Sunday, 31 January 2010


I couldn’t not write about the farmer uprising currently in progress in Greece.  In a country with the 121st cheapest agricultural policy in the world, not to mention a fiscal basket-case, perhaps this is a bit rich. But anger runs deep in the North of Greece and seeing one’s personal situation in the context of a decade old problem is a bit too much perspective to be expected from some of our farmers, who are admittedly not too well off. Their leadership, however, should know better.

 (Photo courtesy of Petros Papalianos)

Studies show that subsidies, especially decoupled ones, actually reduce efficiency. We know this is true in the case of olive growers and cotton growers in Greece. We know that subsidies make cattle farmers in Crete less efficient and more vulnerable to market and weather shocks. Same goes for the farming powerhouse of Europe, France.

Despite this, research shows that support has increased since 2002, and made up 45% of farm income in Greece as of 2006, 9 percentage points higher than the EU equivalent.

So what are our farmers asking for? You guessed it: more decoupled subsidies. Here are their demands, in Greek. The non-Greek speakers will have to take my word for it. But it’s not just the fact that farmers want subsidies. It is the nature of the subsidies they want: they want to completely remove downside risk from their operations but still hold on to any profits. When bankers ask for this, we rightly scream bloody murder (although we wrongly give in).

First, there is market risk: simply the risk that people will want to buy less at your preferred price than you think. So farmers are demanding that the state guarantee higher prices for their produce.

Then there is natural risk: maybe it won’t rain one year, or rain too much, or snow, burning the crops. So the farmers are asking for total cover in case of any of the above on all farming capital.

Of course even with that in place there is a chance the Greek consumer will stick two fingers up to them and buy cheaper foreign produce. So they are also demanding protection from foreign imports (which is illegal under EU law)

Even if that works, the consumer could tell them to f off and just not buy farm produce, or buy a lot less. So they demand a guaranteed minimum income.

Then there is the risk that this government-fuelled bonanza will not be sustainable. The farmers have thought of that too. So they demand they be allowed to retire at 60 (55 for women), courtesy of a taxpayer-subsidised fund whose deficits will be topped up by the government.
And they also want farmland to be tax-free so that any future tax hikes will not touch them. Moreover, they want a freezing of their debt for three years, and for all of their overdraft fees to be waived by the banks they owe money to.

This, they add, is only a baseline, on top of which local producers should be able to negotiate further perks.
Let’s be clear. An entrepreneur takes risks with their capital. An employee doesn’t. The farmers – who in my mind signed up to be entrepreneurs – now want to be employees instead, simply without their employer being able to tell them what to do, and with an added bonus on top in case they manage to turn a profit – the privilege of civil servants. And they want this status regardless of whether they have another job or not. Note that civil servants in Greece cannot have additional jobs. So they really want to be super-civil-servants, accountable to no one and on the dole for eternity.

This is madness in the best of times. In these times, it’s self-destruction.

I have to agree, on the basis of evidence, that retiree farmers are very prone to poverty and that getting additional work on the side is invaluable to mitigating poverty among farming households in Greece. In fact, where the household head has a non-agricultural job, the research shows that farm households are reasonably well-off. But any policy that gives farmers an incentive to rely exclusively on heavily subsidised farming income must, by the same token, be very bad news. And although the research finds that poverty is reduced by subsidy income, if this comes at the price of reduced productivity then presumably the level of subsidy needed to achieve this reduction will rise with time, as indeed it has.

Finally, EU subsidies have a lot to answer for. As the chart below shows, since 2004 subsidy money has increasingly been turned into farm wages rather than profits. It's a recipe for long-term disaster.

There is, in all of this, a silver lining. Some of our agricultural products are hugely profitable and competitive. The poster-child for this is asparagus farming, more than three quarters of which is concentrated in the Pella prefecture. Research on this, however, shows that this is heavily dependent on the flexible application of seasonal labour, most of it from immigrants. This is probably what Greece is worst at in the world. Fingers crossed for the asparagus farmers of Pella.

Saturday, 30 January 2010


My vulture -meter went off the charts today and I had to check what the matter was.

It appears that our leading centre-left daily, Ta Nea, reported that the EC is about to reject our updated Stability and Growth plan. The original Greek article can be read here. I must note in the interest of objectivity that our government denies this, suggesting instead that the document seen by the journos is actually old news. And to be fair the document they offer for our scrutiny is a bit of a mess.

But why would the daily closest-aligned to the government hit them so hard in the balls at this very very inconvenient moment? Conspiracy theorists, we need your comments.

Finally, I am reading that in the midst of all this our Prime Minister took a bit of time - to the consternation of Davos attendees aligned to the financial sector - to watch clips of Avatar in 3D with James Cameron himself. Three possibilities.

1. He thought it was a presentation by David Cameron.
2. He misses the good times when beating the Blue People was his biggest concern.
3. He was  tired of being followed by FT correspondents and went into the last room they would think to look.


I just came across details of EU expenditure for 2008 (released in November) here. Note the EUR8.5bn of funds the EU pumped into Greece.

My main concern with all this money is this. No government can turn down EUR8.5bn of free cash. But what if the benefits of this money are not what they appear to be, and what if there is a hidden downside?

A recent study of the effects of EU structural funds has found  that their effects on Foreign Direct Investment (FDI) can be effectively less than zero, if the quality of a country's institutions is low. As the authors state:

 The empirical findings are consistent with the findings of previous studies regarding the determinants of FDI and indicate that the impact of EU Structural Funds on FDI inflows critically depends on the institutional quality of the receiving countries. For countries with high quality institutions the EU Structural Funds have a positive impact on FDI, for countries with low quality institutions the impact will be negative.
Worse, a simple search on Google Scholar corroborates the authors' claim  that their findings are in line with the corpus of research on the matter.

Does Greece have low quality institutions? Another recent study finds that we do (the second-worst in fact among old EU members, second only to Italy), and in fact quality has fallen substantially since 2006. So in fact, the EU is crowding out private investment in Greece by continuing to give us money despite our poor .
government record.

But perhaps it is possible that EU funds themselves have an effect on the quality of our institutions, transforming our civil administration to an even more bloated bureaucracy responsible for (mis)allocating this bonanza of free money. I compare this to the effect of aid on governance in the third world - as Dambisa Moyo claims, a government with access to free cash is less accountable to its own citizens, with disastrous political and economic effects. A recent study suggests that the effect of aid pre-1997, when anti-corruption conditionalities were added to aid mechanisms worldwide in a robust way, was to increase corruption or leave it unchanged. EU funding is not thought of as aid, and so conditionality is virtually unknown, so there is reason to believe its effects on Greece have not been benign. Of course, the EU too has started to think twice on this, as in the case of Romania and Bulgaria. The answer has been, as with African aid recipients, conditionality and intense monitoring.

Now the commission notes that these are not the worst offenders. According to Transparency International, Greece is almost level with Romania in perceived levels of corruption. So why not apply the same reasoning to us?

Perhaps it's a matter of the relative flows of EU funds. Our own figures suggest that in 2008 the Government's EU funds made up 16.5% of our regular government income. So in fact, about one sixth of the power of the average citizen to hold our government to account has effectively been usurped by Brussels and, as EU funding is not conditional, it has been handed back to the incumbent government. Worse still, as the chart below clearly shows, the amount of EU funding has risen in precisely the same years (2007 and 2008) that the quality of our institutions has fallen. We're being rewarded for poor governance.

So here's an idea for Brussels. Stop bailing us in. Then you are going to be less likely to have to bail us out.

Friday, 29 January 2010


The FT reports:

Mr Papandreou said on Friday: “Everyone knows there is speculation and hedge funds that are pushing the market. That is a reality we must deal with, but what we need to do is not changed by that fact. We need to reduce the deficit and do it in a quick and orderly fashion.”
Then along comes BNP Paribas. The bank's comments on Friday are particularly intriguing:

As Greek sovereign CDS spreads continue to widen and underperform today, we ask ourselves the question more pressingly about who is most exposed. We hate to break the news, but it is impossible to say. We detail cash exposures below from the information available to us. However, what will spook the markets is CDS / counterparty risk (our understanding is that Greek banks were active CDS players), and there is no way of finding out about these particular exposures. Therefore, as long as Greek sovereign and bank spreads remain under pressure, this will weigh on the wider European banking sector.

More on this later today.

Thursday, 28 January 2010


Original story here.

I am willing to bet that the editors of the Greek Communist Party instrument, the Radical, will leave this story as it is even after somebody inevitably picks up their reference to "Golman Satz". Is it not appropriate that the last unreformed Communist party in Europe can't even spell the name of the Vampire Squid?

Tuesday, 26 January 2010


It's official - Joseph Stiglitz has come to our rescue, in an article that we are sure to see cited and re-cited ad nauseam for the next few days. His argument goes like this:
  • Greece is not alone in having broken the Stability and Growth Pact. Everyone has, except this once we're not important or powerful enough to get away with it.

  • The EC can afford to disregard some poor conduct from Greece because Greece is nowhere near as systemically important as other members.

  • The EC's hawkish statements and its failure to acknowledge the progress we are making are compounding Greece's fiscal woes by increasing bond spreads.

  • Greece's deficit is not entirely its fault  It's party Europe's fault for not giving us more money

  • Greece has confronted its heritage of dodgy statistics and owned up to its poor practices

  • Greece is a relatively poor country that will be plunged into a very deep recession if we're not allowed to run whatever deficit we want

  • Credit rating agencies are useless at rating debt and they should not be trusted with this role when the stakes are so high.

  • Yorgo personally is a great guy and the EC should back him up. 

I disagree with a great deal of this, and in this I know I am letting down many friends who have welcomed Stiglitz' messianic intervention with much relief. With respect, here are my arguments:

First, the issue of whether anyone plays by the rules anymore. Obviously they don't. But what exactly is Stiglitz' argument? The SGP was the guarantee that underpinned whatever type of solidarity there was between Eurozone economies. That it isn't worth the paper it was written on only suggests that there can be no solidarity between member states. He is right, however, that since nobody gives a hoot about the SGP, bitch-slapping Greece with it is not entirely fair. Why not just allow states to run whatever deficit or debt levels they want?

Credit where it's due. The SGP was rubbish and I agree that as a country we should have opted to set our own rules any way we want. Except of course we signed a treaty to the effect that we would respect the SGP, so perhaps it sets a very poor precedent for the EC to signal it will tolerate the breaking of treaty obligations.

More to the point, we have in the past used the SGP straitjacket as an added guarantee so we could borrow money cheaply. To this day, the suffocating stranglehold of the Eurozone ministers on our finances is the only thing that stands between us and a junk bond rating. What credible guarantee of self-discipline will we be able to offer if the Europeans cannot make us bleed for maxing out our overdraft? And if our own Ministers can't be bothered to bolster our image by refraining from alarmist bull, why should the ECB or the EC supress their thoughts on the actual facts?

So, far from making Greece less creditworthy, hawkish Europeans actually make us more so in the long run. But Stiglitz himself has managed the opposite. As I've argued before, the final guarantee our creditors have is that there is more political capital to be made in Greece from cutting the debt than from adding to it. Stiglitz' remark, on the other hand, has handed anyone who wants to increase the Greek deficit a get-out-of-jail card with at least the liberal part of the political establishment (which, in Greece, is easily 50% of it). This means that it is now politically that much easier for our government to justify an enormous deficit.

Greece's woes, it would appear, are unlikely to cause an EU-wide meltdown - just as Stiglitz argues. Although Europe's banks have lent us some pretty big wads of money, there is no evidence of infection from Greece to our neighbourhood. The point is irrelevant, however. If Spain, Portugal and Ireland were to be given the same amount of slack that Stiglitz wants us to be give (and why not?) they might take it. And if they do, the share of European GDP at risk from massive government deleveraging would skyrocket. The PIGS together account for 14% of the EU's GDP.

The new government has made some very good proposals for restoring credibility. But already the Stability and Growth Programme update shows that we're quite nonchalant with statistics. Our PPP debt, for instance, is largely unaccounted for. And while the EC has applauded us for coming clean with the dodgy practices of the departing government, they also applauded us for our honesty 6 years ago when said government came clean with the dodgy practices of the previous administration. One in which, if any reminder were needed, our own Prime Minister was a Cabinet member. What would be a rational response? Give advice, issue a stern warning, then wait and see. Which is what they've done. The EC can lie on our behalf but that doesn't mean creditors will buy it.

Which brings us to the worst Stiglitz argument of all - it's the EC's fault for not giving the periphery more money. First, in our case that would clearly be throwing good money after bad. We know this and the EC knows this and Stiglitz knows this because our own data show we are amazing at wasting EC infrastructure funds. That is, when we manage to use the funds at all. Second, it's been proven that unless we can shift our budget to investment rather than government wages (which we're not good at doing, especially with other people's money) government spending actually slows economic growth. Finally, we're already prey to the malaise that afflicts all aid-dependent countries: a version of the Dutch Disease where government itself is the bloated export industry, coupled with a perfect environment for corruption. To add to this now would consign the country to stunted growth and financial instability forever.

Monday, 25 January 2010


The FT reports that our new private offering of government debt has gone down really well.  More details here.

It also notes, however, that we're likely to pay 6.12% interest rate (you read that correctly) on these 5-yr bonds. I guess I can see the attraction.

To put this into perspective, have a look at what I would have to pay on a mortgage in the UK. Yes, you read well again.

Friday, 22 January 2010


According to the updated Stability and Growth Programme, our current government is committed, despite everything, to a 15.3% reduction in public consumption over 3 years. I'm not sure they can do it, but I'm 100% sure it's the right thing to do, if they can pull it off.

Now not everybody takes my view on this. Our general union for the private sector has, as I've blogged here, made a strong if misguided Keynesian case for fiscal stimulus. Our farmers are clearly asking for a follow-up of the mad EUR500m package of last year. And some of our ministers, most notably our influential francophone Competitiveness minister, simply don't like what they see as neoconservative chemotherapy.

Apparently, a look at Greek government data from 1960 to 2000 shows that:

  • shrinking government increases growth
  • increasing government spending can have non-negative effects only if spending is shifted from public consumption to public investment
  • but even then it tends not to contribute to growth.

But of course it can be argued, as many do, that these are exceptional times. We need, it is argued, a massive fiscal stimulus (pre-election the opposition mooted a EUR3bn package) to keep the economy from spiralling downwards into the Dark Ages.

Now this is a valid if factually false argument based on the same old spin on Keynesianism that has reigned supreme over Greek fiscal policy for decades. The Keynesian philosopher's stone is the multiplier effect: you pour one penny into the economy, and the froth generated by the merry-go-round of increased spending inevitably turns it into 1.4. It's like a macro-economic get-rich-quick scheme. And it works even better when interest rates are, as they are now, at rock bottom.

The problem is that any extra spending has to be financed by debt issued in the teeth of a fiscal crisis. A EUR 3bn stimulus package does not, therefore, cost only the going interest rate (let's call it 5% or EUR150m). It costs interest plus, eventually, the marginal increase in interest on THE WHOLE OF OUR PUBLIC SECTOR DEBT. That, if any reminder were needed, currently stands at EUR 300bn and rising. So if raising the extra EUR 3bn increases the interest rate by 10 basis points (5% to 5.1%), the cost of funding the deficit in year will be the 150m + 0.1% * 300bn = 300m. This means a EUR3bn stimulus package will cost, in the long run, three times what our Keynesians think it will. Now if we could depend on a multiplier of 4 (which not even the most rabid Keynesians would not dare put on paper) and on bond market conditions to drastically improve, it might be worth spending more at this point, but of course we can't.

Now this is a very crude analysis, but happily someone's gone and run a rather more sophisticated one based on Greek data, and they have found the same.


Monday, 18 January 2010


[under construction]

Having spent some time scrutinising the Updated Growth and Stability Programme, I'm now happy to comment but it's all I am happy about.

1. The baseline scenario and the bad- (not worst-) case scenario quote the same deficit.

Yes, it's true. Come rain or shine, Babis the Builder will deliver the same deficit. Note that this does not mean achieving the same savings. In the pessimistic scenario, automatic stabilisers kick in: social security spending increases, tax revenues fall. So, in order to achieve the same deficit, we'll need deeper cuts. Which of course will deepen the recession, necessitating further cuts.

In reality this commitment implies two things, neither of which I believe. First, that the savings promised by our Government so far do not exhaust the possible gamut of savings they have in mind. They've got aces up their sleeves. Second, that the Government will stop its ears against the cries of pain from their constituents and resist their Keynesian instincts, and in fact cut deeper as the economy deteriorates despite unbearable political pressure.

The former sounds unlikely. The Government has been very sparing on the details in the Stability and Growth Programme itself, which suggests they're still looking for the savings and efficiencies. Andreas MUPPET Loverdos himself famously said "I don't know where I'm going to get the money". And, of course, nobody's ever cut that far before in Greek history without also disbanding the state apparatus.

The latter might just be possible. We can always blame Brussels and cite extraordinary circumstances. But that takes us through year one. What about year two, or, God forbid, the originally-planned year four?

2. The baseline growth predictions overestimate inflation. 

Trust our ministry of finance to project GDP in nominal terms, despite the added layers of uncertainty involved in this projection. Why would we bother? Because for once that's the only number that matters - as we're hoping that between them inflation and growth will erode Debt/GDP. For once in our history, we're trying to over-estimate inflation.

The rate of inflation implied by our forecasts is extremely constant, hovering between 2.0 and 1.9 per cent in the baseline scenario and falling to between 1.9 and 1.6 per cent in the pessimistic scenario. Don't snigger - economic forecasts are like that. The levels of inflation, however, I do object to. In December 2009, CPI inflation was indeed 2.6% y-o-y, but the average annual CPI inflation was only half that: 1.3. That was already much lower than the forecast value for 2010, and price controls like wage freezes in the public sector hadn't kicked in yet.

And to think we don't even have our own currency... the Euro, buoyed by the far more advanced recovery and Germany and France, should insulate us from a great deal of imported inflation in the recovery. Even this, however, doesn't quite explain why our inflation rate is projected to start falling slightly, just as our economy accelerates to a giddy 2.5% growth per annum. It looks like fiction.

3. Implementing the Stability and Growth Programme will require an unprecedented level of parliamentary and administrative work.

Our homegrown journos estimate that implementation of the programme will require the passage of 53 administrative acts and acts of parliament. This can happen, if Parliament sticks to a schedule of minimum fuss, erring on the side of rubber-stamping, and the civil service simply does what it's told without delay. But it will also require expertly designed, 100% constitutional laws that cannot be overturned by the courts (like many others so far).

Of course, this all becomes that much less likely if our Civil Servants' Union keeps going on strike.

Friday, 15 January 2010


The strapping young man above is Andreas Loveros, Greece's minister for employment and social security.

The photo is taken from his personal website, a testament to his "man of the people" credentials. Note how carefully the people around him have been vetted. What's the chance that in a football crowd, even a VIP football crowd, it's only the career politician cheering his face off while everyone else politely stays out of the camera's line of sight?

But why concern ourselves with this mild and harmless muppetry when a massive torrent of FAIL spews forth from the Minister's mouth on a daily basis while the country struggles for credibility?

To the facts, then. As minister for labour, Loverdos is in charge of paying out pensions and benefits. Our creditors may well be interested in goings on in his domain, as public welfare funds are generally in deficit, and their deficits are the state's deficits - by law.

Here, then, was the reassuring rant he had in store for them - and, mostly, for us, on national TV no less:

"For instance, in the other half of my ministry, the Labour ministry, let me illustrate: on Wednesday we run out of cash, by Thursday we will struggle to pay unemployment benefits. The funds are bust, and when I say bust, I mean we're out of spit let alone money, how else can I put it?"
 This will have alarmed some creditors, but happily our friends in the Commission will stick with us, no? Well, you see, Loverdos (or rather, the ministry of finance on his behalf) promised them EUR 4bn of annual savings. Niiice. Except, as he noted in the same interview, he cannot as of yet say where half of this will come from:

" I don't know where I'll get it from. I've given orders to seek out, code by code, what we can cut back from a single Euro to millions."

Well it might be a rude shock to hear that but hey at least it's an encouraging sight to see a Greek minister biting the bullet. Right?

Wrong. Because it is clear that the "code-by-code" search for savings is focusing on the single-Euro items, not the million-Euro ones. The paper reports:

"He clarified he is not going to touch pension payouts, or pensionable age limits."
 The statements can be heard here:

Of course, it is possible that the minister misspoke or was taken out of context. This alarmism is unlike him, no?

No. Only yesterday the self-same man came out with an even bigger bombshell. On a day when our Statistics Agency reported a year-on-year increase in the number of the unemployed of nearly one third, Loverdos came out with the news that unemployment in Greece is 18% and rising. Now the widely discredited National Statistics Agency only quotes 9.8% in its newly released LFS figures for October. Loverdos correctly chooses to adjust them, although I would argue his choice to include part-timers but not soldiers or "eternal" university students misrepresents the fast.

The "eternals" are reportedly 300,000 or 7% of the Greek labour force, outnumbering actual students for the first time. The draftees are an estimated 50,000 per year. or another 1% of the labour force. And of the remaining three million suckers, at least half a million are civil servants.

I'm not sure how any of this coming from a minister is meant to rebuild our credibility. The lack of cash argument is almost certainly hyperbole. Why say it?

Journos offer two scenaria:

1. He's not expecting to do a good job in his new post and is lowering expectations drastically.
2. He's trying to prepare his constituents for harsh fiscal measures by stressing the extent of our problems.

Well, it's not no. 2. To PASOK's core constituency, huge unemployment stats actually constitute a stronger case for government spending. Unless a case is being made for blowing our commitments to Europe.

The plot thickens.


Thursday, 14 January 2010


As of this morning, we have an Updated Stability and Growth Programme. I will read and report in detail, but it appears that markets are not impressed.

Also not impressed is Angela Merkel. I can hear George MUPPET Romaios scribbling away...

Also, there was a rather unnecessary ECB clarification of the fact that Greece is not going to jump or be pushed off the Euro barge. If for not other reason, then because doing so would send our credit rating to Junk according to S&P. Moody's also made it clear we're on negative watch and, like Portugal, are facing a "slow death" if we do not act fast.

Let me make this clear. S&P's comments mean that if we were not an EMU [not EU] country, our bonds would be not be investment-grade. What, then, is the deciding factor between BBB+ and Junk for Greece? The influence of our Eurozone partners on our political leadership, the ability of our political leadership to convince their followers that our Eurozone partners are right, and the implicit guarantee on Greek debt that most people believe our partners will honour.

The point here being that anything the weakens the influence and goodwill of our partners or the continuity of our leaders' commitments is bad, bad, news.

Given this difficult balance, it was probably not a good idea for us to draft a law allowing the restructuring of consumer and business debt to an extent that would have region-wide effects on bank liquidity, and then try to sneak it past the ECB.

But is there an implicit guarantee from and for Eurozone members at all? I ask because of course the IMF have been invited to Greece very recently. Ostensibly they are here to mentor our government. The way I see it, the only kind of mentor they can be at this point is Simon Cowell, so really it must be a fact finding mission.

More of this when I update later.

Wednesday, 13 January 2010


So our public sector union is going on strike after all. But of course.

Let me see. Anything between 500,000 to a million people (depending on definition) work in the Greek civil service and the wider public sector (see calculations here). As of 2007, public admin workers made 64% more per hour worked than the average employee - according to official statistics on EUKLEMS. After two years' probation they become permanent and can only be fired subject to the approval of their own peers. Their unfunded defined benefit pensions cost god knows how much per year. They also collectively earn another EUR 463m annually in bribes (an extra 3.4% on top of their gross earnings by my reckoning). In addition to all of this, employment in their sector has doubled as a share of the total workforce in the last 30 years (see calculations here).

So just to be clear. That these muppets can go on strike at all without a sea of spit landing on their faces is amazing.

Standby for FAIL.

The Union, as per due process, noted its intention to strike here. This coincided (?) with Greece's credit rating being downgraded by Moody's. The text includes an amazing passage directed at the Union's own members:

"We need to be informed of any benefits (aside from universal social benefits) or additional payments currently in place in order to back up with specific knowledge and documentation the public argumentation of our policy statements. Federations must by 12/1/2010 notify us in writing of what additional payments are in place in their sectors."

Perhaps this is doesn't mean much to some readers, so let me explain. The public sector workers' union doesn't know what benefits its members receive because the government doesn't know how many they are or what it pays them in the first place. Nobody does. So in order to not look like muppets when they are negotiating with their employer - the taxpayer - they need to know what everybody is making.

Now we're waiting on the private sector general union, GSEE, to tell us whether they too will strike in solidarity. Perhaps they will.

Greek speakers can read the original GSEE demands here.Everyone else will have to take my word for it for what it says.

The demands in summary are:

  • An 8% rise in minimum wages 
  • A floor for hours worked part-time, flexibly or in jobshares
  •  A ceiling in the percentage of the workforce employed part-time, flexibly or in jobshares
  • A ban on additional work for part-timers, even if left to the employer's discretion by contract 
  • A ban on overtime 
  • Gradual convergence to a 35-hr week
  • A ban on contractors bidding for public work at a nominal loss
  • Extending compliance obligations on the contracting authority for work carried out by contractors 
  • A ceiling on apprenticeships and traineeships as a percentage of the workforce per workplace 
  • A partial ban on redundancies for staff close to retirement age
  • Setting maternity leave to 17 months compulsory and 3 optional
  • 6-8 days of additional annual leave for single parents
  • free public transport for all tenants in public housing estates
  • a schedule for the convergence of Greek wages to the European average, regardless of convergence of productivity

There are further provisions which I don't have a gripe with - like additional leave for pregnant women who suffer stillbirths or miscarriages etc. I can't argue with that, although I would think that employers will do the decent thing in these occasions. Of course, they probably don't so let's give the Union its due.

But the bullet points above are a death sentence for Greece. The Union dresses them up in Keynesian rhetoric about how a demand gap threatens the economy and how these measures will help us claw our way back to systainable growth. Except of course they will freeze the labour market, disproportionately affecting low earners. And earning nothing means you'll spend much less than earning the same (nominally) as last year would. They just don't get it.

Employers are proposing a 1.5% rise, and their full proposals must be out there somewhere. Let's wait and see.

Monday, 11 January 2010


[post under construction]

How does a country go about leaving the Eurozone? Do you have to leave the EU in order to do it? Does it make any difference whether you jump or are pushed?

First, I think it's important to note, partly in response to George MUPPET Romaios, that the German Bundestag was first to put the word out that Greece cannot be kicked out the EU even if we become insolvent. Although we can have some of our rights as an EU member revoked for breaking the rules.

However, a recent working paper from one of the legal minds over at the European Central Bank (a Greek Cypriot too by the looks of it) also says that we can't leave the EMU without leaving the EU, and in fact, we can't do that at all unless we do it unilaterally - an endeavour that will be next to impossible in legal terms in the sense that it may not free us of our obligations to our former partners.

The law geek says:

"negotiated withdrawal from the EU would not be legally impossible even prior to the ratification of the Lisbon Treaty, and that unilateral withdrawal would undoubtedly be legally controversial; that, while permissible, a recently enacted exit clause is, prima facie, not in harmony with the rationale of the European unification project and is otherwise problematic, mainly from a legal perspective; that a Member State’s exit from EMU, without a parallel withdrawal from the EU, would be legally inconceivable; and that, while perhaps feasible through indirect means, a Member State’s expulsion from the EU or EMU, would be legally next to impossible. This paper concludes with a reminder that while, institutionally, a Member State’s membership of the euro area would not survive the discontinuation of its membership of the EU, the same need not be true of the former Member State’s use of the euro."
The lesson here seems to be that Greece will almost certainly come out of the mess it's in an EU and EMU member.

Friday, 8 January 2010


While I am usually quite strict in reporting the less rosy statistics on the Greek economy, recent statistics being tossed about that suggest the country's external debt has risen to EUR400bn are a little too aggregated for my liking.

The source of this data is the Bank of Greece, and the detailed statistics can be found here.

Gross external debt is, indeed 400bn. But that includes a lot of things that are not public sector liabilities. Read this, note the graph on general government debt below and make up your own mind.  Hint: look out for election periods.


It appears that Eurostat is vewy vewy cross with us over the quality our national statistics. Newstime reports on a Commissioned-approved memo from the European Statistics Agency which reports an amazing catalogue of FAILZ on behalf of our statistical agencies. Newstime had a great scoop there, as the FT and the rest of the financial press didn't get hold of this story for a couple of days.

Apparently Eurostat seem to think we have no regard for reporting standards. Additionally, there's no telling who has what data, whether they can release them, and whether they're worth releasing in the first place. Eurostat apparently had to get some it over the phone from LOLmerchants back home.

The culture shock experienced by the Eurostat people can be summed up in the following quote from the report:

"Questions from Eurostat went unanswered for no less than 9 days, an abnormally long period, between 12 and 21 October."

Apparently now they are going to sue our account fiddling asses.

What's amazing is that none of our successive governments have managed to get this house of cards in order. The problem is systemic. I do hope our current government's plans for an independent statistics agency  as well as a Public Payroll Authority will help address this to some extent. Independence of course is a relative term and even an independent agency can miss out on the detail if expenditure items and liabilities are mislabelled or misidentified. So let's try this:

  • The core remit of the agency should not be liable to change by legislative acts. 
  • The agency should answer not to the government but to parliament and additionally to a permanent committee of parliament
  • The agency's compensation should be pegged to other civil servant salary bands
  • The agency's leadership should be appointed by parliament and its tenure should be longer than the life of parliament.
  • The agency should be committed to European standards of data quality and should flag any of its own data that cannot be guaranteed to comply with these as -at best- experimental, or note the percentage of compliant data.
  • The agency should report to Eurostat on the quality of statistics on a regular basis and management should be incentivised to improve quality. 
  • The agency should be allowed to sign off its own data without external approval.
  • The agency should report on the extent of past revisions to data and be accountable to government for large adjustments.
  • The agency should adopt international financial reporting standards for the public sector, regardless of the accounting conventions adopted by the government. Failing that, it should benchmark against the accounting conventions of a trustworthy EU country.
  • The agency should explicitly account for the income and expenditures, as well as the assets and liabilities of any organisations that it judges to be dependent on the state for their income, as well as any organisations that are majority owned by the government.
  • And of course, the agency should count PPP liabilities against government debt. Otherwise PPP becomes a trick for disguising public sector debt
  • I won't go so far as to ask for unfunded public sector pensions to be accounted for, as much as I'd like that. That could make national statistics too scary to publish.

That's a start. Hint to George MUPPET Romaios: at least the Germans know what their deficit is.

Thursday, 7 January 2010


Last week I asked for a New Year's resolution of not blaming other people and playing by the rules even when we don't like them. I'm not going to get my wish am I?

Well, that's one thing. But it's quite another when the exact opposite happens. No one came closest to breaking all of my resolutions at once than George MUPPET Romaios, in his "letter" to Wolfgang Schäuble, the German Minister of finance. I summarise his argument here:

  • Ze Germans are saying we owe people way too much money and they don't want to bail us out
  • Well ze Germans can go swivel because we've given them too much money already by allowing them to do business here, by doing them the favour of honouring our treaty obligations as an EU member, and by allowing them the privilege of bribing our state officials.
  • Besides, they still owe us reparations from World War II. And they are, like, totally Nazis. Although they're also siding with Israel against us.
  • And what's the deal with their economy - they are running a big deficit too! Who are they to lecture us?
  • We're too good for them anyway. We've been through worse shit than this and we don't need them. They'll see.
Which is precisely the type of muppetry that got us into this mess in the first place. In fact, it sounds a bit like something out of the Jeremy Kyle show:

"Yeah I kicked her in the belly when she was pregn't, hold my hand up to that, but did she tell you Jeremy that she was smoking dope while she was carryin our daughter LaTrina? An' she cheated on me twice with her own bruvver innit."
My advice to George MUPPET Romaios would be as follows:
  1. Don't call the German Finance Minister names, dear. He's your Daddy. Well, one of your Daddies. But don't piss him off, all the same.
  2. Your Prime Minister, whom you adore to a cringeworthy extent, is VERY busy kissing this guy's ass along with those of his Eurozone colleagues. Ask yourself- does he know something you don't?
  3. Don't worry about the Euro falling a little. It's good for both you and the Germans. 
  4. If you don't like all these "sour-faced" foreign commentators you can always tell your hero Yorgo to quit the Eurozone. Just give me a week's notice to get my family out of the country before it implodes like the house at the end of Poltergeist.
  5. Try actually sending your "letters" next time instead of throwing hissy fits like a girl. I look forward to the replies.

Technical note:

An interesting LOL fact about the Reparations is that, when the Allies audited our claim for reparations immediately after the war, they found that the amounts we had estimated had been inflated three-fold. That's usually called PWNAGE, but WWII is very serious business so let's call it an EPIC FAIL.

Worse still, if ze Germans were to pay back everything our most belligerent compatriots are asking for in current prices, they would pay back EUR70bn. That would take our debt back down to ca. EUR230bn, and at current rates of spending it would pay for our next three or four budget deficits. But as you guessed this would be a one-off, so in three years, we'd be right back where we are today.

Wednesday, 6 January 2010

New Year's ResoLOLtions

[This post is still under construction]

Happy new year! Turns we're getting our ποδαρικό courtesy of the Comssion as reports have started flying that our deficit may have reached 16% of GDP by the end of the year and we were forced to borrow privately for the second time in a row. Oh and that nobody is going to bail us out. Our current Government did not cause this mess (it's been three decades in the making), but I'm not sure they're getting round to fixing it either.

The Government's resolutions keep changing, but they are more or less out there for anyone with internet access to read. There is a catch though. As with all New Year's resolutions, vowing to change what you do is pointless. Changing how you think works, but it's a hell of a lot harder.

My New Year's resolutions for the Greek state and its fiscal policies are simpler (they don't cost money), but they are way harder to stick to. Here goes:

  1. We will not blame other people for this mess, even if they have had a hand. Yes there are vultures in the capital markets, but they are attracted by the smell of death. (Although if you blame a Jewish, reptilian or Nephelim conspiracy you are most likely plain stupid). Most importantly, at the end of the day the only guarantee foreign investors have of ever seeing their money again is that there is political capital to be made in Greece from not letting the debt get out of hand. If our Government can turn around and say: "Of course, we're not sorting out the deficit, but I'm standing up for you against all these foreign predators" this guarantee becomes weaker. If we cross that tipping point where there is more political mileage to be had from failing to tackle the deficit than from succeeding - and we're not too far from that - we will truly be in trouble.

  2. We will learn to play by the rules even when we no longer like them. Yes credit rating agencies are unaccountable brothels, but that's not what we were saying when we waved our AA rating in the capital markets' faces last year (post-Lehman, when their shortcomings were plain for all to see). Last year we managed - quite heroically - to turn over about a third of our public sector debt against that AA rating. Next time, let's just say, "OK, investors, forget S&P and co., you come have a look at our data and tell us how much interest you want." Who's with me? No? That's what I thought. Don't lick where you spat, and vice versa.

  3. We will learn that our creditors are colour-blind. At home, we treat elections as though they were a regime change - for better or worse, the slate is wiped clean, and the new administration goes about erasing all traces of the old one out so it can take root. Blue Greece and Green Greece are supposedly two different places. But to our creditors, Blue Greece and Green Greece are one and the same. If the one borrows, the other still has to pay. If the one messes up, the expectation is that the other will mess up. They know that the one constant in this country is her people; dysfunctional as our politics may be, in the long run the people call the shots and they are pretty set in their ways.

  4. We will learn that our creditors can hire Greeks to explain all the inside stuff. Time was when we could fiddle the numbers, cook the books and basically pull the wool over their eyes because frankly they were not watching too closely. They are now. Everyone is. Next time we decide that stocks can be flows and vice versa, that payments can be brought forward or pushed back, or that our army isn't part of the state after all, they will put an asterisk next to the figure and ask some spotty intern to find out what the real number is before he goes home at 11. Next time our minister of finance kisses their arses in English in London, or Frankfurt, or Brussels, they'll get a colleague to translate what he says in Greek at a rally two days later.

  5. We will only let one person speak at a time. Having another cabinet member overrule the minister of finance is not just embarrassing; it's expensive.

  6. We will no longer assume that every other Greek out there has our back. Papademos will not pretend he got your memo, he won't approve it on the sly, he won't change collateral rules and he certainly won't quit his exalted job at the ECB to come bail you out just because he's Greek. Get over yourselves.

  7. We will not try to keep everyone happy. Crisis is a Greek word; it means judgment. Unless you show yourself for what you are, you can't get out of it.

  8. We will not console ourselves with how badly everyone else is doing. Yes Spain has more unemployment, Britain has the same deficit etc, Japan has more debt. If you put them all together, they make up one country that's worse off. So?

  9. We will not rely on the dead tree press to keep quiet when we mess up. Blogging is free; people can read, and if the Government won't publish, others will.

  10. Sometimes, it really is best not to ask "the people" what they think. The people include all manner of fuckwits who have more of an incentive to respond to consultation than their calm and literate compatriots who can turn CAPS LOCK off. Besides, the people got us into this mess in the first place. 

Saturday, 2 January 2010


Get it while you can! This a working paper version of the sold-out IOBE (Foundation for Economic and Industrial Research) report on the size and activity of the public sector in Greece.

A major WIN is the data on Public Enterprises. Enjoy!

Friday, 1 January 2010


Yes, we CAN HAZ BUDGET online.

Feast your eyes on the 2010 budget.I shall comment later.


While the debate on what to do with the massive budget deficit rages on, we must not forget that the Greek state owes over EUR 17bn to the country's own pension funds . This does not include civil servants' pensions which are, of course, unfunded. This doesn't mean we're not paying for them; it only means that we have no way of knowing how much we're paying for them in total, or what the shortfall is.

Now here are some things you may not know about Greek public pension funds:

  • They were not allowed by law to invest outside the country until 2007. They are still not allowed to invest outside the EU.
  • They are not allowed to invest more than 23% of their portfolios in "risky assets" (i.e. more than three quarters have to go into Greek government bonds, which pay very little interest, or central bank deposits, which pay none). This a lower risk tolerance than any other OECD country.
  • They are not run by fund managers and very rarely change their asset allocations.  
OK, so our funds are under-diversified and extremely risk-averse (an oxymoron; a risk-averse investor would try to diversify as much as possible) and they are run by committee. Is that such a big deal?