The Greek Middle Class: 1955-2012

Reader please note, this is the unofficial obituary . . .

The Greek Middle Class (hereafter “GMC”) passed away last week, after several years of deteriorating physical and emotional condition. Cause of death is currently being investigated, but decades of spousal abuse from the Greek Public Sector (“GPS“ also known as Big Fat Greek Public Sector “BFGPS“) is believed to be contributory to GMC’s early demise, as are, unfortunately, the conditions in the Greek public hospitals, and lack of heating oil.

GPS is the successor to GMC’s few remaining assets, and has successfully fended off claims from GMC’s relatives in America, Australia, Canada, and elsewhere. GPS wrote a moving death notice but requested “that the family’s privacy be respected . . . [and] particularly that these slanderous and hurtful allegations of spousal abuse cease.”

The funeral was a somber affair, paid for from GMC’s estate. Other middle classes, particularly from Italy, Spain, Portugal, and Ireland, were too ill to attend, and GPS pointedly refused to allow the German Middle Class to attend, calling them, predictably, “Nazis.” The Greek plutocrats were well represented, with lovely bouquets in tow. Father X, formerly of Vatopedi and lately confessor to the grieving GPS, gave a moving graveside eulogy pointedly praising the spousal solidarity exhibited by GPS, and asking for forgiveness for the hapless GMC. In spite of GPS’s advanced state of mourning, GPS still managed to record the eulogy on a recently acquired I-Phone 5.

GMC was born via a difficult birth circa 1955, the birth records were destroyed in the 2007 fire that charred the Peloponnesus so exact date of birth is uncertain. GMC and GPS were third cousins, with business and political interests. GMC was a sensitive and articulate adolescent, but constantly in the shadow of the plutocrats and GPS. Some of GMC’s relatives decamped to America and Australia as a result, but after the marriage of GMC and GPS in 1981, a certain domestic harmony ensued. GPS appreciated GMC’s willingness to work and eventually GMC rose to regional manager of the other Balkan Middle Classes, in the latter 1990s.  GMC also bankrolled their daughter’s education in Britain, at City College in London.

According to a copy of GMC’s diary, smuggled out of the house by a relative from Toronto, the trouble really began in the late 1990s when GPS forced GMC to agree to signing off on a false financial statement to join the Euro Club. Membership had its privileges, though, and for the next few years, the couple partied hard, not just in Mykonos with the VIPs, but all over the world. For a poor kid from the village, it was heady stuff. But keeping up with the VIPs, both local and foreign, was hard going and GPS began to skip paying bills while demanding more and more from GMC’s paycheck. Blackmail and verbal abuse became the order of the day, and GPS actively stirred both the poor and the rich against GMC, further isolating GMC. Also, relatives from America and peers in Europe were pushed away, and eventually GPS’s bad manners and temper resulted in GMC becoming friendless. GMC’s long history of enabling GPS also eroded others’ respect for GMC.

Just as GMC’s health began to deteriorate, GPS forced GMC to work harder, and constantly demanded GMC’s pay. GPS’s health insurance proved to be less than effective, because GPS had stopped paying the premiums, and GMC was not allowed to seek help from relatives or from peers. By this summer, GMC’s pallor had turned a deathly grey, even as GPS was planning yet another ponzi scheme. With the first serious cold snap, and no money for heating oil, GMC gave up the ghost. A few days before, neighbors did hear a muffled argument about yet another financial demand from GPS, but GPS insisted that the neighbors misheard.

A few days after the funeral, GPS was seen in Mykonos arm in arm with VIPs, hardly a grieving spouse.  Among those in GPS’s entourage included officials in charge of the inquiry into GMC’s death.  A finding is expected shortly.

We all eagerly await the findings of the inquiry.

Let the Reforms Begin! (We hope)

Along with a large part of the Greek population, the authors of Reform Watch Greece engaged in various summer rituals, including extended vacation periods. We used this period to gather substantial anecdotal information about the economic, political and social situation in Greece’s regions, which will be compiled later. We also closely followed the dramatic July-August period filled with dozens of “to do” pronouncements by the Samaras Government in Greece and the sometimes perceptible reactions of its foreign partners.
While in this summer period the primary government focus has been on lining up painful but needed expenditure reductions to Greece’s budget in the 2013-2014 period, in line with commitments in the Second “Rescue” Memorandum agreed early this year, we have actually seen a few announcements which appear to be setting the stage for some critically needed new (and Troika-agreed) structural reforms. While implementation of most of these reforms remains in the future tense, two important developments over the summer allow us to check off at least a few reform boxes. We will monitor these and other reform developments over the autumn period.
Of note:
The “stealth” privatization of Greece’s Agricultural Bank (ATE) through a rapidly implemented rescue plan including the sale of much of the ATE Bank’s network to Greece’s privately owned Piraeus Bank. This has set the stage for a new round of bank consolidations while moving a large number of banking outlets out of the public sector. ATE was split into a “viable” unit which was transferred to Piraeus Bank while the government will wind down the so-called “bad segment” of ATE, holding its non-performing assets. The Syriza opposition is challenging the plan’s implementation but for now the transfers have gone forward.

The beginning of the consolidation of Greece’s numerous public sector entities, with a number announced for closure or “transfer and consolidation.” The Samaras government announced its intentions to preserve all jobs in these organizations by offering transfers to effected employees. This is still a work in progress with another, larger group of organizations to be shut down set to be announced later this year.

Time to Streamline

Greece is about to learn the composition of its latest government coalition. Unfortunately this has become an all-too-regular event.  We wish the new government the very best as it takes Greece’s long-overdue structural reforms forward.

Here at Reform Watch Greece we sincerely hope the announcement does not include a Ministry of Development, Competitiveness and Shipping, or a hastily renamed new version thereof. We believe retaining this Ministry (or a close relative) denotes a government intention to continue its excessive level of state intervention in the Greek economy, something that has to end if Greece is to become investment-friendly.

The Ministry of Development et al that we currently know it is a result of multiple iterations of re-creation.  It never delivered the desired results, and over the years became a major bureaucratic obstacle to most investors.  Essentially parts of the 1980’s era Ministry of Economy/Economic Coordination were merged with the old Ministry of Commerce along with various scientific/commercial research organizations.  From time to time, control of Greece’s shipping industry has been thrown into the mix as well.  The shipping sector is critical to the Greek economy and should be handled in a separate ministry; the handling of this industry in recent years has been quite amazing, if not scandalous.

See this dizzying summary of the political tinkering over the years: http://en.wikipedia.org/wiki/Ministry_of_Development,_Competitiveness_and_Shipping_(Greece)

Streamlining and removal of  much of the Ministry of Development’s work would allow for a significant and truly meaningful downsizing of the central government, and would send the desired (and missing) signal to all that Greece is serious about creating a business enabling environment.  Zeroing out of the permits managed by the Ministry of Development would be the single most important signal the government could send that it is serious about business.

With very few exceptions, the permits issued by the Ministry of Development should be set by legislation to expire by the end of the year, with no need to renew them again.

We suggest a very small core group from the Ministry of Development be assigned to a new National Commission for Investment and Competitiveness that would report to the Prime Minister or Deputy Prime Minister and should include most of the “Invest in Greece” organization as well. Work on managing the EU funding which Greece receives can also be handled here.

The functions that the Development Ministry now performs regarding market price and quality controls (pulled from the old Commerce Ministry) should be spun off into a National Directorate for Consumer Protection.

As noted earlier, A Ministry of Shipping is needed, and can handle Aegean development issues as well.

The time to “Reinvent” the Greek government has arrived.  Keeping the Ministry of Development as it is now structured also signals “business as usual” on the business conference circuit (they will be overjoyed), where no meeting/conference with high-level business executives or foreign investors can be considered complete without a speech from the all-knowing Minister of Development.  Surely Greece deserves more than an ornamental relic from earlier times.

Austerity without Justice

We'll show you justice....

Austerity, yes! Justice, maybe

In a few hours we will know whether fear trumped rage in this latest round of Greece’s election drama.

Were the European leaders and bankers right in threatening Greeks with the direst of consequences should they support openly anti-Troika parties?

Was the Global Left, Occupy Wall Street and the “austerity hurts” crowd closer to the point – that Greece could not and should not be subjected to more of the pain of structural adjustment?

Does it matter?

The implementation of Greece’s reform program has three major hallmarks:

–Little or no domestic constituency for reform

–Underperformance on agreed targets at almost every juncture

–Confusion about Greece’s administrative capacity to undertake reforms

At least up to the present, limited penalties were imposed by the Troika for Greece’s sustained underperformance on reform targets.  So in a perverse way, underperformance has paid off and kept the cash flowing in.  Look at the so-called “closed professions” and see how little has changed.  For example, recall how the IMF’s debt sustainability reports for Greece were revised almost monthly last year to make the case for a deeper haircut at each juncture, yielding Greece more debt relief at each new stage of the discussion.

We suggest that the majority of the Greek people are reacting normally to a structural reform program that has few if any visible “up front” benefits.  Building a domestic constituency for reform will be a long process, but up to now the issue has been a clear lack of justice, giving the population no stake.  Tax increases alienated a large segment of the population early on.  Finally, horizontal cuts in wages and pensions, a choice made by the Papandreou-led PASOK government itself, spread the pain across many layers of Greek society instead of the appropriate target, the bloated public sector.  The Troika should not have accepted PASOK’s “job-preservation is paramount” arguments, since this shifted the pain of adjustment heavily onto the already overburdened private sector and hastened the collapse in economic activity, while barely reducing the Greek state’s revenue requirements.

This could be changed, and quickly, if leaders decided that the missing sense of justice would be addressed as a priority.   Any of these ideas could have been attempted in the last two years and would have reduced the rage we are seeing today, in addition to producing some visible evidence that things could change for the better and that crime did not pay.

Ideas include: 

–Effective prosecution of the corrupt political and business elite based on a reformed judicial system. But in the meantime, set up special tribunals focusing on public procurement scandals.

–Repair and extensive modernization of the taxation system, allegedly ALWAYS underway, to include use of foreign advisors in the debt collection process.

–Re-evaluation of politicians’ asset declarations.  Moving the “look-back” period on these assets to 1974, as many are proposing.

–High priority auditing of public sector jobs so the downsizing and mergers of public sector organizations can be accelerated.  Prosecution of those found to have made hiring decisions based on political criteria as well as fast-track removal of the individuals illegally hired from those jobs, with pension benefits cancelled.

–Thorough scrutiny of all offshore business activities linked to Greece, via special tribunals.

The skeptics will say these ideas are politically unacceptable. We suggest they focus pain where it should be focused, so to demonstrate to the Greek people that unavoidable austerity (at least for the short-term) can be implemented with some sense of justice, social responsibility and reform.

Greece under Sanctions? A Yugoslav Deja Vu . . .

 

Greece, like Yugoslavia under sanctions, is starting to be cut off from the world economy.  This time, it is not due to war, but rather economics, and, let’s face it, politics.  The debt binge of the first decade of the new millennium was going to require massive belt tightening to pay under any circumstances, just as it has in Ireland, Portugal, now Spain and likely soon others.

The inability of Greece to reform, and even, on May 6, to elect a coherent government has resulted in the market taking the situation into its own hands.  Greeks are taking advantage of the EU’s lack of currency controls to take their money out of the country, by the billions.  Investors are cutting and running.  Those who sell to Greece demand payment up front; commercial insurers, refuse any Greek business.   And just days after the election, Russian Natural Gas behemoth Gazprom warned that the spigot will be turned off if Greece does not pay up.

Effectively Greece is under economic sanctions, dictated not by politics but by the market.  A nation with a huge trade deficit in energy and even food is basically being cut out of world markets.  This harkens back to Yugoslavia in the 1990s, though the Serbs had the advantage—an important one—of being utterly self sufficient in food and had a far, far lower level of economic integration with the rest of the world.  Though they had serious indebtedness (which contributed not a little to Yugoslavia’s demise) their debt and trade deficit was far less than their Greek neighbors have today.  As such, though the politics are different and (thus far) there is no war and violence, the sanctions effect on Greece may be eerily similar.

Of course, Yugoslavia in the 1990s suffered some of the highest inflation in world history, which thus far Greece has not.  True, but whether this element of the Yugoslav equation comes into play is entirely a matter of what happens on the June 17 election.  If Tsipras comes out on top and puts his imbecilic and ill-defined plans into play, Greece will likely be bounced from the Euro and hyperinflation will no doubt begin, complicated by not having a legacy currency already in existence and by the scarcity of vital products (food, medicine, fuel) due to the virtual sanctions on Greece.

Nearly twenty years on, Serbia is still reeling from the twin blows of sanctions and hyperinflation.  The damage to national wealth and, perhaps more importantly, the national psyche, is palpable everywhere.  Greece today is at the threshold of similar pain, and real prudence is necessary to avoid the abyss into which we now stare.  One of the shoes has already dropped, the other is teetering at the edge.

Tsipras must not win.

Comrade Tsipras savior of Greece’s Publik Sektor

Which Alexis will save Greece?During a televised interview on 12th June, Alexis Tsipras, the 37 year old leader of the radical left SYRIZA party referred to Greece’s partners in Europe on as “our opponents.” This thug who has proved to be an illiterate uneducated opportunist, the type that spent all his school and university days leading sit-ins and occupations, infringing on other people’s rights, derives from a well-to-do family and never actually having worked anywhere in his life, went straight into “the party” and has spent his entire parliamentary tenure creating problems for the country, thwarting any reform efforts,  encouraging violent riots and throwing smart-arse juvenile comments into the political arena meant to enthrall the impressionable and less intelligent.

Like millions of other Greeks within the country and in the Diaspora, I am thoroughly ashamed that someone of this man’s caliber has been “elevated” as a representative, or “leader” of Greece and the Greek people. His policies are ridiculous, those that are actually articulated that is, depending on which version is released by which hermaphrodite SYRIZA constituent clan, surreal in fact. One of his parliamentary candidates in Corinth just resigned in protest, stating that Greece will not last more than a few hours under such reckless leadership. Tsipras has now even gone to the Financial Times with an op-ed to try to improve his image as a reasonable negotiating partner.  Hogwash.

Anyone who has any real knowledge of what is going on in Greece at present would be aware that the only reason this party (SYRIZA) has gone from 4% to up to 30% or more in less than 12 months is because a large part of the spoiled and corrupt public sector, criminal unionists, cronies of the former PASOK (which has been basically cleansed through this) as well as even many right wingers from Nea Dimokratia have thrown their support solidly behind SYRIZA because they believe Tsipras will save them from going where they deserve to go…the rubbish bin.

Sadly, it seems that history will probably remember Greece as a deeply Balkan country that never really evolved from its Ottoman past and was destroyed by its useless public “servants”, corrupt trade unionists and state-dependent cronies, thanks to the opportunistic political operative called Tsipras. There may well be the need to reclassify Greece in global brokerage house lingo from a “developed economy” (if its institutions ever truly graduated to the EU level from the “emerging market” category) to a “submerging market.”  Tsipras should get two gold stars for his good work there.

Reform Watch May 2012 Round Up…Did you REALLY expect changes?

Yes it’s an election period. And yes, you are tuned to Greece. Who in their right mind would expect a “caretaker administration/service government” to change anything?  Especially anything that involved benefits levels or public sector staffing?

Just testing…We certainly didn’t.  Nonetheless the country kept operating at deficit levels, meaning public sector salaries and pensions were supported by Troika bailout funds, as usual.  Did Greece really move any closer to financial independence over this period? Were those bailout funds well spent or just scattered randomly for public consumption and to sustain businesses/public services that seriously need to restructure?

Below is a brief listing of how certain ongoing structural reforms were “processed” in Greece over the last month. It is basically a “low-performance report.” We are certainly glad we don’t have to compile a detailed matrix of accomplishments for Troika officials prior to disbursing the next cash injection (shape not yet decided) which Greece will so desperately need next month. There is precious little to work with, even for the strongest supporters of Greece in this difficult time. And let’s not forget that the former Papademos government basically sprinted to pass key pieces of reform legislation by mid-April (mostly unimplemented) so the first round of elections could be held in May.

None of this absolves Greece in any way of its requirement to produce a large list of budget cuts for 2013-2014 for Troika approval and vote on dozens of other reform measures by the end of June.  No wonder Greeks prefer politics!

Privatization:  While work on preparing assets already held at the Hellenic Republic Assets Development Fund (TAIDEP in Greek) goes on, policy decisions and transfers of new state assets to the Fund are frozen by edict until the June 17 elections. Socialist parties are doing all they can to stop work at the TAIDEP and some even talk of reversing it.  The status of a number of government assets transferred to the TAIDEP in early May before elections is reportedly under review.

Health Sector:  The new system of electronic prescription management, designed to reduce costs by limiting drug purchases, was partially offline in May for technical reasons.

Tax Issues/Revenue Collections:   Revenue collections have fared poorly this year due to the recession and the extended election period.  Some news reports note a 20-30% decline compared to last year and certain news outlets and high-level government sources  characterized the situation as “desperate” during various political meetings and coalition-formation discussions throughout May. Reforms in the barely functioning tax collection mechanism, especially those designed to fight tax evasion, are not underway now, but major changes required by the Troika should begin in July.

Labor Market:  As of May 14, all “old” collective labor contracts automatically expired. Those contracts could be replaced by so-called individual agreements and could include some wage reductions. This important labor market reform stipulates that a collective contract had to have been signed/reauthorized in the previous three months to be considered valid after May 14.

Public Sector Personnel System:  Just days before the May 6 elections, word was released that the ambitious personnel reviews and job audits planned for the public sector would be delayed due to the elections. Nothing since then, but of course, public sector (BFGPS) paychecks keep coming.

European Community Monitoring Office:  Shortly before the May 6 elections, a site for the Mission’s Headquarters in Gazi was announced.  Public Sector employees already in that building protested immediately.  Since then, not a word.

Bank recapitalization: This is not a structural reform, but since it is linked to the overall PSI package which supports reform, it merits mentioning.  The bulk of the EFSF funds sent to Greece for this purpose in April were disbursed to four participating banks via the Hellenic Financial Stabilization Fund (HFSF) in mid-to-late May, with substantial action (Euros 18 billion) disbursed in the last few days of the month.

 

Scale of reform task facing Greece is monumental

See article below for a good summary (The Irish Times) of what Greece committed to do, under former-PM Papademos, by June 2012 as it received the first “new” bailout tranche under the so-called “Second Memorandum.”  This is not fiction, and that money, disbursed in March, has been spent. The date for the Troika’s next return/review is not yet clear.

http://www.irishtimes.com/newspaper/world/2012/0518/1224316280691.html