PSI Outcome Beats Expectations

In Economics, Financials, Politics on March 9, 2012 at 12:39

Last night history was made. Greece pushed the biggest restructuring in history managing to lift over €100bn off the shoulders of its people and its future generations. The PSI -Private Sector Involvement- has been a vital prerequisite to Greece’s second €130bn rescue package.

Here is a snapshot. Participation in the PSI was 85%. Since it exceeded the 75% threshold, the Greek government can (and probably will) trigger the CACs (Collective Action Clauses) reaching a staggering 95.7% participation (remaining 4.3% refers to non-Greek law bonds). Given a 53.5% of debt write-off on this €206bn privately held Greek debt, this translates into €110bn of debt unloading. Whichever way one looks at it, this is simply extraordinary.

But one also needs to look at the big picture. Today, Greek public debt stands at around 160% of GDP. The PSI along with the second rescue package aim at bringing it down to 120% by 2020. Now, this target is extremely sensitive to two main variables – GDP growth and debt/rescue packages, so don’t be surprised if the Troika revises its estimates upwards or downwards over the next years.

In reality, the PSI and the two bail-out funds, bought Greece extra time to materialize all the essential reforms this country so much needs to jump-start its economy. Remember that in Greece’s case, the first step to growth is to attract investments. Given the circumstances, there is no driver to boost private consumption as there is neither government money nor enough household savings (at least within Greece!). Foreign direct investment is the Alpha and the Omega to this puzzle. Greece needs to think and do big, now.

Now we have the time to do as promised. Make our country and economy investment friendly. Privatize under-performing state-owned firms, tackle bureaucracy and encourage entrepreneurship, open up closed professions that keep prices artificially high, but most importantly, change our mentality, think collectively, think long-term, think business-FRIENDLY. The ball is in our court now.

by DG


Can He Sell Austerity?

In Economics, Financials, Politics on November 11, 2011 at 21:27

A five-day drama to form the new ‘coalition government’ has come to an end. Lucas Papademos will be Greece’s 11th PM and along with his new cabinet, will lead the country through a transitional phase, aiming at securing the 6th and 7th tranches from the bailout funds as well as locking in the new rescue package essential for the country to remain in the Eurozone. The big question however is can this new government deliver what the previous one couldn’t, and can Lucas Papademos succeed where his predecesor failed?

First, let’s get the facts straight. Mr. Papandreou stepped down as the PM after fierce criticism from the general public and threats of defections from his own party. The austerity measures and policies needed to be implemented as a condition by Greece’s creditors are so tough and anti-popular that it is impossible for one party to bear all the burden. After Papandreou’s tactical move to call for a referendum, the two main political parties along with another one from the right wing, joined forces to form a coalition government that would help calm the nation down, and pass all these measures at the minimum possible cost.

The choice of Mr. Papademos as Greece’s PM is something that fills me with pleasure and great expectations. In my opinion, out of the possible candidates that were up for the position, he was the most respectable, competent, and of ‘common approval’ person. His experience is vast, his knowledge on Economics and sovereign crises immense, and most importantly, he knows the European ‘waters’ better than anyone in Greece, having served ten years in the ECB from the post of the Vice President. Having said that, Papademos can definely improve communication with our creditors and the EU in general, and may also open a new discussion on the prospect of renegotiating some of the new package’s terms. In addition, this ‘coalition government’ translates into less appetite for micro-political games and more efforts to deliver constructive results. New Democracy’s involvement, the main opposition party, gives them no more excuses to point the finger at anyone with respect to upcoming political decisions. Less talking and criticism, and more of working altogether for the common good of this country is what oughts to be done.

Nevertheless, there are several features in this new government that make me skeptical over its capacity to deliver. First, is the matter of excessive expectations. Somehow, Greek people have raised the bar too high and think that this is the solution to the crisis. Not quite. Thinks are still on the edge, and we have lost precious time the past five days trying to form this new government. The draconian measures still need to be voted and implemented as quickly as possible. Secondly, Mr. Papademos is a technocrat, with no political experience, someone who hasn’t been tested on similar country-like situations. However, this can work either way, as less politics and more expertise is what this country may actually need. Thirdly, the proper functioning of a government with lawmakers from different parties working together is quite a challenge. Frictions can easily be engendered amongst people with different political motives and ideologies. The last and most important obstacle for this governemnt is that it has an expiry date. Its duration is said to be 3-4 months with national elections on its immediate horizon. Its main aim is to secure the 6th and 7th tranches from the Troika and the adoption of the new rescue package. This is an unrealistically short window for Mr. Papademos to work properly, and it unavoidably builds a pre-election period climate polarizing the public once again, canceling out the essence of this new government of national unity.

‘Restrained optimism’ can best describe my view on this new administration. Setting political interests aside for once and promoting the overall good for Greece will be a big challenge for our political stage. Lucas Papademos is unambiguously someone who knows the right steps to follow but faces a number of obstacles in his track. Selling austerity measures wasn’t easy for Papandreou and won’t be easy for Papademos. The difference now, though, is that politicians have played their part. The ball is in the hands of the Greek people to decide whether they want to accept the measures and stay in the Eurozone, or test their faith with the Drachma.


by DG

Abusing Referendums

In Economics, Financials, Politics on November 1, 2011 at 12:32

It seemed things had been put in order after last Wednesday’s EU summit in Brussels. EU leaders had collectively decided upon a comprehensive rescue package that would help Greece write-down its huge debt, recapitalize troubled European banks, and leverage up the European Financial Stability Facility (EFSF). Even markets seemed convinced that this could work. However, Greek PM, George Papandreou, comes to shake the waters once again. His decision to lead the country to a referendum with respect to the newly agreed rescue deal, fills with extra uncertainty Europe’s future.

Shocking the rest of the Europe’s leaders, Papandreou announced yesterday a referendum that will take place in two months time, which translates into two months of utter uncertainty and further market volatility. This is two months of no progress on solving the European debt crisis, just so that Mr. Papandreou and his party can gain a confidence vote.

If Greek people vote ‘NO’, then Greece will be exiting the Eurozone. If its people boycott the referendum and the turnout is less than 40-50%, Papandreou would have to step down leading to national elections, prolonging the period of uncertainty and poor governance. A ‘YES’, will give him the popular vote to move ahead with the anti-popular reforms and policies, but will definitely not tranquillise the nation as the economy will be in a deep and protracted recession.

This is a rather selfish and naive decision on Papandreou’s part as he attempts to buy some time to calm the nation down and gain some ‘political capital’ to materialise his announced measures. Nevertheless, what is the point of leading your people to a referendum where the question is effectively “Eurozone or Bankruptcy?”. This referendum is an abuse of democracy’s top instrument and is a major threat to Europe’s efforts to try to find a solution to the European sovereign debt crisis. In times when EU leaders have to think big and consciously, Greece’s PM falls short. It’s not too late to reconsider..



by DG