Wednesday, 24 February 2010


Attention faithful readers!

One of the blog's moderators has accidentally deleted a perfectly acceptable comment on one of our posts. We apologise for this and would very much like to have said comment back.

Friday, 19 February 2010


[Under construction]

I've recently come across this wonderful analysis of what Greece's problems actually mean for the EU and the world at large.

The amazing WIN moment in this blog is the following quote, which of course I'm not supposed to cite by I will because it's too good:

"Don't quote me on this apocryphal statistic, but I'm reliably informed that exactly six Greeks declared more than a million EUR in income last time anybody counted. And exactly 85 declared more than half a million. So we're probably a bit better than top 40." 
So there you have it. One would think of course that if we can just net the tax evaders, that would be the end of it. In fact, our government is dead sold on this.

That's unless of course someone asks the obvious question. How much is this costing us? According to one fairly recent study, based on our own tax data no less, Greek taxpayers under-report income by ca. 10%, but since tax evasion is more concentrated among very high-income individuals, this means that income tax receipts are 26% lower than they should be. How much is that?  Unfortunately, since our forecast personal income tax take is only about EUR11.4bn it would appear to be a paltry EUR4bn. It's something of course, but it's only about 18% of our forecast deficit for 2010.

Incidentally, this study suggests that our middle classes are actually the least likely to dodge tax in this way, and hence (I add) would be the most justified in their opposition to austerity measures:

"[T]he distribution of under-reporting by income suggests a U-shape: the rate of income under-reporting is 10-11% in the bottom 3 income deciles, falls to 5-6% in deciles 4 and 5, rises slightly to 7-8% in deciles 6 to 9, and then sharply to almost 15% in the top decile (24% in the top centile)."

Note also that this is only tax-evasion we're talking about.

Greeks will tell you, however, that the "little windows" [Greek for loopholes] in the law allow them a fantastic array of tax avoidance schemes as well. Tax avoidance is the legal cousin of tax evasion, but it's harder to tackle because it means changing the law rather than getting the bad guys.

When did we get so devious? This paper has a very interesting take on the question. A good look at the table detailing the evolution of the shadow economy in Greece [which I'm trying to reproduce but Blogger won't let me] shows that the paradigm shift came in 1981-1984. Anyone care to guess what happened at that time?

Here's an idea for dealing with tax evasion that I really think could catch on: this study has looked into what aspects of national culture (according to the classification milked to death by Geert Hofstede) correlate with high incidence of tax evasion.

Apparently, high levels of tax non-compliance correlate with low levels of cultural masculinity. Although this is a complicated concept, we can tell a noble lie and tell our people that it responds to the usual notion of masculinity. The result? TAX EVADERS ARE MORE LIKELY TO BE GAY.

Put that on the airwaves and watch the tax revenues roll in!

Actually, these guys have looked a little deeper into the data and they find that the masculinity thing doesn't stack up. Actually, tax evasion rises with low individualism (we got that), high uncertainty avoidance (we got that), low belief in the rule of law (we got that), low trust in government (we got that), low religiosity (we don't have that) and low economic development (we got that in places).

Friday, 12 February 2010


Notwithstanding the truth in his claims, I think our PM's words today will mark us out as petulant, ungrateful idiots for ever. Enjoy the headlines:

Greek PM says EU took too long to show support (AP)

Of course this was said in Greek. In English, he said "well we never needed yer stinking bailout anyway."

New Year's resoLOLtion no.4, Yorgo: We will learn that our creditors can hire Greeks to explain all the inside stuff.

For reference, here is the full text (YES!) of the European support statement. There really is nothing else to it.

Thursday, 11 February 2010


As plans for a Greek bailout, led by Germany and possibly France, begin to coalesce,  I cannot help but draw analogies with the situation in Dubai.

I have heard it said on many occasions that the opulent emirate, the spark that started the conflagration Greece is now in the centre of, had nothing to do with us. They were actually in default, and we weren't. They were a surprise, and we weren't. They were ill-equipped to deal with the fallout, while we had the combined economic and political muscle of the Eurozone behind (or against) us. We had no exposure to them anyway.

The analogy was indeed false, but it never needed to be valid in the first place. There is a simple mechanism to how this kind of contagion spreads, and it's worth noting that the facts (as damning as they are) don't really come into it:
  1. A sovereign (Dubai) finds itself in unexpected and fully warranted trouble.
  2. People exposed to the sovereign (Banks) lose money
  3. Memos go round offices saying: find out where the next shitstorm is most likely to come from and get us the hell out of those positions. 
  4. Staff fall back on conventional wisdom to identify a weakest link (Greece).
  5. Investors short everything that smells vaguely weakest-link-ish (Greek).
  6. Speculators smell panic and reason that, since everyone's only just woken up to the risk posed by the sovereign, they are bound to dig up more dirt. They short and are rewarded when bad news which no one had bothered with previously inevitably do start to emerge.
  7. The offending sovereign, playing for time, blames speculators for everything, and in so doing signals that it is unable, or unwilling, to rectify its shortcomings. Everyone shorts like there's no tomorrow.
  8. As creditors' positions start looking particularly iffy, potential guarantors of the sovereign's debt (Eurozone countries) are sought. They come under pressure to state their positions.
  9. Potential guarantors resist being identified as such or demand commitments from the offending sovereign in return for their guarantee. Either response prompts further panic selling, as well as speculation.
  10. Endgame. Either the offending sovereign sends an unequivocal message that creditors will be paid, or defaults, or the guarantors assume their role formally. 
  11. Guarantors (should they be needed) claim their pound of flesh, prompting intense protests from the offending party.
Modify this only slightly and you can see the same thing happened with subprime mortgages in 2007, with off-balance sheet vehicles in early 2008 and with banks in late 2008. Now it's the sovereigns' turn. Note that at each stage, the bad debts of the previous culprits were taken on by the latter. [Broadly speaking, of course; Greece was quite restrained in bailing out its reasonably healthy banks, although it did perform a miguided implicit bailout of our cash-strapped consumers by hiring everyone within sight into the civil service in 2008-9 and casually abandoning tax collection].

Dubai went through this in short succession and, hey presto, the Burj Dubai is now called Burj Khalifa in honour of Abu Dhabi's ruler and guarantor-in-chief. Now, do we in Greece have any elevated, iconic structures to name after Angela Merkel? Hmmmm....

On a serious note, the bailout appears to involve German, France, or both standing in as guarantors for our debt. Presumably this will come with strings attached, but such is life.

But I have a better idea, and one that European governments have touted before: just advance our EU funding for the next 5-10 years, paid for by our would-be guarantors, who will get an equivalent discount off their EU contributions for the years in question. This of course on the condition that we use all of it to pay off debt.

Assuming constant levels of EU support, this leaves us with an extra EUR42.5 to 85bn, which would put a very nice dent into our public sector debt and shut everyone up for good without actually being a bailout in NPV terms.

But the plan has a host of other amazing advantages:

  • It leaves the EU with a smaller budget, encouraging it to spend more wisely.
  • It leaves us, in time, with no reliable EU funding for the near future, breaking the cycle of poor governance and dependency that has helped exacerbate our already abysmal record of public management.
  • It forces us to retract the damaging EU subsidies destroying our agriculture
  • It won't force us to take procyclical fiscal measures right on year one, in the teeth of a bad recession.
  • Its success does not depend on our partners, or markets, believing our commitments are sincere.
  • It doesn't come with political strings attached, and does not set a precedent of direct EU intervention into member states' fiscal policy.
  • It will have less of an impact on France and Germany's borrowing costs, as they will borrow only against their own fiscal record, not ours.

Of course, the fiscal adjustment will have to come at some point. Under the advance plan, we get a year's grace period, and then lose 16% of our government budget (the retracted EU funds). This is in fact harsher than the current SGP, but, I think, politically more palatable.

So who's with me?

[Citations coming soon]

Tuesday, 9 February 2010


As the new and improved SGP and rumours of bailout talks among our EU partners begin to shine some light on the fiscal hole Greece is in, our unions are girding their loins for war in a poorly-timed attempt to show “the markets” who’s boss.

As some of my compatriots are sympathetic to this cause, why not review the evidence a little?

Currently, union membership in Greece stands at around 30% of employees and has been falling steadily. It is now 12 percentage points lower than it was 15 years ago. Yet on last count (2004) their collective bargaining held power over the earnings of 65% of our workforce.

Worse still, they were effectively funded by 100% of the workforce – and their employers, as noted here:

"The state subsidy paid through the Workers’ Welfare Foundation, a scheme supervised by the Ministry of Employment and Social Protection, which collects funds from all paid employees (both union and non-union members) as well as from employers for the primary purpose of providing social services to employees, is the basic source of funding for the unions since in effect union dues play a part only in the public-sector unions."

In fact, our Unions can by law get up to 25% of the Workers' Welfare Foundation's budget, and no less than 15% per year.  This would suggest a 2008 budget of EUR 35m. (Weird source for me to cite, I know, but they know their stuff.)

What do we get for this? For one, we get the 147th most flexible labour market in the world. And deteriorating. We were 135th just a year ago. We also got a flatlining labour share of GNP, which should be the major benchmark for Union success. We got may one or two extra percentage points immediately after 1981 and that was that. 

But perhaps for all this we buy more security for our workers. Well the evidence is mixed but, according to at least one comprehensive review of industrial relations in individual EU countries (not by neoliberals but by the union-loving Germans),

"Stricter employment protection legislation [and a] higher […] minimum wage are likely to reduce both employment and activity rate[...] On the other hand, collective bargaining over wages and political orientation of the government do not have [a] significant effect on labour markets[’] performance."

So to recap, despite effectively representing less than a third of the workforce, the Greek unions get to earn against its totality and bargain on behalf of its majority. Or do they?

Well, although density of union membership is falling, the absolute number of union members is rising and in fact public sector union membership in Greece is rising much faster than private sector union membership. Note that overall membership is rising faster here than in almost any other OECD country. [Though it must be noted that many of our unions effectively inflate their membership figures by failing to strike off retired members.]

Why is the public/private divide important? Because the shift in Union power from the private to the public sector means that the union movement will increasingly act in favour of greater allocation of funds to the public sector.

Of course, most countries have a pro-union party and an anti-union party and that’s some kind of guarantee against this kind of influence as the two will inevitably alternate in and out of power.

Well, we don’t. Check this list of Presidents and General Secretaries of the private sector tertiary Union, GSEE, of whom there have only been four (!) since 1996. One is an on-and off Conservative MP, one a current Conservative MEP, one a member of the Central Committee and Political Council of our Socialist Party, and one a member of the National Council of our Socialist Party. Our Unions have, to borrow a dirty capitalist term, cornered the market.

All of this of course translates to, you guessed it, more government spending, and debt.

Ironically, the only country in which union membership (private and public) is rising faster than in Greece is the third most indebted EU country after ours and Italy, Belgium. (Comparisons here). In Italy, be it noted, membership has also been rising at a respectable 4.3% per annum. Unsurprisingly, Belgium is also the only other country with rising public sector compensation where the number of civil servants has also been rising in the past decade.

That’s the big picture. But if Union leaders are assured a long life in politics, what do the rank and file get?

The evidence is out there. Tellingly, we’re the only EU country in which people with lower education levels are, ceteris paribus, less likely to be union members. So Union membership in Greece is not about protecting oneself from ruthless competition in a rapidly upskilling world where one’s place in the labour market is increasingly precarious. In fact, according to the same study, we are also the only country, along with Finland, in which people whose parents were educated to a lower level are more likely to be union members. Simply put, union membership in Greece is a means for those who invested in education in a bid to secure an advantage in the labour market to hold on to their status in the face of competition. Sound familiar?

It’s not the best of news. Unfortunately, Greek Union power is not going anywhere soon. The reason is simple demographics. Union membership tends to peak in the mid-to-late 40s, which is predicted to be the dominant age group in Greece in 2020. After that, well, it might be too late.

Time to change the law.

Saturday, 6 February 2010


This fiscal stuff is really vexing, so here's a little refreshment, courtesy of the Annals of Improbable Research, the most truly fantastic online resource in the world. They are better known for running the Ig Nobel Awards and their website is well worth a read.

The new Greek tax system, we can be assured, will include some tinkering with estate tax - the unsavoury practice of taxing the wealth that people pass on to their offspring upon dying, although it's already been taxed when it was earning interest or capital gains and, of course, when it was earned in the first place.

So what if there were a hidden downside to the death tax? I do not mean the usual tax-dodging response which, as per the Laffer curve, reduces tax revenues when tax rates go up. I mean an even darker effect - the direct effect of pre-announced estate tax increases on longevity.

The research quoted by the AoIR, available here, was actually carried out by esteemed scientists in Columbia. It found that, when people know estate taxes are about to rise, they adjust their time of death (or have their time of death adjusted for them) in order to maximise the wealth of their offspring. This is an honest-to-God significant effect.

This in itself tends to mean that estate tax increases will almost never yield the amount expected by governments. But it gets worse. In Greece, a great many property-, business- and home-owners liable for estate tax are also enrolled in our famous -and famously inefficient- public final benefit schemes. Can you guess where this is going?

The fiscal straitjacket imposed on Greece by Brussels makes it impossible to sneak any tax hikes up on the population - they need to be announced to Brussels and shouted from the rooftops to make sure our friends in the bond markets can hear. So any new estate taxes will give people ample time to prepare.

So what if the notoriously long-lived Greeks decide to live longer and screw the system even harder? Their pension payouts will rise, adding to the pension fund deficits and thus to the state deficit (as all public pension fund deficits are, by law, the state's problem). Which could mean higher estate taxes will actually cost us more money than they earn.

And, of course, as our healthcare is strongly subsidised and in fact much of it is publicly provided, all these cunning derelicts will take us for a real ride on their way out.

If you're smiling ruefully at the irony of all this, remember - it's all bullshit except for the facts.

Thursday, 4 February 2010


Remember my little rant late January about maLOLcious forces - the general view, propounded by our own government, that speculators are largely responsible for the pummeling Greek debt has taken in the markets? Well, our Minister of Finance has, in the past been a little more specific, noting that some market pariticipants are shorting Greece and presumably making a killing out of their own self-fulfilling prophecies.

Sadly for him, such claims are testable.

FT Alphaville reports on this analysis from Dataexplorers. I don't know what to call this company, so let's go by their own strapline:

"Data Explorers (www.dataexplorers.com), based in New York and London, is the world's most complete resource for data, analysis and insight into short-selling. The company's proprietary data gives an unrivalled, comprehensive view on share lending and short-selling activity, with data representing the majority of the global securities lending market."

So they've got some inside info on short selling activity, which is notoriously hard to document except in its effects. What's interesting to me is that they've run a comparison of short-selling activity for Greek sovereign debt between late Jan 2009 and late Jan 2010, and found the following. Standby for FAIL.

Have you spotted it yet? That's right, there was more or less as much shorting of Greek debt in early 2010 (and, recall, this was before our updated SGP was approved) as in early 2009, when Karamanlis was in charge and was still maxing out the overdraft.
So the vultures our PM has been going on about are, in fact, for the most part people with previously long positions in Greek debt, who simply don't like the amount of risk associated with it anymore. A simple story, finally told well.

Wednesday, 3 February 2010


The only news that has mattered for some time now is finally out. The Commission has approved our Updated Stability and Growth Programme. They are still suing us for tampering with statistics but that can't be helped.

This took some painful last-minute tweaks following Yorgo's tour of Davos and his consuming bro-mance with Joseph Stiglitz. In order to flesh out the proposed savings in our government consumption, which, as I've blogged before, are quite substantial, we've announced a host of detailed adjustments, including a longer public sector pay freeze. There's going to be a lot of striking over this but, as the following graph (sourced from this study) clearly shows, our civil servants have little to complain about.

I believe that this is the beginning of the end of the Greek fiscal drama. Already the people reviled by our PM as speculators are looking to the next weakest PIIG, most likely Portugal, to Poland as the weakest CEE link, and quite deservedly the UK as the weakest EU link.

Now all we need to do is come up with a good implementation schedule over the next month, meet our targets and keep quiet and this could yet blow over. The Conservatives have pledged cooperation and they better keep their promise. They are as guilty as a puppy next to a pile of poo worth EUR 80bn and their attempts to produce incremental policies are starting to annoy me.

This won't be the end for us Greeks, of course. The SGP still leaves us, if perfectly successful, with a structural deficit of 2% of GDP. This is nothing to celebrate; it simply means that any macro-economic pressures in the near future, especially a double-dip in the US and Western Europe will send us back into the straitjacket.

But for now, let's remember to thank the "evil" speculators. They may not be nice and they may not give a hoot about us, but they've saved us all the same.

The EU couldn't get us to stop robbing our grandchildren in order to pay ourselves lavish pensions or ill-deserved public sector and quango wages. Not even when we broke their rules every year (bar one) for 13 years straight (see table below, source here). Our politicians couldn't stop us. We certainly couldn't control our urges ourselves. These guys made us and the Commission sit up and take notice.

Despite all our brave words about getting governments to rein in the excesses of financial markets, we really ought to thank goodness the financial markets are there to rein in the excesses of governments.

Tuesday, 2 February 2010


The Expert Commission on the Reliability of Greek Fiscal Data has finally reported to Parliament.

Everyone is talking about the shadow EUR 40bn of liabilities that our statistics cannot as yet capture, and even FT Alphaville have called for translators so they can make sense of the new report, which is already sending the vulture-meter off the charts.

If you are a Greek speaker, you can read the report itself here.

If you're not, standby for EPIC FAILZ as I translate bits of the report here.

For now though, let me say it is a shame everyone focuses exclusively on the debt figures. The recommendations of the Committee are actually very good. They call for a first-ever set of fiscal rules and attach important addenda to the draft law on the independence of the National Statistics Agency, which could make it more authoritative and, indeed, independent. Let's hope they are taken on board.

I leave you with my favourite quote from the report:

"The National Statistics Agency does not collect data on municipal public companies and organisations. The only available data on these organisations are derived from a 2002 survey by PETA S.A. [Initials stand for Information - Education - Local Development], a research consultancy majority owned by the Central Union of Municipalities and Communities of Greece. The 2002 findings have since been used by the National Statistics Agency in order to calculate the surpluses/deficits of local government organisations not only for 2002 but for every consecutive year as well."

Might as well pick a number out of a hat.