By Raúl Ilargi Meijer, editor-in-chief of The Automatic Earth, Cross posted from Automatic Earth
Is it merely a coincidence that the troika rode its Trojan horse into Athens again on the very day Angela Merkel went awfully close to an absolute majority in German elections? I’m sure it is. But it’s still very bad news for the Greeks, who now have their perhaps last chance to throw out the international financial system and decide their own fate, before most of their valuables have been sold off to foreign interests. Greece is where democracy started, and the way things are going, it may be where it will end as well.
The troika starts the new round of talks right off the bat with more pressure on selling off more of the goodies, even as up to now they’ve not sold for anything near targets, at absolute bottom prices, if at all. The Greek population, if it doesn’t call a halt to these negotiations, will end up not owning a single brick in their own country anymore, and still be heavily indebted to foreign banks and investors. And largely unemployed. Their own government, which consists mainly of bankers too, warns of domestic radical elements, but what other choice but radicalization do they leave the people? From Greek news service Ekathimerini:
Creditors insist on acceleration of privatizations projects for the shortfall in revenues to be covered in 2014
The troika of Greece’s creditors on Monday exercised strong pressure on the state privatization fund (TAIPED) to speed up the country’s sell-off projects.
During a meeting at TAIPED’s headquarters, the mission chiefs of the European Central Bank, the European Commission and the International Monetary Fund called for more action so that this year’s revenue shortfall, amounting to €1 billion, can be covered in 2014.
At the troika’s focus were the privatizations of ports, water and sewage companies, and Hellenic Post. According to plans drawn up in January, these sell-off projects should have started in the second quarter of the year, while the aim now is for them to get started in the last quarter, given that the third will be over in a week’s time.
The troika was also updated about delays in the utilization of real estate, and mainly that in the development of Athens old international airport at Elliniko, which is the biggest project in the privatizations package.
The Greek side again cited problems related to the nature of the properties for sale, saying they require a kind of “maturing” before they begin to attract investor interest. TAIPED officials also cited the differing views among the various authorities, with ports being the best such example as their privatization should have started in July.
The fund’s management also presented a list of more than 25 pending legislative and regulatory issues that must be settled before the privatization procedures can begin.
One of these issues was settled just hours before the troika’s arrival in Athens, as the Infrastructure Ministry repaid the debts of the Greek state to Athens water company EYDAP. Last Friday Minister Michalis Chrysochoidis had tabled an amendment in Parliament allowing for the payment of the approximately €600 million owed to EYDAP by the state.
PM Samaras and his crew consistently rely on unrealistic assumptions, not so much to appease the troika, who know the books, but to fool the people, who don’t. And then afterwards, they can claim unforeseeable circumstances led to even worse numbers, and more budget cuts and tax hikes will be needed. And lest we forget: another 25,000 government workers are set to be fired. The pattern is so obvious and so predictable it’s definitely not funny. Ekathimerini again:
The troika has doubts about Greek projections for a primary surplus this year and next and has begun the process of discussing with Athens the contents of the 2014 budget, which Greece’s lenders believe contains several areas that need closer inspection.
High-ranking Finance Ministry sources said that while the representatives of the European Commission, European Central Bank and International Monetary Fund agree that Greece will produce a primary surplus at the end of the year, they think it will be minimal. The troika is also skeptical about Greek projections for a primary surplus of 1.5% of GDP at the end of next year.
It is thought that one of the reasons Greece’s lenders are downplaying the possibility of Athens producing a sizable surplus is that they are alarmed by the debate in Greece about how this amount will be allocated and whether social spending could be increased.
With regard to the 2014 budget, the troika still has doubts about the effectiveness, in terms of revenue raising, of the unified property tax. Next year will be the first time the levy, which combines several property taxes into one, is applied.
Troika officials are paying particular attention to the state of Greece’s tax administration, which will be key to whether the government can hit its revenue targets. Any lack of convergence with the revenue goals agreed with the troika would make further fiscal measures necessary.
Greece’s Finance Ministry also informed the troika that the government would not meet its target of paying off this year all of the €8 billion in arrears that it had amassed.
And, yeah, so more bailouts will be necessary, and though they’ll be much smaller than the €240 billion previous ones, the price that will be paid for them is going to be much higher. Bailout weary Merkel voters will see to that, apparently. Or so is the official line. The underlying mechanism is that any excuse will be used by the troika members to grab as much as they can. From the Wall Street Journal:
Athens Officials Say Nation’s Economy Has Turned a Corner
Greece began talks with international inspectors on Sunday that will set the stage for a third multibillion-euro bailout of the country, even as senior officials in Athens pointed to signs of a recovery after years of deep recession. The discussions come amid heightened political tensions in Athens that could test the country’s fragile two-party coalition government.
After a meeting lasting almost four hours with senior officials from the European Commission, the International Monetary Fund and the European Central Bank known locally as the troika and Greek Finance Minister Yannis Stournaras, a senior Finance Ministry official said initial discussions focused on a broad range of issues including the execution of the 2013 budget.
While the negotiations represent the latest round in the regular quarterly inspection visits that have accompanied Greece’s almost four-year-long debt crisis and will decide on whether to unlock the country’s next aid tranche of €1 billion ($1.35 billion) new budget and growth data also show Greece may be turning a corner.
Senior officials in Athens have spoken of gradually exiting the draconian austerity program tied to the bailouts, but they also warn that the turnaround has yet to be felt by the average Greek, and that extremism in the country is rising.
At issue is whether Greece will have to take additional budget cuts to close a possible €2 billion-€4 billion budget hole next year according to unofficial estimates and a forecast €2.5 billion-€4 billion fiscal gap in 2015-16.
The size of that gap will also determine the size of a third Greek bailout to help cover Greece’s debt payments and other financing shortfalls between July 2014 when European loans to the country run out and mid-2016, when the IMF’s contribution to the bailout winds up.
The size of that third package is much smaller than the €240 billion of rescue loans already pledged to Athens. while the reasons for it were somewhat unexpected. The IMF says Greece faces an additional financing shortfall of about €11 billion by 2016, half of that total because euro-zone central banks went back on a previous deal to roll over Greek government bonds. Another chunk relates to an unexpected bond buyback Greece undertook this year to reduce its debt burden. [..]
Meanwhile, protest action against the austerity demanded by international creditors continues this week with high-school teachers and local council workers walking off the job for 48 hours starting Monday while public servants have called a two-day strike starting Tuesday.
In talks with European Union leaders last week in Brussels, Greek Prime Minister Antonis Samaras stressed the political and social threat posed to the country from the rise of the ultranationalists, while also citing progress made on fiscal consolidation in a bid to avoid any more unpopular cutbacks.
At the same time, the government in Athens says there are indications that Greece’s economy is showing signs of an upturn. According to data released last week, the jobless rate measured on a quarterly basis fell in the second quarter, for the first time since before the start of the crisis. Additionally, internal Finance Ministry data shows that second-quarter gross domestic product, which fell at an annual pace of 3.8%, actually rose on a seasonally adjusted quarterly basis.
In a speech last week, Mr. Samaras said Greece faced a critical period following the turnaround of the economy and before the improvement is felt by the large part of the society. “This is what makes these next few months crucial. They are not the most difficult; but they are the most politically sensitive.” [..]
Greece’s struggling privatization program, its slow pace of tax overhauls and its efforts to close persistent gaps in its deficit-ridden social-security funds are also likely to top the agenda in the talks.
” I’m sure the troika will continue to demand structural reforms, but it’s the question over new austerity measures, the sort of things that hit the Greek consumer in the pocket, that are the real problem for the government,” said a former government official familiar with the process. “But no negotiation is ever smooth.”
One of the troika’s major demands concerns a moratorium on foreclosures. The international community wants to be able to throw Greeks out of their homes, and makes it a condition for further bailouts. All in the name of making Greek banks profitable. Which is of course just a veiled way of saying international banks want to be able to squeeze more money out of their bad and failed Greek investments.
The idea is summarized perfectly in this comment about the Greek banks: “… anything that helps them return to profitability is good…”. They mean that word for word. If it means throwing grandma out onto the street, so what? She’s not your yaya, is she (yaya is Greek for grandma)? Bloomberg:
Panagiota Kalapotharakou says she’s never seen such distress in her 25 years as a lawyer at the consumer-advocacy organization she helped to set up in Athens.
“If you look outside, the people are in despair,” Kalapotharakou said of the line of visitors outside her office in the rundown neighborhood of Exarchia, where most of her time is spent helping people with debts they can’t pay from Greece’s boom years. “They can’t survive. What they can pay is much smaller than what the banks are asking for.”
While the country’s lenders are on firmer footing after getting capital from euro-area and International Monetary Fund bailout funds, they still need to reduce the non-performing loans that have tripled to 29% of the total in three years and threaten their new-found solvency.
One obstacle is a five-year ban on foreclosures that prevented thousands of Greeks from losing their homes after the economy went into free-fall. The government is now considering a plan to ease the restrictions by the end of this year to satisfy its creditors’ demands. Finance Minister Yannis Stournaras said last month that banks face serious problems if they’re not allowed to repossess and auction homes of people who don’t pay their mortgages.
“At the moment, even people who can afford to pay the mortgages do not,” National Bank of Greece SA Deputy Chief Executive Petros Christodoulou said in a Bloomberg Television interview on Sept. 6. “When the new law is passed and officially foreclosures are allowed over a certain benchmark, we will see that the credit ethos will return.”
Mission heads of Greece’s troika of creditors — the European Commission, European Central Bank and IMF — are back in Athens today to review the country’s progress in satisfying conditions for the release of the latest installment of its bailout loans.
One item on the agenda is a review of lenders’ non-performing loans and fresh stress tests by the end of the year of banks’ capital adequacy to see if they can withstand adverse macro-economic scenarios. The troika has criticized the moratorium for hampering the banks’ ability to deal with troubled assets.
“All the banks are making operating losses, so anything that helps them return to profitability is good,” said Maria Kanellopoulou, an analyst at Euroxx Securities in Athens. [..]
Greece initially introduced a blanket ban on foreclosing all residences with mortgage debt of up to 200,000 euros in 2008, widening the ban two years later for some primary residences worth more. The rate of delinquencies on mortgages was 19.1% in 2012, an increase from 4.9% six years earlier, according to the IMF. [..]
“Anxiety has been created over this issue for no reason,” Deputy Development Minister Thanasis Skordas said in an interview. “No one sets out to create new problems, nor are we too insensitive to understand the difficulties people face today. On the contrary, our concern is how to not allow such problems to undermine social cohesion.” [..]
Home loans in Greece expanded to €81.1 billion at the mortgage market’s peak in August 2010, more than seven times the amount at the start of 2001, when Greece joined the single European currency, as first-time buyers took advantage of easier financing and interest-rate reductions.
Now that credit has tightened, Kalapotharakou says the banks would gain little from seizing homes from borrowers, which would fetch a fraction of the outstanding debt in an auction. Meanwhile, those losing their properties will still owe the money that’s not covered by the sale proceeds, she says.
“Not all circumstances are right for liberalizing markets,” she said. “If you free up houses, you will see a collapse in the housing market. Who’s going to buy?”
Greek home prices dropped 11.6% in the second quarter from a year earlier, according to Bank of Greece data. Values have dropped 31% since peaking in 2008, with Greece’s two biggest cities, Athens and Thessaloniki, both faring worse than the national average.
Fitch Ratings increased its forecast for the peak-to-trough decline in average house prices to 42% from 33% in July. Easing the ban on foreclosures would help increase recoveries for mortgages packaged into bonds, according to an Aug. 30 report. Recovery rates have dropped to as low as 1% from 13% in 2010 and arrears have increased significantly since the ban, suggesting “moral hazard concerns are legitimate.”
Greece’s economic output has shrunk by more than a fifth since the start of its recession, which has been amplified by successive rounds of spending cuts and tax increases. They were instituted to tackle a fiscal deficit that had spiraled to 15.6% of GDP in 2009, triggering Europe’s debt crisis.
Against this economic backdrop and facing political opposition, the government might yet extend the ban if the troika doesn’t push too hard on the issue, according to Lefteris Farmakis, an analyst at Nomura International in London.
“You have a political problem here, and if they insist on this it’s not going to be easy,” he said. “Maybe there are some benefits for the housing market and the economy overall, but clearly this comes at a consequence in the real world.”
The troika wants to throw Greeks out of their homes so their banks can return to profitability. I’d say that’s pretty much our ethical quandary in a nutshell: banks are more important than people. Maybe it’s a good thing they say it out loud from time to time. We don’t want to fall asleep, do we?
Greece doesn’t have a functioning housing market with 28% of the population, and close to 70% of young people, unemployed. Which means the homes that are supposed to be foreclosed on can’t sell for anything close to the value of the bad loans that would seem to justify the foreclosures.
In other words: substantial amounts of the loans will need to be written off, whichever way you choose to go about it. So why not write off a substantial part of what people owe, restructure the loans so they are in line with present day home values, and allow for people to stay in their homes? If you throw them out, who’s going to buy the homes? A bunch of rich Greeks, or foreigners? Where’s the ethos in that?
Oh, wait, that’s already taken care of, reports Ekathimerini:
Some 20 residence permits have already been granted to foreign investors who have purchased Greek real estate following the implementation of a law aimed at attracting investments to Greece. Foreign Ministry data show that in addition to these five-year permits given to non-European Union citizens for investing at least 250,000 euros in property in Greece, many more applications and hundreds of questions remain outstanding, showing that there is major interest in the benefits of the incentive.
Angelos Syrigos, the ministry’s general secretary for population and social cohesion, told an event organized by Invest in Greece on Monday in Athens that most of the permits have been granted to Russian and Ukrainian nationals. Other recipients include citizens of Canada and the US, as well as one from China, though most of the outstanding applications are from Chinese nationals. Some of the applications have come from people who had held considerable real estate holdings in Greece even before the paw was passed.
Invest in Greece chief executive Stefanos Isaias noted that since mid-April, when Law 4146 was passed, the agency’s information bureau has been inundated with over 300 queries regarding this very issue, while in the whole of 2012 all of the questions posed about investments in general numbered 850. About 60% of those queries originated from within Greece – mostly from local estate agencies representing mainly Russian foreign investors – with the rest coming from countries such as China, India, Egypt and Lebanon.
Deputy Development Minister Notis Mitarakis told the same event that among the benefits of the law on residence permits are an incentive for new construction work in the holiday accommodation sector and the creation of more tourism infrastructure.
He went on to announce that regulations concerning residence permits and citizenship would be subject to change in the coming months, as the government is hoping to resolve problems that have cropped up relating to the application of legislation on residence permits to foreign investors.
Is this how we see justice? That because the Greek population did the same thing as everyone else, namely buy homes on overleveraged credit, we should have the right to sell their treasures and leave them desolate debtors in their own land? We all owe our democratic rights to the ancient Greeks, who defined said rights. If we allow for them to be sold off in Greece, what exactly should we expect for ourselves? What rights can we still claim if we let that happen?
One last thing, for entertainment purposes:
Greece will spend no more than 50 million euros to host the six-month rotating European Union presidency, which it will assume in January, Parliament was told. Deputy Foreign Minister Dimitris Kourkoulos told the House’s European affairs committee that the government would devote fewer resources to the EU presidency than other countries had done recently.
He said that in contrast to recent presidencies that required 60 to 75 million euros and up to 250 staff, Greece would spend less and use no more than 150 personnel. Unlike their Athens-based parliamentary colleagues, Greek MEPs from five parties put their political differences aside to submit together a question in the European Parliament regarding the effects of austerity and the rise of right-wing extremism in Greece and other parts of Europe.
The MEPs asked the European Commission and Council to explain what measures they are prepared to take to address this situation.
That’s right, Greece will chair the EU in a few months time. They can then negotiate with themselves. Get a better price for the Acropolis. Do we want this to be the future of democracy?