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Wednesday, May 24, 2017

Current Account Vs. Fiscal Results

An anomaly is developing in Greece's domestic and foreign accounts. The historical trend was one of double-deficits, i. e. a deficit in both the budget as well as the current account. Makes sense in as much as a budget deficit increases domestic demand, puts money into the economy, increases imports and, in consequence, leads to a current account deficit.

Since 2010, austerity has taken money out of the economy leading to the well-known collapse in domestic demand. Greece turned a giant primary deficit into a surplus and, simultaneously, turned a giant current account deficit into a surplus in 2015.

In 2016, the primary surplus exploded as more money was taken out of the economy (taxes, etc.). However, an anomaly began: despite this further erosion of domestic demand, the current account went from a surplus of 205 MEUR in 2015 to a deficit of 1,1 BEUR in 2016. This trend now continues in 2017 where the government continued to run a primary surplus (albeit not a large as the year before) while the current account drifted more into the negative territory.

Below are the figures for Greece's current account in the first quarter of 2017, compared with the same period of the previous year. Also, the month of March is compared for both years.

In BEUR.

January-March March
2017 2016 2017 2016
Revenue from abroad
Exports 6,7 5,5 2,6 2,0
Services (e. g. tourism) 3,6 3,0 1,3 1,1
Other income 2,6 2,5 0,6 0,8
Current transfers 0,9 0,7 0,2 0,2
------ ------ ------ ------
Total revenue from abroad 13,8 11,7 4,7 4,1
Expenses abroad
Imports 11,8 9,7 4,5 3,5
Services (e. g. tourism) 2,6 2,3 0,9 0,8
Other expense (e. g. interest) 1,4 1,5 0,4 0,4
Current transfers 0,5 0,6 0,2 0,2
------ ------ ------ ------
Total expenses abroad 16,3 14,1 6,0 4,9
Net foreign deficit (current account) -2,5 -2,4 -1,3 -0,8
Trade balance -5,1 -4,2 -1,9 -1,5
Services balance 1,0 0,7 0,4 0,3
Other balance 1,2 1,0 0,2 0,4
Current transfer balance 0,4 0,1 0,0 0,0
---- ---- ---- ----
Net foreign deficit (current account) -2,5 -2,4 -1,3 -0,8
January-March March
2017 2016 2017 2016
Exports "Other Goods" 4,7 4,3 1,8 1,6
Imports "Other Goods" 8,4 7,8 3,2 2,8
---- ---- ---- ----
Balance of goods excluding oil and ships -3,7 -3,5 -1,4 -1,2

Gone are the days of positive surprises with Greece's current account. What is even more disconcerting is the trend: the 2017 deterioration started noticeably in the month of February (January had actually been an improvement) and led to a whopping deterioration of 500 MEUR over the previous year in the month of March alone.

But the real question is: where is the money coming from to pay for this rather dramatic increase in imports? There is no significant increase in employment, no known increase in wages/salaries, certainly no increase in pensions and the increase in unpaid taxes would suggest that people are financially very strained.

I repeat the question: Where is the money coming from to pay for this rather dramatic increase in imports?

Saturday, May 20, 2017

A Plea For Greek Elites!

I had never heard of Mr. Aristides Alafouzos before. Like many foreigners, I have practically zero knowledge of the Greek elite (political, economic, social or otherwise) except for those who are in the media all the time. Whether one likes the term 'elite' or not, every society, even a communist one, produces its own elites. Some are artificial elites (i. e. hereditary or appointed), others are natural ones (meritocracy, charisma, etc.).

I learned about Mr. Alafouzos through two obituaries in the Ekathimerini (here and here). It seems clear that Mr. Alafouzos was one of the natural elites.

There is a German saying which cannot well be translated into English: "Wie der Herr, so das Gescherr". One translation might be: "Like master, like man."

Henry Ford II was known to be a CEO who would slap his top executives in their faces (almost literally). During his reign at the Ford Motor Company, managers all the way down to the supervisory level were known to slap their subordinates in their faces (literally speaking).

Other CEOs are of the gentleman kind and the culture in their companies will undoubtedly be gentleman-like. In fact, culture is very much influenced by the elites.

Based on the two obituaries, I have no doubt that Mr. Alafouzos formed and shaped a culture in his companies which corresponded to his own values. While he is now dead, cultures tend to survive for quite some time.

I have always wondered what kind of a society Greek society would be if the elites of Greek society (of the Alafouzos kind) came more to the forefront, played a more significant role in society. Some of the things we see these days on TV, like physical fights in the Greek parliament, are clearly the worst of Greek society.

Why can't we see more of the best of Greek society?

Tuesday, May 9, 2017

The Gut Says: "Greece Is On The Rebound!"

My wife and I always spend springs (typically 2 months) and autumns (up to 4 months) in Greece. I admit that the microcosm in which we move may not be typical of all of Greece but it is always the same microcosm: a mixture of big-city life in Thessaloniki, visits to villages, trips to tourist areas in Chalkidiki, travels throughout Northern Greece, etc. This microcosm may not reflect Greece overall but it serves well as a basis to measure trends. And here is my surprise for you:

Greece is on the rebound, no doubt about it!!! I first had that feeling last spring and it intensified last fall. After having been here for 3 weeks this spring, I am now convinced. I sense a level of positivism if not optimism which I haven't sensed since 2010. In the villages, I see 1-person shopmen who suffered terribly in the past and who now say that they have quite a bit of work. Some of them even in the construction industry. For my car service, I used to get an appointment at Hyundai with a week. Last spring it was already 10 days and this time around it was a little over 2 weeks. I see traffic jams in down-town Thessaloniki which I haven't seen since 2010, and this at gasoline prices 30-40% higher than in Central Europe! When I look out at the Thessaloniki harbor, I now see up to 10 freighters loading and/or unloading freight. I could go on and on. If the official stats do not show that, it's because the official stats miss a lot of reality.

Barring unforeseen surprises, Greece will sign a deal with creditors soon and it is likely to start benefiting from the ECB's QE. Today, I even read that they are thinking about placing a bond in the markets next June. If some of that (or even all of that) really happens, there will be a lot of positive news about Greece. And positive news will feed upon itself, particularly when a record tourist season reinforces such positive news every day. The steady decline in Greek bond yields will also be a continuous reinforcer of the good news. Financial investors will start wondering whether perhaps they might be missing the bottom of the crisis to make good deals. That, too, could feed upon itself.

I have no facts to offer but my gut says that Greece is on the rebound. The key variable for increased economic activity in Greece is the net inflow of foreign capital. Foreign capital does not always flow on the basis of hard facts. Oftentimes, if not even very often, it is the 'leading steers' that make the herds move. It would only take a few 'leading steers' to set a trend in motion. Who knows? We may soon see the financial herds turning around and 'discovering Greece' anew!?!

Mind you, I don't believe that Greece today is a much better place to do business than 7 years ago. But once the herds start moving, they never pay attention to such details. Neither do I think that the bottom of Greek society will benefit all that much from the herds. As Adam Smith said: "The problem with fiat money is that it rewards the minority that can handle money." I recently read that about 1,5 million people in Greece are without income and assets. I don't think miracles will happen for them.

But there will be a fairly large section of society which will benefit from the renewed bandwagon. As I said, I don't think it will be a new start in a fully reformed country. Not at all!

But I think that there is a good chance that we will soon see a renewed herd movement. Essentially a repeat of the past. When money comes into Greece, Greece does well. The better Greece seems to do, the more money comes into Greece. And I am fairly certain that the herd will start moving again soon.

Until the next 'sudden stop' happens...

Trade Balance: Bank Of Greece vs. ELSTAT

Much publicity has been given to the fact that ELSTAT reported an increase of 36,2% in Greece's trade deficit in March of this year (versus March 2016). The numbers are distorted by oil and ship transactions but even without those, the trade deficit increased 6,6%.

While this is interesting information, it always reminds me of a question which I have been trying to get an answer to for years, albeit without success, namely: why do ELSTAT and the Bank of Greece report trade figures which differ quite substantially, sometimes even enormously. For example, for 2016, ELSTAT reported a trade deficit of 18.705,0 MEUR whereas the corresponding figure from the Bank of Greece was 16.581,0 MEUR. A difference of that magnitude can certainly be considered as enormous.

Will I ever get an answer to this question?