Greek Rescue: are you kidding?

I closed my previous post (Greece’s collapse and the EU Titanic) writing that “As far as Germany, the captain of the Titanic, does not change its behavior, even if Greeks manage to do their best, they will manage to collapse as first class passengers”.

Well, I was wrong. According the discussions between troika and the greek goverment even if Greeks do their best they are going to collapse in extreme poverty. Because here are the terms and conditions offered by Germany (and consequently EU) and IMF (apologies for not listing other actors like the French and the Dutch prime minister – they are simply members of the cast with secondary roles).

The rescue package consists of a new 130 billions € loan, which will replace the almost 80 billions € that will be cut by the “haircut” applied to private sector debt holders. Actually the Greek debt will be much higher as soon as the “Rescue package” will be agreed. Someone could say that’s fine because the new bonds will be with a better interest rate and with longer pay-back period. But this is just the top of the iceberg, because the new bonds will be ruled by the British Law and not (as the current ones) by the Greek law, which means that any haircut will be almost impossible. So Greece will exchange 80 billions € of debt controlled by the Greek Law with 130 billions € of debt controlled by the British Law!

Even so, I could discuss such an investment made by our European partners as a form of support to a struggling economy. But it is really disgusting to notice that during last 40 days, every time the Greek government was close to finalize an agreement with the so called Troika (EU, ECB and IMF representatives), the Troika put new terms and conditions, worst than it has asked 10 days ago.

Such a behavior can be explained in only one way:  it seems that Troika’s order was to test the limits of our society and make an agreement not as a partner but as a financial Dictator.

This has resulted to unbelievable terms and conditions offered and not negotiated. Here are some of them:

• 20% reduction of the minimum salary, which will drive in a downward spiral all salaries and will make recession much deeper
• 25% reduction in all pensions, which are already very low in most of the cases
• Massive and blind dismissals through the public sector which will boost unemployment from 18% to 25%

And the best: 95% of the new 130 billion € bailout will be used just to ensure pay-back of the new and the remaining (after the rescue) loans! Merkozy proposed that a specially supervised bank account should be used in order to ensure that no money of the bailout funds will be used for non-approved activities like pensions, education and healthcare system.

Well, I am not complaining – the blame is put firstly to the ridiculous and completely incapable Greek political system, but also to all of us who finally left our country to become a pariah like this. We have to find the way out of the crisis and we will do it, sooner or later. After all, we have survived during much more difficult periods and we still have huge resources of creativity and imagination. And last year, we managed to have a primary budgetary surplus, for the first time after many years.

Burning German flags
outside the  Greek  Parliament (7/2/2012)

But on the other hand, I do not believe that the only way out of the current Euro crisis is to drive some societies to collapse.  I wonder if the EU officers and politicians do understand that they create long-term anti – EU feelings and feed nationalist movements. I revolt when I understand that Banks are above all, the top-priority of the EU policy. And I understand that the recent humiliations against Greece are a clever way to draw our attention away of the real problem: the banking system that is the real cancer of Europe.

I believe that Greece has no other option than to make an agreement with its EU partners. This agreement will create huge negative long-term impacts to Greek society, but who knows, maybe EU policies will change later. If this will not happen, Germany and its colleagues create the playground to push Greece (and not only) out the Eurozone, in order to secure their economies.

I have to say that they will be proved wrong once again.

Two years ago, they fought against any “haircut” option. Now they are obliged to do it.

One year ago, they were predicting the success of the austerity programs applied to Greece, Portugal and Ireland. Now they admit that they are not enough and new rescue plans are required.

Few months ago, at the end of October 2011, they said (more or less) the crisis is over because they found out a long-term solution regarding Euro debt crisis. Two weeks later the markets sent Euro at the bottom and few weeks later France (and others) lost the AAA rating.

Simply, you can’t stop a fire just closing the door of the room which is on – fire.

As it was written recently (7/2/2012) in Spiegel:

“But it is already clear that this aid package will not save the country. It appears it will only delay a Greek insolvency -- and it will serve to create new hardships for the country's population. It is time for politicians to admit that their carrot and stick strategy has failed. The idea that the country can be freed from its debt quagmire though austerity programs and aid pledges tied to conditions just isn't going to work. It won't even work if private creditors forgive part of the country's debt”.

By the way, the title of the above mentioned article was “It's Time to End the Greek Rescue Farce”.

Greece's collapse and the EU Titanic

The Greek drama is going to its end within next 30 – 50 days. And as it is well known from the ancient Greek drama, no matter if the end will be a happy one, the major messages have already sent and their importance is global.  

Greeks themselves have done a lot of nasty things that resulted in today’s drama. An incapable political system, corruption, nepotism, a useless growth of public sector, tax evasion, and a spirit of “making money with the less or even no effort” have been some of the characteristics of our society for the last 10 years.   But still, most of the society and especially the private sector work a lot, much more than the EU average. As for social benefits, the Greek welfare state simply never happened.

A lot of infrastructure has been delivered using EU funds, but also a lot of money has been spent for “white elephants” that were used just for 15 days during Athens Olympic Games and now they are hanging around as symbols of an incapable state. And decades of billions are spent on a permanent basis for new weapons (aircrafts, submarines, armored vehicles etc.) in order to keep a high level of army readiness against the possibility of a war with Turkey. USA, Germany and France together control around 90% of the Greek army supplies.

Even so, all the previous are not enough to explain the Greek tragedy today. The real problem is much more than a Greek one.

Allow me to start with some stereotypes that create a lot of confusion. Those stereotypes are repeatedly used by international press, in some cases just due to ignorance and in other cases on purpose.

Stereotype 1: Greece will collapse because it does not follow the rules that IMF and EU are insisting to be applied. I know a couple of other countries like Portugal and Ireland that are applying the rules with religious dedication and much more social consensus than Greece. But unfortunately they are very close to collapse too – needless to remind you that Ireland collapsed in 2008 just few months after  a storm of articles that praised its competitive and open economy that was built as the rules said. And I can also add a lot of other European countries that are not so close to collapse but they are not so far too, independently of their compliance with IMF and EU rules.  

Let me put it in another way. Do we know any country around the world where the application of the rules proposed by IMF and EU for my country (25% reduction in private sector salaries, massive privatizations of everything that has value, collapse of the public utilities, and austerity until death etc.) has resulted in good results? I do not think so.

Stereotype 2: Greek governments did not implement the specific measures IMF and EU have proposed and this is why the situation goes worst. In fact, what happened is rather the opposite. Greek governments said yes to everything that was proposed (as everyone knows there was no negotiation at all) and applied all major suggestions: they increased VAT from 11 to 23% (which killed the tourist sector), they cut salaries in public sector by 20%, the average private sector salary reduction is about 25%, they increased the direct and indirect taxes to unbelievable levels, they cut pensions from 20 to 50%! Of course the tax system was not reformed and privatizations were not promoted as IMF and EU wanted. But this was practically impossible with the public sector on strikes and the society in demonstrations.

What was the result of the bold plan that EU and IMF suggested? An 18% unemployment rate and thousands of young people searching to migrate. Also, a 10% reduction of the National Gross Domestic Product. As a result, there is a substantial increase of current-account deficit and the debt as percentages of GDP. As ECONOMIST magazine wrote in its last issue (January 28^th ) the proposed plan simply it is not working!

Stereotype 3: I heard someone saying that German tax payers (and not only) have already paid a lot to support Greece. This is much more than a lie. It is an upside – down of the reality.

In fact Greece has taken no money for free during last years from any European or other country. Greece borrows money with 5% interest from Germany and Germany borrows money with 0.5% from the markets. That’s really a good investment, right?

Everything is clearly written in thousands of papers in Internet. Event the European Task Force that has arrived to Athens in order to support Greek reforms is not working for free. Recently, an officer from Brussels informed me that France and Germany will be paid by EU in order to provide their technical support.

Stereotype 4:  It is a debt crisis not a crisis of Euro. This is the favorite of Merkel. Unfortunately, she is one of the very few that understand it that way. Still Germany has all the power to create a media campaign to promote its position, but the reality doesn’t change. Greek debt is just the cherry upon the pie. The pie is Euro problems: lack of EU-wide tools for common fiscal policies, absence of any coordinating mechanism related to tax issues, myopic competitiveness management by Germans and most of all a completely incapable political leadership for the last 10 years. All those have transformed Euro from the most ambitious experiment in Europe to the worst nightmare.

Well, the truth is that Greece is the weakest link of a very weak European chain. And no matter what will be the future of Greece, inside or outside the Euro Zone, the weakness of EU will not change. EU goes like the Titanic towards the iceberg, although the iceberg was visible for more than 3 years now.

But the captain (in this case Germany) shouts that it will leave the boat first unless everyone on board agree and obey to its demands. This is a no way - out situation.

We do not know if there is still time to save the boat, even if we all agree to captain’s rude orders. And the captain knows well (I hope) that out of the boat it has no chance to survive in the global ocean.

Greeks must work hardly to change their own society and make it more competitive and productive. They have to make it business – attractive in order to fight unemployment. They have to transform their political and administrative system; they have to clear out corruption and nepotism; they have to create a fare tax system. They also have to keep education and health-care services alive and provide a minimum social support to the poorer part of the society.  

Bu I really doubt if all of them can be implemented with the current behavior of IMF and EU. As far as Germany, the captain of the Titanic, does not change its behavior, even if Greeks manage to do their best, they will manage to collapse as first class passengers. Not so attractive and inspiring…

A comment regarding the Greek Crisis

This is a comment regarding Greece and its economic crisis. It is a video - please spend some minutes to watch it. But before watching the video, please read carefully some lines.

I am sure that there are things to debate about the video. For sure, Greece and Greeks have their own, substantial responsibility for what is happening now.

But I am also sure that there are a lot of things that cannot be debated. As an example, Greeks are working much more hours than most of the EU citizens.

I dedicate this video to all those who consider Greeks as the "black sheep" of EU.

Even more I dedicate this video to those ones who might think that Greeks are like the lambs to the slaughter. At least, they have to think that slaughter in Europe is usually combined with German strength and arrogance, French incompetence to resist and late reaction and British criminal negligence for non - members of the former British Empire

As for those European leaders or citizens that consider Greece as the sick part of the EU, I strongly propose them to remember what Jesus has told:

"Medice cura te ipsum." (see Gospel of Luke chapter 4:23).

In English: "Physician, take care of yourself!"

Please enjoy the video:

http://www.gr2day.com/106.htm

Public Private Partnerships in Waste Management: the first Greek Experience

First the facts: the first application for Public – Private Partnership (PPP) in the field of Waste Management (WM) has already been approved by the Special Secretariat for PPPs and the Interministerial PPP Committee.

The project of “Integrated Waste Management in Western Macedonia” includes design, construction and operation of a modern waste treatment facility and the relevant landfill for residues, as well as the operation of 9 transfer stations that have been already constructed, for 25 years. Detailed profile of the project can be found at http://www.sdit.mnec.gr/en/projects/projects/project0020.html. The budget is around 120 million Euros and up to 50% of this will be covered by the Greek Government, through PPP law regulations, while the rest will be the contribution of the local municipalities, through their Waste Management Authority (WMA) DIADYMA.

The project is already in the pipeline and it is expected to start operations at early 2010. During the preparation of the project, which has not yet been completed, there were several interesting issues that need to be discussed in a public discussion. The more important of them are addressed below.

1. Drivers for PPP in WM
The Greek WM market is in transition. A lot of landfills do exist and operate and some more will be constructed during next years, but the challenge of waste treatment has not yet been faced. Although there is a national strategy regarding directive EC 99/31 that puts strict targets for biodegradable waste and their diversion from landfills, the steps already implemented are poor.

Two Mechanical Biological Treatment (MBT) facilities are under operation, but their environmental results are at least questionable. In any case, the operation of these facilities cannot satisfy the requirements set up by directive 99/31.

At the same time, in a lot of the big landfills there is a gradually harder pressure due to lack of space, with the case of Athens to be a symbol of the failure of the actual WM policy to meet EU targets.

Greek WM market and WMAs have understood the necessity for waste treatment, but until now there is no certain indication that EU or national funds will be used for that way. So the combination of treatment necessity and lack of financial resources is a big driver for PPP in WM.

The response of the Ministry of Finance to this situation is a hopeful signal for the market and we do hope that this is just the first of the required steps.

Additionally, the very short time period left to achieve the targets for biodegradable waste provides a great advantage to PPP procedures. Although preparation of a PPP contract is neither an easy nor a rapid task, there is much more flexibility and the PPP law provides certain tools that can significantly reduce the preparation period.

One more important driver is the experiences from the poor operation of the actual WM facilities. We all now understand that there is no mean to spend decades millions Euros to develop waste treatment facilities if we are not ready to ensure their effective operation. And the truth is that effective operation can be achieved if the contractor is responsible for that, which can only be achieved through PPP contracts.

2. Barriers for PPP in WM
Despite of the real strong drivers that do exist, the application of PPP in WM in Greece is really a difficult issue due to specific characteristics of the solid waste management systems.

First, the status and the human resources of the most WMAs are not capable to prepare and implement PPP contracts. Of course it is not by chance that the first effort started form DIADYMA SA, a Managing Authority with remarkable status in terms of human resources and a certain record of successes in EU funding and project implementation. But there are very few similar cases.

Second the cost barrier. In almost all the country, Greek citizens are used to pay negligible money for waste management and even so it is not always sure that the citizens achieve value for money. The great landfill dependence of the country is also a measure for that. There is a need for brave political decisions in order to have a gradual but steady increase of the WM expenses, if we want to have successful implementation of recovery and recycling targets.

One of the reasons that drove DIADYMA to a successful preparation was that the local authorities were persuaded that they have to increase the WM spending in order to achieve great environmental results. And the generous contribution of the Ministry of Finance to their willingness to pay is a good example that will certainly affect the political decisions required.

Last but not least barrier are the negative experiences of some PPP efforts that have been done previously. Of course it has to be explained that these efforts were out of the new framework. In general terms these failures were characterized by:
Poor or no preparation
Lack of performance standards
Lack of risk distribution
Lack of reliable commitment between the PPP contractor and the municipalities.

Thus, it is better that those efforts have totally failed.
3. A new view should be considered about project preparation
The Greek WMAs, the consultants involved to WM as well as the government and the contractors need to make a shift regarding project preparation. The application of PPPs to WM projects:
Should be combined with certain changes to project design. The overall feasibility of the project must be carefully documented, since PPPs are long-term relationships, which are based, in the financial contribution of the citizens and municipalities and not just t EU funds. Local affordability levels must be determined and tested before the contracts.
Must drove to a project preparation with emphasis on specific, desirable and quantified results instead of the usual more or less detailed design of the facilities that dominates the Greek market
Needs a careful and justified distribution of the potential risks of the project. This is something that is not yet understood by public decision makers which are used to ignore long term risks, but we all know that a PPP contract without efficient risk allocation will be a certain disaster.

4. The need for combination with EU funds
One of the more important lessons provided by the DIADYMA experience is the modern WM gate fees are too high for Greece, even in the case of one of the more efficient and expensive WM systems in Greece, that of Western Macedonia.

The Ministry of Finance put a great contribution of funds in order to cover the existing gap between gate fees for modern WM treatment and social capability to pay, affordability level in other terms.

But if a big part of the construction cost was covered by EU funds, the gap will be much more small and the implementation of similar projects will be affordable in much more cases.

The new government should consider this as the last opportunity for Greece to develop modern WM infrastructure utilizing EU funds that do exist. If these funds will be consumed once again just for landfills and transfer stations, this opportunity will be lost. Then, the future of WM in Greece will be much more expensive and undoubtedly difficult to consider it as “appropriate”.