Greece: Loose-Loose agreement is now place, additional pain for all parties enduring

The never ending Greek saga is now adding a new chapter to its drama. And dramatic indeed is going to be the situation of the Greek citizen that after yet another round of bailout funds are bracing themselves for yet more of the same failed medicine: austerity measures, cuts to public services, forced privatization, etc.

7 years of austerity measures that didn't work and nobody is thinking about perhaps changing the medicine. It is fascinating to see how an irrational behavior gets perpetrated over and over in spite of the evidence just to be able to preserve special interests, banks and the needs of the powerful Germany industrial apparatus.

So let's analyze the high-level outcome to see how whatever has been agreed so far; mind much more needs to be agreed in the terms of the bailout that needs to come.

1. the current government of Greece had to swallow an agreement that it didn't believe in. Selve preservation? perhaps... needless to say Mr. Tsipras agreed on punishing measures that are worse than the one offered before the referendum he called. Defeat? Yes. As much as this can be promoted otherwise, his strategy didn't yield any advantage. The only person coming out as a hero out of this is the ex Greek Finance Minister Yanis Varoufakis that called himself out of the deal as soon as the referendum outcome was clear.
2. The Troika forced terms onto Greece and the general feeling across Europe is that they were forced from the powerful and intransigent Germany, an abuse of power. This is bound to increase an anti European and anti German sentiment across Mediterranean Europe that will be used by anti Euro parties to gain vote at first opportunity. 
3. The Troika came short of offering any haircut on the debt with the exception of vague allegation of the need of considering one from the IMF. 

So... 1, 2, 3... more of the same bailout in exchange for higher taxes, less social state, rampant cuts to education and health care, privatization of state assets to the benefit of foreign corporation. Mind that this recipe has failed over and over again over the next 7 years, it is therefore ludicrous to think how the new 80B EUR added to the overall Greek debt are even going to be repaid.

In the meantime, a weaker EUR is bound to help German export just for a little bit longer. With the US heading towards a rate increase in fall it is likely to see parity between EUR and USD in a short while.

This last round of negotiation represents a lost opportunity for both parties:

• For Greece: an opportunity to start re-gaining sovereignty in the face of difficulties. It is clear that difficulties would lie down the road in case of a GrExit but with some proper policing there could also be a light at the end of the tunnel; I am sure that in case of a GreExit there would be new partners in the BRICS very interested in gaining access to the middle of the Mediterranean;
• For the European leaders: the opportunity to re-evaluate the problem of the Mediterranean countries with a new set of measures. An alternative to austerity will require some debt haircut but it would also give confidence again in the European dream.

As pointed out before: there is no solution to the Euro problems without considering two fundamental steps:

A.  Issuing EuroBonds that would make the debt of European members: EUROPEAN;

B.  A system of significant transfers from richer states to poorer and less competitive states; this has been going on in the USA consistently;

C. A process leading towards a stronger political integration to limit fiscal discrepancies across all countries.

It is essential to point out that the differential in the interest rates applied in each country lies flooded certain less competitive countries with cheaper money from the most competitive one. These transfers in the private sector lead to a dysfunctional situation ONLY when during the fall out of the 2008 crisis we decided to bailout the banks with public money.

Since as it seems A-B-C remain something that is so far removed from the political elites in power in Europe we believe that the whole EURO experiment has failed already and it is just going to impoverish further not only Greece but also Italy, Spain & Portugal to begin with. Eventually the losers will outweigh the "winners" in the EURO game and the experiment will come to an end.

EURO DOOM: The Greek vote, another significant step towards scrapping or rethinking the EURO as it is

The time has come to shake the fundamental construction of the EURO ZONE.

The Greek government has gambled its existence and won. The technocrats in Europe had stepped up a strong rhetoric in Greece availing themselves of some good connections in the press industry but it wasn't enough.

As we reported before back in 2011 (http://emerging-markets-investment-news.blogspot.com/2011/07/critical-juncture-euro-usd.html): the EURO project as it is has failed, and the latest is just the apex of this failure so far but we believe that more is coming, and depending on the tactics used now to handle the Greek situation an anti EURO domino effect could be in play.

Austerity measures have had an adverse effect across the entire set of the southern countries of the Euro zone: Greece, Spain, Portugal and the big elephant in the room: ITALY.
Anti EURO sentiments have been flaring in all countries together with some separatist movements.

In Spain the Podemos movement, in Italy the Lega Nord and the "Movimento 5 Stelle" (M5S) embody the anti euro sentiment growing in the south of Europe.

Austerity measures have brought unemployment, they have NOT reduced the debt/gdp ratio, have impoverished the poor and created further distance from the cast of technocrats and "main" street (Point 6 & 7 below for proof).

It has now come the time to reconsider some of the common well advertised misconception that have been used to ride the austerity measures till now and for simplicity we will use Greece as a base for our discussion, please note that the same reasoning have been applied to Spain, Portugal and Italy.

1.  Greek people retire too early!

Following is a graph visually representing the impact of pension reforms on the average effective retirement age from the labor force:

The graph shows in blue the long term (2060) pensionable age before the pension reform and in red AFTER the pension reforms enacted by the various governments. Pre-Austerity Greece (indicated with the two letters EL) had an average pensionable age set at 61.9 years for male, in line with the rest of Europe.

After the reforms Greek citizen will retire gradually later than Italians and all other Europeans, excluding Cypriots, Danish and Dutch citizen.
IF there are certain privileged segments of the populations that retire earlier (called baby-pensioners) this is true across the entire Western countries and not only for Greece.

2.  In Greece there are too many public servants: FALSE!

The following graph shows the ratio of public servants employed against the total employed population.




The data shows the ration between 1999 and 2007.
In Greece the public servants represent less than 8% of the total employed population. In Germany it is 8%! Greece is right on par with the rest of Europe, bar right from Greece marked as EZ.
In France as a term of comparison public servants almost represent 10% of the total employed population.
As a very important note: with austerity measures no European country has decreased the number of public servants as much as Greece has done to-date. In 2009 public servants were 907,351 and in 2014 they were 651,717. That is 255,634 units less for a total of 25% less! Greece post austerity would find itself at the very right of the graph above.

3.  Public spending is too high: FALSE



In the graph you can appreciate the average public spending value against the total GDP between 1999 and 207. Italy has been put in red as a point of reference. Greece is below the Eurozone average (EZ12 - EU27) and it is distant from the 50% of public spending against total GDP surpassed by France for example. This value has gone from 47% in the year 2000 to 43% in the year 2006.

4.  Greece hasn't implemented any structural reforms: FALSE
Cuts in the public sector and in the pension systems have been rather dramatic. Collective negotiations via trade unions have been overall eliminated all together, although the Tsipras government would like to reinstate them. Furthermore, Greece was in 2010 at the 109th place in the standings of the countries most convenient to open a new company and do business. In 2015 in the same standings Greece is now at the 61th place and has climbed tenths of positions getting close to Italy and all other "advanced" economies. Assuming that a flexible workforce is one of the most sought after criteria for development as per the "ease of doing business" criteria, Greece has made significant relative improvements, most than any other European "partners".



5.  Greek people work little: FALSE



Please don't confuse work time with productivity. It is clear that in spite of the longer hours the productivity of the hours is not at the same level let's say with Germany given the different type of infrastructure and industrial development between the two countries.

6.  Greece's crisis is determined by the high public debt: FALSE
The graph below shows the relationship between Public and Private debt leading to the 2008 world crisis.



Greece public debt remains constant during the entire period at around 115%, lower than the Italian one for example. It is the private debt that starts to run away after the fixed exchange rate is introduced and then the country adopts the EURO.
That is because Greece all of a sudden becomes the target of foreign creditors (mostly French and German) because the interest rates with the EURO become lower and Greece can't devalue its currency to bring the trade balance back to zero. Since export weren't enough, Greece finds itself financing its import with credits to the State and to foreign private institutions. At the unfolding of the world crisis of 2008 foreign credits suddenly stop and Greece is forced to austerity to pay its debt.
THEREFORE: it is a crisis of the PRIVATE debt favored by the EURO set up that strangles Greece and not a crisis generated by the PUBLIC debt as hailed by most.
IF later there is an explosion of the public debt/GDP ratio that now has reached approximately 180% from 125% in 2010 it is because AUSTERITY measures greatly increased unemployment from 7% to 25% and they have greatly reduced tax and vat revenues together with the GDP (-25%).


7.  Greece deserves austerity because doesn't pay back its debits: FALSE
As per the previous point the main debit comes from foreign banks, mostly French and German. These banks have inundated families, companies and Greek banks with money from the establishing of the fixed rate between Dracma and Euro, and even more at full establishment of the EURO till 2007. It is more convenient for Greece (companies, individuals and banks) to borrow from abroad since Greece cannot devalue its currency (and together with it its debts) and interest rates start becoming lower and lower because of the EURO. With the Lehman Brothers crisis of 2008, French and German banks stop any lending and start pretending their debts to paid off. Austerity and European loans to save "Greece" are used to save the credits of French and German banks, not to help the Greek people to stand back on their feet.

The loans of the ESM (European Stability Mechanism) end up for 90% of their value in French and German banks to save them. In parallel the debts of all countries that have participated to the "saving" of a country go UP (In Italy it accounts for 40B EUR) and the Greek public debt reaches 240B EUR of ESM loans. But the debt could be considered not legitimate as it is bore by European and Greek citizen to save private banks that to exploit the EUR lent money without paying attention to the fundamentals of the economies financed.



From 2010 the exposure of French, Dutch and German banks to the Greek debt diminish greatly. The banks have been saved! Now Greece could exit the EURO but the Troika is afraid of the domino effect for the other countries with similar problems and bigger economies, see Spain and Italy.

8. Greece has cheated the numbers to enter the EURO: true, but...
With the help of Goldman Sachs and the supervision of the EU, with governments favored by the European technocrats: Neo Demokratia and Pasok. That is because Greece in the EURO was useful to Northern Europe, especially Germany to keep the value of the EURO low against the Mark. All analysts were aware of the accounting tricks of Greek/Goldman Sachs.
A similar set up has been used for Italy which didn't respect the debt/gdp ratio of the Maastricht Treaty (60%) but that has been welcomed in the EURO zone nonetheless. In fact Italy outside of the EURO zone with its currency and the ability to have its monetary policy would have proven a formidable adversary to the mercantilist policy of Germany.
Please note that even Germany and France didn't keep the 3% deficit/gdp ratio during the first years of 2000 but they have never been sanctioned for it.


Data collected:

• Infodata: http://www.infodata.ilsole24ore.com/2015/02/18/lesposizione-di-banche-e-stati-europei-verso-la-grecia/
• Goofynomics: http://goofynomics.blogspot.gr/2015/01/cosa-sapete-della-grecia-fact-checking.html
• Parts translated from posting: Beppe Grillo Blog

Cyprus: a dangerous precedent. Another step forward toward the end of the EURO.

Dear all, after reading the latest news arriving from Cyprus I couldn't help but getting onto the blog and share these few lines.

In spite of the relative quiet stand taken by the European media the bailout news is HUGE and deserves to be absorbed in all its frightening details.

If approved by the Cyprus government tomorrow this is going to be first time that the European authorities are going to apply a levy on account holders regardless of income but purely on the amount of deposits held: 6.75% for all account holders with up to 100,000 EURO in deposits an 9.99% for all account holders with deposits above 100,000 EURO.

It is hard to say whether this measure was passed onto Cyprus citizen because the European authorities wanted to collect as much money as possible out of the deposits of Russian citizen holding cash in the country. Regardless, the implementation of such measures are bound to have significant ripple effects in other countries of the periphery. Nonetheless it will be interesting to see the Russian reaction to these measures after they contributed more than 5B EURO in previous bailout money to preserve a special status with Cyprus (please note that Cyprus and Russia have a taxation treaty and Cyprus has been the not too hidden destination of much of the money taken offshore by Russian oligarchs). Perhaps the real reaction we will see only next Winter when Russian gas will need to flow into Europe.

In consideration of the following:

• current record bottom interest rates'
• real risk of government appropriation of funds, whether mandated by the European Union or the IMF truly doesn't matter;

Most people in Greece, Spain and Italy are better off rushing to their bank and pick up as much cash as possible to keep it under the pillow or in the mattress. Better yet convert it into gold or buy diamonds with it....

As our reader generally know when have always been bearish against the EURO and we keep on holding our ground. The lack of proper planning and proper imagination is pushing all periphery countries into the same deflationary spiral that is currently in place. Bailout like Cyprus is nothing but another stepping stone of the same policy: austerity -- contraction -- austerity -- contraction and so on.

As we repeated in other occasions the reaction to this will be political and will not be of conciliatory nature. It doesn't matter how many EUROs the ECB will keep on printing.
This is a deck of cards destined to failure.

Update: sanctions to Iran, EU Council Regulation 267/2012 and varies

I take the long overdue oppounity to post again on this blog after new EU regulations have amended existing sanctions against the Islamic Republic of Iran.

This post may be of interest for the business people that follow this matter or businesses that used to have trade with Iran.

On March 23, new regulations have been enacted to close off existing loopholes in previous regulations and therefore additional verbiage has been included to define:

• transfer of funds;
• brokerage services;
• new rules to authorize payments to and from an Iranian entity or individual.

As of the new regulations (EU 267/2012):

1. Transfer of funds: the definition now includes "non-electronic transfers" to avoid any attempt of circumvention by using cash based systems. The definition stands as follows: "any transaction carried out on behalf of a payer through a payment service provider by electronic means, with the view to making funds available to a payee at a payment service provider, irrespective of whether the payer and the payee are the same person. The term payer, payee and payment service provider have the same meaning as in Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal market; any transaction by non-electronic means such as in cash, cheques or accountancy orders, with the view of making funds available to a payee irrespective of whether the payer and the payee are the same person.

2. Brokerage services: the definition stands as, "the negotiation or arrangement of transactions for the purchase, sale or supply of goods and technology or of financial and technical services including from a third country to any other third country. The selling or buying of goods and technology or of financial and technical services, including where they are located in third countries for their transfer to another third country".

3. Payment authorizations: payments involving foodstuff, medical equipment or for humanitarian purposes don't require previous authorization if below 40,000 euros in value, although transfers above or equivalent to 10,000 euros require written previous notification to the competent authorities. Transfers above 40,000 euros require previous authorization from competent authorities. Transfers related to all other types of goods require previous authorization from competent authorities. Please note that multiple transfers by similar parties linked to the same legal contract are bound to be cumulative in value and therefore subject to previously outlined parameters.

Additional pertinent information about these amendments:

• oil contracts: any permitted dealings in crude oil contracts prior of July 2, 2012 must be notified in writing to the authorities of the competent Member state 20 working days in advance;
• additional restrictions have been imposed with regards to: gold, diamonds, precious metals and specific petrochemical equipment and materials;
• some derogations included in the amendments: freezing of the assets of the Central Bank of Iran, some adjustments on insurance provisions and derogations concerning transfers to diplomatic, consular and international organizations.

Further information related to the Iran sanctions but unrelated to the EU provisions:

• SWIFT: the Society for World Interbank Financial Transaction has disconnected last week 30 Iranian banks, including the Iranian Central Bank, from the system making it de facto almost impossible to carry out large financial transactions. We are bound to see a large increase in barter transactions or compensation based transactions.
• The USA has exempted the EU and Japan from sanctions since both parties have substantially reduced their dependence on Iranian oil. Although pressure is mounting on India and China to follow suit or face issues.
• Oil revenue for Iran: sources estimates that Iran is currently selling its oil at a 10-15% discount. If targeted countries are going to follow up with their purchases reduction of Iranian oil the economy is currently facing approximately $24B in lost revenue.
• Oil repercussions: any further tension in the Gulf is bound to raise crude prices to above $150USD per barrel. Such increases for prolonged periods is bound to create a recession worth 1% in the EU this year; further IATA warned that high cost of fuel can send few airline operators into bankruptcy if sustained over a few months.
• Trading: in the face of mounting sanctions the Iran government is trying to accumulate as much food commodities as possible. Sources have mentioned that Iran have bought 2M tons of wheat from Geermany, Canada and Russia over the last few months and paid in currencies other than Euros and USD.