Another sorry debt sustainability analysis
The debt sustainability analysis (DSA) along with other documents related to the program for Cyprus was leaked today on the wires first by Reuters and then the actual documents were published in the Brussels blog of the FT.
The DSA is as expected based on massaging numbers and ignoring risks to arrive at a baseline scenario with a debt to GDP ratio that would give the troika the argument to call it sustainable and get everyone to commit to yet another EU bailout program.
Given the extent of the damage that was inflicted on Cyprus there is something that deserves at least a mention.
Saturday 16 March 2013, the day they opened Pandora’s box
Usually around 6.30 in the morning is when the little one wakes up for a feed: she is the daily alarm. The ritual is the same each day, coffee, cigarette and catch up on news on twitter. The morning of Saturday the 16th was different as the previous night an extraordinary Eurogroup was held for Cyprus, where everyone expected a final solution for a bailout would be agreed upon. Cypriot President Nicos Anastasiades, the preferito of European leaders and institutions, unlike the difficult communist Demetris Christofias, was willing to play ball and agree a program with the troika, close the matter and move on until the next bailout.
First it was a tweet from Matina Stevis asking how much of the 5.8 billion euros from deposits would come from Russian oligarchs. I thought since it was so early in the morning, I was not catching things quite right. It was Peter Spiegel’s tweet saying Cyprus will impose a 6.75% levy on deposits below 100,000 euros and 9.99% for those above that brought it home.
Cyprus, capital controls
Here is what a cash economy looks like:
- Restrictions in daily withdrawals
- Ban on premature termination of time savings deposits
- Compulsory renewal of all time savings deposits upon maturity
- Conversion of current accounts to time deposits
- Ban or restrictions on non cash transactions
- Restrictions on use of debit, credit or prepaid debit cards
- Ban or restriction on cashing in checks
- Restrictions on domestic interbank transfers or transfers within the same bank
- Restrictions on the interactions/transactions of the public with credit institutions
- Restrictions on movements of capital, payments, transfers
- Any other measure which the Finance Minister or the Governor of Cyprus Central Bank see necessary for reasons of public order and safety
The bill here in Greek:
Cyprus, current state of play
Here is the current state of play regarding today’s vote, information from various local sources:
Session starts at 4pm local (GMT+2)
Cypriot Parliament: 56 seats
Anastasiades party ΔΗΣΥ (DISI): 20 seats
ΔΗΚΟ (DIKO) (coalition party): 8
ΑΚΕΛ (AKEL): 19
ΕΔΕΚ (EDEK): 5
Greens: 1
ΕΥΡΩΚΟ (EUROKO): 2
Independent: 1
Fiscal multipliers, a cause worth fighting for
It was in the IMF’s October 2012 World Economic Outlook (WEO), in Box 1.1 with the title “Are We Understanding Short-Term Fiscal Multipliers” that Olivier Blanchard and Daniel Leigh presented for the first time the findings of their study into the impact of fiscal consolidation on economic activity.
Using data from 28 different economies – G20 and EU member countries – for the years 2010 and 2011, they concluded that there is strong evidence that the fiscal multipliers used since the Great Recession that started in 2008 were systematically miscalculated by a range of 0.4 to 1.2. The implicit 0.5 multiplier used in international organizations’ models to forecast economic growth – which was based on empirical evidence from the three decades prior to 2009 – might be significantly higher, between 0.9 and 1.7, they found. In simple terms, it had previously been thought that cutting a euro from the government deficit would have an impact of 50 cents on economic output but their findings suggest that the damage on the real economy can be more than three times than initially thought, with a euro of deficit reduction coming at a cost of between 90 cents and 1.70 euros on the economy.
Safe as houses
It was Friday September 2nd, 2011 when the troika of Greece’s creditors left Athens after two weeks of negotiations that failed to bridge the gap between the Greek government and the representatives of the IMF, the European Central Bank and the European Commission.
Their last unscheduled departure was in June 2011 when Papandreou’s government went through a month of hell: it had failed in an attempt to form a coalition government with Antonis Samaras, thousands of protesters gathered almost daily on the streets outside the Parliament and Syntagma square was occupied by Greece’s indignados. The events peaked with the vote in Parliament on June 29th of the Medium Term Fiscal Program worth 28 billion euros in austerity measures, a day that neither the Greek state nor the police should be proud of because of the practices used against demonstrators.
Two months later and the projections of the newly agreed program were falling apart. The austerity measures that were implemented over the previous twelve months had now a proper grip on an economy that was sinking much faster than anyone anticipated or wanted to admit. The signs were gathering that GDP would drop by more than 5% compared to the 3.75% that was projected in June, making it impossible for Greece to meet the target of 7.5% of GDP deficit.
An issue of statistical significance in Greece
The head of Greece’s statistics agency, Andreas Georgiou, is to face a criminal inquiry. An ex-employee of the Hellenic Statistical Authority (ELSTAT), Zoe Georganta, has accused him of colluding with the European Union’s statistical arm, Eurostat, to inflate Greece’s deficit figure for 2009, thereby justifying Greece’s EU-IMF bailout, signed in May 2010, and its drastic austerity measures. Georgiou vehemently denies the charges.
Financial prosecutors have referred the matter to a special magistrate and the Greek justice system will have to decide on the validity of each side’s arguments.
Beyond the judicial process, some observations about the case are needed as it goes to the very heart of understanding how Greece’s public finances veered dramatically off course and the country turned to the eurozone and International Monetary Fund for emergency loans.
Cyprus, with friends like these…
It was just one week after the repeat Greek elections and a few days before Cyprus would assume the rotating presidency of the European Union that the island was forced to formally request a bailout after the government stepped in to strengthen the capital base of Cyprus Popular Bank and Bank of Cyprus in order to meet the end of June deadline of core Tier 1 requirement set by the European Banking Authority.
For a number of reasons, Cyprus’ formal request for a bank bailout went under the radar. Cyprus represents less than 0.2% of the eurozone’s GDP and the amounts in question were negligible (initial estimates were in the region of a total of 10 billion euros) when compared to other countries’ bailout programs. Also, all eyes at the time were on Greece and nobody wanted to spoil the celebratory mood in Cyprus as it prepared to assume the EU presidency by making the bank bailout an agenda-topping issue. Spain had also requested bailout funds and was going through the same process of assessing the capital requirements of its own banks. Bank bailout aside, there was a general expectation, after a 2.5-billion-euro loan the previous year, that Russia would step in and help cover the financing needs of Cyprus that would plug the holes of the state budget.
Greece’s labour market, austerity’s biggest casualty
Greece has the potential to attain by 2020 a GDP in the region of 330 billion euros and a place in the G20, wrote the editor of a popular weekly newspaper in Greece over the weekend. This would require Greece to miraculously add 150 billion euros to its economy by the end of the decade at the same time as the 20th economy in the G20 experiences a depression similar to the one Greece has gone through in recent years. Leaving this unlikely scenario aside, the tone of the editorial captures the efforts during the festive period to change the narrative of the country’s future prospects.
Prime Minister Samaras and Finance Minister Stournaras, seem to have placed all their chips on the gradual improvement in sentiment towards and, most importantly, within the country as “drachmophobia” and “Grexit” fade away. They both expect a slow recovery of economic activity in the second half of the year, while on the fiscal side – assuming there are no accidents on the political front – the majority of the 2013 measures are on the expenditure side (as long as measures are implemented as planned and the recession does not exceed the finance ministry’s estimates) and the revenue side of the budget should be executed without any unexpected challenges. Greece next year could have a primary surplus of approximately 700 million euros and for the first time in over a decade spend less than it actually collects, excluding interest payments.
As much as it is essential to end the misery and finally have every participant in the public debate working to create a national plan that will eventually get the country out of this crisis, hopeful editorials and changing sentiment alone are not enough for the country to alter course and address the biggest casualty of the policies subscribed over the last three years, the labour market.
The prodigal Greek, a year in review
Thank you all for your time to read my thoughts and spread them further. Greece in 2012 had three governments, two elections, two debt restructurings, came closer than ever to leaving the euro and hundreds of thousands of people saw their lives deteriorate through loss of jobs and income. Tried to capture all these here out of genuine interest and concern for my country and her people.
The WordPress.com stats helper monkeys prepared a 2012 annual report for this blog.
Here’s an excerpt:
4,329 films were submitted to the 2012 Cannes Film Festival. This blog had 15,000 views in 2012. If each view were a film, this blog would power 3 Film Festivals
The Prodigal Greek 