Greek Crisis, the Book. Or Actually Several of Them.

by Landon Thomas Jr.

New York Times
August 10, 2016

In May last year, James K. Galbraith, a left-leaning American economist, sent an email to Greece’s finance minister, Yanis Varoufakis, in which he argued that an exit from the eurozone would benefit Greece.

Mr. Galbraith, who was advising Mr. Varoufakis at the time, made the case that a new currency would wash away the country’s debts, solve Greece’s competitiveness problem and ultimately create what he called a “good society.” Though the step was opposed by most Greeks, he had drawn up a contingency plan for Greece under Mr. Varoufakis’s direction, in the event the country was forced to leave the currency zone by its creditors.

In the end, there was not a so-called Grexit. One year ago this month, after the polarizing finance minister left his post, Greece agreed to its third bailout with Europe, accepting yet another round of brutal austerity measures as the price for a new round of loans.

Mr. Galbraith’s vision of a sun-kissed utopia of powerful unions, small businesses and cultural exchanges was published in June in his book of essays, speeches and assorted memorandums (Welcome to the Poisoned Chalice; Yale University Press) describing the five months he spent as an unofficial member of Mr. Varoufakis’s inner policy circle.

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N. Christodoulakis, "An Economic Analysis of Conflicts With an Application to the Greek Civil War 1946-1949"

Springer, 2016

This book provides a quantitative framework for the analysis of conflict dynamics and for estimating the economic costs associated with civil wars. The author develops modified Lotka-Volterra equations to model conflict dynamics, to yield realistic representations of battle processes, and to allow us to assess prolonged conflict traps. The economic costs of civil wars are evaluated with the help of two alternative methods: Firstly, the author employs a production function to determine how the destruction of human and physical capital stocks undermines economic growth in the medium term. Secondly, he develops a synthetic control approach, where the cost is obtained as the divergence of actual economic activity from a hypothetical path in the absence of civil war. The difference between the two approaches gives an indication of the adverse externalities impinging upon the economy in the form of institutional destruction. By using detailed time-series regarding battle casualties, local socio-economic indicators, and capital stock destruction during the Greek Civil War (1946-1949), a full-scale application of the above framework is presented and discussed.

The Greek crisis: An autopsy

by Pierre-Olivier Gourinchas, Thomas Philippon & Dimitri Vayanos

Vox
August 5, 2016

The Greek crisis is one of the worst in history, even in the context of recorded ‘trifecta’ crises – the combination of a sudden stop with output collapse, a sovereign debt crisis, and a lending boom/bust. This column quantifies the role of each of these factors to better understand the crisis and formulate appropriate policy responses. While fiscal consolidation was important in driving the drop in output, it accounted for only for half of that drop. Much of the remainder can be explained by the higher funding costs of the government and private sectors due to the sudden stop.

For its sheer intensity and duration, the Greek crisis has been quite unprecedented. One measure says it all – real income per capita declined every single year between 2007 and 2013, a cumulated drop of 26%. Since then, it has barely risen.

To put the Greek crisis in perspective, we compare it in Figure 1 with the sample of all ‘Trifecta crises’ since 1980 – the combination of a sudden stop with output collapse, a sovereign debt crisis, and a lending boom/bust. This is the who’s who of financial crises, a distinguished group that includes Argentina and Turkey in 2001, Ecuador in 1999, Indonesia and Russia in 1998, Chile and Uruguay in 1983, and Mexico in 1982. Greece's drop in output was significantly more severe and protracted than any of these episodes.

Figure 1 Greece versus the universe of all `Trifecta crises’ since 1980

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Feeding Greece’s Tax Addiction Is Starving Its Economy

by Yannis Palaiologos

Wall Street Journal
August 4, 2016

The relative calm in Greece this summer compared to last year’s chaos may lead outside observers to believe that the country’s financial problems are on their way to being resolved. After all, the national government, led by the far-left Syriza party, seems committed to implementing the bailout program it signed last year. And negotiations are already under way for a deal on debt relief.

But these negotiations will likely take a long time. No one expects a meaningful restructuring of Greece’s debt before the next German government is formed at the end of 2017. Until that happens, Athens will labor under requirements for budget surpluses that will suffocate the economy.

This has made a bad situation on the ground even worse. The combination of overambitious fiscal targets and widespread tax evasion has led, throughout the bailout period but especially under Syriza, to constantly rising tax and insurance-contribution rates, which leave even law-abiding, relatively well-off Greeks unable to meet their obligations.

According to calculations recently released by the Kathimerini newspaper, once the full array of new tax and insurance-contribution increases come into effect early next year, real-estate owners who rent out their property may be forced to pay more than 100% of the income they earn in personal and property taxes. Self-employed individuals who make as little as €10,000 ($11,195) a year will have to pay 60% to 74% of it in taxes and insurance contributions. Private-capital firms—a new category of company, introduced during the recent crisis and designed to boost entrepreneurship—will have to hand over 43% to 60% of their profits to the state, even for earnings as low as €5,000 a year.

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Greece to press ahead with criminal trial for ex-statistics chief

Financial Times
August 2, 2016

The former chief of the Greek statistics agency is to face criminal trial for undermining the “national interest” after he allegedly overstated the country’s budget deficit.

Greece’s supreme court ruled that Andreas Georgiou should face charges that carry a prison term of up to 10 years despite concern inside Greece that the radical left government is politicising independent institutions.

The case has also prompted concern among officials at the European Commission and the European Central Bank, who accepted without reservation the accuracy of data produced by Elstat, an agency set up in the wake of Greece’s first international bailout.

“The situation is clear. It is not a pleasant case. The commission and ECB have been watching this and have reacted very negatively to the case,” said a high-level eurozone official.

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IMF internal probe exposes failings in response to Greek crisis

by Arthur Beesley

Financial Times
July 28, 2016

An unsparing assessment of the International Monetary Fund’s intervention in the eurozone debt crisis prompts new questions over its approach to Greece, the origin of the saga and its epicentre.

At issue is an IMF decision expected this autumn on whether to take part in a third bailout of Greece, which has been under international tutelage for six long years. Germany has threatened to stop lending to Athens if the fund pulls out.

The IMF has warned repeatedly that it cannot participate in any further bailout without meaningful debt relief. Amid ructions in Turkey after a failed military coup two weeks ago, the US has stepped up pressure on European creditors of Greece to settle its finances so it can serve as a regional anchor. But this remains deeply contentious in the eurozone, where Germany leads resistance to far-reaching debt forgiveness.

The report by internal IMF inspectors makes clear that this question goes right back to the beginning of the crisis in 2010, when the fund was drawn into Europe’s chaotic campaign to shore up the single currency. A succession of huge bailouts for Greece and other weaker states followed. It paints a picture of poor pre-crisis surveillance, followed by problems in the design and execution of rescue programmes. Improvisation was the order of the day and rules were stretched, not least in the IMF where there was doubt from the outset about the Greek rescue.

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Read the Report

How the refugee crisis turned waiters into goatherds on the Greek islands

by William Booth

Washington Post
July 27, 2016

This is a story about war and waiting tables, about how a line can be drawn between the chaos in Syria and why Theodore Kourniaris lost his job on the Greek island of Lesbos.

In the eastern isles of Greece, the hidden face of the European refu­gee crisis is an everyday dude like Kourniaris, who suspects he has been cheated — not only by Syrian President Bashar al-Assad, who drops barrel bombs on his own people, but also by leaders such as German Chancellor Angela Merkel, who threw open the door to refugees and then slammed it shut.

Kourniaris, 27, is a Greek waiter who lives with his mom. He has spent every summer season since he was a kid humping bottles of chilled retsina and plates of grilled octopus to German and British and Dutch ­merry-makers in packed tavernas in his picture-postcard-perfect village on the sea.

The tourists?

“They’re gone, man,” said Kourniaris. The April-to-October trade that sustains the island has — poof! — vanished, as middle-class European pensioners and young families with children decided they would not spend their holidays on an island that hosted 600,000 war refugees and economic migrants over the past 18 months.

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Erdogan Should Look Across the Aegean

by Nikos Konstandaras

New York Times
July 27, 2016

Military coups have been an integral part of politics through most of the modern history of Greece and Turkey, shaping them domestically and determining relations between them. If war is diplomacy by other means, in these two neighbors and NATO allies, military coups were politics by other means. The recent attempt by military forces to overthrow Turkey’s elected government underlines the different course the two countries have taken in the past few decades. What follows may lead them even further apart.

Turkey’s president, Recep Tayyip Erdogan, appears determined to use the failed coup as an opportunity to wipe out opposition from every quarter, ordering a sweeping purge of the military, the judiciary, the police, academia, the civil service and some journalists.

Before the July 15 mutiny, Mr. Erdogan was already showing increasingly autocratic tendencies: curbing media freedom, cracking down on anti-government demonstrators, flirting with Islamist extremists, cultivating tension with his country’s Kurdish minority, deposing his own prime minister for not being enthusiastic enough in his support, allowing readings of the Quran in the Hagia Sophia museum — formerly the greatest cathedral of eastern Christendom.

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Greece loosens capital controls to win back deposits

by Kerin Hope

Financial Times
July 25, 2016

Greece’s central bank has loosened capital controls it imposed 13 months ago in the hope that depositors will return some of the cash they pulled from banks during last year’s panic.

George Chouliarakis, deputy finance minister, said he expected that lifting various restrictions on cash withdrawals would soon attract some €3-4bn in fresh deposits.

The controls were imposed in June last year to stem a run on Greek banks as the government’s negotiations with its international creditors foundered and many feared the country was poised to crash out of the euro. Among other measures, they set strict limits on how much money depositors could withdraw from their accounts each week.

Lifting the controls will pose a critical test of confidence in the leftwing Syriza-led government of Alexis Tsipras, the prime minister. Specifically, it will show whether Greeks now feel safe holding their cash in the country’s banks.

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Tsipras Loses Bid to Apply New Rules in Next Greek Election

by Eleni Chrepa

Bloomberg
July 22, 2016

Greece won’t immediately implement new electoral rules which scrap a 50-seat bonus for the winning side after Prime Minister Alexis Tsipras failed to raise enough support to make the changes effective immediately.

Tsipras’s Syriza government failed to secure a majority of 200 lawmakers in the 300-seat chamber to make the new rules, approved in a session that ended early Friday, effective immediately. A total of 179 lawmakers voted to abolish the bonus, with 83 voting against and 19 abstaining. That means the bonus remains in place for Greece’s next election, scheduled for 2019, and will be scrapped for the subsequent vote.

With the bonus seats still in play, “the scenario of snap elections now looks completely distant, as it would only move Syriza further from governance,” said Aristides Hatzis, a professor of law and economics at the University of Athens. Syriza has struggled in recent opinion polls, which show that rival New Democracy could finish first if elections were held now.

“Greece dodged the worst,” by voting to maintain the old system for the next election, Hatzis said. Given political divisions in the country, any parliament formed under the new law “would be so fragmented it could be impossible to form a government.” Coalitions under the new law would likely consist of “many partners with vetoes to block any decision they don’t like.”

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Greece was once the fast lane to Europe for refugees. Now it’s a grim waiting room.

by William Booth

Washington Post
July 7, 2016

The human traffickers who brought a million desperate asylum seekers through Turkey to the Greek islands have been stopped. Where once thousands a day were smuggled by the mafias on cheap rubber rafts, very few are making the trip this summer.

To shut down the Eastern Mediterranean route, countries such as Macedonia, Hungary and Bulgaria acted independently and threw up razor-wire fences along their southern borders, defying Europe’s central authority in Brussels.

The European Union itself struck a deal that threatens to send the migrants back to Turkey from Greece en masse.

It wasn’t pretty.

Human rights activists called it cruel.

But it worked.

The unimpeded flow of humanity, dominated by Syrians, Iraqis and Afghans, to Europe is over, at least for now. Arrivals in the Greek islands are down 97 percent.

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Marinopoulos: decline and fall of a retail giant

Economist
Intelligence Unit
July 7, 2016

On July 1st the Athens Court of First Instance handed a temporary reprieve to supermarket operator Marinopoulos in the face of bankruptcy claims by its creditors. The retail giant won temporary protection from bankruptcy until September 21st, when the court will consider its petition for a reorganisation process. The privately owned group, which employs more than 12,500 people and runs more than 800 stores, had sought protection from creditors to allow for a restructuring of its business. The decline and fall of the retail giant mirrors the travails of the Greek economy since 2010. If Marinopoulos goes under it is likely to worsen the country's already dire economic plight.

The Marinopoulos family's first foray into business was in the form of a pharmacy, back in 1893, the year that the then prime minister, Charilaos Trikoupis, famously declared Greece bankrupt. The pharmaceutical business developed independently and the family started its first supermarket much later, in 1962—another landmark year for Greece, as its association agreement with the EU came into force. In 1999 the family entered into a partnership with a French multinational retailer, Carrefour, and the business grew to the extent that Marinopoulos became a leading retailer. The partnership ended on the eve of Greece's second general election in 2012, when Carrefour pulled out, although it sanctioned continuing use of the brand. By 2015 Carrefour had slipped into second place behind Belgium's Delhaize in terms of market share, but still had a sizeable 6.3% share of the Greek retail market.

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Opposition leader Mitsotakis warns Greek tax rises will stifle growth

by Kerin Hope

Financial Times
June 22, 2016

Kyriakos Mitsotakis, Greek opposition leader, has a blunt message for the country’s international creditors and Alexis Tsipras, its leftwing leader: tax rises that the prime minister insists are central to Greece’s recovery are a costly mistake.

He said the fiscal measures rolled out this month as part of a €5.4bn austerity package agreed with the EU and the International Monetary Fund in return for more bailout cash will stifle growth, cut revenues and push many more Greeks into tax evasion and the black economy.

“What you have is the cumulative impact of taxation that goes well beyond … capacity [to pay]”, Mr Mitsotakis told the Financial Times. “After five years, many people have literally run out of money.”

Following a warning from the Greek central bank that “excessive emphasis” in higher taxes could backfire, Mr Mitsotakis insisted the government should have focused on structural reforms, such as to the public sector, which would have made tax increases unnecessary.

“This country has both a culture and considerable expertise in tax evasion,” Mr Mitsotakis said. “That’s why the Tsipras [plan], which the EU ended up approving, isn’t going to work.”

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Greek Startups Say Tsipras’s Taxes Are One More Reason to Leave

by Paul Tugwell

Bloomberg
June 14, 2016

Greek startups have weathered political turmoil, violent riots, a withering economy and brinkmanship that nearly drove the country out of the euro. Now, a new round of tax increases may be the last straw for fledgling companies with dreams of making it big.

What startups need is a break, says Vassilis Sioros, chief executive officer of Ardustech P.C., a small company with big plans for the use of olive oil in the pharmaceuticals, food and cosmetics industries.

“No startup is asking the government for money,” he said in an interview from Athens. “The state can invest without giving money by allowing startups to pay no tax or social security contributions for one year, or at least reduce them. This can help give at least another year of life to a startup allowing for the creation of one or two more jobs.”

Startups have become a key piece of any revival for Greece’s economy, which has shrunk by more than a quarter since 2008 and where almost 25 percent of the workforce is without a job. The number of such firms has almost doubled each year since 2010. With many still struggling to find funding, startups see the taxes and charges agreed to between Prime Minister Alexis Tsipras’s government and European creditors as adding yet another wrinkle to their already difficult environment.

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Greece needs a new deal with its European partners

by Yannis Stournaras

Financial Times
June 13, 2016

Greece is the only country in Europe that still remains under an adjustment programme. The Greek political system failed the country in the second half of the previous decade. Successive Greek governments promised to fix the tax collection system, uproot the deeply entrenched vested interests and implement ambitious reforms and privatisations. But, with few exceptions, they did not deliver.

At the same time, our European partners have yet to deliver on their commitment to provide further debt relief. They agreed to it in November 2012 and it should have occurred in 2014 after Greece achieved, with considerable pain, a primary surplus of €1.5bn in 2013. It never happened. The decision was delayed due to the domestic electoral cycle of various European countries. The same happened on May 24 this year when the eurogroup of finance ministers yet again postponed the relevant decision, to 2018, despite the fact that it explicitly recognised the need to keep the Greek government’s gross financing needs at manageable levels and the ratio of debt to gross domestic product at a declining trend.

It should be stressed that the eurogroup postponed the decision for debt relief in spite of the following: first, that the Greek government had honoured its commitments; and second, that current market interest rates are very favourable to debt relief decisions for both borrower and lenders. In addition, the threat of Grexit, used against Greece by a number of eurozone politicians whenever negotiations seemed to stall, weighed heavily on sentiment, further fuelling uncertainty and negatively affecting the economic and social climate in Greece.

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Move over Croatia, this year festival goers are heading to Greece

by Tess Reidy

Guardian
June 8, 2016

Clubbing in Greece has come a long way since the days of drinking ouzo and climbing partially lit mountain trails to listen to Cretan music in ancient ruins. This summer, there are quality electronic music festivals taking place, with lineups including DJ Harvey, Midland and Jeremy Underground. You can snorkel in the day, party on the beach at night and even hike down a gorge to recover if you want.

Could Greece’s music scene restore its reputation as a tourist hotspot after years of economic downturn, social unrest and the human crisis that has led to overcrowded refugee camps?

Sean Tipton, from the Association of British Travel Agents, says yes. “More than 2 million visits were made to Greece from the UK last year and so far bookings for 2016 are looking set to overtake this figure,” he explains. “It is really positive for Greece after some years of decline.”

One explanation is to be found in the revival of dance music. The electronic music scene is the driving force behind a whole host of events this summer such as Odyssia festival in Alepokhóri, Attiki, Rhythmatic open air festival in Pelion and Reworks festival in Thessaloniki.

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Tsakalotos Says Greece Will Soon Qualify for ECB’s QE Plan

Bloomberg
June 8, 2016

Greek bonds will soon become eligible for the European Central Bank’s asset-purchase program, paving the way for an easing of capital controls, and the gradual recovery of investor confidence, Finance Minister Euclid Tsakalotos said.

The continent’s most indebted state is currently excluded from the quantitative easing program, while its lenders have lost access to regular financing lines, as a quarrel between Prime Minister Alexis Tsipras and Greece’s creditors in 2015 raised doubts about its solvency and place in the euro area. The flow of bailout loans keeping Greece afloat is slated to resume this month, after the government committed to additional austerity.

“QE could follow as soon as July’s maturing debt is paid,” Tsakalotos said in an interview, referring to a July 20 payment of notes held by the ECB. “I feel confident Greek debt will be eligible” by September, he said.

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IMF Go Home

by Daniel Gros

Project Syndicate
June 8, 2016

The curtains are up on another act of the Greek debt drama. Eurozone finance ministers and the International Monetary Fund have agreed with Greece to begin, per the IMF’s demands, providing some debt relief to the country, and to release €10.3 billion ($11.6 billion) in bailout funds. Greece, for its part, has agreed to another round of austerity and structural reform.

Until recently, the IMF insisted that it would participate in the next Greek rescue program only if it deemed Greek debt to be sustainable. Based on the IMF’s most recent debt sustainability analysis, that is not the case. Germany, however, insisted that the IMF remain on board – and, with the latest deal, it seems to have prevailed, in exchange for agreeing to debt relief that it opposed.

The victory may well not have been worth the sacrifice. In fact, it would have been better to let the IMF pull out, for two reasons. First, the IMF’s assessments of debt sustainability in Greece are undermined by a deep conflict of interest. Second, and more important, IMF credits are too expensive.

In a normal bailout procedure, the IMF acts as an impartial judge of the troubled country’s debt sustainability; then, if it so chooses, it can step in as the lender of last resort. This is what happened in 2010, when the private sector wanted to flee from Greece and a systemic crisis loomed.

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Painful choices still hang over Greece

by Martin Wolf

Financial Times
June 7, 2016

Is there a path towards making Greece a successful self-financing economy within the eurozone? What would be required to put it on that path? These are the big questions about the economic plight of Greece and its ghastly relations with its partners. Neither has much to do with what is going on, which is “extend and pretend”: the eurozone pretends Greece is not in default; Greece pretends it will reform; and both play for time. What would an honest reckoning look like?

A starting point must be with the latest debt sustainability analysis from the International Monetary Fund. One can sum this up simply: we would like to apologise for the mess we have made.

The fund admits that the programme agreed in 2010 was wildly unrealistic. Moreover, even the debt relief imposed in 2011-12 was insufficient, unless one believed in the plausibility of the “very ambitious targets for growth, the fiscal surplus, and privatisation” proposed by the Greek government, with support of its eurozone partners.

Subsequent events, however, demonstrate that these targets were indeed unachievable. Finally: “In all key policy areas — fiscal, financial sector stability, labour, product and service markets — the authorities’ current policy plans fall short of what would be required to achieve their ambitious fiscal and growth targets.”

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EU sees progress on Greek reform, '95 percent' of work done to unlock funds

Reuters
June 6, 2016

The European Commission is confident that Greece will conclude the reforms needed to unlock bailout funds before next week's meeting of euro zone finance ministers, top officials said on Monday.

Greece and its international lenders wrapped up the bulk of reforms needed for badly needed bailout cash in May, but left some loose ends which must be tied up before Athens can receive instalments of 10.3 billion euros ($11.48 billion) by September.

"The Greek authorities have done 95 per cent of changes necessary but not all is finalised. Some changes have to be made in the coming hours," Economic Affairs Commissioner Pierre Moscovici told EU lawmakers in Strasbourg.

"I am confident Athens will use the time before the Eurogroup to finalise the limited issues that are still open," Moscovici added, saying that a disbursement of a first tranche of 7.5 billion euros could be decided as early as next week and be made this month.

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