Wednesday 30 November 2011

Greece could default on PSI negotiations

Back in July 2011 the so called Greek negotiating team made a rather fundamental error when negotiating the original PSI. They engaged into the talks apparently unprepared and with a rather amateurish team. The result was an agreement that was later abandoned and declared dead only to be replaced by another PSI that also seems to be dead too. The Greeks appeared to have made another mistake which only betrays severe incompetence in the matter. They signed a clause that allows countries (Finland) to ask for collateral from Greece as a prerequisite for their financial support. Why was it a mistake? Because there are Greek bonds in existence that specifically prohibit Greece from giving any security unless they do so for everybody. If they do not give this security to everybody, then it would be a breach of the bond's covenants and possibly an "Event of Default". The negotiating team could have said to the Finland team that they cannot possibly give these guarantees as this would be an event of Default, which is something to be avoided and the case would have been closed then and there. That would have been the case of course, if anyone had bothered to read the legal documents that the Hellenic Republic had already signed (see FT  alphaville).The fact that they did not object to it, shows that they had not done their homework going into a meeting that was to shape the country's future. Incidentally, for Bond aficionados the actual clause is called a "Negative Pledge". Let me give you an example from the Greek bond with ISIN XS0256563429.

Click to enlarge

   "So long as any Note remains outstanding, the Republic shall not create or permit to subsist any mortgage, pledge, lien or charge upon any of its present or future revenues, properties or assets to secure any External Indebtedness, unless the Notes shall also be secured by such mortgage, pledge, lien or charge equally and rateably with such External Indebtedness or by such other security as may be approved by an Extraordinary Resolution of the Noteholders (as described in Condition 10)."

So simply by reading the Offerings of the bonds they could have avoided a lot of trouble and the subsequent structuring of a special vehicle to handle this guarantees. Absurdly enough  the Greek side seems to be repeating the mistake! (Τό δίς ἐξαμαρτεῖν οὐκ ἀνδρός σοφοῦ, "To commit the same sin twice is not a sign of a wise man.")

Greece negotiating directly the PSI could be an event of default. 

Click to enlarge
According to many press reports (Kathimerini) Greece has started direct negotiations with the bond holders in order to finalise the haircut and restructuring of their debt. If this is true, then just read the following "Events of Default" from the Greek bond with ISIN FR00489676.
"(l) Moratorium
A general moratorium is declared by the Guarantor in respect of its External Indebtedness or the Guarantor announces its inability to pay its External Indebtedness as it matures or the Guarantor otherwise commences negotiations with one or more of its respective creditors with a view to a general readjustment or rescheduling of its respective indebtedness.

The Guarantor in this case is the Hellenic Republic and the bond was issued by the Hellenic Railways. Interestingly, apart from the Greek lawyers (that may claim ignorance), the international one is a very well known firm, that should have spotted this gross mistake in the Offering.
One could have stretched the argument up until now by claiming that it was the IIF that was doing the negotiations and not Greece directly. This is like hiding behind a fig leaf. But if it is true that Greece is now directly negotiating the "voluntary" restructuring and haircut and it would leave very little room for latent interpretations. Ultimately, it would be up to the English courts to decide how to construe it.
One thing is certain, the market is scrutinizing Greece’s every move and Greece would better square up to it (see FT  alphaville). All one has to do, is to buy few thousands (minimum denomination is 1000) of this bond maturing on 13 September 2012 and go to an English court and declare that Greece has breached the covenants and has therefore defaulted. Apparently it is that easy. I wonder how long it would take before someone does this.

Tuesday 29 November 2011

Gambler's Ruin. EU's Gambler's Fallacy.

Leonardo, the 6 year old son of a  colleague of mine when asked what kind of a Christmas present he wants answered "Dada I want a money printing machine so I don't have to ask you for money again". The kid's understanding of money creation is not far off from what most esteemed economists, politicians and journalists have. Many of us have pondered; if it so easy to print money to get out of a financial mess why doesn't everybody doing it? The USA is doing it to the tune of few trillions and Her Majesty's government engaged in quantitative easing (Fancy word for money printing). According to this idea the ECB can print two trillion Euros in order to buy all Greek and Italian debt and bob's your uncle. No more austerity measures, no more hardship or reliance to market forces.

In fact, this is exactly what the central banks of the most advanced countries are doing the past 10 years. They have been doing it in a number of ways not often seen as money printing. In fact the expression money printing is a misnomer as there is no real printing of currency notes in the traditional sense but just the practice of adding few more zeros on the accounts the commercial banks have with the central bank.

Gambler's Ruin

If you have done statistics and probability in college, you have probably come across the example known as Gambler's ruin. If on the other hand, you are a trader or a simple betting man or woman you would have experienced this mathematical concept first hand. Let me explain it with a simple bet:

G.Neous, a gambler, and his friend, John Doe, play a simple coin toss game. G.Neous declares Heads or Tails and a coin is flipped. G.Neous starts with a bet of £100. If he guesses correctly he has won £200, since there is a 50/50 chance in a fair coin toss. If he loses however, he doubles  his bet, in order to recoup his losses and make up some profit.  This strategy is perfect! G.Neous is assured of a profit. As we all intuitively know, at one point in time G.Neous would guess correctly and make a handsome profit.In mathematical language this is expressed by saying that the probability (expectation) of winning is 100%. So where is the catch? The problem is that even though you have 100% probability of success (at some future time) you do not know or have a limit on when this is going to happen. In other words, it can come after 10 coin tosses or after 1000 or even after 1 million coin tosses. This means that you must have infinite amounts of money in order to play this strategy and infinite amounts of time (for biological beings). In mathematical language this is called infinite variance or unbound variance. How many times did a gambler say, "if I only had more money to bet". He knows that eventually he must win, but he runs out of money before that winning bet comes.

This is analogous to what central banks have done the past 11 years. When the internet bubble burst the Fed first and the ECB later lowered their intervention rates. This made the price of money even cheaper. Effectively, they indirectly threw trillions of dollars and euros into the system in order to avoid the recession. This created a real estate bubble. When the real estate and mortgage bubble burst they printed even more money to stop the collapsing and the recession. In the process, they moved the problem from the banks to the sovereigns and now politicians are asking for even more money printing in order to save the peripheral countries. Where is the catch in this case? Well obviously central banks have infinite amounts of money because money are not mined in some far away land but are computer generated. If something has infinite supply then standard logic says that it must have zero value. And modern fiat money does have zero intrinsic value. Its only value comes from the confidence people have in it. If that confidence is lost then the system collapses.  The more you print the less confidence you have that it may be worth anything.  And this is exactly the risk we are running which is analogous to the gambler's ruin.

So what is the bet that the central banks are taking when they print huge quantities of money. It is very simple. They bet that growth would kick in and inflation would lower the value of debt before people absolutely lose faith in the fiat currency they hold. As long as inflation is tamed then they can continue printing. Unfortunately, without realising they have engaged into the gambler's ruin strategy and suffer from the Gambler's Fallacy.

Gambler's Fallacy

Gambler's Fallacy is another great way that probabilities can fool you into thinking that you are a gambling genius. If for example, G.Neous plays the roulette and number 35 comes up 5 times in a row you may think that the probability of coming up again for the 6th time must be very very small. So you place your bet on everything else but 35. Or you may think that there is some hidden pattern and 35 would come up again for the 6th time. Wrong! Number 35 has exactly the same probability of coming up in a fair roulette (1 into 37 if there is only one zero in the roulette).
Policy makers have fallen into the gambler's fallacy trap. They believe that since inflation is mostly under control after two large doses of printing that would also be the case next time. They are running similar risks to our gambling friend G.Neous. Their thinking is not just wrong it is absolutely criminally dangerous. The more we print the closer we come to the abyss. Unfortunately as far as I know there is no direct measure or index  that captures the  faith on the fiat currency. Some people look at the price of gold or other physical assets in order to gauge it. My intuition tells me that if something appear to be too good to be true, then it is too good to be true.


There is growing evidence that policy makers on both sides of the Atlantic are committing the same mistakes our G.Neous gambler is making.They seem to engage the Gambler's ruin strategy as the best exit strategy out of the financial mess and their decision making process is based on a Gambler's fallacy. Let us hope (only thing we can do) that it works on this coin toss because there may be no more coin games later.  

Thursday 24 November 2011

European Tax incentives.

Taxes define the state
Historically, one of the key hallmarks of a successful state is the ability to impose and collect taxes. From ancient Egyptian times, to the Roman era and more recently to the Ottoman and American empires, tax collecting is not just a money raising activity but delimits the scope of the state’s power and its effectiveness. Sometimes it goes even further as a means of defining citizenship or nationhood. It comes therefore as no surprise that a sure sign of a failed society or a mismanaged state, is its inefficiency and negligence to collect taxes. Following this, the only way to claim that we have a united Europe is to have some form of united tax and tax collecting mechanisms that are accountable to the people of Europe. This has to be done in a democratic way and NOT some unelected officials. We have to adhere to the principle of "No Taxation Without Representation".

In this respect, the demands of the IMF on the Greek government to improve their tax collecting efficiency goes beyond a pure technocratic measure. It is akin to a call to rebuild a state and a society that lays in (Greek) ruins.

Greek tax incentives
Before attempting to provide explanations of the mechanisms that are responsible for this mess it is instructive to illuminate the mess Greece is in.

In essence, the Greek tax laws are very complicated. On average 5 tax laws are passed every year (17  in 2010) with tax officers unable to keep abreast of the most recent whims of their ministerial masters. While in the late 80’s tax arrears totaled €200mln in 2010 that figure is a staggering €33bln. The information technology revolution seems to have escaped the attention of the modern Greek state where paper filing is still king. Sporadic attempts to introduce computers only resulted in a proliferation of different systems and databases that do not communicate with each other. As a result the cost of collecting taxes is 2-3 times the European average. Corruption among tax officers is rife and has never been dealt with effectively. Tax evasion cases take on average 7-10years to be resolved in Greek courts by which time a tax amnesty is bound to happen. There is one tax amnesty almost every 3 years, which by amazing coincidence correlates highly with election time (Nov 2010, is the 10th since 1985, and more to come). Thus, one can argue that it is almost a state policy not to collect taxes.
In fact most economists would describe the Greeks as acting rationally within their own economic habitat. Volunteering to pay taxes is not a human trait. Some say it is a God given right to avoid paying taxes. 

Why Governments need to collect taxes. Incentives

On the surface, one is puzzled by the inability of the Greek government and the political establishment to raise tax revenue as this is the lifeblood of the state and the essential nutrition of the bureaucracy and the political elite. A clue is given by the exponential growth of tax arrears in the years 1995-2010. Governments have a big incentive to develop the economy and the tax collecting effectiveness, because, this is how they survive and exercise their power.
Against this incentive, a Government needs to balance the unpopularity of the taxes they are imposing and in modern democracies this costs votes. Thus a healthy equilibrium is reached and we have a functional state.

Incentives were altered in Europe. Moral hazard

This equilibrium of incentives was violated in Greece and in other peripheral countries, first in the 90‘s by the extension of European subsidies with no strings attached (a cost free cow to be milked) and secondly by the entry into the Euro system and the availability of borrowing at very low rates. Politicians did not have to make hard financial and political choices. They used the subsidies in order to get re-elected and the cheap borrowing to cover any shortcomings. Economic productivity was decimated as traditional industries fell prey to the rising globalization and was replaced by borrowing. GDP growth came from consumption which was fueled by even more cheap borrowing. Why bother with fixing the tax system when you can borrow at low rates with the implicit European guarantee? The spread of the Greek bonds to the Bund which now stands at roughly astronomical levels was at 30 basis point in 2002 and was close to 70-100 for most of the time. One can mitigate his unpopularity by yet one more tax amnesty. It is possible to delay dealing with hot potatoes until the opposition is in power and then to sabotage any attempts to fix things in order to get re-elected once more. Politicians became debt junkies.

Moral hazard and the disequilibrium of incentives is a very powerful force. It is like compound interest. It acts on a long timescale and it passes undetectable on a daily basis. Slowly, the voices of reason and common sense started fading away. Politicians who advocated restrain and prudence became political eccentricities and increasingly unelectable. Populism rose and an arms race of nepotism and exuberant political pledges took over.

The roots of what has happened in Greece are completely analogous to the situation in Arab states that discovered oil or to African states with mineral deposits. In all cases the shift of economic incentives for the ruling party/government acted as a retarding force for the economy and created dysfunctional and failed states. In the Arab world, oil supported totalitarian regimes and in Africa contributed to economic misery, civil wars and gun democracy. In Greece and in other EU countries the subsidies and cheap funding supported the profligate policies of hungry for re-election politicians.

The European bail out of Greece and of other peripheral states, is dealing with the symptoms of the crisis and not with the root causes. None of the moral hazards or the imbalances of political incentives is dealt with in a European level. Once the IMF finishes its work and leaves, the irresponsible behavior will resume in Greece and in other European member states. By that time a more coherent bail out package would exist and a transfer of creditworthiness can resume from the rich north to the south either through a European Bond (I do not mean  a proper Eurobond but the joined guarantee one) or some other mechanism.

This is not what European citizens want. The current crisis is an opportunity to reset the core European foundations on a more concrete and moral footing ready to meet the challenges of the future. In this respect the current crisis could do us a great service only if we draw the right conclusions and act on them.We need a more democratically accountable Europe, one that citizens would be proud to be members of not just a union dictated by unelected officials. This is the time to address this democratic deficit. This is the time to address the Fiscal union. Failing this time is an option that should not be exercised.

Wednesday 23 November 2011

Samaras sends letter. 6th Instalment

So finally, the leader of ND Mr. Samaras has sent a letter to the EU partners describing his support for the program. He did make some noise regarding modifications that need to be done, in the program all within the context and spirit of the program. Would that be enough to satisfy Troika and thus release the 8bil? We do not know. What is probably irritating to say the least, is that it appears that Mr Samaras did NOT negotiate the letter before sending it. In practice, these letters are sent and published after secret negotiations have taken place. In this instance, it seems that he acted unilaterally which is not just odd but grossly irresponsible given the gravity of the situation.

The truth is that this is a power game. Why would a personal signed guarantee make any difference once the Greek parliament approves the measures.Mr Samaras may not be the leader for all we know in 3 months. He might go the same way his university room-mate Mr Papandreou went. If his signature is worth 8bil then he should give 50 of those and wipe out the Greek debt. It is irrelevant what he or he does not sign in the same way that Mr Papandreou signed the MOU with Troika and did not keep his word. So, reality is that this is a badly scripted show of force by Troika and Samaras.

Instalment of 8bil
Greece needs this 8bil to pay not just the redemptions coming in December but also to pay salaries. This instalment was due in September, so it is very very late. In theory, December had the next tranche of 5bil.
So what if Greece does not receive the 8bln. Does this automatically signify default? Well, not exactly. The Greek state can borrow in theory the 8 billion from the Greek banks. You may ask where would the Greek banks find the 8billion? Well, they can turn around and give this as collateral to the Greek ELA (Emergency Liquidity assistance) which currently runs at 26billion. It does sound like a Ponzi scheme and it is, as the ELA is a liability of the Greek state, but hey the Irish are doing it to the tune of 75billion. Why not the Greeks. All that is needed is the unofficial (or official) nod from ECB.

Tuesday 22 November 2011

Is Greece a failed state?

Let me explain the rather sensationalist title of this note. Most Greek citizens living in Greece, spend a disproportionate amount of their time dealing with the state. It is not uncommon to hear them talking in desperation about their failed public services, their failed political system and sometimes their failed state. When it comes to the every day dealings with the state their only consolation is the sunny weather and their eternal hope for change. As most of them say, proving that you are “not an elephant” is the norm rather than the exception.
Is this the sign of a failed state, or just normal moaning? What is a failed state? Can we measure somehow the degree of failure? Fortunately social scientists have done this, so we can apply their criteria and see how they fare.
Broadly speaking there are three main indicator categories:  
  •   Social
  • Economic                       
  •   Political

In this category we have 
  • Mounting demographic pressures 
  •  Movements of refugees or internally displaced persons
  • Legacy of vengeance seeking or group paranoia
  • Chronic and sustained human flight
Greece does not have a demographic pressure or a population explosion. Quite the opposite it is a country with a declining birth rate. Thus there are no social pressures deriving from high density or limited food or resource supply. However, Greece is a hub for illegal human trafficking and does suffer from high influx of economic and political refugees without having the necessary infrastructure to deal with the issue. Moreover, there is a growing resentment and aggression towards these immigrants mainly stemming from the state’s failure to deal with the situation and the racist views of many Greeks.
Although Greece on paper is a very homogeneous country with more than 90% of citizens declaring themselves to be Greek orthodox (religion), Greek speaking (Language), Hellenes (Ethnicity), there are very deep divisions along political lines and affiliations. These deep divisions have caused in the past a civil war, a military junta and endless years of persecution for many. The recent financial crisis is partly caused by these divisive politics and the legacy of vengeance that exists in the main political parties. Greece is a highly divided country and this division along with the partisan politics is a major obstacle to the development of democratic institutions and of democratic political heritage. Greece may have been the cradle of democracy but as with most good things it was “for export only”. Finally, Greece is a regular supplier of brain drain professionals and intellectuals. There have been at least three major mass immigrations by Greeks in the 20th century and we are currently witnessing the 1st of the 21st century.
In this category we have:  
  •  Uneven development 
  • Sharp or severe economic decline 
Greece does not have a uniform economic development. According to surveys close to 30% of the population lives close or under the poverty line. The past 30 years, the years Greece has been an EU member, saw the creation of a class of oligarchs that control the construction and the media industry and have an undue influence in the political life.Needles to say that the second criterion of sharp economic decline is currently in full swing. The total decline of the GDP might top the 20% from its peak in the years ahead. And this is an estimation that assumes Greece would not exit the Eurozone or the EU. 
In this category we have: 
  1. Criminalization of the state.  Corruption in the Greek state and in particular in the public sector is rife. Greece is 78th in the transparency and corruption index, the lowest in Europe. Many call the ruling elite a kleptocracy and there is evident resistance to transparency and accountability.There is widespread loss of popular confidence in state institutions and processes. 
  2. Progressive deterioration of public services: The Greek state’s responsibility to protect citizens from violence (including terrorism) and to provide essential services, such as health and education, are rapidly declining. The inefficient and bureaucratic state of soviet proportions is mostly to blame. Many believe, rightly or wrongly, that the state serves the ruling political elite or political families. 
  3. Widespread violation of human rights: There is no significant violation of human rights in Greece when it comes to citizens. The situation apparently is different for illegal immigrants and refugees. 
  4. Security apparatus as ‘state within a state’: Greece does not have a state within a state apparatus. Accusations do fly in from time to time but mostly for political expediency. 
  5.  Rise of factionalised elites: Greece has had for many years’ two main political factions. The “patriots” or nationalist right and the “democrats” or left. They have fought not just an ideological war but also a real one. The problem is that even new politicians use this polarization in order to get elected, thus perpetuating the populist divisive politics. 
  6. Intervention of other states or external factors: Currently, there are no foreign interventions or military actions. However, geographically Greece is located in an area that has seen many conflicts as recently as mid 90’s (Yugoslavia) and has open issues with more than one of its neighbours. 

Although many of the defining characteristics of a failed state are present in Greece, it would be imprudent to classify Greece as a failed state. The main problem is however, the increasing trend and intensity of some of these characteristics that point to a very dangerous path and future ahead. If Greece decides to abandon the Euro then it is highly possible that even more of the abovementioned characteristics of a failed state would be fulfilled, making Greece the first a truly failed European state of the 21st century.

Monday 21 November 2011

Eurobonds. Democratic Deficit

For a Greek translation click:
Αρθρο στο News247

The idea of the Eurobond as a Deus ex Machine saviour of Europe is not new. Various European leaders in distress like Mr Papandreou and others coined the idea of a single Eurobond that is going to solve all present and future problems. The problem is that everyone has a different idea of what a Eurobond is and how it would achieve saving Europe.
So let me describe what a bond is in my simple mind. It is a senior unsecured (most often) obligation (legal contract) of a legal entity that has the financial means to service the interest rate payment and repay the principle according to the schedule and covenants of the bond. Furthermore, the prospectus of the bond describes the way this legal entity is going to generate the cash that is going to repay interest plus principle. Sometimes, this description is very vague but nevertheless it should be there, otherwise how a prospective buyer would gauge the risk and assess the ability of the entity to repay him. In addition, as Bonds or debt is senior to the equity owners of the entity, the stockholders, have to vote or (democratically) approve the taking on of debt.
In the case of an independent sovereign like most European countries would like to think of themselves this means:
1.     Legal entity is the Sovereign
2.     Sovereign has taxing powers over its subjects and companies in order raise cash to repay the debt.
3.     The equity holders in this case are the voters who democratically elect the government (Board of directors) to tax them and raise the cash to repay the debt. This is one of the most fundamental principles of our western liberal democratic system. NO TAXATION WITHOUT REPRESENTATION.

Saturday 19 November 2011

Ιδιωτικές ή κρατικές τράπεζες;

Κάντε κλίκ στο
Ημερησία 19-Νοεβρίου 2011

Η παγκόσμια οικονομική κρίση που άρχισε το 2008 στην Αμερική είχε ως αφετηρία τη φούσκα των ακινήτων. Ένας παράλογος και υπέρμετρος δανεισμός που μεγάλωσε και ανδρώθηκε από το άφθονο χρήμα και τα ιστορικώς χαμηλά επιτόκια. Οι πολιτικοί ηγέτες εμπρός στον κίνδυνο της μη επανεκλογής τους, λόγω ύφεσης, παρότρυναν και ενθάρρυναν τις κεντρικές τράπεζες να ανοίξουν τους κρουνούς του χρήματος. Άλλοι, πολλές φορές με ιδιοτελή κριτήρια, έκαναν τα στραβά μάτια σε παράνομες τραπεζικές πρακτικές. Αποτέλεσμα ήταν το 2008 να υπάρχουν τράπεζες με 60 και 70 φορές μόχλευση, πέρα από κάθε λογική ή συνετή τραπεζική πρακτική. Είναι λοιπόν λογική η αντίδραση προς τις τράπεζες και οι κατηγορίες που κατά καιρούς εκτοξεύονται προς τους Αμερικάνους και Ευρωπαίους τραπεζίτες. Οι πολιτικοί από μέρους τους, κατόρθωσαν με μαεστρία να αποποιηθούν το μεγάλο μερίδιο της ευθύνης τους που τους αναλογούσε.

Διαβάστε το υπόλοιπο άρθρο στην Ημερησία για τις Ελληνικές τράπεζες

Thursday 17 November 2011

Greece. A New Dawn?

PM Papadimos

Greece has a new PM. The former deputy of JC Trichet got 255 votes out of 300 in the Greek parliament yesterday. Papadimos marks a significant change in Greek politics. For a start, he had a proper job for most of his life and advanced academic qualifications to back it up. Contrary, to his predecessor he knows what a bond is and he has dealt with debt all his life. He is not an academic economist but a finance practitioner. Greece is full of armchair-economists (many have become Finance ministers in the past) that proclaim their superhuman wisdom. At least Papadimos is experienced in the markets and the limitations they impose on theory.
In other words, no-one is questioning his ability to grasp the problem (like Papandreou) and come up with a solution but whether he would be left to do his job by his coalition backers. The signs are not good. He was not allowed to pick his own cabinet and instead he had to rely on mostly the same ministers (PASOK) that failed to deal with the issues. His popularity approval is high but this may be a hindrance. The two main parties may see this as a political threat to their miserable existence and try to undermine him.
At least now Greece has a serious PM that is well known in Europe and no-one can question his European credentials. He after all helped to create the only real institution in Europe, the ECB.

Unfortunately, his mandate would not go beyond February 2012 and this is not enough time to effect any real change. The best Greeks can hope is to implement the PSI and to secure the next instalment. Any real structural changes would have to wait either for a new administration or would be forced by the default.


Papadimos first task is to push for the new PSI agreement. Given that he has been an outspoken critic of the haircut it would be interesting to see how he is going to manage it. As an ex-ECB board member we think that he would be reluctant to include the holdings of the ECB in the PSI.
As a banker he may be more lenient towards Greek banks that would carry the bulk of the painful haircut.
There are many scenarios currently circulating and the head of the IIF Mr Dalara was in Papadimos office only hours after he received the confidence of the parliament.

PSI Variations 
  •    Bonds maturing after 2020 may have higher than 50% haircut.May be a cash (10%) and the rest of the new bonds guaranteed by the EFSF
  •  For bonds maturing before 2020, a 15% cash upfront. For bonds maturing up to 2014, a 20% cash
  • For long term bonds (30Y) a 30-40% cash upfront 
  • New bonds would have a 6% yield 
  • For Bonds in Greek banks and pension funds a different haircut (37%) and bonds with an 8% coupon.

It is early days to see what is going to happen, but one thing is for sure. The old options of PSI-1 are no longer applicable.
It would be interesting to see if they would pretend to keep the voluntary nature of the exchange or whether they would drop it and go for a full coercive restructuring. This may become necessary as participation would become problematic. A 50% haircut plus a bond swap with more Greek risk is far too big to swallow especially if you have already written down your holdings to that level.

Papandreou managed in the end to get the hint from Europe and resigned his Premiership. He did so reluctantly and not before he made various attempts to install his chief-gardeners as interim PM (Petsalnikos, Kaklamanis). The writing for him was on the wall ever since the end of August when the Troika refused to release the 6th instalment. Knowing that they were no significant redemptions till December it was a bold hint at Papandreou to go. He was becoming part of the problem and not the solution.

The truth is that Papandreou never made any attempts to deal with Greece’s issues despite his cries for the opposite. He spent most of his time shuttling around and in making bets and upping the stakes. He never really believed in reforming the economy. All he did was to ask for more bailout money and to blame everyone else (Conservative opposition, Hedge funds, Markets, Capitalists, Media, Conspiracy forces etc.) for his shortcomings. He understood the problem only form the political side of it ignoring the fact that there are 360billion missing from his Greece’s pocket.

It would be a gross mistake however, to write Papandreou off. One would expect that after his resignation the PASOK party would move fast in electing a new leader for the new era. Wrong. Mr Papandreou is slowly becoming the vampire of the PASOK party that may haunt Greek politics for considerable time. He is dead but not buried. Neither he or his party has moved on.

Samaras (Leader of Conservative opposition)

Despite the monumental mistakes that Papandreou made, especially his last referendum idea, Samaras failed to capitalise politically. His anti-Troika rhetoric is populist and designed to appeal to his xenophobic ignorant audience. He reluctantly agreed on a coalition interim government but said that he did not care who would be the PM. This is not responsible behaviour from someone who eyes the Premiership. Samaras’s only fixation was to remove Papandreou from the office and not to see what can be done to deal with the looming bankruptcy and exit from Eurozone. He did not want to put any front line politicians in the coalition for fear that might get burned! If ever was a need for able hands to deal with the Greek problem, now was the time. Samaras initial refusal to put experienced problem-solvers in his coalition government is criminal.

Politicians demand other politicians to keep their promises.
The latest friction came with the so-called personal guarantee to the EU. The Europeans have asked for personal signed guarantees by the Greek leaders that they are going to keep their promises. The oxymoron is that politicians are asking other politicians to keep their pre-election promises! Samaras and the leader of the smaller coalition partner (LAOS) have refused such undertaking.

Wednesday 9 November 2011

Σωσίβια και Σωτηρίες

Ούτε λεπτό δεν περνάει χωρίς να ακούμε για το «ποιος θα μας σώσει», ἡ σωτηρία της πατρίδος προέχει, «θέλουμε κυβέρνηση εθνικής σωτηρίας», «το τάδε κόμμα θα μας σώσει», «η μόνη σωτηρία είναι η έξοδος από το ευρώ». «Πρέπει να γίνει κυβέρνηση εθνικής σωτηρίας». Όλοι περιμένουνε τον από μηχανής σωτήρα τον ηγέτη που ως νέος μάγος του Oζ θα κουνήσει το ραβδάκι του και όλα τα προβλήματα θα λυθούν. Όμως πολλοί λίγοι από όλους αυτούς που αναζητούν σωτήρες κινούν έστω και το μικρό τους δακτυλάκι για να σωθεί ο τόπος. Αυτό είναι περίεργο και άξιο διερεύνησης//ανάλυσης. Δεν το κουνάνε διότι νιώθουν ανήμποροι να κάνουν κάτι ή γιατί βαθειά μέσα τους αναγνωρίζουν την ιστορική αναγκαιότητα ότι αυτή η σημερινή Ελλάδα πρέπει να πεθάνει και να εξορκιστεί. Τι ακριβώς πρέπει να σώσουμε, ποιόν και τι,  είναι άξιο να σωθεί στην σύγχρονη Ελλάδα; Αξίζει να πετάξουμε σωσίβιο στο φαύλο πολιτικό κατεστημένο; Αξίζει να σωθεί κάτι σε αυτήν την κοινωνία; Οι αγανακτισμένοι που είναι τώρα; Οι εργατοπατέρες γιατί κρύβονται; Που είναι το περισπούδαστο Ελληνικό φιλότιμο; Η αξιοπρέπεια ως λέξη ειπώθηκε για πρώτη φορά από τον λάθος άνθρωπο και για το λάθος λόγο. Ότι και να λέμε η πραγματικότητα είναι πως έχουμε οικοδομήσει ένα φαύλο κράτος πού διαστρεβλώνει όχι μόνο την οικονομική πρακτική αλλά και την συμπεριφορά της κοινωνίας.

Η συναλλαγή, ο νεποτισμός και η διαφθορά δεν είναι κληρονομικά. Η επιστήμη δεν έχει ανακαλύψει γονίδιο φοροδιαφυγής στο DNA των Ελλήνων. Είναι συμπεριφορές ατόμων που εξηγούνται πολύ απλά. Είναι η  προσαρμογή στο «Ελληνικό φυσικό περιβάλλον». Είναι η προσαρμογή ως αναγκαία προϋπόθεση της επιβίωσής του. Η Έλληνες πολιτικοί είναι προϊόν αυτής της άκρως Δαρβινικής διαδικασίας. Επί σειρά ετών και διαδοχικών εκλογικών αναμετρήσεων εξορίσαμε τους άριστους και αναδείξαμε την μετριότητα και την πολιτική αλητεία ως μαγκιά. Η αναστροφή αυτής της πραγματικότητας θα είναι δύσκολη και μπορεί να περάσει από πολύ σκοτεινούς δρόμους. Όμως δεν χρειαζόμαστε ούτε σωτήρες ούτε κυβερνήσεις εθνικής ενότητας. Το μόνο που χρειάζεται είναι να κάνουμε όλοι μα όλοι την δουλειά μας. Η μόνη επαναστατική αντίσταση είναι να κάνουμε το αυτονόητο-να δουλέψουμε.
Ίσως τότε κατανοήσουμε τι είναι αυτό που πρέπει να σώσουμε και να διαιωνίσουμε. Τότε θα βρούμε και τούς κατάλληλους ανθρώπους και τις πολιτικές που χρειάζεται να υλοποιήσουμε το όραμα που δεν έχουμε βρει ακόμα ως κοινωνία.

Monday 7 November 2011

Italy's Woes are Greece's Nemesis

  • Italy’s debt 1900 billion versus GDP of around 1500
  • Italy’s debt deficit at -4.6% 
  • Italy’s tax burden one of the highest in Europe at 42.8% 
  • At a 5% average refinancing rate Italy would have to pay close to 6% of the GDP in Interest only.

The next chapter of the European debt crisis is slowly taking shape. Italy’s debt is by any standard astronomical. At 1900billion euros it dwarfs Greece’s 350billion or Spain’s 650billion. Italy of course is a much bigger economy, its GDP stands at around 1500billion and it has so far avoided the worse effects of a deep recession. This however, may be about to change. Italy’s deficit is around -4.6% and the aim of the MOU presented by Berlusconi last week to the European leaders is to annihilate it by 2014.

This would be a very hard target to achieve. Italy contrary to Greece has one of the highest tax burdens of all European countries. At 43.5% it is one of the highest n Eurozone (see table). If the Italian government attempts to follow the footsteps of the Greek government and raises taxes to fill the state coffers it would surely be met with increasing non-compliance and possibly social unrest. The Greek government on the other hand did have that choice but it really messed it up by failing to catch tax evasion and instead it concentrated on indirect taxes (Taliban tax raids). This reinforced the feelings of injustice amongst Greeks.

Thus in Italy’s case the only realistic option is to cut spending, to start selling state assets and to downsize the public sector. This is not a change that can be implemented with visible results any time soon or one that can be easily swallowed by the Italian public.

Italy has to refinance 166billion in 2012 (120 Principal, 46 Interest) and 160 billion in 2013 (117 Principal, 43 Interest). Not accessing the markets is not an option that the EU can afford.

But there is another point with regards to Greece. If the so-called contagion/metastasis materialises then saving Greece becomes irrelevant. No longer is Greece the first line of defence for Europe. Now the focus would be on Italy and Greece can be left to lick its wounds either in or outside the Eurozone. In other words the spill over of the debt crisis into Italy signifies also the total loss of all the trump cards that Mr. Papandreou and his government were playing. This is something that most Greek politicians have not realised. They still think that Europe cannot afford to let them go. With Italy in crisis, the EU would have to get serious and if it means sacrificing Greece so do it. Greece would become the Lehman Brothers instead of Bear Stearns.

Sunday 6 November 2011

National Unity Government. Aliki Vougiouklaki.

Aliki Vougiouklaki, a famous Greek film actress once said that “even your children’s children will grow up watching Aliki”. Most of her films had a happy ending usually with a wedding despite all the odds from the family or societal norms. They had to have a happy ending because Greece at the time was not a happy country, mired with poverty, unemployment, outward immigration to the mines of Belgium or gastarbeiters to Germany. Democracy (with a hereditary Monarch not a President) was shaky with multiple coups being planned by various factions and eventually one succeeding.

Heavyweight political names included Mr. Constantine Karamanlis (PM 55-58, 58-61, 61-63, 74-80, President 80-85, 90-95) the uncle of the PM Kostas Karamanlis (PM 2004-09 and 20XX-XX future date not yet determined), Mr. George Papandreou (PM 44-45, 63, 64-65) the Grandfather of PM George A. Papandreou, Mr. Andreas Papandreou (PM 1981-89 and 93-96), father of PM George A. Papandreou (2009-2011 and 20XX-XX future date not yet determined) and Mr. Mitsotakis (PM 1989-92) the father of Mrs. Dora Bakoyianni and Kyriakos Mitsotakis no doubt PM’s at some later, as yet unspecified date.

The current agreement by the two major parties to form a coalition or a national unity government resembles the weddings in Aliki’s films. As spectators we are elated at the happy ending but once outside the cinema reality strikes once more. Everyday problems have not disappeared, jobs have not being created, corruption and nepotism are alive and kicking and the feeling of injustice, helplessness and national humiliation persists. The really sad thing however, is that as in Aliki’s case, we seem not to have a choice. We have to vote for the same old politicians or their mutated heirs. As with Aliki’s films the best we could hope for was to go back and watch another one of her films with a happy ending. No matter what the people of Greece do or want, they see their political elite not just surviving but thriving at the expense of the country and its future. 

Saturday 5 November 2011

Ιδιωτικές ή Κρατικές Τραπεζες;

Η παγκόσμια οικονομική κρίση που άρχισε το 2008 στην Αμερική είχε ως αφετηρία την φούσκα των ακινήτων. Ένας παράλογος και υπέρμετρος δανεισμός που μεγάλωσε και ανδρώθηκε από το άφθονο χρήμα και τα ιστορικώς χαμηλά επιτόκια. Οι πολιτικοί ηγέτες εμπρός στον κίνδυνο της μη επανεκλογής τους, λόγω ύφεσης, παρότρυναν και ενθάρρυναν τις κεντρικές τράπεζες να ανοίξουν τους κρουνούς του χρήματος. Άλλοι, πολλές φορές με ιδιοτελή κριτήρια, έκαναν τα στραβά μάτια σε παράνομες τραπεζικές πρακτικές. Αποτέλεσμα ήταν το 2008 να υπάρχουν τράπεζες με 60 και 70 φορές μόχλευση, πέρα από κάθε λογική ή συνετή τραπεζική πρακτική. Είναι λοιπόν λογική η αντίδραση προς τις τράπεζες και οι κατηγορίες που κατά καιρούς εκτοξεύονται προς τους Αμερικάνους και Ευρωπαίους τραπεζίτες. Οι πολιτικοί από μέρους τους, κατόρθωσαν με μαεστρία να αποποιηθούν το μεγάλο μερίδιο της ευθύνης τους που τους αναλογούσε.

Friday 4 November 2011

Referendum’s “positive shock”

Referendum? What referendum?
Margaret Thatcher once said "You turn if you want to. The lady's not for turning." (10 Oct 1980). Papandreou on the other hand did a U-turn and took back his Referendum decision. He more or less explained his U-turn as a clever ploy to flush out all those who opposed the agreement both inside and outside his party and to form a consensus. I find that argument very weak and unconvincing. More plausibly this is an attempt to justify his political blunder by laying claim to some higher esoteric and convoluted logic.
Mr Papandreou is a hard nut to crack. Both his father and grandfather were prime-ministers and he was born within an environment of intriguer, chaos and political manipulation. So, it was naturally for him to refuse resignation and dare his timid party to overthrow him. The vote tonight would be pass the bedtime of most markets so we would have plenty of time to reflect on Greece with the Sunday papers. Chances are however, that he would not survive the vote of confidence and a new administration would be formed. If they decide on elections then the most likely date would be the 4th December.

Whether we believe Mr Papandreou’s  motives or not the truth is that it has exposed some very inconvenient truths about Greece and the EU.
In Greece
  • Contrary to his repeated claims, the main opposition to the austerity measures came from inside his own party; the union leaders he bred and caressed for so many years, and the socialist utopia which he has promoted with other people’s money (EU subsidies and borrowing). Unfortunately he did not beg forgiveness for promoting the wrong policies all this time 
  • It exposed the bipolar policies of the conservative party which tried to capitalize on the popular discontent by suggesting that there is an easier and a more painful way to take the poison pill. 
  • It also exposed the double speak of the communist party which for many years advocated exit from the EU.
In Europe
Yesterday’s announcement by Merkel and Sarkozy that any referendum would be taken as YES/NO for Greece’s continuing EU membership was chilling. Merkozy represent individual EU member states NOT the EU. They have no right to issue threats or ultimatums to Greece or to any other state. This is EU democracy and accountability at its worst. Throughout this crisis the EU tried to force the independent ECB to do their dirty work for them. Then the ECB overruled any default or restructuring of the Greek debt in 2010 (and the Irish in 2009). After that they tried to bend the market and attacked the bad rating agencies and the immoral CDS. Together with the IMF they imposed an austerity package upon Ireland, Portugal and Greece. Talk of fiscal union was brushed aside or was quickly given to Van Rompuy so that they can control it. All this time the people of Europe were never asked for their opinion. Now that the Greeks whispered the offending word “Referendum” the masks were dropped. Greece would be “allowed” to have one only - if the wording is dictated by Merkozy.

Europe needs to wake up. This resolution of this crisis does not lie with a Greek  exit from the Eurozone. Greece without wanting it has unmasked many of the serious weakness of this Union and its treaties. The lack of accountability, the democratic deficit, the impotent Europarliament, the lack of fiscal and political union, the ECB’s limited capabilities, the changed relationship to creditor/lender from partner state, all need to be addressed.

Thursday 3 November 2011

Greek Madhouse

Although Greek PM Papandreou seems to have lost the support of his party over the referendum, Greek PM is a hard nut to crack. Chances are that he would NOT resign but go to the confidence vote (tomorrow) and dare the MP's to bring him down. This would mean one more day of volatility but this is politics. This opens up the doors to many scenarios:
  1. He loses the vote of confidence but refuses to resign. It is unlikely that anyone else from the opposition would command 151 votes for a coalition governemnet which means Elections
  2. PM resigns before the confidence vote but does not ask for elections. In this case, the PASOK would have the chance to elect a new leader that would have to form a government and ask for the confidence of the house (Vouli)
  3. PM resigns and asks the President for elections. PASOK elects a new leader and goes to polls.
  4. PM resigns and the President ask the political parties to form a National Unity Government. This NUG then accepts the directives of Europe and later (few months) goes to Polls again
  5. PM wins and forms a wider government possibly with opposition.
On any of these scenarios there is high uncertainty and political egos are running high. It is unlikely that we would have a smooth ride in the next few months with or without Mr. Papandreou. Tragedy and drama are integral part of Greek political life. ἢ τὰν ἢ ἐπὶ τᾶς.

Wednesday 2 November 2011

Europe's Strongest link is Greece


Mr. Papandreou was invited to G20 to discuss his latest gamble. If it was chess, then Mr. Papndreou’s latest gambit does not just offer to sacrifice the Queen but the whole tournament. This is a crucial meeting for Europe’s future. If Sarkozy and Merkel go along with him then they would need to support him and Greece. They would further need to stop Elastoplasting and get down to the real issues of the EU, like the fiscal union, democracy and accountability. This is the time. If they fail to do so then other countries may question the wisdom of being in such a union. Even Mr. Cameron should be feeling the tremors of such a referendum earthquake.   
So watch out for the statement after Papandreou meets Sarkozy and Merkel. It is of crucial importance. Our guess is that with Italy on the ropes, they would need to support Greece’s decision and keep their rage for later.
In this respect Greece has become the strongest link in Europe. Greece is forcing the EU leaders to take their jobs and responsibilities seriously and to stop playing around with EFSF leverage, gimmicks or dreams of Chinese rescues.

European Democracy?

There is no question that most European politicians were surprised by Mr. Papandreou referendum decision. With one stroke the Greek PM brought back the Greek problem at the forefront, but this time in the context of democracy in Europe. It is not a secret that the EU along with money deficits has also a huge democratic deficit. The only elected body, the Euro-Parliament has little influence over events. One wonders why Europeans still accept the cost of these impotent parliamentarians. The commission is appointed and not elected while the European council is dominated by Germany and France which effectively take decisions for the other countries. The so called President of Europe Mr. Van Rompuy was voted by 27 out of the 400million eligible voters.  Sarkozy muttered that much recently, when he questioned the wisdom of deciding the fate of Greece.
If Europe is to have a future then EU politicians should start addressing some of these issues seriously. Sweeping under the carpet is an option that is fast disappearing.

Background on Greek Politics

Greece joined the European Economic Community (EEC) in March 1981 on the insistence and perseverance of the then PM Mr. K.Karamanlis. His main opposition was Prof. Andreas Papandreou who campaigned fiercely on an anti EEC and an anti NATO platform together with the all the left and communist parties. He promised to take Greece out of both as soon as he was elected. The Greek people believed him and more than half were truly against this capitalist monopolistic blood sucking Europeans that had one think in mind, “to corrupt the Greek way of life”, to acquire “The priceless Greek assets” and other equally imaginary reasons. Despite the high stature of Mr. Karamanlis, his political instinct told him NOT to do a referendum on the issue as he truly believed that the people would vote against it. The demagogue A.Papandreou played his cards right knowing that Karamanlis would not bet the country’s future. He was thus free to be as anti-European as possible knowing that once winning the election (Oct 1981) he could procrastinate any decision long enough to bribe the people’s memories with EU subsidies.

Incidentally, the current PM is the son of A.Papandreou and the previous Mr. K.Karamanlis is the nephew of the then K.Karamanlis. You would be forgiven to think that Greece is not a true democracy but rather a strange mix of Hereditary Democracy and byzantine politics. With few exceptions, that prove the point, political life in Greece has for the past 70 years been dominated by 2-3 families. This is the remnant of the patriarchal society and the cause of much of the corruption and nepotism faithful to the best tradition of the ancient Greek house of Atreus.
Now, Mr. George Papandreou is trying the same political blackmail to the conservative leader Mr. Samaras. He knows very well that the conservative party and its voters are very pro-EU. In fact, it is the government’s party supporters (PASOK) which have EU reservations, especially those on the left of PASOK (A mixture or national-socialists, communist revisionists and pseudo-intellectuals). Thus with one stroke he can force the conservatives to vote YES and simultaneously possibly split the conservatives if their leader decides to vote NO. If the people vote YES then he has not only gained time but possibly a better deal for Greece and the future of Europe. This may reverse and even propel his reputation to a stratospheric status in Greece and in Europe. The alternative of course, a NO decision, would make his father’s reckless promise come true. Greece would then sail in very dangerous and uncharted waters.

Tuesday 1 November 2011

Greek Referendum

Just as you thought that the Greeks are no longer an issue and that the focus would be shifted to Italy and Berlusconi, the Greek PM Mr. Papandreou threw a huge spanner in the European works by calling a referendum on the PSI. Emotions aside let’s have a closer look at what was announced, how it is going to work and what it means both for Greece and Europe and the markets.

  • A Referendum to be called on the PSI after the final details of the plan is known. The most likely date would be sometime in January. According to the EU decisions the PSI is to be finalized by December and executed on January. 
  • PM has asked for a vote of confidence from the Greek parliament. This is to take place after a 2 day debate and the voting would start at midnight on Friday 4th November.

Vote of Confidence
In our view the real news is the Vote of confidence and not the referendum. Here is why:
  • The government’s popularity is at around 18% which is probably less than the number of PASOK party members. 
  • The Greek public is outraged by the continuous injustice when it comes to the various Taliban tax raids. We have said this before; the brunt of the taxes fell on mostly honest taxpayers (pensioners, salaried workers) with little room to cheat on them or excess fat to shed. 
  •   Greek public is totally incensed at the inability of the Greek government either to tackle tax evasion or to punish politicians who we have clear proof that they used their time in office for profiteering.  This enforces the view that there is kleptocratic system of values(sic) that is shared by both major parties. 
  •   The usually outspoken, bubbly and publicity junkies MP’s are currently shy away from public appearance as they are booed or even physically attacked almost everywhere they go. Last week, protesters even disrupted the sacrosanct National day (28th Oct) and verbally abused the president of the republic, calling him a traitor to his country.
  • This is a highly charged political and social environment and every government MP would be contemplating his exit strategy form this mess, including perhaps the PM Mr. Papandreou.

“No” Outcome to confidence vote.
Under the circumstances we find it difficult to believe that Mr. Papandreou would survive the confidence vote. If the government MP’s vote again for him then they would be called to vote even more unpopular reforms and accused of causing the Greek exit from the Eurozone and the subsequent degeneration into a failed state, should the referendum result is NO. We therefore, expect the PM to lose it. It actually suits him very well, as he would claim that he did his democratic duty but his party was unable to follow him or that he betrayed him.

If Mr. Papandreou loses, it is not the end of the world. The PASOK (government) party could regroup under a new leader (guesses here are Diamantopoulou, the former EU commissioner and currently Education minister, or Mr. Venizelos or someone who has not burnt many feathers in the last few months). So scenarios are:
  • Papandreou loses the vote and declares elections
  • Papandreou loses the vote and he steps down. Party elects a new leader who in turn asks for a vote of confidence in forming a new government. Or he forms a new government with a view to have elections very soon.
Coalition with new leaders or political parties?
If there are elections then the most likely outcome is a hung parliament and no clear winner. With Papandreou out of the picture the two major parties would find it easy to agree on some form of a coalition government that would implement the changes needed. We might even see a rebellion in the conservative opposition and a breakup forging new political parties. The danger of course is that the then Greek party leaders might disagree throwing the country into chaos and eventually force a disorderly default and exit from Eurozone.

“Yes” Outcome to confidence vote.

If the PASOK MP’s chose to support Mr. Papandreou (all other parties said no already) then it may by a pyrrhic victory for Mr. Papandreou. He would be not only severely wounded internally but European politicians would have every right to be outraged and sick and tired of the byzantine politics that the Greeks play. So:
  • With European support disappearing Greece would move faster to a disorderly default with unpredictable consequences to the rest of Europe. The Greek PM may play the nationalistic card and ask for exit from Eurozone. Mr. Papandreou sold himself to Europe as the good reforming guy that is on Europe’s side. Most European politicians are now realizing that this may not be the case as he renegaded on all his promises for reform, time and time again. Mr. Papandreou now is willing to risk the future of Greece and the stability of Europe. 
  •   Europe decides to turn a blind eye to Mr. Papandreou’s political gambles and supports Greece with yet again a new bailout. This would have to be the case as the agreement reached on the 27th Oct is for most practical purposes dead. Thus, unless his move was done with some form of informal nod from Germany and France we find difficult to envisage how he can survive.
  • If Europe decides to support him after the Yes vote, then the next hurdle is the G20 summit in a week’s time. A new rescue package would have to be negotiated as time would be running out not just for Greece but also of Italy and other peripheral countries.
Referendum are NOT binding

There are many aspects of the referendum that make it complex. Let’s assume that Mr. Papandreou survives the confidence vote and that Europe decides to support him. In January the referendum will be held on the PSI deal.
  • Under the new law Referendums are NOT binding to the government. So a resounding NO does not mean that the Greek government would oblige. He may call elections or hang into power depending on the new deal that would need to be worked out with Europe. In this case, Mr. Papandreou played for time blackmailed Europe into a better deal for him. 
  •  If the vote is YES then Mr. Papandreou pulled huge rabbit out of the political hat and can be hailed as a savior.

We believe that most likely it would never come to the referendum and that political development would take a very dramatic form in the next few days.


For most purposes the PSI deal is dead just 3 days after it was reborn. Why chose to participate in it when the deal might be reversed in the referendum. Becoming a hold out now seems to have more benefits than joining in. Many bondholders would have written the bond down to 50 and would be more than willing to stay out rather than getting a new Greek bond.
Greek banks and Greek pension funds would take a disproportionally big hit if the PSI proceeds in its current form. The Greek Pension funds were obliged by law to invest in Greek bonds and the Greek banks never really had any choice. Now they are being punished for supporting the government. Any new PSI should in principle exclude the Greek Banks and Pension funds if Europe wants a sustainable solution.

With the agreement of the 27th October dead, the IMF funding for the next 12 months is dead too. Thus we should expect them to leave and either Europe pick up the tab or face again a disorderly default.


To draw any conclusions at this very volatile time is overly ambitious. For all we know, the Greek PM might not even survive the next day never mind the confidence vote as senior members of his government rebel. We however are of the opinion that there would be no referendum held in the end and that Europe would have to go back to the drawing board for a new this time Pan-European solution and not just another Elastoplast. Mr Schäuble must be wondering what on earth happened. There is a great German tradition in studying classical Greece and German scholars are the best in the world, perhaps it would pay if they start studying the modern Greeks a bit more.