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A More Skeptical View of Greek Reforms
Had a
chat with a buddy of mine in Athens last night who is responsible for a
major investment project in Greece. He wasn't as optimistic on the
country's economic reforms:
- "I am not as optimistic as you
and I think your stay in Crete is biasing your views. Crete is better
off than the rest of Greece. They've been hit, but nowhere near as hard
as the rest of Greece." - "Unlike elsewhere in Greece, Cretans
understand the meaning of service. They take excellent care of their
tourists which is why they see repeat tourism every year." (Other places
also service their tourists properly, but it's true, Cretan hospitality
and generosity is unparalleled). - "People like your uncle who you
wrote
about a few days ago, are the exception to the rule. Most
businesspeople here do not think long-term." (That's pretty much true of
anywhere else. My uncle is investing in solar and he told me in two or
three years, the plant's energy costs will be zero. They will produce
enough electricity to have some left over, which they can sell to the
state's electrical utility organization). - "The biggest problem
Greece has is tax evasion and lack of investments. The corruption among
tax collectors is scandalous, and the investment climate is bogged down
by bureaucratic red tape. Moreover, the government isn't paying back the
VAT tax credit, which is substantial for projects like ours. Also,
capital flight is all too common as the Greek elite have parked their
money offshore." - "As far as the austerity measures, they
should have fired half the civil service and other measures, like the
fuel tax, are killing the economy. Road traffic is down, truck traffic
is down, and car sales have plummeted. GDP was down 2% last quarter, and
I bet you that figure was padded." - "I think Papandreou is
smart. He will wait till revenues and expenses are balanced before
restructuring the debt. Bondholders won't take a severe haircut, but I
would't be surprised to see debt maturities being extended from 10 years
to 30 years." - "As far as the banks are concerned, they are well
managed, but they don't know what they have in their books in terms of
bad loans, and just like the US, they can't foreclose and exercise
security. They are basically like Japanese zombie banks" - "Bankruptcies
will soar over the next six months. Things are dire and will get much
worse before they get better."
Hardly the good news I was
looking for, but my buddy is in the thick of things and even though I
find him way too pessimistic, I listen to his views. Finally, on
pensions, he had this to say to me:
- "I agree with you, Greece
needs a similar national pension plan run like Canada's Pension Plan
Investment Board, but it will never happen. There are too many competing
interests among various pension plans for the civil service, doctors,
farmers, and bankers (IKA, TEVA, etc.). And corruption is rampant, which
is truly the biggest problem here. I can just imagine what would happen
if they ever created a large Canadian style pension investment board.
Kickbacks will be rampant."
My answer to that is simple:
Governance! Take the Canadian pension model and add more transparency
and checks and balances. There is simply no reason for Greece not to
reform its pension system by consolidating all the various pension plans
and adopting world class investment and governance standards.
I
am not as cynical on Greece as my friend in Althens. Sure, things are
bad, probably will get worse before they get better, but for investors
with a long-term investment horizon, Greece offers plenty of
opportunities right now.
On that final thought, listen to Petros
Christodoulou, the director general of Greece's Public Debt Management
Agency,
talk about the outlook for Greek bonds. Mr. Christodoulou ruled
out restructruring. I know many of you will dismiss his views, but
some large funds are starting to back Greek sovereign debt, which is
very encouraging.
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Thank you for giving us both sides of the argument Leo.Although I think you lose your way a little when you talk about buyers for Greek government bonds as yield levels are very high rather than improving.
On the subject of Greece I notice this from notayesmanseconomics blog.
"In sum, despite the fact that the ongoing financial and economic crisis seems to have speeded up adjustment of current account imbalances in Greece, as it has forced the correction of some underlying domestic imbalances, bold and co-ordinated policy measures are needed to restore the economy’s external equilibrium."
You see he is quoting from a European Central Bank working paper.This view that Greece needs to do a lot more comes from an institution with a vested interest in Greece's finances so it is particularly revealing.
http://notayesmanseconomics.wordpress.com
The mixed conflicting market signals return. It reminds me of periods in 2007/2008 during the market uncertainty and dislocation in addition to market intervention or rumours of market intervention (like the QE chatter now).
http://stockmarket618.wordpress.com
seems LEO long all way into ..#Greece offers plenty of opportunities right now
#1
leo remmeber 2008 ,, spring,, after sovereign funds went into US brokers that
got cheaper,,so seems much better deal... they were #ucked..
as seems you will be too..
#2 leo my friend..
as you're stupid as you look like.? there's a thing called HISTORY that says
there can't be GOOD REFORMS DURING bad times.. those reforms are called
defaults and revolutions...
god luck in greek longs
alx
i know a lot of greeks, none of them are in greece though..
near by here we have a lovely greek community, the local shops are full of greek deli's and cafes.. its like your in greece,, seriously.. there is not one male greek working, they are all developers, all entrepreneurs . and all drinking coffees all day watching the world go by..
Ah get Fucking real....the country is super corrupt. They don't give a shit about anything but today. They are last minute people. The government always fucking lies and the people don't trust them and they're right.
If Greece was a person- would you lend him money- your answer better be no....
There will be riots there will be revolution of sorts - and unfortunately there ought to be!
The greeks are an obstinate people. They've become lazy and entitled, and their bueracracy is a piece of corrupt useless shit. What does Greece export any more other than their (awesome) food, music and love of life? Okay maybe fucking olive oil. Greece is fucked - and it should be. Oh and before anyone starts I'm greek and an entrepreneur - so don't fucking go there.
Oh, I think what we have here is yet another disgruntled Greek living abroad that tried to live the dream of working or investing in Greece. Something like that in any case.....it seems like a very common occurence in Greek circles.
P.S. Leo, your friend's views are far,far,far closer to the truth than yours.
A+ Leo I like information from the ground. Thanks buddy
Leo, kudos to you for posting this. Most all of the people here who are too hard on you would never have the balls to post something that runs counter to their views, they'd just sweep it under the rug.
Depending upon the maturity, the market value of Greek bonds today are down 30 to 50%. The European stress tests did not move anything but the trading account to a haircut or market value adjustment. The bulk of the bonds are held in their investment accounts at purchase price. Discounting the bonds to market value would put a big dent in the banks. There is no question in my mind that the Greeks will default. 80% of their bonds are held outside of Greece. The Europeans are throwing their money away as rescheduling the debt would be the best outcome possible. Greek interest rates hit a new high for the crisis a week ago. They were broke at 3%; what makes you think they will be able to pay back at 11.5%? The other part of the problem is they are adding more debt over the three year period. They were indebted at 115% of GDP and in three years will be 145% debt to GDP and that will probably be worse because GDP is likely to decline more than expected. The European Banks will still have Greek bonds after giving Greece 111 Billion Euros; the Germans and French should have bought the bonds from the banks. At least then they would not lose the money they give Greece and then lose the money the banks have in the bonds.
"I think Papandreou is smart. He will wait till revenues and expenses are balanced before restructuring the debt. Bondholders won't take a severe haircut, but I would't be surprised to see debt maturities being extended from 10 years to 30 years."
Papandreou is an elitist tool who sold out the people who elected him. Greece will not restructure, Greece will outright default, IMF intervention or not. And it's not "balancing revenues and expenses" that will do that, it's blood in the streets.
Stop talking to "money" guys and start talking to the Greek middle class who has taken it up the ass if you really want to find out what's going on. Remember how the junta was brought down, Leo? You are about to see a repeat.
Oh great, just what Greece needs, another revolution. I listen to the communists on TV and my blood boils. They really haven't got a clue. Revolutions sound nice, but the reality is Greece will go through tough times before it reemerges stronger.
Leo, Greece was in almost continuous default from 1800 till 1950 (if you don't believe me read Reinhart and Rogoff 'This Time It Is Different'.
So, default is nothing Greece is inexperienced with...and, the sun will rise and the world will continue to go around when Greece defaults again.
Greece is a very old culture with ingrained customs of kickback, fraud, money laundering, smuggling, etc. Greece had a complex economy when the Phonecians were calling on their ports...and even before that.
When the EU offered to let Greece in the club the Greeks saw it as one more opportunity to throw a party...and they did. Greece is not Canada.
Well look on the bright side, if they hurry up and get it over with, you may can get that waterfront property you want to retire to, on the cheap! (If you have one already, get two more and rent them out)
Now if I could just get St Croix to capitulate for a year or so....
Hey, Leo, do you know of a website that publishes data on current Canadian gov't bond yields? Bloomberg.com doesn't seem to and I had no luck with googling either.
yahoo.ca, go to finance section.
Great, thank you. I should have thought of that myself.
if so, look out Sarah Palin can see you from her kitchen window, golly dontcha know...
but then again aren't you Canadian...
Leo, everybody is a lot less optimistic than you....
I listened to a bond buyer discuss long-term Greek bonds on bloomberg the other evening. He thought buying them at 60 cents on the dollar wasn't such a bad idea, and I see his point (but don't fully agree): if there is a haircut, it will likely be (in his opinion) in the 30-40% range, which is where the bonds are trading now. So he thought his downside was limited.
That's a lot different then buying a bond being issued at 100 cents on the dollar.
There will HAVE to be a restructuring. There's no way the Greek economy can service the current debt.
Thanks for both sides of the coin Leo...
"Other places also service their tourists properly, but it's true, Cretan hospitality and generosity is unparalleled"
I just spit scotch out of my nose. I'm still laughing, even though it hurt like hell. That's just some funny shit.
Thanks Leo!!!
Leo, I value your writings on Greece.
California's future?
Yeah! And think about all the great videos he could post as well.
California chicks...
Oooffff. Risk capital. What would recovery rates be on default, Argentina?
The recovery rate for Argentina was about 30%, but when they defaulted they basically said, FU, we don't care. I think Greece would need to be more conciliatory to keep the loan spigot open to keep the country functioning. Argentina devalued its currency, locked up bank deposits, and seized private pensions to work around the need for international capital. Haircut on Greece would need to be at least 50% for some semblance of long term stability. That probably makes more than a few large-ish French and German banks insolvent.
What are the names of these funds buying Greek debt?-I wouldn't want to get stuck with any of them.
Norwegian Sovereign Wealth Fund likes GGB....
Spanish GSEs (State pension funds, etc) are buying Spanish bonds, big time.