January 20, 2022

Economix Blog: For Greece, a Dubious Distinction

Is Greece an “emerging” market?

“Submerging” might be more like it. But on Tuesday, MSCI, proprietors of stock indexes around the world, officially classified Greece as “emerging.”

FLOYD NORRIS

FLOYD NORRIS

Notions on high and low finance.

Notwithstanding what it sounds like, MSCI was not offering a compliment to the poor Greeks.

Instead, the name reflects a trend to ever more positive names for what might be called “other than developed” economies.

Once they were “undeveloped,” which really sounded nasty. Then they became “developing,” which implied progress was being made whether or not it was. Then they became “emerging.” Each term sounded better than the last.

MSCI has another group, under emerging, known as “frontier.”

Which group a country is in can matter because institutional investors compare their performance to the various MSCI indexes. There is no frontier index, which could discourage investment in those countries. Lately, the emerging index has been underperforming the developed index.

On Tuesday, MSCI decided that Greece no longer deserves to be classified as “developed.” It was transferred to “emerging.”

Of course, MSCI does not really mean Greece is emerging. Going back to the old label of undeveloped would be closer to what it is trying to say, but it would not sound as good. “Undeveloping” might be appropriate, but we don’t have negative titles anymore.

The other changes made Tuesday included the demotion of Morocco from “emerging” to “frontier,” and the promotions of Qatar and the United Arab Emirates to “emerging.”

MSCI says it is thinking about dropping Egypt down to “frontier” from “emerging,” and might raise South Korea and Taiwan to “developed” from “emerging,” but won’t act until next year at the earliest. China, which remains “emerging,” might not like to see Taiwan move up.

It would be nice if we had terminology that sounded neutral. What we now have tends to make every country sound good. Call it the Lake Wobegon effect.

Article source: http://economix.blogs.nytimes.com/2013/06/11/for-greece-a-dubious-distinction/?partner=rss&emc=rss

DealBook: Greece Inches Toward a Deal With Its Bondholders

Charles Dallara, managing director of the Institute of International Finance, is representing private-sector bondholders in talks with Greece.Hannelore Foerster/Bloomberg NewsCharles Dallara, managing director of the Institute of International Finance, is representing private-sector bondholders in talks with Greece.

LONDON — Greece and its private-sector creditors inched closer to a completed deal late Thursday over how much of a loss investors should take on just over 200 billion euros in Greek government bonds

The long-running — and at times contentious talks — resumed in Athens on Wednesday between Charles Dallara of the Institute of International Finance, who represents bondholders, and the Greek political leadership, after having broken up last week because of a disagreement over the coupon rates the new Greek bonds would carry.

Now, a compromise seems to be at hand, with the Greeks close to locking in an interest rate just below 4 percent on the new bonds, according to officials involved in the negotiations. A coupon below 4 percent represents a significant breakthrough for Greece, as creditors have long pushed for a rate above 4 percent, which they say would compensate them for the 50 percent haircut they would receive on their new securities.

A lower rate, creditors have argued, would punish investors too much and could not be described as voluntary, thus setting off credit default swaps on Greek debt — an outcome that Europe fears would lead to another round of market assaults on the debt of other vulnerable countries like Portugal.

Pressured by its financial backers, Germany and the International Monetary Fund, Greece has advocated a lower rate, which would deliver more relief to the debt strapped country.

In a concession to creditors, the coupon is expected to escalate beyond 4 percent over time, linked to the growth of the Greek economy. With the economy expected to shrink by 6 percent this year and perhaps 3 percent next year, it could be a few years before the interest rates see any significant rise.

The Institute of International Finance said in a brief statement that “productive” discussions were held with Prime Minister Lucas Papademos and Finance Minister Evangelos Venizelos, progress was made and the talks would continue on Friday. No other details were offered.

A debt restructuring agreement is a precondition for Greece to receive its next tranche of aid from Europe and the I.M.F., a 30 billion euro sum that the country desperately needs to stave of bankruptcy.

The deal is also expected to shave 100 billion euros from Greece’s debt mountain, which today is about 140 percent of its gross domestic product.

While the talks in Athens on Friday could well collapse again, bankers and government officials believe that the details of the new agreement could be announced in the coming days.

Assuming all goes according to plan, investors would be offered the opportunity to exchange their old bonds for new ones carrying the agreed-upon terms in early to mid-February.

Bankers say that the creditors believe 50 to 60 percent of private sector bond holders might accept the proposal — although such a range remains a very rough estimate. The challenge for Greece and the creditor group is to persuade investors on the fence to join in the deal in order to reach a figure of about 75 percent.

With a 75 percent participation rate, Greece could well be in a position to take advantage of the collective-action clauses that are set to be attached to the Greek law bonds, forcing the terms of the agreement on all bondholders. That includes hedge funds that have said they are not going to participate in the transaction, thus preventing free riders from getting paid in full in March when Greece must pay 14.4 billion euros to bond investors.

Bankers estimate that hard-core holdouts comprise about 10 percent of the 206 billion euros that would be covered by the deal. Some of these hedge funds are looking to purse legal action against Greece, although it is unclear how many will actually follow through given the time and expense involved.

Article source: http://dealbook.nytimes.com/2012/01/19/greece-inches-toward-deal-with-bondholders/?partner=rss&emc=rss

An Alarming Greek Contingency: What if It Drops the Euro?

Instead of business as usual on Monday morning, lines of angry Greeks form at the shuttered doors of the country’s banks, trying to get at their frozen deposits. The drachma’s value plummets more than 60 percent against the euro, and prices soar at the few shops willing to open.

Soon, the country’s international credit lines are cut after Greece, as part of the prime minister’s move, defaults on its debt.

As the country descends into chaos, the military seizes control of the government.

This scary chain of events might never come to pass. But the danger that Greece or some other deeply damaged country in the euro zone could leave the single-currency union can no longer be ruled out. And it was largely this prospect that drove leaders last week to agree to adopt strict fiscal rules that they hope will wrap the 17 European Union nations that use the euro into an even tighter embrace.

Officially, the guardians of monetary union have refused to discuss in public the possibility of member states abandoning the euro — a contingency not even addressed in any of the treaties governing the monetary union. As Mario Draghi, the president of the European Central Bank, put it last week: “It would be imprudent to create contingency plans when we see no likelihood that they could happen.”

But as the truth dawns in Greece and other weak euro zone economies that the price for remaining bound to the single currency will be more hardship and sacrifice, a growing number of legal and financial experts — to say nothing of the Greeks themselves — are examining in detail what would happen if Greece abandoned the euro.

“We should be under no false pretenses that we are not currently on the drachma train,” said Jason Manolopoulos, a Greek hedge fund executive and author of “Greece’s ‘Odious’ Debt.” “That does not mean we will end up there, but that is our present course.”

Over the last year, Greeks have withdrawn almost 40 billion euros, or nearly $53 billion, in deposits from their banking system, equal to about 17 percent of the nation’s gross domestic product.

A total of 14 billion euros in deposits was withdrawn in September and October alone. According to testimony by Georgios A. Provopoulos, the head of the Greek central bank, before a parliamentary committee last month, this outflow continued in early November “at a very large scale.”

The deposit flight peaked in October and early November, at a time of intense political uncertainty in Greece and financial turmoil in Europe. According to Mr. Provopoulos, the outflows have stabilized of late under the leadership of the new prime minister, Lucas D. Papademos.

A dedicated europhile, Mr. Papademos was the head of Greece’s central bank in 2001 when the country adopted the common currency. Since becoming prime minister in November he has said forcefully that Greece’s future lies within the euro zone, not outside it.

But that has not stopped investment banks, academics and lawyers from digging deep into what a euro exit would look like. Over the last month Nomura and UBS have come out with detailed studies on the topic. Nomura forecast a 60 percent devaluation of the new drachma. UBS went further, warning of hyperinflation, military coups and possible civil war that could afflict a departing country.

One of the more detailed studies comes from Eric Dor, an economist at the Iéseg School of Management in Lille, France.

In “Leaving the Eurozone: A User’s Guide,” Mr. Dor starts with the obvious: any return to the drachma would have to be preceded by an immediate freeze on bank deposits.

To prevent panicked Greeks from sending the rest of their deposits abroad, transfers to countries outside of Greece would be halted. As the new currency inevitably lost value, new drachma accounts would remain frozen.

Shops would be required to accept scrip or devalued euros circulating only within Greece until the country’s bank note printer, operated by the central bank, could churn out enough drachmas to replace the 200 billion euros in cash and deposits currently in Greece. Meanwhile, Greece would become a financial pariah.

Visitors would find Greece a paradise of bargains, but for most Greeks themselves, travel would become prohibitively expensive.

“I hope it does not happen,” Mr. Dor said. “But one has to be prepared.”

One person who does think a Greek exit will happen is Charles Proctor, a British lawyer who has studied the legal intricacies of leaving the euro zone.

Niki Kitsantonis contributed reporting from Athens.

Article source: http://feeds.nytimes.com/click.phdo?i=e9ab836749e2531cbd0ec044278e2df4

In Greece, Economic Crisis Brings Rage and Paralysis

The shop’s proprietor, Tasos, who preferred not to disclose his last name, said he had not had a sale in more than three months. Because he cannot afford to pay his electricity bills, there was no light to illuminate his storefront display of jewels.

Like most Greeks here, he has, over the past few months, spent more time watching television than conducting commerce, as Greek politicians veered from one political crisis to another. His imagination has been battered with all possibilities of a disaster, not least the prospect that Greece might leave the euro.

The effect on his small business — which he says may have to close — has been devastating. His regular customers, most of whom he rarely sees these days, owe him 14,000 euros, about $19,300. Those that he does see are looking to pawn their family heirlooms to get by.

“The politicians are playing games with the people,” he said, his eyes red with exhaustion and stress. “This city is boiling. I am not a protester, but soon the top on the kettle will pop.”

That the Greek economy is in a downward spiral from a relentless program of austerity is well known. In October, Greek manufacturing had one of its sharpest declines ever, and this year overall production is expected to contract by more than 6 percent. What has not yet shown up in the official figures, though, is the extent to which the crisis atmosphere has brought the economy to a virtual standstill.

Auto sales have essentially stopped and are at their lowest level since 1993. People who do have cars have trouble with the expenses of operating them. In the last three months, the number of uninsured drivers increased by 500,000, bringing the total to 1.5 million.

Small shops, in many ways the lifeblood of the Greek economy, which relies on domestic demand, are closing by the day. And the heightened speculation that Greece might have to return to the drachma has sped up the flood of money leaving Greek banks: money to be deposited abroad, stashed at home or in one’s car, and most certainly not spent.

Since January 2010, Greek banks have lost $63.5 billion in deposits — or about 20 percent of annual economic output. But bankers here say that in September and October the numbers rose substantially, with estimates ranging from $13.8 billion to $20.7 billion for just these two months.

Dimitris, a retired truck driver who also did not want to have his full name revealed, recently sent his life savings, about $69,000, to Sweden because, as he put it, “Greece is going bankrupt.”

He has no doubt where the blame lies. “I am impressed that the people have not yet stormed into Parliament and burned the politicians alive — like a souvlaki,” he said.

The vitriol toward politicians is in many ways more intense than the outrage expressed toward the European Union and the International Monetary Fund. Politicians here rarely venture out in public, and when they do, even the most obscure member of Parliament is accompanied by at least one bodyguard.

All of it is giving rise to talk that, instead of putting forward another coalition of failed parties and leaders, new people with new ideas outside the political establishment should be brought in.

Among the people mentioned are Lucas D. Papademos, a former vice president of the European Central Bank, and Stefanos Manos, a former economy minister for the New Democracy Party who has long argued that any chance of true reform is hopeless until Greece lays off a large chunk of its inefficient public work force.

Mr. Manos’s latest program is even more controversial. He proposes that as much as $415 billion worth of Greek assets be put into a vast “goody bag,” including plots of land, sites of historical significance and even prized islands, as collateral to secure an immediate loan of about $105 billion from Europe that would be used to buy discounted Greek bonds and pay off debtors. In return, Greece would agree to sell most of the assets in the goody bag within the next 10 years or so and pay back the loan — with a bit left over, he hopes.

“Call me a taboo killer if you will,” he said. “Fire Greek workers, sell Greek islands — politicians here have to overcome their taboos.” And, he added, they have little time to do so. “Everything has stopped here,” he continued. “People are taking their money out of the country. The bomb is ticking.”

For many in Athens, it has already gone off. In the upscale neighborhood of Kolonaki, where much of the Athenian elite live and shop, stores selling luxury goods are shutting down left and right, the result of a Greek consumer strike that includes not just the lower and middle tiers of the economy but its highest as well.

In part, this has been driven by the intense pressure the government has been under to meet targets to secure its next round of loans. With tax collection still a challenge, Greece has imposed heavy value-added taxes on consumers and, most controversially, a special real estate tax has been attached to Greeks’ electricity bills.

But making matters worse, shop owners say, has been the political uncertainty and the constant strikes and riots that can shut down their stores for days at a time.

“Our business is in a free fall — down 70 percent since the crisis,” said Maurizio Urcivolo, the owner of Maurizio’s, a high-end women’s clothing boutique. At the end of the day on a Friday, while the street outside bustles with activity, his store was empty of customers — as it has mostly been during the past two months.

He is closing his flagship Kolonaki store in January and he, too, knows who is to blame. “We hate all politicians,” he said. “We think they are responsible for all this.”

Eleni Varvitsioti contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=a0693cad75dc89d6eebf7511b89156e6

Euro Zone Finance Ministers Press Greece to Meet Aid Targets

The most immediate issue facing the ministers, who are meeting in Luxembourg, is the disbursement of an €8 billion, or $10.6 billion, installment of aid, without which Greece could default on its debt within weeks — an outcome with potentially disastrous consequences for the euro zone.

The meeting Monday had originally been scheduled to approve the disbursement, part of a €110 billion rescue program for Greece agreed to in May 2010. But continuing doubts about Greece’s ability to push through harsh structural changes have led to tense discussions with officials from the so-called troika of international lenders — the European Commission, the European Central Bank and the International Monetary Fund.

Representatives of those institutions, now visiting Athens, have yet to make a recommendation to release the money, and no decision is expected this week.

“What we want the Greeks to do is what they said they were going to do,” said one euro zone diplomat in Luxembourg, who was not authorized to speak publicly.

The finance ministers also discussed expanding the firepower of the currency’s rescue fund by leveraging the €440 billion zone bailout fund. Finland’s demand for collateral in exchange for loans to Greece, which is another obstacle to a resolution of the crisis, was also on the agenda.

Athens announced Sunday that its 2011 budget deficit was projected to be 8.5 percent of gross domestic product, down from a projected 10.5 percent last year but shy of the 7.6 percent target set by international lenders.

The government, which on Sunday also adopted a draft austerity budget for 2012, attributed the gap to the deepening economic downturn but said it was on course to improve its public finances.

Evangelos Venizelos, the Greek finance Minister, said his country was taking “all the necessary difficult measures in order to fulfill its obligations towards its institutional partners.”

“The new budget, the budget for the new year, is very ambitious,” he added. “Our target is to present for the first time, after many years, a primary surplus of €3.2 billion.”

Elena Salgado, the Spanish finance minister, said Monday that she supported the idea of leveraging the euro bailout fund, the European Financial Stability Facility. She said she was not advocating a larger fund, but “more flexibility and more capacity.” That message was echoed Monday by George Osborne, the British chancellor of the Exchequer. “The euro zone’s financial fund needs maximum firepower,” Mr. Osborne said at a Conservative Party conference in Manchester.

“The euro zone needs to strengthen its banks,” he said. “And the euro zone needs to end all the speculation, decide what they’re going to do with Greece, and then stick to that decision.”

“The time to resolve the crisis is now,” Mr. Osborne continued. He is due to join the other European finance ministers in Luxembourg on Tuesday. “They’ve got to get out and fix their roof, even though it’s already pouring with rain.”

Article source: http://www.nytimes.com/2011/10/04/business/global/euro-zone-finance-ministers-press-greece-to-meet-aid-targets.html?partner=rss&emc=rss

Money Troubles Take Personal Toll in Greece

“Many times I have thought of taking my father’s car and driving it into a wall,” he said, declining to give his last name because he was reluctant to draw attention to himself under these circumstances.

Hunched over and shaking, he sat last week in the spartan office of Klimaka, a social services organization here that provides help to the swelling numbers of homeless and depressed Greek professionals who have lost their jobs and their dignity.

“We were the people in Greece who helped others,” he said. “Now we are asking for help.”

It has been one year since Greece avoided bankruptcy when Europe and the International Monetary Fund provided a 110 billion euro ($155 billion) bailout. While no one expected the country to reverse its sagging fortunes quickly, the despair of Greeks like Anargyros D. reflects a level of suffering deeper than anyone here had anticipated.

Economists are predicting a 4 percent contraction in gross domestic product this year, and the data support the pessimism. Cement production is down 60 percent since 2006. Steel production has fallen, in some cases more than 80 percent in the last two years. Analysts say that close to 250,000 private sector jobs will have been lost by the end of the year, pushing the unemployment rate above 15 percent.

With headlines shouting of credit rating downgrades, panicky Greeks are taking their money from banks. Greece lost 40 billion euros of deposits last year, and bankers say withdrawals have increased recently.

These struggles have again made Greece an urgent matter for the 17-nation euro zone, whose finance ministers are to meet on Monday to discuss Greece and the debt crisis that has defied Europe’s yearlong efforts to contain it. On the table will be whether Greece, which is now projected to miss its deficit target by as much as two percentage points of G.D.P. this year, will be granted another round of loans totaling as much as 60 billion euros, and what further budget cuts would be required in return.

But there is serious debate about whether this kind of prescription — subjecting Greece to more cuts and sacrifice in order to justify a second installment of funds from a reluctant Europe — is the right one.

This form of remedy violates two basic economic principles, according to Yanis Varoufakis, an economics professor and blogger at the University of Athens. “You do not lend money at high interest rates to the insolvent and you do not introduce austerity into a recession,” he said. “It’s pretty simple: the debt is going up and G.D.P. is going down. Have we not learned the lesson of 1929?”

The arrest on Saturday of Dominique Strauss-Kahn, the head of the I.M.F., on charges related to sexual assault could create new uncertainty about a push for more severe austerity. Mr. Strauss-Kahn generally favored a less onerous approach, and if he is forced to resign it is possible that tougher conditions preferred by Germany will be imposed.

But while the debate over how to fix the Greek economy has played out in public, the ways in which this slump is tearing at the country’s social fabric are less well known. The transformation has been jarring to a citizenry long accustomed to a generous welfare state.

Social workers and municipal officials in Athens report that there has been a 25 percent increase in homelessness. At the main food kitchen in Athens, 3,500 people a day come seeking food and clothing, up from about 100 people a day when it first opened 10 years ago.

The average age of those who show up is now 47, down from 60 two years ago, adding to evidence that those who are suffering now are former professionals. The unemployment rate for men 30 to 60 years old has spiked to 10 percent from 4 percent since the crisis began in 2008.

Aris Violatzis, Anargyros D.’s counselor, says that calls to the Klimaka charity’s suicide help line have risen to 30 a day, twice the number two years ago.

“We cannot imagine this,” Mr. Violatzis said. “We were once the 29th-richest country in the world. This is a nation in deep emotional shock.”

Article source: http://feeds.nytimes.com/click.phdo?i=99650a4786bcfd3ecd611f0a51ade1e4