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Wednesday, March 14, 2018

Crazy Iwan

Those who have seen the movie "The Hunt for Red October" will remember that a "crazy Iwan" was the maneuver by which Russian submarine captains attempted to check whether they were followed by another submarine. The whole world now knows that there is an Iwan in Greece who is being followed by 4 bodyguards. The pictures of crazy Iwan storming the soccer field in Thessaloniki with a gun at his hip and surrounded by 4 big time bodyguards have made it even into regional newspapers in Germany and Austria and elsewhere!

I have written about Iwan Savvidis on several occasions. Examples are here, and here and here. There is one question nobody seems to answer: Why does a "vulture oligarch" whose wealth does not seem to be very extraordinary at all, why does this man need 4 big time bodyguards to protect him?

This man has done incredible damage to Greece's reputation, and I would suspect that he has also done quite significant damage to Greece's wealth: he acquired Greek assets through shady deals and 20 MEUR of his tax debt were forgiven.

Alexis Tsipras and SYIZA have obviously invited Savvidis into their bed some time ago. They obviously did not check him for contagious diseases before doing that. They have now been infected by Savvidis and it will be most interesting how they plan to cure that disease.

Thursday, March 8, 2018

"The More Tax Evasion, The Higher The Bill For Tax Payers!"

Thomas Wieser's claim to fame is that he headed the Eurogroup Working Group (EWG) from 2011 until January of this year. The EWG ist the staff unit which does the technical work for consideration/discussion in the Eurogroup of Finance Ministers. Neither of the two entities are provided for in EU treaties.

Wieser gave the Ekathimerini an interview which the Ekathimerini titled "Greece should have been granted debt relief in 2010". My guess is that Wieser was not very happy when he saw that title because it refers to only a minute part of the interview and it is taken out of context. Moreover, the interview includes some very powerful messages whose weight is diminished by a misleading title. Messages such as:

"One thing that strikes me is that the more a country and the people, institutions and media in a country ask themselves how did we get into this mess, the more successful they emerge out of the crisis. This for me is the big difference between Greece on the one hand and Ireland, where there has been very intensive analysis and debate on what we the Irish did wrong in order to get into this mess. This has been quite intensive in Spain and not quite so in Portugal, but it is largely missing in Greece" - this is a very diplomatic way of what more straightforward commentators have called the "lack of ownership". In the early years, one hoped that ownership would eventually take roots but that it would take some time. Perhaps, but it certainly has not taken roots so far.

"The more I have dealt with crises in member states, I have come to see that indebtedness is always the result of governance problems and Greece has the most challenges into its internal governance system" - that's a point which I have made ad nauseam in the early years of this blog (my phrase was always: "Debt is the derivative and the underlying is the economy. One cannot fix the underlying by playing around with the derivative."). Debt is ALWAYS a symptom. High debt may be a blessing when the borrower has a track record of making profitable investments. Or, high debt may finance operational deficits in which case it is a symptom of doom. From the beginning of this blog I have argued that debt was not the major issue of Greece. Among others because a sovereign debt problem can be solved by a few dozen people in a conference room who agree amongst themselves. The major issue of Greece was/is the underlying, the economy, and, regrettably, that cannot be solved by a few dozen people in a conference room.

"There was a huge number of inefficiencies from the Greek side but quite a number of inefficiencies from the creditors’ and the institutions’ side as well" - another evidence of Wieser's diplomatic strengths (I once proposed that the "inefficiencies from the creditors' and the institutions' side" would call for "A Nueremberg Trial for EU elites").

"Out of the 19 member states, with Greece, 18 were deeply upset and I would say there were two, maximum three, countries who were like, “let’s have another try, give them one more chance.” But I think virtually all other countries were like, “you cannot go on like this. This is the end.” The Germans had a paper on it, but in different forms and content, and with slightly different terminology I would say that 16-17 member states were joining on this approach. Don’t forget that" - this is a very disappointing revelation because it suggests that 16-17 member states were happy to hide behind Schäuble's determination, i. e. sharing that determination but not having the courage to say so publicly.

"Ηow well a program has functioned is also related to how much a country has engaged in soul-searching and asked itself how it got itself into that mess and not some nasty foreigners. If I may interject, the way the former head of the Greek statistical authority [Andreas Georgiou] has been treated points to a rather complete lack of understanding of what led Greece into the crisis" - no further comment necessary!

"I am not sure that this Greek government, and the next Greek government and the government after, in the next 20 years will be doing the right things. We can only hope for it" - Wieser radiates optimism for Greece here...

"The more tax evasion you have due to clientelist behavior or other reasons, the higher the tax bill is for those who do pay their taxes" - this is really the punchline of the interview! If only Greek politicians would hammer this thought into the minds of their voters!

Friday, March 2, 2018

Enforcing Austerity Does Not Suffice???

Theodore Pelagidis and Michael Mitsopoulos have written a book titled "Who is to blame for Greece?" and they published a short summary thereof in this article. Here is a key paragraph:

"So maybe simply enforcing austerity does not suffice. Maybe the way day-to-day economic and social activity is organized, from licensing to policy debates, from the rule of law and court decisions to the protection of the freedom of the press, are more important after all. They determine the extent to which people take initiatives, create economic activity, and thus generate taxable income."

A simple (and rather convincing!) narrative had developed early on in the crisis: reckless overspending had kicked Greece's cost/price competitiveness out of the water and the way to repair that was to re-establish cost/price competitiveness. In the absence of the devaluation tool, it had to be internal devaluation. In short: austerity.

That might have worked if lack of cost/price competitiveness had been the only (or even the major) problem of Greece; if institutional strengths, regulatory efficiency, judicial efficacy etc. had otherwise functioned well.

I have always argued that the Troika should not be misinterpreted as an institution out to help Greece. Instead, the Troika was/is a creditors' committee watching the interests of creditors and to expect more from them is an illusion.

However, there WAS a vehicle whose task it would have been to help Greece in the process of reforming the country. That was the EU Task Force for Greece which in its mission statement listed the following noble objective:

"The Task Force is a resource at the disposal of the Greek authorities as they seek to build a modern and prosperous Greece: a Greece characterized by economic opportunity and social equity, and served by an efficient administration with a strong public service ethos."

Even Alexis Tsipras (and SYRIZA) in his early days spoke romantically of the New Greece he and his party were going to work towards: "Meritocracy, transpareancy and equal opportunity will be the trademarks of the New Greece", Tsipras promised in February 2015. And, he added, "We are building an effective public administration with respect to the citizens and the taxes they pay.

It pains to remember all those noble objectives when looking at the actual result. At least so far, the actual result was pain, only without the New Greece that would have justified the pain. Or as the Dutch Ambassador to Greece recently phrased it:

"We need meritocratic decision-making in Greece, be it by left- or right-wing governments, and both in the public and private sectors. More than debt relief, Greece needs meritocracy. This is not something that we can translate into a specific prior action. This is not something that you can order from the Eurogroup. This is something about a political and governance culture of responsibility and a mentality that needs to continue to be developed. Many Greeks have suffered during the economic crisis. The price they paid should not be for nothing."

Saturday, February 24, 2018

EU - The Transfer Union

To all those who claim that the EU should become a transfer union, the graph below shows that a lot of transferring/redistributing is going on already. The figures represent per capita Euros (2015). Net receivers are on the left side (gray) and net payers are on the right side (red).

A Decade In The Life Of A Current Account

It was the year 2008 which will reserve Greece a spot of distinction in the world's history of absolutely shocking current accounts. In 2008, the Greek economy spent 105 BEUR outside its borders compared with only 69 BEUR which it earned outside its borders. In consequence, the external deficit of the Greek economy was 36 BEUR in that year. These numbers assume their real significance when comparing them to the 2008 GDP of 241 BEUR, as reported by ELSTAT: the external deficit was 15% of GDP (!). Perhaps not a world record but probably close to it.

Now, a decade later, Greece can reserve another spot of distinction, this time in the history of dramatic current account improvements. For 2017, the Bank of Greece reported an external deficit of 1,5 BEUR, or just about 1% of GDP. The significant figures of this development, as published by the Bank of Greece, are summarized below:

Current Account (in BEUR)
2017 2016 2008
Revenue from abroad
Exports 27,9 24,5 21,9
Services (e. g. tourism) 28,3 25,0 34,2
Other income 6,1 5,9 9,0
Current transfers 1,9 1,8 3,4
------ ------ ------
Total revenue from abroad 64,2 57,2 68,5
Expenses abroad
Imports 46,3 41,1 66,3
Services (e. g. tourism) 10,9 9,7 18,5
Other expense (e. g. interest) 6,0 5,9 16,6
Current transfers 2,5 2,4 3,7
------ ------ ------
Total expenses abroad 65,7 59,1 105,1
Net foreign deficit (current account) -1,5 -1,9 -36,6
Trade balance -18,4 -16,6 -44,4
Services balance 17,4 15,3 15,7
Other balance 0,1 0,0 -7,6
Current transfer balance -0,6 -0,6 -0,3
---- ---- ----
Net foreign deficit (current account) -1,5 -1,9 -36,6
Non-oil and non-shipping exports
2017 2016 2008
Exports "Other Goods" 19,9 18,2 17,0
Imports "Other Goods" 34,3 31,8 46,9
---- ---- ----
Balance of goods excluding oil and ships -14,4 -13,6 -29,9
Ratio: Imports vs. Exports 1,7 1,7 2,8

A truly meaningful analysis of the above development would require statistics at a level which the BoG does not publish (it might be a recommendation for the BoG to provide such a meaningful analysis!). Nevertheless, the following observations can be made with general accuracy.

1) "Exports", "Imports" and "Trade Balance" confuse in the case of Greece because these figures include large and widely fluctuating figures from oil and shipping trade. Still, overall exports went from 22 BEUR to 28 BEUR during the decade while overall imports declined from 66 BEUR to 46 BEUR. That represents a turn-around of 44 BEUR for the decade!
2) "Other Goods" are included in the overall exports/imports and they represent those categories which could be considered as regular trade. Here, exports went from 17 BEUR to 20 BEUR and imports declined from 47 BEUR to 34 BEUR, representing a turn-around of 16 BEUR for the decade!
3) Unclear is what happened to "Services" as revenues in this category declined from 34 BEUR to 28 BEUR. It certainly was not a decline in revenues from tourism (which actually increased from 10 BEUR to 15 BEUR). Instead, the main trigger was a decline in revenues form transportation from 14 BEUR to 9 BEUR.
4) The "Other" category declined on the revenue side from 9 BEUR to 6 BEUR but much more significantly on the expense side from 17 BEUR to 6 BEUR (!). The latter was primarily due to a reduced interest expense.

Last but not least: the import overhang ratio (imports vs. exports) in the category of "Other Trade" had been an incredible 2,8 in 2008, i. e. imports amounted to almost 3-times the volume of exports! It is now down to 1,7, still a high ratio in normal circumstances but certainly defendable in an economy with high services revenues (e. g. tourism), such as Greece.

One could be inclined to see only good news in the above development because the numbers do not show the methods employed in order to achieve them. The 'sledgehammer' was the most important method (i. e. strangle domestic demand so that less money is spent abroad). The risk inherent in that is that as growth returns - without other structural changes - money spent abroad will increase again in line with increased domestic demand. 2017 might already represent a negative omen: growth returned and while exports of "Other Goods" increased, too, imports of "Other Goods" increased much more significantly.

Friday, February 23, 2018

"Through Greece: A Path To European Energy Security 2.0" - Op-Ed By Dean Plassaras (cont'd)

Having brought to the attention of the readers of this blog three energy projects worthy of observation, I now wish to complete the task and bring to conclusion the Pentalogy of energy projects in Greece which are worthy of deep and somewhat quiet observation/reflection. The reflection part pertains to the fact that perhaps Greece, in addition to the tourism and merchant marine pillars of her economy, perhaps has found a new pillar called energy.

For it is my conviction that perhaps 50 years from now and at a time when we all have departed this hospitable earth, which most days resembles a warm and full of understanding "Observing Greece" blog session, there will be no longer a memory of this miserable crisis which befell Greece due to the deep shortcomings of its so-called "partners" in the European community (I am sure the word community is some form of cruel euphemism the deep irony of which we could no longer escape). Instead, our generation (and I am speaking of the Greek side now) will be remembered as the generation which adopted our Exclusive Economic Zone and freed up the forces which propelled Greece into a level of new prosperity based among other things on matters of energy. It's a modest "Eureka moment" which underscores that maybe we found a new area of energy competitiveness for the Greek economy, dependable and worthy of building upon.

So here are two more projects, in a more advanced stage of implementation than the trilogy presented last week, which I believe set up a nice observation framework for the future. And they are:

1) "Gas Interconnector Greece-Bulgaria Pipeline (IGB)" which is a pivotal infrastructure to connect the Greek and Bulgarian gas networks, enhancing South-East Europe's (SEE) security of supply and allowing imports from various sources. The IGB project is being developed by ICGB AD, a 50-50 joint venture between IGI Poseidon SA and Bulgarian Energy Holding.

The IGB will have an initial transportation capacity of 3 Bcm/y (billion cubic meters per year) from Greece to Bulgaria that could be upgraded up to 5Bcm/y at a later stage, in response to the market demand. The IGB Pipeline will also be equipped in order to offer physical and/or commercial reverse flow.

European support: In 2015, with the support of the Bulgarian and Greek Governments and as a result of the benefits that the project brings to Europe, the IGB pipeline has been confirmed as Project of Common Interest (PCI), being included by the EU Commission in the second PCI list among the Southern Gas Corridor projects. In addition, IGB has been identified as a priority project of the EU's Central and South-Eastern European Gas Connectivity (CESEC) initiative which aims to support and accelerate the development of strategic infrastructure.

The IGB project has also been included in the last Ten Years Development Plan (TYNDP), in line with the objective of the European Network Transportation System Operators of Gas (ENTSOG) to create a single European market for gas and a reliable and safe transmission network capable of meeting Europe's current and future needs.

The project has been awarded in 2010 with European grants for up to 45 million euro, through the European Economic Recovery Plan (EERP) for the performance of the FEED (Front-End-Engineering-Design) and for pipeline manufacturing and installation.

Development status: The IGB project has obtained the Installation Act in Greece, the approval of the technical design in Bulgaria and the Environmental Impact Assessment (EIA) was approved by both competent Ministries of the two countries. The final construction permits are therefore under completion.

In December 2015, the IGB's Final Investment Decision (FID) was taken by ICGB Shareholders. Construction is scheduled to start during the 1st quarter of 2018 and the Commercial Operation Date (COD) is envisaged in 2020.

More information about the IGB pipeline can be found on the ICGB website:

And, finally, last but not least:

2) "Trans Adriatic Pipeline (TAP)" which will transport Caspian natural gas to Europe. Connecting with the Trans Anatolian Pipeline (TANAP) at the Greek-Turkish border, TAP will cross Northern Greece, Albania and the Adriatic Sea before coming ashore in Southern Italy to connect to the Italian natural gas network.

The project is currently in its construction phase, which started in 2016 and about 70% complete.
Once built, TAP will offer a direct and cost-effective transportation route opening up the vital Southern Gas Corridor, a 3500-kilometer long gas value chain stretching from the Caspian Sea to Europe.

In fact, TAP has received the largest ever EU Bank loan (a rare affirmation of EU interest in this project)

Thanks again for allowing the space for this presentation and I wish you all the best. And please remember the Pentalogy of these Greek energy projects is based on conveyance systems and not "treasure hunts for new riches".

Dean Plassaras

Thursday, February 15, 2018

"Through Greece: A Path To European Energy Security" - Op-Ed By Dean Plassaras

Op-ed by a reader/contributor to this blog, Dean Plassaras, a Greek-American entrepreneur living in California.

As we are all observing Greece looking for factors that might make a difference, I wish to bring to your and blog readers' attention 3 energy projects with promising potential. They are:

EuroAsia Submarine Interconnector Cable: The EuroAsia Interconnector is a leading European Union Project of Common Interest (PCI) that will link the electricity grids of Israel, Cyprus and Greece (Crete-Attica) through a 2,000MW sub-sea cable and converter stations at each connection point. The total budget of Stage 1 of the project for the initial 1000MW interconnector is estimated at 3.5 billion euros.

EuroAfrica Submarine Interconnector Cable: EuroAfrica will link the electrical systems of Egypt, Cyprus and Greece (via Crete) through sub-marine DC cables and HVDC onshore stations in each country/location, and have a capacity of 2000 MW. The EuroAfrica creates an energy bridge between Africa and Europe with a total length of the interconnector being approx. 1648 km, and creates a reliable alternative corridor for transferring electricity to Europe.

East Med Gas Pipeline Project: The Eastern Mediterranean (EastMed) pipeline project relates to an offshore/onshore natural gas pipeline, directly connecting East Mediterranean resources to Greece via Cyprus and Crete that could: i) enhance Europe's gas security of supply via diversification of counterparts, routes and sources; ii) develop EU indigenous resources such as the offshore gas reserves around Cyprus and Greece; and iii) promote the development of a South Mediterranean Gas Hub.

Mindful of the well known "resource curse" or the "paradox of plenty", I am not so much interested in suggesting that hydrocarbon discoveries could solve the problems of Greece. Rather, I wish to focus our attention on the interconnectivity issue and energy performance improvements delivered by such systems.

Of utmost importance and leading the pack is the EuroAsia submarine electric cable with a parallel fiber-optics cable component. Cheap electricity, whether produced by gas-fired plants or solar installations, could cut current electric costs by half and end the energy isolation of the Greek islands which currently produce electricity on demand through burning of dirty and expensive mazout (heavy petroleum) which needs to be imported (we both agree that Greece needs to cut its imports and increase its exports).

The EuroAsia interconnector has now reached its implementation phase and I hope it becomes the proverbial "win-win" for better Greek economic results and greater EU energy security.

Regrettably, this topic is not sufficiently covered and on the rare occasions it is, perhaps not sufficiently explained.

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