Thursday, 21 November 2013

greece likely to be in trouble again

Greek finance minister Yannis Stournaras is on a push to gain confidence at home and abroad.
During a Eurogroup meeting in Brussels last night Stournaras tried to convince his European peers of the Greek government's sincere efforts to get a handle on its economy after nearly four years of emergency loans and six years of recession.
Klaus Regling, chief executive of the euro zone's emergency bailout fund the European Financial Stability Facility, speaking at a press conference in Brussels said the next tranche of aid for Greece would only be released at the end of a review of the country's attempts to reform its economy and spending by representatives of Greece's fellow euro countries, the European Central Bank and the International Monetary Fund -- the so-called Troika.
During the same press briefing, Jeroen Dijsselbloem, head of the meeting of finance ministers from the 17 euro countries known as the Eurogroup, said this will only happen if there is some agreement on four areas: milestones that have been discussed, the fiscal gap, structural reforms and if the Troika sees some progress at the privatization program. 
European Commissioner for Economic and Monetary Affairs and the euro Olli Rehn said there has been significant progress, but a lot more needs to be done. The Troika left Greece this week, but is due to return after the end of today's meeting of finance ministers from the 28 European Union countries to continue with this latest country review that has taken a significantly long time to complete.
At the same time, back home, Stournaras has had to face a number of "rebel" MPs threatening government stability.
After surviving a no-confidence vote brought forward by the Greek opposition leader Alexis Tsipras last week, Greece's coalition government is still teetering on the brink.
The coalition, made up of the New Democracy and Pasok parties had one of its socialist lawmakers break ranks eroding its already slim majority. Several other members are deeply unhappy with their coalition partners and have been particularly critical of the government in interviews with Greek media this week. Conservative MP Dora Bakoyannis said in an interview with local radio RealFM that the Democratic Left, the smaller leftist party and former coalition partner, should return to the coalition, as it now needs a strengthened majority.
A new property tax bill put forward by the finance ministry and approved by the Troika in September is proving particularly hard to swallow for many. The draft bill proposes a tax on main residences, holiday homes, offices, farmland, and even on unoccupied land.
Greece has been relying on two bailouts worth 240 billion euros ($322 billion) from its fellow euro countries and the International Monetary Fund since 2010 when it could no longer afford to raise money on its own.
The loans came with strict spending and reform rules which, in turn, put the brakes on Greece's economy, keeping it mired in a six-year recession. Greece's debt pile, meanwhile, is the highest in the euro zone with the debt-to-GDP burden at 160.5 percent and unemployment is at record highs, particularly among the under the age of 25.
"Unlike the council tax that is imposed on property dwellers in the U.K., where people know this money goes to road works or generally mending the borough, the proposed Greek tax doesn't make sense to the people. They think this is one more way for the government to make bad use of their money", Paschos Mandravelis, political commentator for Kathimerini newspaper told CNBC.
Property ownership through inheritance is extremely widespread in Greece. A family with a very low income might own land that it does not use in faraway places around the country.
"There is a widespread -- and actually promoted -- savings culture based on ownership, because of inflationary pressure and political instability all these years", Elena Panaritis, CEO of think tank Thought for Action and former Pasok MP said. "This is not a simple tax, it is a way of punishing the middle class, who have been good housekeepers and have been paying their taxes", she says.
"This is a steeply progressive tax. Expensive land is being taxed 1.500 times more than cheap land. Also, house prices, the assessed property values on which the tax is based were set by the government back in 2007, before the crisis started, and bear no resemblance to today's market values.", says Miranda Xafa, EF Consulting President and former IMF executive.
An initial tax on property ownership, the "haratsi" as people call it in Greece, was introduced by George Papandreou's government in September 2011 as an extraordinary measure that would only last for two years. It is now in its third year. The government expects the tax to bring in 2.8-2.9 billion euros, unlike the initial target of 3.6, as a lot of people will not have the money to pay this. 
MPs are also rebelling against an end to the ban on foreclosures, which has been demanded by the Troika and has protected people who cannot service their mortgage. Stournaras said speaking at a press briefing to Greek journalists after the Eurogroup that the lift on all foreclosures starting from the 1st of january 2014 that the Troika is asking for should not go through, as this will cause even bigger problems to the already troubled housing market causing prices to go further down.
"The property bill is in trouble, as several MPs are asking for important changes in order to vote it", says Xafa.
Some MPs contesting the new law have offered a glimmer of hope, saying they will support a reworked property tax bill. Finance ministry sources told CNBC that they are considering MPs' suggestions ahead of an expected vote in parliament
Nefeli Agkyridou is an assistant producer at CNBC. Follow her on Twitter:

Greece's tourism sector will grow by 10 percent in 2014 and will help spur the country's ailing economy, Olga Kefalogianni, the Greek minister of tourism, told CNBC on Monday.
Kefalogianni said she was optimistic for next year after a successful 2013 in terms of tourism, and said she hoped the country could increase tourist numbers and revenue by 10 percent next year.
The minister also emphasized that the tourism sector was aiding the government's fiscal consolidation plans.
"The truth is that as far as tourism is concerned, we actually had a lowering of the V.A.T. in food and beverage starting from August," she said. "This is the first time that we had a lowering of V.A.T. in any of Greece's services. So I think this is quite a significant step forward, and we have seen that actually this has spurred demand and it will actually benefit the economy."
Kefalogianni added: "So overall I would say that not only has tourism shown to be a very resilient sector of economy, but it is also one of the sectors that has contributed to the efforts by the Greek government for fiscal consolidation."
The national statistical authority in Greece reported that 5.42 million non-residents arrived in the country between January and June this year, compared to 4.82 million a year earlier - an increase of 12.3 percent. The data boosted government hopes that the sector will help spur economic growth in the country.
The Greek economy is in its sixth year of recession and is expected to contract by over 4 percent this year, according to the European Union and International Monetary Fund. Greece's government has forecast that the country will emerge from recession next year, but its economic data remains weak.
Greece was one of the only countries in the euro zone to record a contraction in manufacturing activity in October, according to Monday's Markit Manufacturing Purchasing Managers' Index (PMI). The data came in at a three-month low of 47.3, where a reading over 50 marks expansion. The index has been below 50 since September 2009.
However, tourism – which accounts for more than 15 percent of Greece's gross domestic product – has always been a bright spot for the struggling southern European nation.
Panos Paleologos, founder and CEO of hotel consultancy firm HotelBrain told CNBC on Monday that it had been a fantastic year for Greek tourism. He said the sector could be the vehicle that drives Greece's eventual recovery, arguing that the country offers tourists "value for money."
But there have been some recent disturbances in Greece that could put off some potential visitors.
On November 1, two members of the far-right political party Golden Dawn were killed in an apparent drive-by shooting in Athens. The attack followed the arrest of Golden Dawn members a few weeks earlier on suspicion of forming a criminal organization. In September, a Golden Dawn supporter was charged over the killing of Pavlos Fyssas, an anti-fascist musician,whose death sparked protests in Athens and across Greece.

Greece's government has borne the brunt of strikes and protests this week, but the fate of the country could lie in the German ballot box.
Germany is Europe's largest economy and therefore the biggest contributor to the region's rescue fund, which makes it one of the most powerful decision-makers in how the region rescues its stricken economies. While German politicians have been in the grip of election campaigning, analysts and Europe-watchers have noticed that many of the big euro zone decisions have been put on hold.
"Following the German elections, they have to come up with a better plan for Greece," Petros Doukas, Greece's former deputy finance minister for the center-right New Democracy party, told CNBC.
Greece has been bailed out to the tune of nearly €240 billion since 2010 when it could no longer finance itself. The country has had to impose harsh spending cuts and reforms in return for these loans. These cuts and reforms have hit Greece's economy – unemployment currently stands at around 27 percent and the country is in its sixth year of recession.
Greece, along with the other bailed-out euro zone economies, has criticized Germany for insisting on the harsh austerity measures. Meanwhile, patience in Germany is wearing thin with the rescued countries, who have been criticized for getting themselves in trouble in the first place.
"If Germans had their salaries cut by 5-10% Berlin would be burning today," Doukas said.
We need a European Marshall Plan: Ex-Greek Minister
Friday, 20 Sep 2013 | 2:30 AM ET
Petros Doukas, former deputy finance minister of Greece, tells CNBC that Greece needs a stronger solution to combat social tensions in the country.
The best solution for Greece's problems, the former minister said, would be a new "Marshall Plan" development program, with an emphasis on investing in business -- rather than a hand-out and a 30-40 percent debt haircut. 
"We are very close to the end, but we need that extra mile of support," he said.
"Once this region has stabilized, the whole of Europe will be able to breathe freer."
Greece's Radical Left leader Alexis Tsipras pointed out after a meeting with ECB board member Joerg Asmussen in Frankfurt that it is in Germany's interest to keep Greece going.
"I hear what Mrs Merkel and Mr Schaueble are saying, that you are paying taxes to save Greece. Yes, you are taxed but not to save Greece, but to save the Greek banks which in turn means that the German banks are being saved," he said.
His comments came as representatives of the troika of international lenders which bailed out Greece – the International Monetary Fund, European Central Bank and European Commission – inspect the country's commitment to the terms of the bailout. If Greece is found to have failed to meet the conditions of its loans, the troika can withhold further funds. 
The killing of an anti-fascist activist earlier this week by a supporter of far-right party Golden Dawn has led to protests around the country. 
The increasing popularity of Golden Dawn may signify disgruntlement with the more mainstream parties. There has even been talk of outlawing the party, which has 18 members in a Greek Parliament of 300, following the killing.
"Outlawing Golden Dawn is not the answer, you will make heroes out of them," Doukas told CNBC.
He argued that high ratings for the party often come as an expression of frustration with the existing government, and do not translate into votes.
"They can't thwart our effort or economic policies," he added.
By CNBC's Catherine Boyle. Twitter: 

 Greece's international creditors are due to meet the country's finance minister Tuesday for talks over the country's bailout program and the holes in its budget, discussions which are central to the government receiving more aid.
Inspectors from the European Union, International Monetary Fund (IMF) and European Central Bank (ECB) are due to meet with Finance Minister Yannis Stournaras on Tuesday morning.
There were doubts that the meeting would take place after differences over how to plug Greece's funding gap emerged last week but, on the eve of the visit on Monday, the country's prime minister appeared resolute that the differences could be resolved.
Trying to quell public fears over the return of the creditors, Prime Minister Antonis Samaras told the nation via a Greek television broadcast that the country was not "at war" with international lenders.
"First of all let me say something - let's do away with this notion that we are in some kind of war...It is a negotiation."
He argued that it was possible to close Greece's fiscal gap in 2014 and achieve its goal of a primary surplus without more austerity – austerity which he said the country could and would not take.
Greece has been relying on two bailouts worth 240 billion from its fellow euro countries and the International Monetary Fund since 2010 when it could no longer afford to raise money on its own.
The loans came with strict spending and reform rules which, in turn, put the brakes on Greece's economy, keeping it mired in a six-year recession. Greece's debt pile, meanwhile, is the highest in the euro zone with the debt-to-GDP burden at 160.5 percent and unemployment is at record highs, particularly among the under the age of 25.
"Society cannot take it, the economy cannot take it, and it is not even required by the country's current financial situation," Samaras insisted.
The issue of the funding gap was first raised in the summer, with reports that the country could face a shortfall of ten billion euros ($13.1 billion). However, the latest reports suggest that the funding gap amounts to a two billion euro ($2.7 billion) hole in the 2014 budget, euro zone officials told Reuters in late October.
What is unknown is how the troika of lenders will respond to the gap -- tantamount to Greece's failure to meet the strict conditions of its bailout programs – as Samaras' government has already rejected more wage and pension cuts or tax increases.
The troika, meanwhile, is reported to be unhappy at the slow government progress over the privatization of public assets and implementation of reforms.
A glimmer of hope came on Tuesday, however, from the European Commission. In the body's latest economic report, the Commission forecast that Greece's gross domestic product (GDP) would grow 0.6 percent in 2014 and 2.9 percent in 2015.
Saying that Greece's recovery was "in sight" it also revised its growth forecasts for 2013, predicting that the economy will contract by 4, rather than a previously predicted 4.2 percent.
It said a "strong revival" in tourism, on which Greece heavily relies had particularly helped the economy.
Senior market analyst at CMC Markets, Michael Hewson, said that the success of the latest visit to check on the development of Europe's "perennial problem child" would depend on how lenders ultimately resolve Greece's growing indebtedness.
"The troika are returning to Athens as the perennial problem child of Greece grapples with another shortfall in its 2014 finances [but] one thing is certain, whatever the size of the fiscal gap, a fudge of some sort will be found to release the next tranche of funds, " Hewson said in a note on Tuesday. "The main problem remains the IMF whose future participation is contingent on Greece's debt being sustainable, which it clearly isn't."
-By CNBC's Holly Ellyatt, follow her on Twitter 

 As European leaders openly disagree over whether Greece will get further financial aid, the country's prime minister has turned to Saudi billionaire Prince Alwaleed bin Talal for investment.
Greek Prime minister Antonis Samaras metthe Saudi prince, who has large stakes in Citigroup and Apple and is ranked 26th on Forbes' rich list, in an attempt to discussinvestment opportunities.
Greece is looking to sell assets including utility companies, Athens' international airport and two of its main ports. The country is also looking for investments in several real estate developments which could interest the prince, who is the part owner of luxury hotels in London, New York and Paris.
Greece has been accused of dragging its feet on privatization. A government official who declined to be named played down Alwaleed's visit, however, telling Reuters: "It was a customary visit, there is interest in investing in Greece."
Other foreign investors in Greece include Qatar holdings which invested in a gold mining project and the Chinese port operator Cosco which invested in Greece's Piraeus port.

Play VideoGreece will need debt relief s .vakidis told CNBC Europe's "Squawk Box" that Greece needed a debt writedown of at least 10 percent of its gross domestic product (GDP). "It has to be done because most of the Greek debt is going to the rest of Europe, if they don't provide them with debt relief then Greece won't be able to repay them."
"The important thing is that they need to provide more money for Greece, the problem is with the design of the [bailout] program…[the program] assumed that Greece would reach a primary surplus of 4.5 percent and keep this for 20 years- no country has ever done this, it's impossible."
- By CNBC's Holly Ellyatt, follow her on Twitter 
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