Professor Morici’s Commentary on Greece’s Debt Problems

A great commentary for the simple reason that it is clear and spelled out completely. One of the best perhaps lines is that “Politicians are like children in a candy story," he says. "They don't worry about the cavities they will receive or the money their parents will have to pay filling those cavities. They just want their candy now."

Two More Videos of Vasileios Markezinis

Βασίλειος Μαρκεζίνης: «Μία Νέα Εξωτερική Πολιτική για την Ελλάδα».

Ο κ. Βασίλης Μαρκεζίνης στις “Ανιχνεύσεις"

Vasileios Markezinis: The Greek Crisis

An important Greek academic and thinker talks about the Greek crisis. He has given a lot of lectures and interviews about economic and political issues that are related to Greece.

Β. Μαρκεζίνης: Η Ελλάδα της κρίσης: Το παρόν και το μέλλον.

Martin Jacques: Understanding China

Important Economists Talk About Greece

Typical Scientific Peer Review

A typical outcome of a referee report.

Video On Greece’s Economic Hardships

Disclaimer: A video is posted to start us thinking about issues, not because the views of the speakers are (necessarily) adopted by me.

Trillion Dollar Bet

This is a very educational documentary about the development of finance as a science – especially what has to do with derivatives pricing – and a very famous application of it, the creation of the LTCM fund and what brought it down. Events that were repeated after 10 years in 2008. The documentary is in Youtube in 5 pieces.

Part 1, Part 2, Part 3, Part 4, Part 5.

The transcript of the movie can be found here.

Change Of View: Greek Economists Find Haircut of 50% Optimal

Leading Greek economists who – rightly so – argued in favor of reform measures back in August 2010, now suggest that a haircut of 50% and restructuring on the remaining debt is the optimal way for the Greek government to go (see here). This is a clear sign on how much unhappy the same academics have been about the way the government has implemented these reforms. The reforms have had no result so far, and this is because no reforms have been implemented. They, therefore realize that we are now are in a much worse point, and our solution now is to cut 50% of the debt and to restructure the rest of it!

At the same time, in Greece, the government and the public do not even want to hear about (just) restructuring. Another example of the many denials of the Greek society of the inevitable? We’ll see. At least now, they will not be able to claim that all the Cassandras  who are coming up with doom scenarios are foreign individuals with private interests in the default of Greece. They should – lets hope they will not find other conspiracy theories – be able to accept that the poor Greek – I emphasize this – academics have no other interest than that of the Greek recovering. Do the politicians have the same interests? This is the question.

Views on Greece’s Reforms

Bellow is a piece of the FT article “Greece: Hard to hold the line”

….

Mr Papaconstantinou, the finance minister, argues against underestimating “the willingness of the government to push forward”, pointing out that it still enjoys broad public support. But behind the scenes, Greek business leaders and eurozone policymakers worry that he is not in control of events. “Nobody is managing the government,” says one business executive. “The troika sets constraints and ministers try to get around the constraints. It is 100 per cent a leadership issue.” Another jokes: “The best thing that could happen would be to put the administration of Greece in the hands of Brussels or Berlin.”

There are some bright spots. The Greek tourist industry expects a good season, with the country benefiting from unrest in north Africa and the Middle East. Goods exports, largely of agricultural products, have staged a recovery although they still account for less than 8 per cent of GDP.

Evidence is scant, however, of an economic turnround that would turn international sentiment in Greece’s favour. For every example of progress, there is at least one tale of setbacks.

An early step forward was the opening up of the road freight industry – in the face of protests by militant truckers, who blocked roads and suspended food and fuel deliveries. But the government yielded to the pharmacists’ lobby, which has kept its guaranteed 35 per cent profit margin on prescription drugs. In tourism, cruise tour operators hoped for deregulation measures that would encourage holidays starting and ending in Greek ports, thus boosting local hotel and restaurant revenues. Instead, they have faced increased bureaucracy – including a requirement that they sign annual contracts with the state on the frequency and duration of calls at Greek ports – an obstacle not faced elsewhere in the Mediterranean. “Greece is losing income and the law needs to be amended,” says Michael Nomikos, Greek representative of Royal Caribbean International, the world’s second largest cruise operator.

Athens has failed noticeably to liberalise its energy sector – adding to costs faced by industry and leaving one of Europe’s sunniest countries behind in solar technology. Investors complain that gaps remain in a new framework investment law. “The only way out is to encourage private investment, foreign direct investment and export-oriented growth,” says Nikolaos Karamouzis, deputy chief executive of EFG Eurobank.

. . .

The risk is of a vicious circle. Until economic uncertainty over Greece’s future abates, there is little incentive for the investment needed to boost long-term growth. Dangers are rising rapidly.

The longer Greece is unable to tap global financial markets, the more the country’s banks will have to rein back their domestic lending – adding to a credit crunch that is already crippling the economy. “We are the victims of a state that has lost international credibility,” says Mr Karamouzis. Greek banks are dependent on the ECB for liquidity – currently borrowing about €90bn in short-term loans. But the ECB wants to exert maximum leverage on Athens to speed up reforms and could cut its liquidity lifelines if not satisfied.

Athens had hoped to return to financial markets next year, when according to current plans it will need to raise €25bn-€30bn. With yields on its two-year bonds recently at record highs of 25 per cent, that timetable is almost certainly unsustainable. But a fresh bail-out would be hard to stomach especially for taxpayers in fiscally prudent northern European countries such as Germany and Finland.

Unsurprisingly, financial markets have started to believe a debt restructuring is inevitable. It is a scenario that the IMF and European authorities remain determined to resist. The ECB has warned of possible apocalyptic consequences on the country’s banking system and beyond. Jürgen Stark, an ECB executive board member, has said the 2008 collapse of Lehman Brothers on Wall Street could be put “in the shade” by a Greek default. Last month the finance ministry asked Athens prosecutors to investigate rumours of a restructuring – a move that strengthened the impression of a government under siege.

…

When – or if – Athens says public finances are back under control, will anyone believe it?

The country’s crisis erupted in late 2009 after the newly elected Socialist government of George Papandreou revealed the public sector deficit that year would be three times higher than previously forecast. But Athens was already a serial statistical offender. Based on revised budget deficit data, Greece would not have met the criterion of 3 per cent of gross domestic product set for membership of the eurozone, which it joined in 2001.

Since August last year Andreas Georgiou, head of the Hellenic Statistical Authority, has been in charge of sorting out the mess. For 21 years, he worked at the International Monetary Fund in Washington. His return to Greece meant a hefty salary cut but he “wanted to provide help at a difficult time for Greece”, he says in a rare interview.

One solution – throwing money at the problem – was not an option. With public spending being slashed, Mr Georgiou faced a hiring freeze. His staff, based mostly in an office block in a rundown suburb of Athens with views of concrete roadways rather than the Aegean, have faced pay cuts.

Instead, Mr Georgiou has focused staff on areas such as statistics on government finances. Backed by experts from other European Union countries, another priority has been to change Greek-style informal working practices. Mr Georgiou has strengthened, for instance, the crucial process of validating data – going back to original sources to check their reliability and cross-checking with other information. “All these things are new, they did not exist before,” he says.

However, he says, “the most fundamental change that moved everything forward” was the granting of his unit’s independence – bringing the country into line with standard European practice. Previously, it was a secretariat within the finance ministry.

“Of course, there has been pressure ... but my approach has been to continue to do my work according to the rules. My aim is to keep our work independent and produce credible data according to the appropriate standards.” Greece, he adds, “cannot afford any grey areas”.

His efforts have already brought results. In October last year, Eurostat, the European Union’s statistical office, dropped its warnings about the reliability of Greek data on public sector finances.

“For anyone to say there will never be any revisions would be very suspect,” Mr Georgiou says. “But I expect that any future revisions to our data will be within the normal margins you would see in other European countries.”