Monday, 29 August 2011


The rate at which posts on this blog end up spawning sequels never ceases to amaze me.

Readers will, by now, have read about the planned (and presumably done) deal to merge two of the largest Greek banks, EFG and Alpha. You can also check out my friend @mstevis' take on the deal here. My tongue in cheek suggestion for EFAGA to be the name of the merged bank is not gaining much currency but hey, I can't have it all.

I must first refer you to my original post, back when NBG tried to buy Alpha. Like anyone not entirely bonkers I rained shit on that parade because the proposed merger returned an under-capitalised bank in all respects but this time around it really is different. I still don't like bank mergers but as I've discussed before they are necessary and this one is going ahead.

I've crunched the numbers on the capitalisation of the proposed merged bank based on the Stress Test results for EFG and Alpha, plus details of the announced deal. You can check out the results below:

I believe that the new bank will be seen as secure by the markets, achieving the objective of the merger. My guess is that it will probably turn out to be most beneficial for the Alpha shareholders as, at a time when the market should really only be valuing worst-case Core Tier I, Alpha is way under-priced.

What will it take to elevate the merged bank beyond contagion? I'd say Core Tier 1 at over 7% even if Greek bonds take an 80% haircut. How much will that cost? EUR6bn. Hell they will probably draw that much in deposits, post-merger.

This is probably good news. You don't hear me say that very often, now do you? It's good news because, assuming the new bank tries to keep to a 7% core tier 1 capital ratio, it can in theory lend an extra EUR13bn in risk-adjusted loans. By the same calculation, Alpha could only add a measly EUR3bn and the benighted EFG would have to actually reduce lending by a net EUR15bn. So we go from a net reduction of EU12bn to a net increase of EUR13bn. Now I don't expect all of this will materialise in the current climate but an extra EUR25bn in spare lending capacity out of nowhere is nothing to be sneered at, it's about 10% of the total outstanding loans to domestic non-financial institutions.

Then again I do wonder whether EFAGA won't also start drawing deposits from other Greek banks as opposed to deposits previously moved abroad. It's very likely; after all, most of the country's savings aren't with the super-mobile ultra-rich, whatever defaultniks would have you believe. It could be that this is a winner-take all game in which the first couple of banks to reach good capitalisation take the pot as both depositors and investors flock to them. If I'm right, then the pressure on the rest of the Greek banking sector is about to become unbearable.

Sunday, 28 August 2011


Readers will remember my little naive model for the primary deficit, the one that kept warning that the public finances are becoming unstable. I called it naive in my last post on the matter in order to indicate that it's fitted to a simple pattern with little basis in the actual economics of the Greek state.

Well as with all naive models it has just been blown to shit by the facts. You see, the model as of June 2011 looked like this:

 Now that the figures for July have come in, it looks more like this:

When the data no longer fit one's model, it's the model that has to go. But I think you'll agree with me that we're in uncharted territory here in more ways than my own failed predictions can demonstrate. I will set the model aside for now then and just show you the facts.

July was a surplus month as expected. But whereas July 2010 returned a primary surplus of EUR730m, July 2011 returned a much smaller primary surplus of EUR385m. We've now exceeded the 2010 primary deficit every month since April, as per the graph below:

All in all, we're already EUR1.8bn off last year's primary deficit figures. Mind you, that year's ytd spending figures have been mysteriously revised upwards by EUR340m, and the June figures by EUR240m, so it's hard to know what really happened last year until this year is over. All I know is that at this rate we're on track to achieve a primary deficit of EUR8bn if all following months exactly mirror those of 2010, or EUR9.4bn if the current trend persists.

Is this due to the deeper-than-expected recession, as both the Ministry of Finance and its critics claim? Well, according to the Ministry's figures revenues are down by EUR1.9bn year on year while primary expenditures (including, as I always do, public investment) are down by a mere EUR113m - and that's only because the public investment budget has been slashed by another EUR1.6bn. Otherwise, public expenditure has risen (yes, risen) in 2011 so far. Cutting public investment is the worst way to cut the deficit and the IMF knows this.

So why they are allowing it is beyond me.  

Thursday, 18 August 2011


I've promised before to write more about the Grand Bargain for Greece agreed in late July - the latest bailout to end all bailouts. I'm still working on material for a new post but for now, here's one I prepared earlier.

What follows is an article I prepared for ACCA's Financial Services e-newsletter. It is written from a UK perspective but readers may still find it of interest.

Greece – can we look now?

Part I: The Exposure

On 21 July 2011, the leaders of the Eurozone nations announced to what must have felt like the entire world that they had reached a deal on a new rescue package for Greece, one that would reduce the country’s borrowing costs and outstanding debt, ensure its continued liquidity and hopefully set Greece back on the path of fiscal sustainability. They stressed that this is a one-off package, and that other embattled countries could not take it as granted that they would be offered the same.

What does this deal mean for the UK? The place to start answering this question is the exposure of UK banks to Greece. Now people tend to play with words when this question comes up, including in Parliament itself. For a start, it’s important to distinguish between exposure to Greek banks, exposure to Greek sovereign debt and claims on the Greek private sector, and then exposure to the much broader risk of contagion in the case of a Greek default. The good news is that there are definitive figures out there. The bad news is that they are dated and problematic in multiple ways.

Stashed away in the detailed tables of the latest Quarterly Review from the Bank of International Settlements is a detailed, if dated, answer to the question of direct exposure. As of December 2010, the UK banks’ total exposure to Greek public and private debt was $14bn. But less than half of this, around $6bn, was exposure to Greek government debt or Greek banks, where the risk of losses is greatest. Overall, UK banks appear to only carry about 2% of the total Greek exposure of European banks.

In fact, UK banks are nowhere to be seen on the list of top financial institutions by exposure to Greece, and what little they hold in terms of Greek bonds tends to be in shorter maturities. This is important because most bonds maturing after 2020 don’t seem to fall under the financing offer for Greece that was agreed by the banks through the Institute of International Finance (IIF) back in July. For what it’s worth, it appears that RBS is the most exposed UK bank, although it’s officially written down half of its £1.4bn worth of Greek bonds already.

This brings me to an important point. For the purposes of accounting profits and losses, the allocation of Greek bonds between the banks’ banking books and their trading books (which alone must be marked to market, leading to recognised losses when bonds lose their value) is crucial. Non-Greek banks typically hold about 31% of their Greek bonds by value to maturity, so most of their exposure is already marked to market – the banks will have recognised significant losses on them already. This is important because bonds bought at a deep discount may appear to be taking a haircut under a buyback scheme (the much-celebrated 21%) while in fact turning a profit for the banks participating in the swap. Coming back to RBS, for instance, the bank would recognise a profit of ca. £275m on this transaction. As a Greek, I feel a little cheated, but as a UK taxpayer... ka-ching!

By the way, if you’re thinking this impairments business might present a headache for auditors, you’re right. Especially given the wide variety of conflicting practices banks are likely to adopt. Further reading for the intrepid auditor here.

Now for the wider question of contagion and what it might mean for UK banks. To be fair, the contagion is already happening, so this is pretty much a moot point. But it’s easy to dismiss this as mere panic, an irrational response. That’s until one realises just how interconnected the European banking system is, and how exposed the UK is, through various different routes, to the contagion seeping out of Greece.

According to the BIS data I cited above, UK banks have a $22.8bn exposure to Irish banks and the Irish sovereign; another $20bn to banks and sovereign debt in Italy; another $6.8bn in Portugal; and a whopping $30.7bn in Spain. And the $80bn this adds up to are just the obvious risks, the black sheep of the European financial family. Given that the European stress tests earlier this year estimated the Core Tier 1 capital of the major UK banks for 2011 at about $300bn even in an adverse scenario, a substantial impairment of assets in the most troubled Eurozone countries would cause significant problems for them although it wouldn’t wipe out their capital. Still, there is no telling where the contagion would stop and indeed which other sovereigns and banks might follow should the PIIGS go.

This is why we must turn to the bigger picture.

Part II: Is the Eurozone insolvent?

Throughout the various stages of the European debt crisis, the argument has been made that, if only the Eurozone could co-ordinate fiscal policy and issue debt collectively, for instance via Eurobonds, it would put an end to all this drama of speculation and contagion – Europe would become a borrowing superpower and no one would ever dream of doubting its creditworthiness.

The idea that a fiscally unified Europe would be undeniably creditworthy is wrong on many levels. Superpower status, fiscal union, and indeed fully-fledged federalism, didn’t stop S&P from downgrading the US to AA+ earlier this summer. Perhaps more importantly, given who buys US debt nowadays, it didn’t stop the Chinese rating agency, Dagong, from downgrading the US to A with a negative outlook. Some might say that these downgrades reflect the mechanics, not the fundamentals, of US debt, and that’s fair enough. But even if Eurozone members can somehow be coerced into fiscal union (and they may well be in the following months) the delays and horse-trading involved in drawing up a collective Budget for the Eurozone will make the debt ceiling negotiations in the US seem like an elegant costume drama ball.

But it is the fundamentals, not the mechanics, of debt that truly worry the markets. In the Eurozone as in the States, policymakers may not want to countenance the thought that the entire bloc might be collectively insolvent. Yet for over a year this question has been preying on commentators’ minds. The IMF even did the math on this in a fascinating report last year that went largely unnoticed. They found that the Eurozone, mighty Germany included, is not, in fact, solvent in the long term. According to the IMF calculations, the only long-term solvent countries in Europe were Hungary and Denmark. Bulgaria and Estonia were also strong candidates, but that was about it. The news for the UK were particularly grim.

Markets also find it hard to think of sovereign nations as being insolvent; much of the world’s financial architecture rests on the assumption that there is a magic circle of ‘decent’ sovereigns that can never default, and this belief has persisted after the 2008-9 crisis despite ample historical evidence to the contrary. The only difference is the ever-retreating boundary of the magic circle, as each embattled sovereign puts pressure not only on those countries that are financially exposed to it, but also any country seen as equally or less ‘decent’. Right now, the magic circle includes very few countries beyond the small group of AAA-rated sovereigns, and the result is a AAA asset bubble that could pop with disastrous consequences.

European policymakers are increasingly testing the surface tension of this bubble. Consider the European Financial Stability Facility (EFSF). Caught up in their own rhetoric of being under attack by evil speculators, Europe’s politicians hailed it as a shield for the Eurozone. But market participants, still smarting from the experiences of 2007 and 2008, quickly identified it as no more than a massive Collateralised Debt Obligation (CDO) and treated it accordingly. The market tested first the junior, then the mezzanine, and finally the senior tranches (see also here and here) of this construct – the guarantees by France and Germany. The very existence of the EFSF prompts the market to do this, much like the very mention of fiscal integration prompts the question of the Eurozone’s collective solvency. This in turn explains the ever-diminishing half-lives of Eurozone initiatives to calm the markets.

Until the markets are convinced that Europe’s finances are sustainable, this drama will continue to play itself out regardless of what schemes are concocted by its leaders, and will claim ever more, ever more conspicuous victims. Long-term sustainability trends can be reversed more quickly than one would think – relatively small changes can add up to a lot over a 50-year horizon. But they do not reverse themselves.

Tuesday, 16 August 2011


A longtime friend of this blog wrote in this morning with some useful commentary on the latest GDP figures coming out of the ELSTAT. Due to a professional interest in statistics that are not completely effing bonkers, said reader is understandably upset:
"It's got to be the worst data set from any european stats agency: they can't even give you a q/q gdp figure!"

So what prompted this exchange, I hear you ask?

Well, as veteran readers will know, ELSTAT has given up trying to provide seasonal adjustments on the GDP series for now because of, oh, only a major series break round about the most critical time in the whole of Greek economic history since World War II. As a result, no one has any reliable figures on Greek GDP when we kind of need them, and all we have to go on is seasonally unadjusted figures on what is easily the most seasonal economy in the Eurozone. Seriously, just check out the figures. They look like a long march of boobs, which, from a statistical point of view is what this whole sorry affair is.

Prompted by my dear reader's outburst, I set to work on a little experiment to simulate a seasonally adjusted series for Greek GDP. I took all of the available data from 2006 onwards and estimated seasonal adjustments for each quarter, controlling for the series break. I did this for the nominal GDP figures plus the GDP deflator series. In order to avoid having my regressions contaminated by the fact that the post-break series is generally full of quarters with negative growth, I also added one dummy for the post-2009-election period and another dummy for the post-Memorandum period. The effects are small but since recessions tend to put deflationary pressure on the economy it's probably a good precaution; without it I would end up with a series that says that essentially the Greek economy has been stagnant, as opposed to sliding off a cliff helplessly like the Jamaican national bobsleigh team. Trust me, I checked.

The result is the following graph, pegged to Q1 of each year. Because I've used Q1 as the reference, the seasonally adjusted figures tend to be much lower than the unadjusted ones. The choice of reference quarter is irrelevant: one is simply choosing which quarter dummy to eliminate from the regression analysis as they can't all be included. The results (such as adjusted quarterly growth rates) should be the same regardless of which quarter is chosen as a reference.

Anyway it's best to caveat this sort of experimental McGuiver stuff so that people won't accuse me of being a complete amateur.

These figures suggest that the slight growth spurt we supposedly experienced in Q1 2011 was actually zero. That I suspected. But the scary part is when we get to Q2, because my series suggests that GDP shrank by 2.2%. Not annualised, mind you - 2.2% q on q. Only Q2 and Q3 2010 have been worse so far, when the economy shrank by 3.4% and 3.1% respectively. Again, according to my calculations. That's twice the fall reported by ELSTAT for those quarters, when the statistics agency still saw fit to publish the same adjusted real GDP figures they now say they cannot publish. Aaaah, savour the sound of banjos and running water everyone.

Alternatively, as is appropriate on the day we Greeks celebrate the Feast of the Assumption,


I will stress once again that these figures are neither official nor reliable; just the best I can come up with for now. But they seem very plausible. They even capture, in a way that ELSTAT's figures did not, the drop in GDP ahead of the elections as (reason dictates) all investment decisions were put on hold until the new Government's fiscal policies were announced in Q4 2009. They also make some sense of the exploding unemployment rate reported for May, which one would not expect of an economy performing a dead cat bounce. That and the out-of-control primary deficit figures for Q2.

UPDATE: Three days after this post was first published, the Greek Government revised its range of gdp growth estimates to include up to -4.5%. Then it revised it again to include -5.3 as the minimum growth rate. I had previously gone on the record suggesting 4.2% was plausible.


Some readers have asked me to share my workings so that others can decide whether they find the 'seasonal series' convincing. Well here you go. I have no secrets.

Monday, 15 August 2011


This post, which I will be updating as new evidence comes along, deals with the UK riots and was conceived in response to the torrent of empirically unfounded commentary in the UK media and, not entirely surprisingly, in the Greek media, which have drawn particularly unfortunate analogies to the Greek riots of 2008. 

I will concede that much of this writing is well-though out, but the majority is simply inexcusable drivel. Personally, I am not interested in matching these people word for polemical word but in answering the call of this blog for serious data journalism, for which I agree the riots are a prime opportunity.


Ironically given that said publication has ‘never seen a riot it did not like’, it was in the Guardian that the poverty of the commentariat was most eloquently described, with Aditya Chakrabortty very correctly noting that the riots have become 
a kind of grand Rorschach test in which members of right and left would peer into smouldering suburbs and shopping streets – and see precisely what they wanted to see.
By way of introduction, it will do readers good to check out some of the literature on civil unrest as linked to mass looting. A very good theoretical introduction into the looting phenomenon can be found here and a discussion of empirical data can be found here. For further background I would strongly suggest reading this, this and this. You will also need to familiarise yourselves with the two riot maps of London: the map of incidents and the map of suspects

I also strongly suggest you visit the pure genius that is Photoshop Looter, which to me is the single most cathartic response to the riots so far, managing as it does to at once humanise and ridicule the looters by putting a humourous spin on what would otherwise be frightening footage. Long may it continue.


Now before I go into my argument let's try to understand the argument of what I like to call the Context Brigade:

The Context Brigade argue that the rioting and looting that took place in the UK is not solely the product of individual motivations that just happened to coincide over a couple of days. It's been a long time coming; a distorted echo of civil unrest incidents past and future; the venting of pent-up rage, despair and hopelessness as people - mostly young but old too, mostly poor but middle- and upper- class too - have gradually lost their stake in their own communities and indeed the future of the country. With only a stark future to look forward to, and deprived by the powers that be of any meaningful means of effecting change, they can only lash out in blind rage in acts that question the system of power and property that has disenfranchised them for so long. While the rioters are too disorganised, too confused and too unsophisticated, to articulate any political demands, their actions are political in that they are the long-term outcome of political choices - from Maggie to Tony to Dave, and in that they can only be kept from repeating themselves by different political choices.

I will leave out of the Context Brigade those (like former MAYOR OF LONDON Ken Livingstone or the onetime wannabe Labour leader Harriet Harman) who single out austerity policies as the cause of the riots, as well as those who would have liked to make the same point outright but must instead disguise it as a more learned critique of all that is wrong in the world and deliver the sting near the end.

I am referring more to the kind of discussion Naomi Klein, or even Russel Brand, tried to initiate;  although I was not surprised to see that Russel Brand spent much of his admittedly good opinion piece talking about himself, which was a struggle to get through.

I will also include Livingstone-Klein lovechildren like Stafford Scott's critique, as well as those, like Slavoj Žižek, or Matthew Moran, or even my good old friend Matina Stevis, who believe that there's a broader, international perspective the riots need to be seen in, and that lessons need to be learned from the international history of civic disturbances, whatever they may be. I wish them well in their efforts to find meaning in this way, although I would warn that it's always possible to draw a line through two points, or to fit a trendline through ten.

I have no problem with conceding the Context Brigade's argument that there is more to the riots than mere criminality. If there wasn't then the riots would not have happened at all, and the associated 'criminality' would have shown up as run-of-the-mill crime statistics, with perhaps a new upward trend thrown in. That much is obvious. As for whether the causes of the riots are political, this point is either very misguided or an enormous truism, depending on one's definition of politics. The more statist one is, the more one is likely to believe that all options are open to the political will. And the more one believes that, the fewer possible causes of rioting they will accept as non-political.  

What I don't accept is the Context Brigade's ability to choose how far they go in seeking context. Generally they stop the moment the facts seem to confirm their prejudices. Let me demonstrate.


I crunched the numbers from the latest (and final, as it's being discontinued to save money) edition of the UK Citizenship Survey in order to get a feel for the factors contributing to the loss of connection between people and their communities around England - the core of the Context Brigade's argument. The results, broadly summarised, are as follows. The smaller the p value, the more significant the variable at the top row is in explaining the phonemenon described on the left:

This table explains in a nutshell what the context brigade are describing; but it also shows that their reporting is mixing together things that don’t belong together. 

The mistrust of the police that fuelled the original, peaceful action in Tottenham that morphed into something else entirely, is very much a racial issue, rooted in a long history of troubled relations between the police and black, especially Caribbean, communities. But no other dimension of the supposed substratum of the riots actually is. 

The sense of powerlessness to change one’s local area is very much a function of age. But the lack of belonging, the disconnect with the community that many are blaming for the riots, is not. Nor is this connected to a dim outlook on the future. And although the general statistics suggest that income has something to do with a disconnect with the local area, if you look closer it’s because people earning over 50k a year, middle class people by all accounts, don’t feel connected, not because poorer people do. These are probably highly mobile professionals, or just people waiting for a chance to get on the property ladder.

In fact, the one variable that is extremely strongly connected to all dimensions of alienation is the sense that not enough is being done at the local level for young people – that the community has no future, or that young people simply have nothing to do. And in many cases, this will be people’s way of rationalising the stuff young people already got up to in their communities.

Not having a job, or even never having had a job (cleared of the influences of age) is not really associated with much.

More specifically, some commentators (e.g. David Lammy, once Labour's hope for a British Obama before Chuka Ummuna came along, here and here) have pointed to a supposed link between unemployment and the riots. But the facts are brutal. There simply is no serious link. 

In Lambeth, where things really kicked off with every other corner of Walworth Road hit by rioting, unemployment was actually lower as of the end of 2010 than in late 2007. It fell by 10% in the 2010 alone and is now close to the London average. Yup. That's right.

In Southwark, including Peckham, where things also kicked off massively, the unemployment rate only grew by 6% in the downturn, against 28% for the whole of London.

In Newham, the borough with the highest unemployment in London, the only reported incident was one solitary Argos being looted. Not good, mind you, but not much by the standards of the riots in general.

Mind you, this doesn't say much about deprivation as such. As it happens I believe there's a correlation between deprivation and riots, as well as deprivation and alienation to the local community. But there is a twist here which many commentators have managed to speed past on the way to their predetermined conclusions.


We come now to the toughest part of the debate about the UK riots: the part about deprivation. As I showed above, deprivation has a role in explaining almost all of the ways in which alienation manifests itself in the UK today. The real question, though, is whether it had anything to do with the riots.

The major Context Brigade argument here is that happy, content people do not riot. Well my argument is that although happy, content people do not riot, anyone can be a looter. If this was any other kind of crime we're talking about, I too would want to know what the context had to do with it, but opportunistic looting is actually the one crime that mankind actually has written in its DNA. Even the macaques of Rio de Janeiro know this.

More to the point, many in the Context Brigade have, perhaps without noticing, made my argument for me. Naomi Klein points to the way the word 'looting' has been used in the past to link the work of opportunistic rioters with the dodgy dealings of those in power and notes how ironic it is that the daytime looters should accuse the night-time looters of thuggery and criminality. John Harris made this point even more explicitly by asking whether it's the MPs or the rioters that are the real looters. And of course, inevitably there are comparisons to the behaviour of bankers up to and following the financial crisis of 2008-9.

But in their effort to score points at their ideological enemies, the Context Brigade have forgotten to follow their argument through. No one seemed to look for context to the excesses of MPs and bankers. That's just how they are. How their world is. One spoof letter to David Cameron's parents actually makes this point more strongly than I ever could, by using a false attribution to Cameron's upbringing to (correctly) highlight the hypocricy involved in his condemnations of the riots. The MPs and bankers were not products of a miserable existence and their options are, compared to those of most rioters, limitless. They've done well out of boom and bust alike. So why do they loot, in the wider sense of the word? The Context Brigade will have to have an answer to that question if they want me to take their views on the riots seriously.

My explanation is simple: the two types of 'looting' are simply expressions of the same human tendency - to grab what we can as soon as we're certain that, for whatever reason, we can get away with it. A bit of privacy will do it, or the presumed anonymity of being part of a crowd will do it.

In fact, I'll throw in some examples of middle-class looting if you like, just to round things out. Middle class people can't extract massive rents like bankers, or write their own rulebooks like MPs, or, most of the time, break into stores and grab Xboxes like the rioters of London. But they can and do take advantage in whatever ways available to them. Consider for instance the sum of money lost to the economy from employee absenteeism and fiddling of expenses. Shall we round it out to £34bn per year? That's more than twice, in a year that the total bonus take of the entire UK financial sector. And don't even get me started on the elasticity of travel expenses. I've seen, with my own eyes, one reputable organisation's expenses policy being stretched to pay for a middle class employee's partner's mid-day lunch of foie gras and champagne in lovely Maastricht - shame there are no estimates of what that's costing UK employes but it's supposed to run in the many billions in the States.

My point here is that the reason there appears to be a correlation between looting (in the narrow sense) and deprivation is not that deprivation causes looting (in the narrow sense), or piles some specific kind of pressure in individuals that is expressed through looting (in the narrow sense), but that opportunistic looting (in the wider sense) is an eternal human impulse and that different classes of people have different types of opportunities available to them to indulge in this natural, if undesirable, behaviour. A good percentage of the London rioters will never set foot in a corporate environment as employees, and hardly any of them will be able to run for public office. The only kind of looting (in the wider sense) available to them is breaking into stores (i.e. looting in the narrow sense), and just this once there were enough people doing it that even the less foolhardy were tempted to join in.

Zoologists will tell you that both primate and human societies alike will sometimes tolerate this within certain social structures - it's called tolerated theft (see here, here here and here).

I'm sure the Context Brigade has brains enough to rebut this argument, but they should ask themselves - why did the riots not happen all through 2010? If they aren't repeated in 2011, or 2012, will they be ready to concede my point? Indeed why aren't the riots happening every single day? It's not like all of the rioters have somewhere else to be, you know?

More analysis to come perhaps, on the false analogies between the UK and Greek riots.

Thursday, 4 August 2011


In its early days, this blog was supposed to be all about funny debt-themed pictures, demotivational posters and some fun with graphs. Alas, the times caught up with me and the blog's age of innocence ended very soon. However, I stumbled today upon a spoof ad that I did back in the day (pre-bailout!) which made me chuckle.


Veteran readers may recall that I have a professional interest in the Better Regulation Agenda - the international policy drive to reduce regulation for businesses and citizens and make regulation better value for money. Readers can check all my writings on the matter here.

Twitter followers might also recall that I was particularly miffed to find that the Memorandum revised our commitment to reduce administrative burdens by lowering the target savings from 25% to 20% - a bizarre change of heart.

If you're a fellow believer in Better Regulation then it may please you to hear that the Greek Government is consulting on the matter as we speak. We're only about 6 years late - the Better Regulation policy boom actually began in 2005 (see here and here). But better late than never.

I know it's very hard to be optimistic about this new measure. As one commentator points out below, the rule of law is a prerequisite to Better Regulation and we're still struggling with that. And the picture of a vast policy circle-jerk painted by another commentator is an accurate portrayal of the state of the art in many parts of the world, including the European Commission.

But this is a once-in-a-lifetime opportunity to get the ball rolling on properly limiting the reach of government. So much of what's wrong with Greece has to do with being able to reach for the false comfort of regulation, as though the lawmakers can will a better world into existence. I enjoy being a cynic but I like fighting back even better.

The consultation is open until 2 September and can be accessed here. Although I note that the Government has already made a Better Regulation boo-boo in only allowing 29 days for consultation responses. The European standard is three times that - 12 weeks.

For the record, here is my thinking on the Better Regulation agenda - the report itself focuses on the UK but the theoretical principles are the same. I will upload an updated version as soon as the book it is now part of is published. That's taking a while.

I will update this post regularly as I respond to the consultation. Unfortunately this is all going to be in Greek. Check below for sections I have responded to.

[The consultation wonks are taking their time approving the last two responses; hopefully that means they're reading them.]

    Tuesday, 2 August 2011


    Following my recent post on Putin's alleged offer of a EUR25bn loan to Greece, I was left with tons of leftover links. I spent some time looking for things to do with the Litvinenko assassination story, before stumbling upon this story, which - to save myself a nasty case of polonium poisoning - I need to stress is unsubstantiated and almost certainly made up - by the late Litvinenko.

    Since the Daily Mail is not exactly Leet Central, I thought I should make the compulsory associations:

    Monday, 1 August 2011

    Дайте, пожалуйста self-aggrandising bullcrap?

    Veteran readers will remember this post from a while back, in which I took issue with people spreading baseless rumours about a proposed EUR40bn Russian bailout of Greece, no strings attached and at a bargain 4% interest rate.

    I must admit I spoke too soon. The story was not made up by one of Troktiko’s readers (who only embellished it with his/her own fantasy). Rather, it was made up in Russia itself and its main proponent, Ivan Savvidis, has been making the rounds of the Greek press recently, even making it into the left-most of the ‘mainstream’ dailies, Eleutherotypia.

    In this latest instance, the interviewer relating Savvidis’ story is not an Eleutherotypia regular but rather one Thanasis Augerinos, of ellada-russia.gr [Greece-Russia.gr for foreign readers], a Russian-based publication (profile in Greek here) with reasonable ties to the Russian elite. They boast that their Quarterly Review is printed in luxury paper by the Presidential printers, who formerly ran the Pravda print runs. Mmmm. The high life. Their purpose appears to be to help connect Greek interests to influential people in Russia, and they have a commercial interest in propagating such things as a Russian bailout story. 

    First, it is important to take the measure of the man at the heart of the rumours himself. Savvidis is not, by any means, and certainly not by Russian standards, a fringe element. A member of the Duma, in 2008 he was decorated by Putin for services to “the adoption of legislation, consolidation and development of the Russian state institutions.” Now MPs don’t usually get decorated for helping implement laws (least they can do, y’know?) so this über-vague accolade basically means that Putin personally approves of him.

    He is also an active politician rather than a silent partner: he is currently serving as vice-president of the Budget and Tax Committee and head of the Joint Parliamentary Cooperation Committee with the Hellenic Parliament.

    Savvidis has made a second career out of being the voice of Greeks in Russia. He is regional co-ordinator of the World Council of Hellenes Abroad, the Greek Diaspora organisation, for the former Soviet republics and was briefly president of the International Confederation of Pontian Greeks before resigning because the whole thing wasn’t going anywhere.

    Readers may not be entirely surprised to hear that he made Forbes’ list of the richest men in Russia in 2005 and owns a football club. He even tried to buy into one our major football clubs a few years ago. Oh, and did I mention he is sometimes referred to as ‘The Czar of Rostov’?

    We have many names for these people here in London – prime real estate investors; Guy Ritchie movie material; scary Dubai holidaymakers; MUHFXING OLIGARCHS. To be fair to the man, he seems to be cleaner than most, but that’s not a high bar to clear.

    Now I don’t know about you, dear reader, but it appears to me that when a Russian Greece-monger and a Greek Russia-monger meet, the result can be a tad oversold.

    Now for the facts. Savvidis claimed back in February 2010 that Putin and Papandreou met on 15 February and Yorgo was offered a loan of 25bn at 4.7%, with no austerity programme attached – presumably the Russians trusted us to spend that money in Russia’s best interests. Putin, Savvidis goes on to say, was enraged in the aftermath of the meeting as G-Pap failed to request any such loan and only appeared to want to talk about the environment. The Russian Prime Minister was reportedly so affronted he called for the Russian consul’s head on a platter. 

    In his second interview this year, Savvidis added that a second loan was proposed, to help execute the stalled deal for Greece to buy Russian armoured vehicles. This would have been backed by state guarantees and clearing exchanges of agricultural products (!). Yup.

    You see, originally we were going to buy 1000 BMP-3 armored vehicles, which was revised up from 400, and then cancelled altogether as Greece entered its current state of crisis. The state of Greece’s public finances was cited as a reason and Russia-lovers are convinced that this was a higher order from Yorgo’s American masters, but more to the point there are serious problems with the BMP-3. In the words of the Russian Deputy Defence Minister, Armaments Chief Vladimir Popovkin: 
    “everyone rides on top of the BMP because no one wants to ride in this ‘coffin.’  We need to make a different vehicle.”
    While I don’t doubt the BMP-3 financing story, I am extremely sceptical of Savvidis’ version of events with regards to the 25bn bailout for a number of reasons.

    First, in his version of events the Russian Prime Minister never actually made an offer to Yorgo but apparently authorised Savvidis to tell G-Pap that he was ‘open to all requests’, then felt betrayed when such a request failed to materialise. This is strangely coy of Putin. Greece needed a certain amount of money and the entire world knew. Why bother with this bizarre costume drama courtship? Why not make the offer and let Greek public opinion pressure G-PAP into accepting?

    Second, this version of events is not corroborated by any source not ultimately citing Savvidis himself. Now I know the Western media have their agenda and their ties to their respective governments but what about the Russian media? Russia Today and RIA Novosti have carried not a peep on the Russian loan. With our current bailout failing badly, the Russian media would at least get a kick out of reminding the world that there were other –better- options, so why keep this a secret?

    The closest the Russian press got to this was the Pravda reporting what it acknowledged were rumours that Greece was going to ask for a EUR10bn loan from Russia, or a loan for the purposes of arms purchases – essentially Savvidis’ version with a smaller number.

    Then there is a series of bizarre statements from the Kremlin, including the Deputy Finance Minister saying on 15 February (before the meeting Savvidis is referring to) that a loan to Greece was ‘not on the table’. Then you’ve got Savvidis himself saying that Russian President Medvedev had referred Greece to the IMF before the scheduled meeting between Yorgo and Putin. His defence is that ‘First of all, one proposal does not preclude the other. [...] And who said it was not possible for our President and Prime Minister to have different tactical approaches or opinions on a range of issues?”

    Well *I* say so, Ivan the Man. Is it possible that Putin would have allowed this statement to come out, or that he would have decided to loan EUR10bn or more to an insolvent country without his own Prime Minister knowing? Was it going to be a birthday surprise, with Yorgo jumping out of cake in a bikini?

    Note that, unlike the EU, Russia has negligible exposure to Greece. There is no reason for them to engage in the Ostrich Bluff and pretent no bailout was coming until it was. They could have just come out with it. Back then the EU was only saying ‘we have not yet received a bailout request.’

    Then you’ve got Putin saying in May 2010 that the Greek crisis is temporary and will be overcome by the EU, then his Finance Minister telling the press that market trends indicate the Greek crisis is coming to a close as a result of the bailout. Guess they’ve got cool-aid dispensers in Russia too, and no hard feelings either.

    Third, Russia itself still ran a substantial deficit even in a year of record oil prices and expected to run an even bigger one at the beginning of the year, so they would be lending us borrowed money and could lose money if they were to lend at a rate lower than the one they were paying. Now, Russia is currently paying 6% on its 10yr bonds, up from ca. 5% when the bailout was allegedly proposed. Either way, they would be losing money on this deal from the get go, even if we did not default on a single penny of it.

    Fourth, as I’ve pointed out earlier, Russia’s sovereign wealth fund would not be able to finance this transaction because it a) doesn’t have enough money to cover our actual financing needs b) cannot buy Greek bonds, and c) cannot buy junk debt. Then there is the bailout fund that Russia has going with its Eurasian vassals but that too doesn’t have anywhere near enough money in it.

    Finally, is it really possible the bond markets would have missed this? They seem to be very quick in picking up even the most ridiculous uncorroborated rumours.

    With no sustainable official way of taking on our debt, I suspect that Russia could only lend any of this money to Greece off-balance-sheet, i.e. by concealing both the gains and losses from the loan from its citizens and taking them beyond any sembleance of democratic control. Essentially, they could load the debt onto state-owned companies and offer them a state guarantee, and Boris is your uncle. This could explain some of the secrecy involved and Savvidis’ claims that the Greek-Russian rapprochement was led by this REALLY savoury character. Still, given the amount of scrutiny Greece was under at the time it is unimaginable that they could have done this unnoticed. Plus it would have gone down like a lead balloon among the population.


    The core argument made by Putin-lovers a propos of Savvidis’ ‘revelation’ is that Greece had an offer that represented an alternative to the IMF bailout, and that somehow a bilateral Russian bailout that would have come with no strings attached. Now that, dear readers, is the biggest load of bollocks ever to come out a Greek journalist’s mouth, not counting sexual favours to editors.

    First, as Savvidis readily admits, Russia is a paid-up member of the IMF and thus on the hock for part of Greece’s debt already. Russia also works with them on bailouts multilaterally, for instance in Georgia (subject to an adjustment programme), the Ukraine (with austerity conditions), or in Belarus (with privatisation conditions, which Russia later took on on its own; more on this later). While Orthodox Axis zealots like to suggest that Russia is hostile to the IMF, as with all things in international relationships Russia’s relationship with the Fund is much more complex than they seem capable of understanding.

    Not to mention, Russia is no stranger to conditionalities, as people in Belarus know all too well. The latest bailout from Russia came on the condition that Belarus accept one of its own state-owned banks as manager of a forced $7.5bn privatisation programme, with Russian companies as the foremost bidders. All of this for a $3bn loan, mind you. Remind you of anything? Oh yes, the same tactics the IMF stands accused of employing in Greece. Here, incidentally, is a list of things Belarus would have to sell.

    The world is a strange and repetitive place. Only unlike the IMF, Russia, which has no banks full of Greek debt to cater to, would probably deliver on its threats should we fail to meet our end of the bargain. Belarus for instance found out that not being able to pay Russia’s state-owned energy export company on time while waiting for a Russian-led bailout means having one’s electricity supply cut in half. Dobro!


    I for one find it amazing that those of my fellow Greeks who would not believe a word coming out of the mouth of a Greek MP (probably with good cause) and would like to see them all hang regardless of evidence would nonetheless believe without reservation a Russian-Greek MP who also happens to be an oligarch, as long as he appears to confirm their delusions. The suspension of judgment is astounding.

    Even if the EUR25bn loan had in fact been on the table, we now know all too well that it would have been a drop in the ocean, as the IMF and Europe found out for themselves. One could argue that austerity exacerbated our fiscal woes, thus adding to the debt burden, but as Greece is fundamentally insolvent Russia would have had to keep pouring money in. The total (to date) of $154bn in bailout money is equal to more than 10% of Russia’s GDP, or about a third of the Russian Government’s annual total tax revenue. This for a country that is still on track to run a deficit in 2011, even after soaring fuel revenues.

    Furthermore, people sometimes seem to forget that Russia is not the best nation to owe wrath-of-god money to. It’s one thing to ask the well-to-do Germans to pay our way – the worst they can do is complain about how long our holidays are. But try telling the Russians to carry us on their broken backs. With nearly half of Greece’s PPP-adjusted per capita income and inflation running at a toasty 8%, the average Russian is much worse off than the average Greek.  At 4.6k Roubles, the Russian minimum wage is a quarter of the Greek minimum wage, even after our latest minimum wage cut, while the cost of living is not really any lower. These people would pay taxes to support our citizens in maintaining a standard of living they could only dream of. And at an interest rate of 4.7%, they would be making a loss as well, even if we never defaulted on any of our debt. My guess is that, in a society that is pretty much at home with ethnic violence, Savvidis’ constituents in the Greek diaspora would have much worse that sarcastic headlines to deal with.

    And then there’s the small issue of borrowing from a country that is significantly more corrupt than even Greece (ranked 154 to our 78 by Transparency International), where the state actively controls the media (see also here), and which has a Wikipedia page dedicated to the journalists killed there, with only one in four murders leading to a trial. Bloggers don’t fare much better, either. Greek bloggers love to rail at the IMF and its e-bil plots but they’d have to be a little bit more cautious when talking about Russia if they were to provide our next bailout.

    Be careful what you wish for folks.

    DISCLOSURE: I wrote to both Savvidis' office and that of his interviewer for comment on this story. I have received no response - I didn't expect one but at least they had a chance to have their say.