A Greek Bank Tragedy

by Emilios Avgouleas

Greek Public Policy Forum
November 25, 2015

The recent attempt to cover the needs of Greek banks in fresh capital via a mix of a private and public infusion of funds amounts to nothing else than a fire sale. The recent rights issues of Greek banks were fully covered because Greek bank shares were sold for a few pennies with offer prices ranging from 0.02 to 0.04 cent per share. At the same time, the Greek taxpayers’ stake in Greek banks, held via the so-called financial stability fund, is sharply diluted, e.g. in Alpha Bank the state’s stake is reduced to 11% from 66,4% today, in the Eurobank from 35% to 2,4%, in Piraeus Bank, which sold its new shares for 0.03 cent per share, from 67% today to 22%, although the bank will still receive 2.6bn Euros state aid, 2bn in the form of CoCos purchased exclusively by the Greek state, and 0.6bn in shares. Then, for the greatest Greek bank, the National Bank of Greece that didn’t manage to cover even 1/3 of the total amount sought while its shares were offered at 0.03 pence per share, the reduction of the Greek state’s stake will be 24% to 33% from 57% today. This while the state will still inject 2.75bn Euros in fresh funds, 2.06bn of this in CoCos and the rest in shares. At the same time, the state waives its rights on 1.45bn Euros preference shares, which will now be converted to common shares. In addition, the National Bank will have to sell its most valuable asset, its Turkish subsidiary at 2bn Euros while its acquisition in 2006 cost the Greek bank 5bn EUR.

These are horrendous figures and show both the scale of the fire sale that takes place and that very little is left from the injection of borrowed state money of nearly 45bn in cash in the previous recapitalisation rounds. Given that this gigantic fire sale is done with the blessings of European creditors, it is very hard to brand it asset looting as would be the case if the exercise had been solely conducted by the Greek vested interests, but still the amount of end loss for the Greek taxpayer stands at dizzying heights. Some of it is due to SYRIZA’s catastrophic negotiation strategy between January and July and the ensuing flight of deposits, liquidity crunch and imposition of capital controls, and some due to the recessionary dynamic of the Greek economy and the very optimistic provisioning forecasts incorporated in previous recapitalisations that plainly proved inadequate.

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The Greek Shipping Myth

by Tom Bergin

Reuters
November 25, 2015

On the day he took office as Greece’s shipping minister in June 2012, Kostis Moussouroulis received a visit from a 90-year-old shipowner. He still remembers the older man’s words: “Don’t forget, the best minister of shipping and maritime affairs is the minister who is doing nothing for the shipping industry. He is the one who is leaving us alone.”

That’s the way Greek shipowners like it. The magnates who run one of the biggest merchant marine fleets in the world have long argued that if Greece tried to tax them, they would leave - and that their departure would devastate the economy. In recent years, as international institutions repeatedly bailed out Greece, the lenders have also pushed Athens to beef up its tax take. Shipowners have resisted any effort to ditch the tax breaks they enjoy, and no government has dared touch them.

“Shipping is a pillar of the Greek economy,” says the Union of Greek Shipowners, the ocean-going industry’s main association.

Greece’s statistics office says shipping contributes around $9 billion - or 4 percent - of the country’s Gross Domestic Product (GDP). When you include related business, the industry says, the figure jumps to 7.5 percent of GDP, or about $17 billion a year. Deep-sea shipping and related trades employ more than 192,000 people, it says. That’s 4 percent of all Greek workers.

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The $400 billion ripoff that could destroy the Greek bailout

by Nasos Koukakis

CNBC
November 24, 2015

As if Greece didn't have enough economic market woes, last week foreign investment funds managed to take control of four of the country's largest banks — Alpha Bank, Eurobank, National Bank of Greece and Piraeus Bank — through $6.42 billion worth of capital increases and a complex set of legal manipulations. As a result, bank shares sold like penny stocks, diluting state ownership in these important institutions that have assets totaling $358 billion.

The country's stake in the National Bank of Greece dropped to 24 percent from 57 percent, and in Eurobank it fell to 2.4 percent from 35 percent, while its stake in Alpha Bank was reduced to 11 percent from 64 percent and in Piraeus Bank it dropped to 22 percent from 67 percent. This translates to a loss of almost $44 billion that Greek taxpayers gave to bail out the banks over the past three years.

Greek stock market and legal experts believe that the maneuvers were engineered after a statutory legal provision was amended by the Greek Parliament that allowed private investors to price bank shares using a so-called "book-building method." Under this method, the share price in capital increases is not predetermined, and investors set the price at which they want to buy the shares.

It also made it mandatory for the country's regulatory body, the Hellenic Financial Stability Fund, to accept book-building prices, even if they were not properly reflecting share values.

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Pelagidis & Mitsopoulos, "Who's to Blame for Greece? Austerity in Charge of Saving a Broken Economy"

by Theodore Pelagidis (Brookings Institution and University of Piraeus) & Michael Mitsopoulos (Hellenic Federation of Enterprises)

Palgrave, November 2015

The Euro constitutes the crowning achievement of a prolonged process of integration between European states. It incarnates the vision for a united and prosperous Europe: the attainment of major political goals through the promotion of closer economic cooperation. However, the 2009 crisis brought the EU head-to-head again with its perennial threat – the short-term interests of member states. Greece's economy symbolizes in many ways the Euro area's economic problems and divergent interests as it amasses most of the economic disadvantages characterizing the Euro area's economy itself.

After almost five years since inception of the crisis, Greece's economy today is in the headlines again – this time for the so-called political risk. This book discusses the economic and political challenges to Greece and the EU member states.

Greece Presents 2016 Budget and Revamps Recession Prediction

by Niki Kitsantonis

New York Times
November 20, 2015

Greece on Friday presented an optimistic budget for 2016, predicting a recession milder than expected in previous forecasts.

The government also said that final numbers for 2015 would indicate the economy will have been flat for the full year, rather than the deep contraction of 2.3 percent that had been expected. One reason is that the capital controls the government imposed on banks over the summer were less damaging to the Greek economy than had been feared.

And next year, the government said, the economy will shrink by only 0.7 percent as it continues carrying out cost cuts required by its 86-billion-euro, or $92 billion, international bailout package. As recently as last month, the government had predicted an economic contraction of 1.3 percent in 2016.

The new assessment came as the finance minister, Euclid Tsakalotos, on Friday presented the budget to Parliament, which is to vote on the package early next month.

“The Greek economy endured, disproving disaster scenarios,” according to a statement by the finance ministry that accompanied the budget.

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Athens backs reforms to unlock bailout funds

by Kerin Hope

Financial Times
November 19, 2015

Greece’s parliament has backed additional reforms needed to unlock €12bn from the latest, €86bn, bailout to recapitalise struggling banks and pay off overdue debts to government suppliers.

The reform bill was approved by 153 to 137 votes following a stormy debate that brought the sacking of two deputies from the governing Syriza-led coalition. They had refused to support a measure limiting protection for mortgage holders in default.

Stathis Panagoulis, a long-serving leftwing deputy, said that he was leaving Syriza “because I won’t accept seeing hardworking homeowners thrown into the street”.

His departure and that of Nikos Nikolopoulos from the rightwing Independent Greeks, the junior coalition partner, leaves the government with only a two-seat majority.

Euclid Tsakalotos, finance minister, said that more than 90 per cent of homeowners with unpaid mortgages would be eligible for some protection, even though only those with an annual income below €23,000, would be safe from foreclosures.

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No time for Tsipras to go wobbly on Greek reform

Financial Times
Editorial
November 12, 2015

Alexis Tsipras’s first administration flirted with sovereign default in the summer before ending a bruising stand-off with Greece’s eurozone partners by signing a document that was in spirit almost identical to the one it had hitherto rejected. Now, two months into his second term and with the ink barely dry on that deal, Mr Tsipras seems determined to start another fight with his creditors.

The prolonged period of political brinkmanship from both sides of the negotiating table inevitably weakened the mutual trust between Greece and its single-currency partners. The bailout deal has been signed, but the possibility of Grexit has never been fully eliminated. While the current frictions are no more than that, they are heading in the same way as the last.

By now, Greece should have already received the first €2bn of its bailout funds. Instead, the October instalments are still in Brussels’ coffers. The eurozone will only release them once the Greek parliament has passed 48 “milestones”, mostly leftover pledges from Greece’s previous two bailouts. But not only is Mr Tsipras three weeks late with these reforms, he wants to reopen the negotiations over a contentious issue, home foreclosure protection.

The Greek government wants to keep the existing generous legal protection from house repossessions. Greeks already beaten down by the thinning prospect of finding a job and shrinking welfare support should not also be forced to move out of their homes.

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First general strike since Syriza win brings Greece to standstill

by Kerin Hope

Financial Times
November 12, 2015

Government offices stayed shut and public transport closed down on Thursday as Greece’s resurgent trade unions staged the first 24-hour general strike since the leftwing Syriza party came to power in January.

Thousands of public sector employees, pensioners and jobless workers shouted anti-austerity slogans as they marched to the Greek parliament in Athens, giving voice to a growing mood of despondency over looming foreclosures on family homes and further pension cuts agreed with creditors under Greece’s €86bn third bailout.

Riot police clashed briefly with a group of protesters throwing petrol bombs and stones in the square outside the parliament building. Three people were detained, according to police.

Some protesters held pink balloons labelled “Alexis’ promises” — harking back to the bold threats made while he was in opposition by Alexis Tsipras, prime minister, to roll back bailout reforms and default on repaying Greece’s public debt.

“We are resuming the struggle to reverse the bailout measures and win debt writedowns,” declared a large banner held up by members of Adedy, the civil servants union, the country’s largest labour organisation.

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Greece Comes to a Standstill as Unions Turn Against Tsipras

by Nikos Chrysoloras

Bloomberg
November 12, 2015

As Greek workers took to the streets in protest on Thursday, Alexis Tsipras was for the first time on the other side of the divide.

Unions -- a key support base for the prime minister’s Syriza party -- chanted in rallies held in Athens the same slogans Tsipras once used against opponents. Doctors and pharmacists joined port workers, civil servants and Athens metro staff in Greece’s first general strike since he took office in January, bringing the country to a standstill for 24 hours.

Greece’s biggest unions, ADEDY and GSEE, are holding marches accusing Tsipras of bowing to creditors and imposing measures that “perpetuate the dark ages for workers,” as the country’s statistical agency released data showing that 1.18 million Greeks, or 24.6 percent of the workforce, remained unemployed in August.

The 41-year-old Greek premier, who was among anti-austerity protesters in previous general strikes, is now racing to complete negotiations with creditors on belt-tightening in exchange for the disbursement of 10 billion euros ($10.7 billion) to be injected into banks. Failure to reach an accord with euro-area member states and the International Monetary Fund on policies including primary residence foreclosures, and stricter rules on overdue taxes, would put the solvency of the country’s lenders in doubt.

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Greek economy on ice as lenders battle capital shortfall

by Kerin Hope

Financial Times
November 11, 2015

Piraeus Bank used to be a lifeline for small entrepreneurs such as Evgenia, a 33-year-old Athenian who received a loan from the neighbourhood branch to finance her start-up selling fresh flowers.

“Other banks didn’t want to know me,” she says, declining to give her surname. “Even when the crisis came and I couldn’t make interest payments they [Piraeus] still cut me some slack.”

A reluctance to pursue distressed borrowers is one reason why Piraeus is judged to be the most precarious among Greece’s four top lenders, according to the European Central Bank’s latest health check of the sector.

As Greece’s biggest bank, shoring up the finances of Piraeus, and those of its peers, will be crucial in kick-starting lending to the country’s economy, helping it to climb out of a brutal recession that has shrunk the economy by almost a quarter since 2009.

The bank’s dire straits has revived debate about the aggressive expansion strategy pursued by Michalis Sallas, Piraeus’s long-serving chairman, at the height of the Greek crisis.

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What Europe Owes to Greece

by Yannis Palaiologos

Wall Street Journal
November 10, 2015

More refugees crossed the Mediterranean into Europe last month than in all of 2014. The vast majority of them landed in Greece, but many other European Union members have also been affected and are now reconsidering their open-border policies.

Meanwhile, Athens continues to struggle with the terms of its latest bailout, an orphan program unloved by both the government that signed it and the creditors that imposed it. The two greatest achievements of European integration—the free movement of people and the common currency—are now threatened, and in both cases Greece is on the front line of the crisis.

Critics can point to many things that Greece did wrong to bring its economy to its present situation: reckless spending, corruption, a lax attitude to tax collection, the unwillingness of successive governments to go beyond austerity and meaningfully reform the way the public sector and the economy work.

In the government of Prime Minister Alexis Tsipras these critics have found the perfect foil. The ruling party, Syriza, is made up of unreconstructed, Marxist-minded leftists who are hostile to the free market, willing to perpetuate the worst practices of the precrisis era, in an alliance with a party of hard-right nationalists and conspiracy theorists. This coalition is again resisting administrative and economic reforms that would both boost growth and help build the government’s capacity to manage crises.

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Greece plans a return to capital markets

by Elaine Moore & Kerin Hope

Financial Times
November 9, 2015

Greece is making preparations to rejoin global debt markets less than six months after a stand-off with bailout lenders pushed the country close to a forcible ejection from the eurozone.

Relations between the government and the office responsible for arranging sales of Greek debt broke down earlier this year after Alexis Tsipras, leader of the leftwing Syriza party, was elected in January with vows to move away from the old political regime and end austerity.

However, the situation has eased following the government’s deal with European creditors for a €86bn bailout in July and Greece is now preparing for a market return that could come as early as the first half of next year.

“It won’t be in the first quarter but summer has been talked about,” said a person familiar with the situation. “It depends on a positive chain reaction of events but discussions have been held.”

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Greek Banking Crisis 2015 Update: What Will Recapitalization Mean For Average Greeks?

by Jess McHugh

International Business Times
November 5, 2015

The four leading banks in Greece are expected Friday to lay out their plan for recapitalization, less than four months after the debt-stricken nation's financial institutions reopened following a near-collapse in July. The long-awaited recapitalization process, however, which is likely to include a mix of private investment and bailout money from eurozone lenders, is not an instant solution for average citizens suffering under continued debt.

Greater liquidity and more stability in the long term will follow from the recapitalization, according to economists, as the short-term outlook for average Greeks remains bleak. Average Greek citizens and local businesses will continue to live under strict capital controls, such as account withdrawal limits, as growth in the cash-strapped country stalls and faith in the ruling government wanes.

“The growth issue is a big question mark,” said Marco Vicenzino, director of the Global Strategy Project, a geopolitical risk and international business advisory firm. Vicenzino described Greek citizens worrying about how recapitalization will affect daily activities, such as whether families can provide necessities or if small businesses will be able to pay their employees. Many Greeks are not optimistic, according to Vicenzino: “Most people don’t see the light at the end of the tunnel.”

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Tsipras’ biggest stress tests yet to come

by Hugo Dixon

Reuters
November 2, 2015

One stress test is over, but several more are looming. Alexis Tsipras received good news at the weekend when a stress test showed the top Greek banks need to raise a lowish 14.4 billion euros in capital. But the leftist Greek prime minister has to implement more tough measures before he can get the economy growing. Until then, he faces political risks, which could yet tip Greece back into crisis.

An assessment by the European Central Bank found that the four banks – Alpha Bank, Eurobank, National Bank of Greece and Piraeus Bank – have a collective capital shortfall of 14.4 billion euros in the so-called “adverse” scenario. This is less than the 25 billion euro maximum earmarked for bank recapitalisation as part of Greece’s latest bailout programme. What’s more, the banks will only need to find perhaps around half that amount in state aid. The rest they can probably get by swapping bondholder debt into equity capital, issuing shares to private investors and selling assets.

What this means is that Greece’s headline debt may be roughly 15 to 20 billion euros lower than earlier projections – peaking at a still eye-popping level of 190 percent of GDP, rather than 200 percent.

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