See you at The Agora

It was October 2011 and Greece had just gone through the most explosive summer in its recent history. Early in the summer, protests that had started reluctantly and peacefully at Syntagma Square turned into something more pronounced with masses of Greeks surrounding Parliament. They were met with outright violence by the Greek police. After a brief respite in August, social tension rose again during September and at the start of October.

Greece was right in the thick of its crisis. It was consistently ridiculed in the northern European media, especially Germany. Greeks were berated as a people, the medicine prescribed by the troika was not working for reasons that have now been admitted by the administering doctors and the austerity policies were having a progressively stronger hold on the economy and society.

It was in the environment created by these unprecedented developments that this blog come into existence. What started on occasion as a diary, on others as a punchbag for venting emotions, evolved and grew beyond any expectations.

ANFAir play

When you read that foot-dragging might leave Greece short of 2 billion euros, you probably instantly think that those pesky Greeks are up to no good, again. Well, not this time. The shortfall lies with Greece’s eurozone creditors as national central banks (NCBs) did not roll over their Greek debt, the so-called ANFA holdings.

This special relationship between Greece and the central banks across the eurozone started early in 2012, prior to the conclusion of the PSI. Then, a law passed through Greek Parliament converted the ECB and NCBs Greek debt holdings into new paper with identical coupons and maturities, which was subsequently excluded from the PSI. A clause was inserted stipulating that the bonds eligible for the debt exchange were those issued before the end of 2011. It was that simple.

Honey I shrunk the Greeks

It was Tuesday the 28^th of June 2011. The Greek Parliament was starting a two days session for the debate and vote of the Medium Term Fiscal Strategy – Mesoprothesmo in Greek – and the demonstrators were gathering by the thousands at Syntagma square to protest against yet another austerity package demanded by the troika. The entire world was looking at Greece. The balconies of the hotels around the square were filled with camera crews and numerous journalists in the crowd were interviewing protesters.

Around midday, I was standing at the spot in the picture when a journalist followed by a cameraman approached two teenage girls standing next to me. Politely he introduced himself, he was from a Danish channel and asked them if they thought that Greek MPs should reject the proposed austerity package, a question to which the girls without much thought responded to saying yes. He then went ahead reminding them of the blatant blackmail from the troika that failing to pass the new measures Greece would not receive the program tranche and will be led to a messy default.

It was at that point that I found myself spontaneously stepping in and asked him why he thought that this ultimatum was the only option. Why he thought this type of blackmail was acceptable between partners, who was really benefiting from this ‘bailout’ program and why given Greece’s mounting debt problems a debt restructuring that would lift large portion of Greece’s fiscal efforts was not considered as a realistic option.

Drinking from the bitter cup

Out of all the visits to my homeland during the crisis, the trip at the end of summer of 2011 was the one that gave me the sense that Greece’s social fabric was close to tearing point. In June of that summer, the protests of thousands of Greeks outside Parliament were met with extensive repression and police brutality. The scenes of clouds of tear gas remained in people’s minds and the distinctive smell lingered for those who participated in the protests. It was evident that Papandreou’s government had lost all contact with society.

In early September of that year, the disagreement over how to rectify the fact that the deficit had deviated from set targets led to the hasty departure of the troika, Greece was entering a long period of uncertainty and that summer was the most tumultuous period of the crisis in social terms.

Taking a macro snapshot

“Seems to be this assumption that if you accurately report that the data is getting better (in Greece) you’re Olli Rehn”, said to me the other day someone whose opinion I regard highly and got me thinking. The comment coincided with the successful conclusion of the troika’s inspection last week which was followed by a wave of positive publicity efforts by the Greek government which even included Prime Minister Samaras addressing the nation.

Could it be possible that consumed by the crisis we are missing the turn of events and the small signs of improvement that start emerging though unnoticed? Are the good news simply lost as the crisis tests the Greek social fabric?

What follows is a handful of charts of some of Greece’s main macroeconomic indicators and surveys that give a snapshot of the current state of the economy. The shaded area in the charts represents May and June 2012 when the country’s place in the eurozone never looked more precarious from a combination of domestic and foreign factors and players. What followed was a period of intense negotiations with the troika that concluded in the end of November last year. In effect, Greece had a period of relative calmness just in the last four months.

Apples, pears and oRehnges

“People have been comparing apples with pears and coming up with oranges,” EU Economic and Monetary Affairs commissioner Olli Rehn said patronisingly in the press conference after the Eurogroup meeting in Dublin last Friday, urging people not to rely on leaked documents. That was part of his response when he was asked how the Cyprus bailout went, within a matter of weeks, from a total of 17 billion euros – as was initially communicated – to 23 billion euros – as the leaked draft document of the financing aspects of the program revealed.

Catchphrases seem to be the only way that Olli Rehn can explain this discrepancy. Yesterday, he gave the same response in the session of the European Parliament where he was battered by MEPs over the handling of the crisis in Cyprus and the damage it inflicted on Cypriots.

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.

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:

Click to access synallages.pdf

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.