CONSULTATION WIN, TROUGHING PIGGIES FAIL

I am not the biggest fan of G-PAP and our current Government but I have to give them their dues on occasion. 

The decision to put all public consultations online was brave and, if followed up properly by policymakers, could change the country for the better.

At the very least, it will provide some badly needed LOLs.

The Government is currently consulting on the winding down of a number of quangos and other useless public organisations in a bid to save money and sanity. The consultation page (in Greek only, I'm afraid) can be found here.

As one might have predicted, it has prompted a torrent of self-serving comments from people employed in, supplying or otherwise benefiting from the entities being considered for closure. My personal favourite (and a heavily defended one at that) is the National Milk Committee. The problem with the NMC is that, the more they try to defend themselves through they Chairman, the deeper a hole they dig for themselves:

“How much does the NMC cost the State?

The NMC does not at this time receive a single Euro from the State. It carries out its work, whose significant is universally acknowledged, thanks to the funding it receives from the Hellenic Dairy and Meat Association, which in turn is funded entirely out of the money of Greek milk producers and manufacturers of dairy products in return for services rendered. It should be noted that, during the first 25 years of its operation it had no regular funding and was able to operate thanks in main to the contributions of the Greek dairy industry and other dairy stakeholders.”

Sadly, it is hard to corroborate this as the NMC does not feel any obligation to publish any financial information in Greek or English. However, it does appear suspect in light of what is mentioned under the “funding” tab of the NMC’s own website:

“Until 2004, the NMC operated with no steady funding. […] Over the last few years, some of its more significant  function were funded by the Hellenic Dairy and Meat Association, the association of Greek Dairy Manufacturers and the Ministry of Agricultural Development and Food to whom we express our gratitude.”

 “In 2004, Presidential Decree no. 89, established an annual €200.000 grant to the NMC, levied from the Hellenic Dairy and Meat Association.”

Let us forget for a moment the direct funding from the Ministry and focus on the HDMA money. It is clear that, contrary to the NMC's claim, this is not quite a quid-pro-quo model of funding – the NMC receives this money regardless of what services it has rendered. And it has a claim on this money by presidential decree – hardly a model of free enterprise. But even if the HDMA were paying out of genuine interest, this would also be problematic because they are not in fact spending “the money of Greek milk producers and manufacturers of dairy products in return for services rendered .” A look at the website of the august HDMA suggests where its own funding, of which it so generously gives to the NMC, comes from in the first place:

“The HDMA is not funded out of the State budget. Its revenues are derived from a 0.75% levy on domestically sourced milk, a 0.5% levy on foreign-sourced milk, and a 0.2% levy on domestically and foreign-sourced meat.”

In my village, this is called a tax. But I’m getting ahead of myself – back to the NMC for now:

“Since its establishment, the NMC has been housed free of charge in premises granted by the Senate of the Athens Horticultural University. This grant essentially allowed it to exist through its first 25 years of operation, during which time it had no steady source of income.”

Finally, as the NMC explains, its Chair and Vice-Chair are both University Professors, i.e. civil servants, whose wages, travel costs and expenses are paid out of the state budget. This last point is important because the NMC is based in Athens but the HDMA is based in Thessaloniki – an 8-hr drive apart. The other three Board members are all high-ranking industry association people.

That aside, why do we have an NMC? Why can’t the HDMA build its own resource? Because to have an NMC ties in nicely with the structures of the International Dairy Federation, of which the NMC is a member. The IDF’s job is, once one has read through the fluffy language, to act as chief self-regulator and lobbyist for the dairy sector.

From the above it is clear that the NMC is typical of the culture of the Greek quangocracy. Here they are, an organisation that receives EUR200,000 per annum levied by state decree, is housed free of charge in public property for a quarter-century, occupies the time of well-paid civil servants and taps into the state budget to pay for their travelling costs. Despite all of this they STILL DON’T REALISE THEY ARE BEING SUBSIDISED BY THE STATE.

That’s just not good enough. G-PAP has my vote on this one – make them, and everyone else like them, squeal!

AI IZ IN UR BOND MARKETS, CHANGINGZ UR MATURITIES

This was never going to be pretty, my friends. After talks with potential investors to test their appetite for Greek debt, our Government decided not to put any 1-yr Treasury bills up for sale in our first brush with the markets since the May bailout. This contradicts our earlier statement of 28 June.

This is of course not important enough for the Ministry of Finance to put up on its website for our edification – unlike, say the Minister’s tedious interview with Athens News, for instance. But I was wondering how our more liberal minded media would spin this. My favourite example is the E-net coverage:

“The head of the Public Debt Management Organisation, P. Christodoulou, was forced to circumvent 1-yr bills in favour of 6-month and 3-month bills in order to keep the cost of public borrowing at levels that would not further whet the appetite of rent-seekers.”  

In fact it is a little more complicated than that, Christo my friend.

It appears that in announcing the sale back in June, we have actually played into the hands of specuLOLtors – such as they are. Note, for instance, the reaction of Goldman’s chief European Economist Erik Nielsen when this sale was originally announced:

“Since the IMF-EU package is fully funded (i.e. no need for commercial borrowing) through 2011, and the numbers [on Greek austerity measures] are coming in somewhat better than expected, there should be no need for this borrowing – so why are they doing it? Could it be that they are responding to demand from banks and other investors who have started to appreciate that a debt restructuring [in] the next 12 months is very unlikely and therefore looking for high-yielding assets? If so, this would be a mis-guided move, in my opinion, and – frankly – I hope the IMF and EU would tell them to back off.” 

What? Could it be that the uber-evil, uber-specuLOLtoring Goldman urged against this entire auction? Did we really get talked into the whole thing by greedy bankers, only to slam the door on their face halfway through?

My guess is our motivation was very different: only a few days earlier, our Ministy of Finance reported a projection-busting 39% reduction in the Greek deficit. Hoping that the market would be impressed by this figure, our Government sought to capitalise on the good news by successfully raising a little bit of money and sending a powerful signal.

I must admit that I don’t think this was such a bad idea – in principle. If our figures were robust and we could be seen to raise even a small amount of money on the market at near – bailout terms we could signal to investors that we were serious about not defaulting and willing to take the pain, and also signal to our domestic audiences that we are that much closer to being able to tell the IMF to f—off. So full points to G-PAP and his merry men for going to the markets in the first place.

Unfortunately, the 39% figure is clearly not what it seems. From our own Government’s triumphant announcement:

“Net revenues of the ordinary budget increased by 8.3% year-over-year against a targeted 11.7% annual increase foreseen in the SGP, including the additional measures of March.

This reflects receipts of 779 million euro from an extraordinary tax on profits of large companies in 2008, an increase in receipts from the excise tax and corresponding VAT on fuel, tobacco and alcoholic beverages, as well as a 364 million euro year-over-year reduction in tax refunds. It is estimated that the additional measures adopted in March and May 2010 will begin yielding results in the coming months, thus rendering feasible the achievement of annual targets. 

Ordinary budget expenditures declined by 10.5% year-over-year against a targeted 4.8% annual decrease foreseen in the SGP. In particular, primary expenditures declined by 11.3% against a targeted 4.4% annual reduction and interest expenditures decreased by 7.5% against a targeted 5.1% annual increase.”

So to be clear: we’ve raised less incremental net tax revenue than we thought, mostly as a result of the last tax hike under the previous incompetent Government – which was a growth-killing one-off that we can’t really repeat – and by delaying (not really reducing) tax refunds.  I.e. we haven’t reduced the structural shortfall in tax revenues. We did, however, manage to cut expenditures twice as much as forecast. Now this is suspect, considering that our original plans were severe enough to threaten social cohesion. One does not casually achieve double the savings in question without some trickery at play. The announcement goes on...

“The decrease of primary expenditures is mainly due to expenditure restrictions for salaries and pensions, in health and social security (lower grants to the Social Security Funds by 1,139 million euro compared to the respective period of 2009), a 939 million euro reduction in operational and other expenses, such as grants and consumption expenditures, and a 486 million euro reduction in the allocation of earmarked revenues. 

Public Investment Budget (PIB) expenditures declined by 29.6% and PIB revenues decreased by 43.2%, compared to the respective period of 2009.”

So we’re inflating the savings figure by cutting public investment faster than public spending – which research tells me is the worst way to cut the deficit – and we’re delaying payouts to our Pension Funds, risking social unrest and implicitly defaulting on our debt. I can see that going down well.

No wonder nobody’s psyched about this announcement. But it gets worse. Recent polls suggest that the vote for the two main parties is plummeting. With the country now only nominally sovereign, voters are happy to try out a minor and radical party or to not vote at all. At the same time, voices within our own Government (perhaps with plans to topple G-PAP) are talking about a need for democratic legitimisation of the policies of our ruling Socialists, who of course campaigned on a very different set of policies than the ones they have since been forced to pursue.

If a new election returns a hung parliament, our creditors know with 100% certainty that they cannot count on the Greek Left to stay the course of the Stability and Growth Programme as the Communists have long denounced both the IMF and the EU and the liberal left is slowly disintegrating into a myriad disparate groupings. Worse, they now know that they cannot count on the rapidly fragmenting and increasingly populist Conservatives or the nationalists (who are busy talking about J-LO’s touring schedule instead) to act as responsible coalition partners. This means that any hint of G-PAP weakening or of elections approaching is tremendously bad news.

At least, in a rare display of maturity, our own people oppose a snap election.