Greece under Sanctions? A Yugoslav Deja Vu . . .

Posted on June 17, 2012 by balkanizater

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.

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

Posted on May 31, 2012 by Eyes and Ears

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

The Eurogroup hath spoken – Key decisions to propel Greece forward

Posted on February 21, 2012 by Eyes and Ears

So the deal is done. Early this morning the Eurogroup concluded its deliberations on the Greek bailout. It is no longer a question of whether policy proposal “X” (haircut size, monitoring, payment systems, and prior conditions) is decided. The issue is now implementation. We attach the final Eurogroup communique from February 21 at the end of this post. Since more or less the entire financial press in Europe and many of its global affiliates will be reviewing the agreement, we thought Reform Watch Greece should briefly highlight a few key points and provide a short assessment on whether these measures will help structural reform proceed in Greece.

Preamble: We cite this text section, with extremely blunt language, as evidence that the Eurogroup was intent on sending a clear message to the Greek population that this program is not simply something they can opt to ignore (our italics for emphasis): “This new programme provides a comprehensive blueprint for putting the public finances and the economy of Greece back on a sustainable footing and hence for safeguarding financial stability in Greece and in the euro area as a whole. The Eurogroup is fully aware of the significant efforts already made by the Greek citizens but also underlines that further major efforts by the Greek society are needed to return the economy to a sustainable growth path.”

Monitoring: Seemingly bowing to German concerns, the Eurogroup requested the European Commission to enhance and to expand the role of the existing EC Task Force for Greece, including a new permanent on-the-ground role. Additional EU member states’ expertise is also requested. This proposal is of course certain to generate new political resistance in Greece, across a wide spectrum. Note: The IMF already has a more or less permanent presence here, via its low profile Resident Representative in Athens. The communique further states that “Euro area Member States stand ready to provide experts to be integrated into the Task Force. The Eurogroup also welcomes the stronger on site-monitoring capacity by the Commission to work in close and continuous cooperation with the Greek government in order to assist the Troika in assessing the conformity of measures that will be taken by the Greek government, thereby ensuring the timely and full implementation of the programme.”

Debt Repayment Prioritization: We have already witnessed a series of Greek politicians reacting almost rabidly to the concept that debt service would be given a higher priority than other domestic expenditures, since for many it raises sovereignty concerns. Some have even threatened to press for a debt-servicing moratorium. In the negotiations over the bailout package, Greece also undertook to insert a modification to its constitution, when possible, allowing this obligation to be fulfilled, but for the foreseeable future a Troika-supervised accounting mechanism managed by the Ministry of Finance and its appointees will actually be utilized. “The Eurogroup also welcomes Greece’s intention to put in place a mechanism that allows better tracing and monitoring of the official borrowing and internally-generated funds destined to service Greece’s debt by, under monitoring of the troika, paying an amount corresponding to the coming quarter’s debt service directly to a segregated account of Greece’s paying agent. Finally, the Eurogroup in this context welcomes the intention of the Greek authorities to introduce over the next two months in the Greek legal framework a provision ensuring that priority is granted to debt servicing payments. This provision will be introduced in the Greek constitution as soon as possible.”

PSI: A large part of the communique deals with PSI modalities, of less concern to us than the implementation of structural reform. We will avoid comment on these points.

A Closing Warning: The final section of the Eurogroup communique is far more than a comforting closing statement of support. After the timing/details of the decision process are spelled out, the document closes with an emphatic reminder about the need for Greece to fully comply with program conditionality, the so-called “prior actions.” If Greece had a better track record on structural reforms, we doubt that we would have seen such a clear formulation/warning: “It is understood that the disbursements for the PSI operation and the final decision to approve the guarantees for the second programme are subject to a successful PSI operation and confirmation, by the Eurogroup on the basis of an assessment by the Troika, of the legal implementation by Greece of the agreed prior actions. The official sector will decide on the precise amount of financial assistance to be provided in the context of the second Greek programme in early March, once the results of PSI are known and the prior actions have been implemented. We reiterate our commitment to provide adequate support to Greece during the life of the programme and beyond until it has regained market access, provided that Greece fully complies with the requirements and objectives of the adjustment programme.” In no uncertain terms, the message is, “we are watching you.”

Start full communique text: “The Eurogroup welcomes the agreement reached with the Greek government on a policy package that constitutes the basis for the successor programme. We also welcome the approval of the policy package by the Greek parliament, the identification of additional structural expenditure reductions of 325 million to close the fiscal gap in 2012 and the provision of assurances by the leaders of the two coalition parties regarding the implementation of the programme beyond the forthcoming general elections.

This new programme provides a comprehensive blueprint for putting the public finances and the economy of Greece back on a sustainable footing and hence for safeguarding financial stability in Greece and in the euro area as a whole.

The Eurogroup is fully aware of the significant efforts already made by the Greek citizens but also underlines that further major efforts by the Greek society are needed to return the economy to a sustainable growth path.

Ensuring debt sustainability and restoring competiveness are the main goals of the new programme. Its success hinges critically on its thorough implementation by Greece.

This implies that Greece must achieve the ambitious but realistic fiscal consolidation targets so as to return to a primary surplus as from 2013, carry out fully the privatisation plans and implement the bold structural reform agenda, in both the labour market and product and service markets, in order to promote competitiveness, employment and sustainable growth.

To this end, we deem essential a further strengthening of Greece’s institutional capacity. We therefore invite the Commission to significantly strengthen its Task Force for Greece, in particular through an enhanced and permanent presence on the ground in Greece, in order to bolster its capacity to provide and coordinate technical assistance.

Euro area Member States stand ready to provide experts to be integrated into the Task Force. The Eurogroup also welcomes the stronger on site-monitoring capacity by the Commission to work in close and continuous cooperation with the Greek government in order to assist the Troika in assessing the conformity of measures that will be taken by the Greek government, thereby ensuring the timely and full implementation of the programme.

The Eurogroup also welcomes Greece’s intention to put in place a mechanism that allows better tracing and monitoring of the official borrowing and internally-generated funds destined to service Greece’s debt by, under monitoring of the troika, paying an amount corresponding to the coming quarter’s debt service directly to a segregated account of Greece’s paying agent.

Finally, the Eurogroup in this context welcomes the intention of the Greek authorities to introduce over the next two months in the Greek legal framework a provision ensuring that priority is granted to debt servicing payments. This provision will be introduced in the Greek constitution as soon as possible.

The Eurogroup acknowledges the common understanding that has been reached between the Greek authorities and the private sector on the general terms of the PSI exchange offer, covering all private sector bondholders. This common understanding provides for a nominal haircut amounting to 53.5%. The Eurogroup considers that this agreement constitutes an appropriate basis for launching the invitation for the exchange to holders of Greek government bonds (PSI).

A successful PSI operation is a necessary condition for a successor programme. The Eurogroup looks forward to a high participation of private creditors in the debt exchange, which should deliver a significant positive contribution to Greece’s debt sustainability.

The Eurogroup considers that the necessary elements are now in place for Member States to carry out the relevant national procedures to allow for the provision by EFSF of (i) a buy back scheme for Greek marketable debt instruments for Eurosystem monetary policy operations, (ii) the euro area’s contribution to the PSI exercise, (iii) the repayment of accrued interest on Greek government bonds, and (iv) the residual (post PSI) financing for the second Greek adjustment programme, including the necessary financing for recapitalisation of Greek banks in case of financial stability concerns.

The Eurogroup takes note that the Eurosystem (ECB and NCBs) holdings of Greek government bonds have been held for public policy purposes. The Eurogroup takes note that the income generated by the Eurosystem holdings of Greek Government bonds will contribute to the profit of the ECB and of the NCBs. The ECB’s profit will be disbursed to the NCBs, in line with the ECB’s statutory profit distribution rules. The NCBs’ profits will be disbursed to euro area Member States in line with the NCBs’ statutory profit distribution rules.

– The Eurogroup has agreed that certain government revenues that emanate from the SMP profits disbursed by NCBs may be allocated by Member States to further improving the sustainability of Greece’s public debt.

All Member States have agreed to an additional retroactive lowering of the interest rates of the Greek Loan Facility so that the margin amounts to 150 basis points. There will be no additional compensation for higher funding costs. This will bring down the debt-to-GDP ratio in 2020 by 2.8pp and lower financing needs by around 1.4 bn euro over the programme period. National procedures for the ratification of this amendment to the Greek Loan Facility Agreement need to be urgently initiated so that it can enter into force as soon as possible.

– Furthermore, governments of Member States where central banks currently hold Greek government bonds in their investment portfolio commit to pass on to Greece an amount equal to any future income accruing to their national central bank stemming from this portfolio until 2020. These income flows would be expected to help reducing the Greek debt ratio by 1.8pp by 2020 and are estimated to lower the financing needs over the programme period by approximately 1.8 bn euro.

The respective contributions from the private and the official sector should ensure that Greece’s public debt ratio is brought on a downward path reaching 120.5% of GDP by 2020.

On this basis, and provided policy conditionality under the programme is met on an ongoing basis, the Eurogroup confirms that euro area Member States stand ready to provide, through the EFSF and with the expectation that the IMF will make a significant contribution, additional official programme of up to 130 bn euro until 2014.

It is understood that the disbursements for the PSI operation and the final decision to approve the guarantees for the second programme are subject to a successful PSI operation and confirmation, by the Eurogroup on the basis of an assessment by the Troika, of the legal implementation by Greece of the agreed prior actions. The official sector will decide on the precise amount of financial assistance to be provided in the context of the second Greek programme in early March, once the results of PSI are known and the prior actions have been implemented.

We reiterate our commitment to provide adequate support to Greece during the life of the programme and beyond until it has regained market access, provided that Greece fully complies with the requirements and objectives of the adjustment programme.” End text.

Hippocrates doesn’t live here anymore

Posted on January 24, 2012 by balkanizater

Hippocrates Doesn’t Live Here Anymore

Among the crises inflicting Greece today we must include the crisis in the health system. To borrow from a medical analogy, the crisis in the health system is a cancer on the Greek body politic. Like many cancers, symptoms existed long before the recent diagnosis. Even in times of apparent economic health, the Greek health system was far from healthy.

For years now, the Greek public health system has been plagued by debts and corruption, effected, if not with official connivance, with toleration. One of the key places a typical Greek will pay a bribe (among, of course, others) is to a physician at a public hospital. Bribes are so commonplace as to be accepted as part of the cost of treatment. The patient, or his family, who is not prepared to pay a bribe may be directly endangering their health. As the system further deteriorates, even bribes are less effective than they used to be.

Greek public hospitals for nearly a decade have been known as the deadbeats of Europe within the pharmaceutical community. Companies would often wait for years to receive payment, and often as not the state would reduce the amount paid to the companies. Greece’s already ballooning debt increases further when considering the several billion EUR of liabilities in this sector. Not surprisingly, pharmaceutical companies padded their invoices to make up for the late payment terms, and often enough kickbacks and bribes demanded by public servants, government officials and doctors would further increase the costs, stretching the finances of the state health system, again, even in apparently healthier economic times.

It was not uncommon, even in the good old days, for hospitals to have shortages of vital medicines and more mundane items such as bandages and toilet paper. Often enough, patients bring their own! The debt-plagued procurement system was a key reason but another reason stands out: outright theft by doctors and hospital staff. It is not uncommon for those employed in public hospitals to help themselves to white goods or common medicines at the hospital. Oversight? Not here, most hospitals lacked even the rudiments of bookkeeping; without a paper trail, how do you prove something is missing or stolen? The EU Commissions first Quarterly Report from the Task Force for Greece diplomatically cites a “concern . . . as [to] the efficiency of and access to the healthcare system.” They further talk about the need to rein in expenditures and “implement best practices,” etc. They could go much further and talk about the blatant graft by procurers, hospital staff, and even by holders of the Hippocratic Oath.

So, the story is the same here. Bribes, graft, and a willful lack of professionalism or oversight conspire to make Greece’s health system increasingly dangerous to your health. It simply did not have to be that way. Greece, in spite of the debt and eroding competitiveness, did make considerable strides in its standard of living. Greece has one of the highest percentages of doctors to population in Europe, and therefore the world. In spite of the onslaught of junk food and stress-inducing lifestyles, the Greek diet and climate is very conducive to good health. Greece’s health crisis is, rather, a subset of its general crisis, which is not primarily financial but rather civic and civil.

As for Hippocrates, he clearly doesn’t live here anymore.