Tuesday, December 21, 2010

Greece on the run..by Ektoras

During the last year structural reforms have taken place in Greece. While these reforms are noteworthy, they have been little noted by markets and the political world in general. the country continues to undergo a painful adjustment and the challenges stemming from unfavourable debt dynamics and a debt overhang issue are still in place. Greece has to adopt significant structural reforms in order to keep existing!

Over the course of the last year, the Greek government, under the guidance and supervision of the so called "troika" introduced a set of large-scale reforms addressing structural issues that have encumbered the Greek economy for almost thirty years.

In less than a year, the Greek government has:
-completely reformed the pension system, raising the pension age to sustainable levels, cutting down on pension costs and separating pension from health care costs, and is set to bring to the parliament large-scale reforms to cut down on health care costs, including the mergers of hospitals and the electronic registry of prescribed medication.
-reformed labour markets allowing for more flexibility in the hiring/firing process and significantly reducing the power of the collective bargaining processes.
-started and will soon complete a full liberalization of product markets eliminating barriers to entry and minimum compensation laws for 150 professions.
-reformed and centralized prefectures, halving the size of local administration.
-announced large-scale restructuring of loss-making corporations, significant privatization plans and a shift toward more proactive use of public-sector assets.

The size and scale of reform over such a short period of time is noteworthy. Despite some popular dissent, the government still enjoys a comfortable (by Greek standards) majority in the parliament and remained the leading party in the recent local government elections in November.

The government seems determined to proceed with continued reforms in the year ahead. Specific items on their agenda are likely to be the increase in tax revenues through higher tax yield and the increase in efficiency/reduction of costs and size of the public sector.

The markets, by common sense, expect that there will be a shift in the economy’s overall structure, productivity and competitiveness in the years to come. the government's bet is the growth factor which need to turn positive in 2012-2013.

it is unfortunate that the markets seem to be skeptical and this may be noted on the Greek government debt spreads. hΔopefully in the years to come the -expected- positive outcome will push spreads down and will allow greece to reach the markets again.

the financial and economic reforms are a must. politically wise the problem is bilateral. on the on hand the government has not explained to the Greek people what it really aims and on the hand the opposition is sinking into populist speeches blaming the government for any measures that it takes.
worth noting though that theoretically the opposition is supposed to be a central right,liberal and market friendly party...as said..theoretically..

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Thursday, January 21, 2010

The Germans are back.. By Ektoras

Athens, Greece might look like the focus of the first euro crisis, but the real center is northwest in Berlin, Germany.

The most infamous monetary crisis resulted in the collapse of the pound during 1992 when Soros, supported by a host of good economic reasons, drove the pound away from the ERM. Although the pound was devalued by 30%, UK began the longest uninterrupted economic boom in the country's history. In 2002, London was the financial center of the world. A more recent currency crisis is the one being experienced in Latvia where an effort to hold the lat within its narrow ERM bands has resulted in extreme economic distress that has caused the economy to contract by 20%. Although Latvia has its own currency which is tightly tethered to the euro, the events there could be very similar to those that will unfold in Greece. Unfortunately, Greece is in a worse spot. The Latvian economy is very open and the Greek economy is relatively closed and its exports equal only 28% of its imports. Latvia can become a mini-exporting powerhouse, saving themselves, but Greece cannot.
Another issue is that Latvia has a rather terrifying next door neighbor who occupied the country for 70 years and still looks threatening. For them the euro is a security blanket that will protect them from being re-absorbed by Russia, but the Greeks have no reason to starve themselves and lose their savings, just to be part of a super-state run by far-away overlords in Brussels and Frankfurt.

Although the Greeks are faced with choice of penury and diminished prospects for the future, the instigators of the Greek financial crisis, and the crises to come in Portugal, Spain and Italy, are the Germans. It is the dramatic increase in German productivity that has driven the current account balances of these countries into deep deficit. To balance its books against the rest of the EU, Greek domestic demand would probably have to drop by about half, an obvious impossibility in a modern democracy. Stark, both German and a member of the ECB board, commented this week that Greece had overspent and their budget deficit was at fault; "Greece needs to catch up on its homework." Maybe the Germans have been studying too much, as their productivity growth far outshines that of France, Italy, Spain, and Portugal as well as Greece. All of these countries have seen their current accounts decline against the Germans, and all will end up in similar spots as Greece at some point in the future. The single currency structure means that any adjustment in relative competitiveness must come out of productivity growth, which is very difficult to manage. As higher productivity implies more work for the same wages, it is a deflationary concept and needs to be offset by the money illusion. This persistent inflation makes labor feel it is gaining at the same time 'capital' is gaining through productivity growth. The balance between productivity and inflation is a very tricky one, but when inflation is eliminated, productivity growth becomes drudgery at best and the seed-bed of social discontent at worst. With nothing but deflation ahead in its effort to dramatically increase productivity, the Greeks will see political and social unrest. The odd-man out here is not Greece, which is joined by many other countries, but Germany. If the euro is going to survive, it is Germany that must change its policy and UN-flexible way of imposing economic and budgetary restrictions..

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Sunday, December 13, 2009

Ok..downgraded..now what? by Ektoras

Fitch's move is important because it’s the first downgrade of a Euro-zone sovereign into the territory where securities were not eligible for the European Central Bank (ECB)collateral until their temporary change of rules in response to the crisis; an arrangement in place until the end of 2010. Unless the ECB fiddles with its rules before the end of next year, Greek sovereign bonds will no longer be eligible for ECB collateral - if Moody's or S&P downgrade them.
Eurogroup pushed Greece to deliver a revised (and tougher) budget by mid-January. Apart from the pressure from European colleagues, the Greece needs to take S&P very seriously.
The Euro-zone will probably welcome this in the hope that Greece will indeed do enough on their budget. Meanwhile, Greece now desperately needs to get its Euro-zone colleagues to buy into their January 2010 budget, because of the continued risk that something goes wrong during 2010.
It's unlikely for ECB to refuse collateral issued by one of its sovereign members, but we are right now solidly on the path in that direction. So something has to give. Greeks will cave in and do somewhat better on the budget to avoid an S&P downgrade in February, but then - if during 2010 things get worse we'll be back in the bind with another downgrade - and then the ECB to bend its rules or change the institutional arrangements for this thing not to get out of control.

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Thursday, May 7, 2009

Memories..by Ektoras

Smells like 1999...But I am not sure if this is the first or the second half of the year..

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Friday, April 24, 2009

Dancing on a Volcano By Ektoras

Greece is on the brink of bankruptcy. Even the public sector is not in position to pay its obligations on time.
For about four years now, the public hospitals are not able to pay the medical suppliers and the suppliers face difficulties in paying their obligations to banks.Banks have stopped cooperating. They refuse to provide new loans and this has caused the entire system to collapse. Unfortunately it is not only the health sector which suffers. Banks are worried about the highly indebted Greek government they no longer see as being creditworthy.
The government debt per inhabitant in Greece and the EU stands at €20k and €15k respectively. Social unrest is what characterizes the Greek society. Unemployment keeps rising and at the same time strikes are a daily phenomenon.

On the other hand many claim that the Crisis has not hit the country yet. They keep talking about the cafés that are full of customers but – obviously- they do not take into account that the vast majority of the Greeks keep staying with their parents up until their late 20’s. This is not a matter of choice it a matter of one can cope with the average salary of €700! Those mentioning the full cafes argument also claim that in 2008 the economy expanded by 3.2%. NOT REALISTIC. The figure is the result of high demand and not high supply or productivity.
The European Commission has instigated disciplinary proceedings, because Athens has exceeded the euro zone budget deficit limit of 3 percent for the third time in a row. The results of audits carried out by Brussels look very different from what officials claim.
The level of competitiveness is low, much-needed reforms are overdue, government bureaucracy is bloated and corrupt, and the country continues to live beyond its means. Even though the national pension funds are chronically short of cash the government keeps pushing people, indirectly, to early retirement.
Educated young people from the middle class have little prospect of finding employment, despite being well qualified, and are forced to take casual jobs to make ends meet.
The EU is now no longer willing to accept lethargy on the part of the Greek government. EUcalled for significantly harsher cost-cutting measures and greater efforts with regard to structural reforms.
The Greek Business front fears that there could be a decline in the tourism sector, one of the most important pillars of growth in the Greek economy. The volume of tourist bookings from the United States and Britain is reported to have dropped by up to 50% and 30% respectively.
Banks, the other important pillar of the economy, are unsure about their investments in the Balkans. They invested billions of euros but the value of the national currencies in some of those countries has fallen dramatically and what was originally seen as an attractive investment in developing economies now could well turn out to be huge losses.
It seems that people will hardly cope with the crisis, if and when it hits the country with full force, using just its old inefficient habits.

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Monday, December 29, 2008

The Double or Nothing Scenario (where the "nothing" scenario seems to be the only realistic!) by Ektoras

Deflation seems to be the major threat right now. Reviewing history, suggests that the world suffrered deflation two times. The first time was during the 1930's and the second time was during the 1990's in Japan. We are likely to see the third time but the major difference this time is that all governments make tremendous efforts in order to reinflate the economy. This brings us against two scenarios.
In the first scenario, where these efforts prove to be succesful, inflation will increase and we should expect a huge shift from cash and bonds to equities.
In the second scenario, the deflationary forces will prove to be deeper than the inflationary ones due to the upcoming stemming from the withdrawal effects as the world adjusts to the lack of credit. As the global demand suffers and the engine of credit creation is broken we will see bonds prospering.
It seems that the necessary condition for a world recovery is the appetite for credit. Equities are entering 2009 in a recession mood and in the same time cash is too expensive in order for the credit machine to start moving. Everything shows that we are entering to an even deeper recession than we first though. In any case, we need to see how the world economy will react to the synchronised government reaction but it does not seem to be logical to be bullish under such a climate.

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Saturday, November 22, 2008

$700 Bn not enough? What about $5 trillion? What...still not enough?

This time I will be brief and its one of the few times that I will allow myself the empathy-induced weakness embedded when arguing morals.

They had it all...money, drugs, women, youth, ignorance, arrogance. The masters of the (capitalist) universe had it all. And they decided to take us for a looooong ride.

What I would like to start with is this 'dude' called Henry Paulson. The guy is simply unbelievable. Consider the following:
He was happy (and on his knees to Democratic 'big chief' Pelosi) when asking for a $700 bn bailout for Goldman Sachs....sorry... I meant the US banks and the US economy putting forward the 'mainstream' economy as the main reason that the taxpayer should give that money (and to amplify the urgent need for the bailout we started hearing to words like systemic risk, too-big-to-fail etc.).

So good old Henry-boy gets his $700 bn check (by the way remember that this figure was derived only by the means of scientific and rigorous analysis of the style "a figure that seems large enough to calm the markets"), takes it to his banking mates, they give him a bone (or sugar cubes -not sure) and off he goes living happily after.

In the meanwhile the rest of the world follows suit and the whole money available for banks amounts to a staggering $5,000bn. That is 5 Trillion people!!! I mean its 1/6 of the global economic output....HEEEEYY!! you read that? 1/6 of the GLOBAL ECONOMIC OUTPUT is available at the banks. But of course this is for the sake of prosperity of the mainstream not the bankers.

I really wonder how much would it cost to buy and give away -for free- all the subprime mortgages (I mean the actual houses and not derivative products). Wouldn't this fix the problem?

Back to Henry-boy, his mates are unrest and bankers lurk at the darkness...

They use with abundance all the money they need (around $290bn of the first $350bn) and they declare they do not need anymore. What they now need is a rising economy and most important customers and a fresh wave of consumption!!!

Remember, not everyone got the money they needed...only the one's Henry-boy chose to give the money to and by doing so eliminating most of his buddies small competitors, and now is the time of the larger one's (citi-cough-group-cough).

So good old Henry-boy takes the 'change' (60bn) back and also has some slack to spare ("mommy mommy...see what a good boy I am, I didn't gave away all the 700bn ").

But of course there is some collateral damage associated with such financial manipulations. And the crises moves on to the real mainstream economy (what?? 700bn didn't do it? neither did $5tr)? And the name of the likes is GM and Chrysler. Can you imagine these two filling for bankruptcy? Well that would signify the capitulation of a depression. I am not saying that they should survive as they currently are (bloated and arrogant), what I am saying is that if you give $290bn to ensure the wellbeing of banks and prosperity (supposedly) based on the need to safeguard the real and mainstream economy, you might as well give 25bn to ensure that the real blue-collar employers remain in the game.

But noooooooo!!! Good'old Henry-boy declares that the automotive industry is not to be assisted with that money!! So what is the deal? There is systemic risk if GS fails and there's no systemic risk if GM fails? Can you imagine the market sentiment if GM fails? Can you imagine the feeling and moral of a whole nation if GM fails? Oh and by the way, following the congress hearings if one fails another one will definitely fail (probably Chrysler) . And if they file for chapter 11 (bankruptcy) it automatically means that they will file for chapter 7 (liquidation) since nobody would buy a car from a bankrupt company further spirallng down.

I would prefer nobody would get any money from the taxpayer in the first place, that's the free market economy that for so many years US was adopting (and rubbing it in Europe's nose as not being 'entrepreneurial' enough), so what happened now? Oh, you screwed up? Oh your model does not work now? Then sod off, remain isolated, arrogant and ignorant and do not hand the bill to Europe and the BRIC economies. But since I am forced to pay for the banks cock ups, I prefer GM and Chrysler to be saved on 1/20 the price alongside the money mongering institutions that Henry-boy works for.

GM and Chrysler hand out $70k decent pension plans to millions of people and are in the shite.
Goldman Sachs and the likes hand out £50m indecent bonuses and golden parachutes to a handful of people and are in the clear....

Think of the following:
GM employs 900,000 people and its assembly workers payroll in 2005 (booming economy) was 8.7bn.
Goldman employs 29,905 people and its bonus pool ALONE (not the total payroll --just bonus) on 2007 (credit crunch period) was more than $18 billion.

Who do you think that if left unemployed will be better to weather the financial crisis storm? Who do you think is more responsible for the financial crisis ? Automotives or banks? Why save the banks and not the automotives? Damn me!! If you save the banks first then you should be willing to save the rest of the world as far as I am concerned.

And with rational empathy I say the following, US I used to respect you, I used to think you are smart, I used to think that you can do it....US I do not think that anymore...I now think that you are a puppet government for lobbyists, feeding your people fake promises and fat lies. One of your best and brightest, Edward Luttwak wrote a an excellent book titled "Coup d'Etat: A Practical Handbook". If one reads it, it is easy to make the connection between how to create a real coup using means of force and how to create an economic coup against a country's entire population.

But my god I should't be thinking that!!!! Now, I am a conspiracy theorist and ipso facto whatever I write is invalid...as if by definition.

Ok, back to reality (and because I do not want to be left without friends and social belonging): scrap the above...I was lying...all is good..the governments are perfect and they are working for the ordinary person's prosperity. There is no such thing as the collapse of a whole politicosocioeconomic system (namely capitalism and free market economy), just a credit crunch.

Am I your friend again?

P.S. Told you I would be brief, didn't I?

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