these people their new jobs - even I have to admit they are needed; they will be saddled with enormous responsibility and in return they will get paid a pittance on an 8-month contract.

I have two small objections though.

1. Given a long history of contract staff in the Greek public sector being promised and eventually attaining permanent status (there's even a strong legal precedent) if they can claim to meet a 'permanent' or 'organic' need of the public administration, is it really wise to hire contractors in this case? Knowing that the information they produce is part of Greece's contractual obligations to the IMF, they will reason that they cannot be laid off until the work is done and the umpteenth tranche of IMF money is secured. These people have an automatic incentive to not do their jobs in a timely fashion, which we can't really afford.

2. If these people are to perform one of admittedly the hardest jobs in the world under amazing pressure and resource constraints, perhaps it would make sense for them to be the very best statisticians and clerks we can get hold of. If that is the case, then why is it that time spent unemployed is so much more important to the hiring criteria than time spent in relevant employment? In fact, as the table below shows, 7 months in unemployment (a bad signal of labour quality even in Greece's utterly deranged labour market) will trump any amount of work experience.

Guess some things never change.

Saturday, 4 December 2010


Anyone care to explain these graphs?

All data refer to Greece. I have omitted the period leading up to the first elections after the restoration of democracy, as well as the economic crisis and its aftermath. I've also omitted the first (failed) hung parliament of 1989.

If you think lawyers cause growing debt, here is your graph. Here the Y axis refers to the change in debt in the term of the current parliament. It suggest that once more than 35% of parliament are lawyers debt tends to rise substantially:

If you think lawyers are voted in after public sector waste sets in, here's your graph. Here the Y axis refers to the change in debt in the term of the previous parliament. It would suggests that once debt to GDP has grown by more than 20% or more in one term, the likelihood of a lawyer becoming an MP rises dramatically.

Public debt data from the IMF and election results data from the Interparliamentary Union.

I think this round goes to the people who think lawyers are the result of fiscal irresponsibility. Thoughts on a postcard as to the mechanism of this.

But more importantly, I intend to use this in future elections as a means of approximating Greek debt/GDP. Sure, it's a little excel regression I knocked together based on a small number of datapoints but I suspect that's still more rigorous than the actual statistics.

Friday, 26 November 2010


I hinted the other day that Ireland's troubles are not unrelated to our own and that the delayed announcement of the new 'final' Greek deficit figures may have accelerated the Irish distaster. I must admit that at the time it was a vague and slightly naive observation, but with only a little bit of digging I've found it's a little more than that.

Feast your eyes, friends, on the IMF's map of financial interconnections for Greece, included in this paper - they compiled this in an effort to explain why a small country created such a big problem in so short a time. As the Great Satan explains:

An illustration of Greece‘s interconnections in cross-border funding flows reveals why funding strains in Greece in the first half of 2010, despite being by itself small, might have translated into pressures on other Euro Area peripherals. Recall that banking exposures to Greece were relatively small in the context of banks‘ balance sheets; yet, concerns about the strength of balance sheets and the ability of other Euro Area peripheral countries with fiscal and financial vulnerabilities to finance themselves increased as the Greek situation worsened. Using the funds‘ data, Figure 10 presents four clusters (i.e., countries that together form more of a closed system), centered around a set of core connections that are closely linked to Greece: (i) a red cluster of countries with access to funds domiciled in Luxembourg; (ii) a black cluster with access to funds domiciled in the offshore centers of British Virgin Islands, Jersey, Cayman, Guernsey, and the Isle of Man; (iii) a blue cluster with Ireland at the core; and (iv) a green cluster of the U.S. with several key European and other countries. Greece is interconnected with each of the central nodes of these clusters. This close interconnection across other core countries suggests why asset re-allocations and flows might have been large systemically, with potentially significant impact on countries such as Ireland.

[Anyone notice the black cluster carefully enough? Now that is scary stuff.]

This paper is dated 6 October 2010. Since then, our contagious germs have come back to get us - by making it that much more difficult for our banks to raise funds. Which is a problem because as things currently stand, our banks are getting an increasingly high share of their funding from Europe's Central banks and the ECB. As of September, Greek banks were using EUR94.5bn of Central Bank money (see below), compared to EUR213bn of depositors' money.

Tuesday, 23 November 2010


I knew my years of listening to Irish music would come in handy one day. I get to make a bad pun on a bad day.

Nov 21 was the day that Ireland finally stopped battling the waves and took the EU's money, joining Greece in the naughty step of protectorate-dom and plunging into an abyss of political instability. And there is worse news closer to home: turns out Greece won't be getting additional time to pay off our EU/IMF loans as it turns out those nasty Germans don't like the thought of us defaulting on their claims so early in the game.

The bailout of course failed to put anyone at ease regarding the fate of the rest of the European periphery. It did however cheer up big government apologists in Greece and elsewhere, who are already chanting the moral of Ireland's story: that austerity is self-destructive as it couldn't save the IMF's star pupil, that low taxes

They are right almost as much as they are wrong. In Greece and Ireland, banking on a crash course of austerity on the IMF's terms to get our economy growing again and bring our debt down was never going to work because both countries were clearly insolvent. The IMF death list can be seen clearly on the left below:

Technically, the UK should also have followed us into the bottomless pit by now but they have their own currency and central bank which does allow them a bit of leeway - perhaps enough for them to avoid a default but who knows?

With the UK temporarily out of the way the next EU member on the IMF's stochastic death list is Spain. Now the Spaniards will argue until they are blue in the face that they aren't Ireland or Greece but actually they combine the worst of both worlds - sharing as they do both Greece's hideously sclerotic labour market and Ireland's property-obsessed cult of suicide bankers. The only way in which they are unlike the previous two is that Spain is very, very large - so large in fact that the EU bailout fund cannot save it.

On the other hand, Portugal might be next. They are technically much better off than Spain (i.e. ranked lower on the death list) but they might attract more attention as they are a smaller country and because point-scoring politicians in the Portuguese opposition have just hit the market with some scary numbers. Always a bad idea putting numbers to bad news. It makes people reach for their excel sheets and update their models.

What people refuse to understand about the chain of sovereign defaults is that it isn't troubled European countries that are defaulting - it's the whole system. Spain will not be saved because its debt is 'only' 53% of GDP as opposed to Ireland's 65% or Greece's 127%.  The simple truth is that no one believes Europe can grow fast-enough, in a credit-constrained world and without irresponsible levels of government spending, to get itself out of debt. One can spend all day arguing that a jet fighter is faster than a DIY Red Bull Flugtag plane or a seagull, or that one weighs more than the others, but all three must eventually come down because none of them can reach escape velocity.

Until three years ago, the consensus was that European sovereigns could not default, period. Last year, the consensus became that European sovereigns could never really default, except through inflation. Earlier this year, it became 'clear' to us all that the periphery could indeed default. Now markets are waking up to the fact that even larger and 'safer' European sovereigns could default. Portugal is, as per the Death List, more solvent than France and much more solvent than the UK. It's only market participants' superstition and their love of guarantors that is keeping them from betting on the obvious.

Back to the IMF for a second. Given that it compiled the Death List in the first place, surely the Fund (or its staff) know what's going on, even if they can't admit it in review after review of our adjustment mechanism?

Perhaps this paper written by the IMF's own staff is meant to give us a hint.

Sunday, 21 November 2010


From the Manifesto of the Democratic Alliance, Greece's newest political party, in Greek and in English (via Google Translate as I don't have much time). I'm not sold on this and will explain when I have time.

Wordle: DimSum Tag CloudWordle: DimSum tag cloud in English


Greece-watchers will have noted by now that the municipal and prefectural elections in Greece have been and gone, our new deficit figures are out and 17 November, the only day that really matters, has come and gone without incident.

In the run-up to this most crucial of anniversaries I wrote, perhaps too cynically, on FB:

“40% of the nation refuses to vote. The legitimacy of the state is in tatters. Yet somehow I have friends cheering one candidate or another. Why do you bother? Come 17 November Athens will burn and the streets will run with blood. Does it really matter which second rate politician will have to clean up?”

This provoked a good deal of reaction from friends back home.  A.S., a high-flying friend who is busy rebuilding the brand of a major, newly privatised company back home, argues that the basic difference this time around (apart from the superior calibre of the winning candidates in our two major cities) was that Yorgo essentially won an internal battle against the rest of the Socialist party by betting – correctly – that well-respected and untarnished outsiders with grassroots support (a former Ombusman in Athens and a seasoned winemaker and environmentalist in Thessaloniki) could do just as well as any party apparatchik with a deep clientelist operation.

Intuitively, I agree that this is an important point to prove to both major parties, as it immediately reduces the returns on the enormous investment required to build a clientelist network – reducing the advantage held by incumbent politicians vis-à-vis newcomers and reducing incentives to tolerate or foster corruption. Both very very good things on a macro level.

In fact, the end result would be similar even if the winning candidates were truly second-rate and their grassroots support entirely manufactured (for the cynics out there). In the latter case, the signal is that investing in a clientelist operation is not as good a deal as investing in an Astroturf political operation. I’m still happy with that.

One thing, however puzzles me in A.S.’s account. Why now? In previous elections it was generally felt that old-school candidates were the safest pair of hands. Something must be different this time around, which made Yorgo think he could get away with his gambit. I think I’ve got a complementary explanation that is consistent with the above theory on the rise of nominations based on merit but can also explain the sky-high levels of abstention in 2010. It is simply this: the State has no money.

Remember my analysis of the bursting of Greece’s Higher Education bubble? Well I think there are a lot more examples of this sort of thing waiting to come out. One such bubble is the ‘market’ for clientelist network services. These are valuable only because they allow buyers (who pay, in part, with their vote) to influence the distribution of the State’s resources.  With fiscal policy largely out of the Greek government’s hands, resources extremely scarce, and scrutiny tightening, no-one can guarantee that they can deliver these clientelist services anymore. Their networks thus become weaker and less valuable to voters. However, the price of clientelist services is fixed at one vote – which is all anyone gets. This rigidity means that as the value of clientelist network services falls, the ‘market’ can never clear. The variability of abstention statistics is essentially a function of the value of clientelist services.  

One bizarre implication of this theory is that, the more abstention rises, the better the candidates we will end up electing – as the first voters to drop out of the system will not be disaffected voters but subsidy junkies.
Don’t forget, network effects work exponentially so any fall in the value of clientelist networks is big news. If we can deliver this in two successive elections, then we Greeks just might have a chance at sanity.  The problem is that the rising trend in abstention (see graph) is extremely steep and could end up invalidating elections just as the electorate finally begin to get their preferences right. The implication is that Greeks should be encouraging swing voters to show up and vote blank or invalid rather than abstain.

(See here for my national elections data, here for my European elections data. The rest have been cherry-picked from press reports.)

Monday, 15 November 2010


Our budget deficit for 2009 was 15.4% of GDP and Government debt was 127% of GDP, as revealed by Eurostat in its latest release.

Amazingly, although we have no credibility to lose anyway, Eurostat did manage to damage its own credibility by missing its own earlier confidence interval substantially. The ceiling had previously been set at 14.1% for the deficit and 122% for the national debt.

Amazingly, Eurostat was, er, unable to squeeze this work in before the second round of our municipal elections, even though the ballpark figure has been out for more than a month.

Presumably this was meant to foster stability by giving Yorgo (the Threesome's only credible counterparty in Greece) a boost in the polls. Instead the announcement has coincided with Ireland's final fiscal meltdown, for which I'm sure we'll get a lot of polite greeting cards, perhaps featuring leprechauns holding empty pots.

Sounds a bit like the way in which our Government put its foot in it in 2009 by reporting its estimates of the deficit and national debt right ahead of the Dubai Debacle.

The truth hurts, Eurostat, but it hurts less if you tell it all at once. MUPPETS


A convenient myth in our national economic collapse (expressed here but also countless other times) is that somehow our rising debts fuelled consumption of German exports.

This argument has been cleverly adapted by our home-grown economists/apologists from the general discussion on Global Imbalances and is correct only insofar as it states that current account surplusses should not be seen as having moral implications (prudent exporters v. wastrel importers). In every other respect it is incorrect.

Now, sadly, figures on bilateral trade balances within the Eurozone are hard to track down - they are not available on Eurostat or ELSTAT. But we have a second-best option.

For proof, turn if you will to page 7 of this publication. It shows that Greece was Germany's 27th largest export market in 2008, down from 24th in 2000 and indeed down from an unbelievable 19th back in 1990. So it's very unlikely that German export growth relied to any extent on Greek profligacy. Note however the rise in the export markets' rank of the US and China, with which German shares neither currency nor any institutional links. If anything, China is a fellow export-driven economy. Of all the PIIGS, only Spain actually went up the ranks of German export markets during the noughties.

Perhaps more importantly, if one could rewing back to 2001, one would read article after article about how badly joining the Euro was playing out for German exports. It turned out the exchange rate at which Germany joined over-valued its products, making it very hard to shift those BMWs (except to Cypriots, bless them). Ten years on the situation is reversed. Germany and some other countries kept running while Greece and some others thought they'd take it easy once they'd passed the big exam.

So there you are, apologists. Greece is not to Germany what America is to China, although it would be convenient and flattering to think so.

Who will we blame our troubles on now? Well, we could still blame them on the Euro. Our Euro is massively overpriced while the Germans' Euro is massively underpriced (evidence here). In this sense Germany is a bit like China - and although Greece is partly a victim of this implicit subsidy, we were given nearly a decade to reverse it by improving competitiveness. Instead, we pegged our wages to those of the Germans (just like they told us not to) and stifled regulatory reform.

UPDATE: A table of Germany's 2009 exports by partner, showing turnover and trade balances, can be found here.

2nd UPDATE: A further discussion of Greece's trade links can be found here

Saturday, 13 November 2010


So, apparently our latest GDP estimates are in and they look predictably crap.

The 4.5% y-o-y fall in real terms was apparently close to everyone's expectations, except for those of one rather important player - the IMF, who projected a 4% fall up until its review in September. My naive estimate back in August was that we would see GDP fall by 4.6% to 6% y.o.y. by the end of 2010 and so it seems set to be.

UPDATE: An astute reader here in the City has brought two mistakes to my attention. First, there is a major discontinuity in the quarterly data from 2009 to 2010 - the data are not comparable, strictly speaking. So readers must take my analysis (and those of Eurostat and the Greek Government) with a pinch of salt. 

Second, my -6% figure is totally bonkers unless the anarchists do manage to burn Athens to the ground this November. -4.6% sounds a lot more plausible as it implies a quarterly fall of 1.2%, which is the rate at which GDP fell in Q3 2010. This may still be an overly pessimistic view, as even this downturn has to bottom out somewhere. That said, I suspect that unless we've applied some of our usual political 'stimulus' in the run-up to the elections  (at the expense however of revenue targets) then the combination of uncertainty regarding the electoral outcome, plus the effect of civil unrest in November will deliver very close to -4.5% by the end of this year, at least some revisions down the line when the GDP estimates have hardened a little.

Many thanks to reader NoC for these clarifications - saved me from getting caught out by less sympathetic readers.

Finally, we would both add that readers must be very careful as the revisions between the Q2 2010 and Q3 2010 releases are vast. Generally their effect is to start the decline in GDP much earlier, which affects the yoy figures. It is my belief that these are not aimed at addressing the discontinuity ELSTAT have highlighted - that, when it comes, will be a one-off, big-ticket revision. Cynics might call this manipulation but actually it is very likely to have been made in good faith.

Unsurprisingly, the IMF's target of 11.2% unemployment is also not on track to be met. In fact, the latest estimates were 11.8% for Q2 and even 11.7% in Q1 2010. Not that forecasting unemployment means anything in Greece since our labour market is unable to match labour to vacancies.

In addition to the fact that we still can't bring tax revenues in, the IMF may wish to note that another, far more important source of taxation is failing: inflation. The GDP deflator is now growing at 2.4% y-o-y, against an IMF estimate of 3.5%. This is despite CPI inflation estimated at 5.2% against an end-of-year target of 4.2%. My national accounts voodoo handbook tells me that this means that rising commodity prices and continued distortions in the market have kept input prices, profits and rents rising fast even as demand kept value added inflation subdued. This is the worst of both worlds - consumers are being taxed via inflation but the state is only able to use a small amount of this 'tax' to 'pay' down debt.

Isn't it time the IMF saw this for what it is? It's a death spiral.

Friday, 12 November 2010


This post is copied from Jeff Harding's post on The Daily Capitalist. I have matched Jeff's pledge and would urge you to do the same. At best, my guy loses and we help feed some hungry people over in NY. At worst, Paul MUPPET Krugman gets his ass handed to him in a symbolic defeat of Keynesian MUPPET running dogs the world over AND we help feed some hungry people over in NY. I'm happy either way.


I Dare Paul Krugman To Debate Austrian Theory

How much would it be worth to you to see arch-Keynesian Paul Krugman debate a top-notch Austrian theory economist on business cycle theory?
Krugman has prattled for years about Austrian theory being a flawed dead-end of economics. My guess he has never read anything by Mises, Hayek, or Rothbard, the greatest scholars of the Austrian School. He doesn’t understand it in any way; I have read his critiques and they are uninformed.
Robert Murphy, one of the bright young lights of Austrian theory economics, has challenged Krugman to a debate. Now let me say others have tried to draw Krugman out, but he won’t do it. Murphy, who got his Ph.D at NYU, has made an offer of debate that Krugman will be hard pressed to refuse. Here’s the challenge:
When Krugman agrees to debate Murphy at the Mises Institute, $100,000 will be donated to the Fresh Food Program of FoodBankNYC.org, a non-profit dedicated to feeding the hungry of NYC .
Murphy is soliciting donations for the debate through The Point, a web site that hosts campaigns. Launched only 4 days ago, they already have raised $22,000 $28,000 $32,000 57,165. I just pledged $100. If Krugman doesn’t accept the challenge, I will not be charged. If he does, I get a charitable donation deduction to the Food Bank of NYC.
Click the banner below to donate. Please join me. This will be money very well spent.


UPDATE: Murphy has put up this video of himself prepping for the Krugman debate:

Can you imagine a Keynesian High Priest taking himself this seriously?

Tuesday, 9 November 2010


I'm currently attending a very interesting event on Microfinance held by the European Commission. You can access the programme and other material here.

What is even more interesting is that it's absolutely crawling with my fellow Greeks. Although some will be Eurocrats based in Brussels, most travel in groups of two or three and keep referring to 'our guys' in a very familiar manner. Many have that usual mixture of timidity and intensity in their faces - the mark of a person used to delivering fawning praise and then wallowing in impotent rage.

No doubt my compatriots are on a fishing expedition for even more yummy subsidies that we can continue to feed our clientelist regional investment structures despite being insolvent. I suspect they are particularly keen to hear more abour JESSICA.

For the last time Europe. Stop bailing us in!!!

UPDATE: It's actually JEREMIE they're into - this person, employed by our Department for Economics and Competitiveness and Maritime Affairs, (now Regional Development and Competitiveness) piped up in a Q&A section, and even managed to make an unintended 'racial' remark, thanking an Indian panellist for the 'spicy' note she added to the proceedings. Actually the panellist had been recounting how she managed to escape a life of domestic violence and overcome implicit and explicit racism in order to become a successful entrepreneur.

It's like watching Borat.

However, the manner of the question was not as bad as the content; my compatriot appeared exasperated at the discussion on microfinance and its supposed potential benefits to employment and growth in Europe. 'I want to talk about the elephant in the room. What are we talking about?' she demanded, 'We're talking about access to finance! About getting finance to people that NEED it, not about employment or growth.'

And that, my friends, is Greece in a nutshell. No point discussing how such a scheme might self-finance by reducing benefits payments or increasing tax revenues for member states [ed. personally I am sceptical of that anyway]. The point it that some people NEED money and must HAVE it! Give us our subsidies and shut up already.

Thursday, 4 November 2010


UPDATE: For more perspective on Greece's debt trajectory, and a more up to date graph as well, please consider this and this post.

Remember this epic graph of Greek debt / GDP which I found on one of our 'orange blogs' some time ago?

Well I think I've got an even better one. Better for two reasons - first, it goes back to 1884, with a few gaps here and there. Second, you can download the figures and read up on the methodology. The data come from a new public debt database compiled by the IMF, and presented in this paper.

The following graph is taken directly from the database, which covers an amazing 174 countries. You can download the data yourselves here.

Admire its beauty dear readers. Also, admire how much of the blame the first two Socialist Governments under our current Prime Minister's father deserve for our current fiscal woes.

Wednesday, 3 November 2010


Not too long ago, I wrote a comment on a Linked In thread that went a little like this:

"As power is transferred from the Greek government and parliament to the EU institutions, the crosshair for our "known-unknowns" will move from Athens to Brussels, Strasbourg and Frankfurt. And then it's really going to hit the fan. 
What happens when it's not our Minister of the Interior but an EU Commissioner that gets their office bombed? What happens when the older generation of our urban guerillas finally decide to shack up with their posh yuppie girlfriends in Brussels and start firebombing Belgian coppers? What happens if our demonstrators occupy the Berlaymont instead of the Acropolis, or if the mayor of Strasbourg should wake up to the entire town spray painted with "No job, no church, nothing to do man! - Let's sh*t on the grave of Schuman!"?" 
A mere four months have passed since then, and the latest news is that some of our bright young things have sent out bomb parcels to the offices of Angela Merkel, Silvio Berlusconi and Nicolas Sarkozy. All outbound packages are now queued for inspection. Bizarrely they have also targeted the embassies of Bulgaria, Germany, Chile, Mexico, Russia and Switzerland.

I have some reservations regarding the suspects that have been apprehended so far. I will update when I know more.