31st Oct, 2015, Stress Tests' results of Greek Banks are considered better than expected

·         The European Central Bank announced that the Greek systemic banks will need 4.391 bios euros of additional capital according to basic scenario, 14.4 bios euros according to worst case scenario. This exercise was based on end-June’15 financials. More specifically:

o   Alpha Bank, 263 mios for basic scenario, 2.743 bios for worst case

o   Eurobank, 339 mios for basic scenario, 2.122 bios for worst case

o   National Bank: 1.576 bios for basic scenario, 4.6 bios for worst case

o   Piraeus Bank: 2.213 bios for basic scenario, 4.933 bios for worst case 

·         According to Greece’s Foundation of Economic & Industrial Research (IOBE), the local Economic Climate Index continued its increasing trend since July; it closed at 86.5 in October vs. 83.1 in September and 75.2 in August. On the other hand, Eurozone’s index slightly increased to 105.9 in October vs. 105.6 in August. 

·         Greece's Economic Climate Indices increased across all industrial sectors i.e. Manufacturing’s index improved to -19.6 in October from -23.3 in September but it is still lower compared to October 2014 (-0.6). This was due to an improvement of expectations as regards the following 3 month period (Oct: +11.7, Sep. +14.3 and Aug: -10.5). In addition, expectations concerning sales improved for a 2^nd month in a row (Oct.’15: 1.2, Sep’15: +2.9 and Aug: -33.1).
 

·         Greece’s current account closed at surplus for a third month in a row. More specifically, August’s surplus was recorded at 2.1 bios vs. 1.9 bios in August’s 2014. The current Account’s improvement is associated to the remarkable performance of Greek tourism which showed an increase of 8.5% as regards its balance of payment during Jan-Aug period. More specifically inflows increased by +7.5% while outflows decreased by -1.5%.

·         The number of arrivals of tourists in Greece, increased by +10.6% (annualised) during the period Jan-Aug, which is lower compared to the same period in 2014 (+22.1%). In August the number of tourists increased by +2.8% only, which is lower vs. August 2014 which showed an increase of 25.0%.

·         Arrivals of US tourists in Greece increased by +35.7% during the period Jan-Aug (+24.8% during the same period of 2014), while German tourists increased by 22.5% (+4.5% in same period of ‘14), and arrivals of British tourists increased by +24.9% (+4.5% in same period of ’14). On the other hand, arrivals of Russian tourists decreased by -62.2% during Jan-Aug period 2015 (remained stable during the same period of 2014). 

·         Greece’s inflows from shipping decreased by +2.3% during the period Jan-Aug; there was a drop of 46.7% in August due to the  implementation of capital controls.  

·         Expectations as regards construction slightly improved to -49.4 in Oct’15 vs. -52.8 in Sep’15. However, this was due to an improvement in Public Sector Construction only, which showed a remarkable increase to 80.5 in Oct’15 vs 58.5 in Sep’15 and 36.2 in Aug’15. 

·         Turkey holds parliamentary elections this Sunday Nov 1^st, which is the second in five months, with the governing AK Party hoping to win back its parliamentary majority. Deterioration of local economy, status of Turkish Democracy, regional geopolitics and security are among the key issues of concern for Turkish electorate. 

·         Refugees’ tragedy continues in Aegean Sea. More than 100 children have drowned in the Aegean over the last two months. Tsipras accused some European officials of not caring about these deaths and ‘crying crocodile tears’ over them.
 

Risk assessment. Turkey holds parliamentary elections this Sunday, November 1^st, the second elections in five months with ruling AK Party hoping to win parliamentary majority. The geopolitical developments in Syria combined with escalating attacks in Turkey’s interior by Kurdish forces and ISIS, have increased anxiety among Turkish citizens and may impact the final elections’ outcome. Turkey has gradually become ‘a nervous country’ and this represents a major threat for regional stability.

The developments in Turkey, enhances Greece's geopolitical role in the region of SE Europe and Middle East and this could facilitate the ongoing discussions as regards debt relief and investments. However, Greece has to increase its efforts in order to fulfil its obligations to creditors and enhance competitiveness and internationalisation of its economy. 

As it was predicted in previous commentaries, the total capital needs of Greek Banks are significantly lower than the amount which is included in the 3^rd MoU (25 bios). In addition, this exercise was performed based on end-June’15 results and before the agreement of July 13th, when local political uncertainty was skyrocketing.

It appears that both Eurobank and Alpha Bank’s positions are better, compared to the ones of National Bank and Piraeus Bank. National Bank shows comparatively higher capital needs but the biggest part could be covered by the sale of its Turkish subsidiary - Finansbank. It appears that Piraeus Bank shows comparatively the highest capital needs and will need more work to raise capital.

The task of the first three banks (Eurobank, Alpha & National Bank of Greece) to attract capital from markets and maintain management seems feasible. However, Piraeus Bank will need more effort to attract foreign capital and this seems highly unlikely at this stage. However, there will be no issue as the additional capital will be provided by state funds, within 3rd MoU context.   

In addition, the Bank of Greece performed stress test on Attica Bank, a small, not systemic bank, which is owned mainly by the Pension Fund of Engineers (TSMEDE). It appears that Attica Bank has significant capital needs compared to its size (857 mios for basic scenario and 1.021 bios for worst case). It is highly unlikely that Attica Bank will raise capital and most probably will be acquired by one of the four systemic banks, with the support of state funds.

All Banks will need to submit by November 6th, a specific strategic plan which will include sources of capital injection. 

In general, the results of stress test are better than expected. Eurobank showed a remarkable improvement as it appears to maintain the best position among the four systemic banks. The leadership Karamouzis-Karavias proved to be successful in its strategy to turnaround the bank's position.

Overall, considering that the local economy shows better performance in 2015 compared to initial estimates, shows that Greek Banks maintain significant value to investors and could be reactivated soon in order to start financing the local real economy again.

However, there are a lot of pending items starting with the recapitalisation bill which needs to be ratified by local Parliament by tomorrow. In addition, Greece needs to proceed on the  implementation of the structural reforms which are included in the 3^rd MoU, which will improve the overall investments' sentiment and facilitate the attraction of private sector's investment funds.

Last, but not least, Greece’s government needs to gradually change the mix of policies from increase of revenues (through increase of taxation) to decrease of expenses. This will allow local citizens and enterprises to breath and facilitate the implementation of structural reforms

.

 

 

 

Oct 30th, 2015, 200 bios haircut of debt, if Greece hosts 2 mios of refugees may be on the table

• According to EuroWorking Group’s official, there are two significant pending items in order that a) creditors will release the next reimbursement of 2 bios euros and b) recapitalisation of Greek Banks will be completed by end '15. He referred specifically to the following pending items: a) the revenue related to the application of VAT on private education and b) the legislation concerning foreclosures.   

• The tragedy of refugees landing at the eastern Greek islands continues despite worsening weather conditions. The coastguard rescued approx. 250 immigrants from drowning on Wednesday but there are still 30 missing. In addition a new wreckage occurred on Thursday, off the island of Kalymnos, with over a 100 missing.

• Ahead of the announcement of Greek Banks’ stress tests this Saturday, the Greek government submitted the recapitalization’s bill in Greece’s Commons. The ratification of this legislation represents a prerequisite as regards the recapitalization of Greek Banks and has to take place within this weekend and before the opening of Monday’s markets. Government’s vice chairman Dragassakis stated that the recapitalization bill will be ratified this Saturday.

• After Piraeus Bank, Alpha Bank became the second Greek Bank which launched an exchange offer on its outstanding subordinated and senior bonds. It is offering to pay between 50 and 5, out of 100 depending on the type of securities.

• The Greek government continues its efforts to find alternative equivalent measures which will absorb its initial proposal to apply VAT on private education. It appears that this amount will be raised through additional taxation of vehicles.

• According to the Greek Parliament’s State Budget Office, taxpayers cannot afford to pay additional taxes and that the application of additional taxes will lead to tax evasion. In addition, it emphasized the need to reduce current tax burden which otherwise could lead local economy either to recession or to a long term stagnation.

• On the other hand, according to Greece’s Centre of Planning and Economic Research, the overall economic contraction will reach the level of -0.3% in 2015, which is significantly lower than the -2.3% which is included in state budget. In addition, it predicted a contraction of -1.6% only during the second half of 2015. As a reminder, Greece applied capital controls in end June.

• According to press linkages, Ministry of Labor‘s Katrougalos mentioned during a meeting with the members of Executive Committee of SYRIZA that Greece will apply, sooner or later, a National pension which will be equal to all pensioners.

Risk assessment. As it has been mentioned in previous commentaries, the issue of refugees’ influx to Greece’s eastern islands gradually gains ground in Greece’s agenda with creditors. Although both parts deny that the issue of refugees is included in the agenda of the discussions between Greece and creditors, it seems that parallel discussions are taking place.

If we add to the picture the recent article of Bild, which referred to a Deutsche Bank’s report stating that there will be an agreement as regards the haircut of approx. 200 bios of Greek debt, the following scenario gradually gains ground:

'Creditors to agree on a significant haircut of debt, if Greece manages to host a significant number of refugees for a certain period of time and allow international institutions to handle refugees’ matters as long as they will be hosted in Greek territory'     

The fact that smugglers gradually start using larger boats to deal with weather conditions shows that Greece will face an escalation of refugees influx, anyway. And this will be further intensified in case of  a general instability within Turkey. For the record, more than 500,000 refugees have entered EU through Greek islands since the beginning of 2015.

On a daily basis, there are articles which emphasize that Greece need to take more responsibilities as regards the handling refugees and act as the EU's SE frontier. This means, EU and Greece need to cooperate as regards the formation and roll out of a strategy, which will include not only the creation of a number of hot spots in Greek territory but most importantly, it will include a strategy for refugees’ inclusion in local social net, for a certain period of time.

It becomes evident that this won't only become an issue of historic importance but will assist handling of humanitarian crisis as well, in the most humanly effective way. However, local political system needs to approach the matter carefully.

Firstly, it needs to enhance its European role in the region; otherwise it would become part of the problem with catastrophic consequences to local economy and society.

Secondly, it needs to implement all structural reforms in order to ensure the sustainability of its pension system and internationalisation of its economy.

Last but not least, if this agreement occurs, it could benefit Greece both in political and economic terms as it will be established a regional economic and political hub, within European context. And this needs to be Greece’s paradigm in the era of globalisation.   

27th Oct, 2015, Greece may face a similar to 1922 refugees’ crisis amid critical economic challenges

• According to International Organization for Migration, approximately 48,000 refugees arrived in Greek islands within 5 days (up to October 21^st). Greece’s Tsipras agreed on EU’s plan to increase Greece’s capacity to 50,000 refugees by end 2015.

• According to Spiegel, there was an initial proposal to Greek government concerning the creation of a mega-camp of 50,000 refugees at Athens’ Olympic campus. However, eventually there was an agreement that Greece will increase its capacity up to 50,000 refugees by end 2015, and EU will subsidy the rent for 20,000 refugees.

• There is still a disagreement as regards the reimbursement of 2 bios euros by end October. Press linkages suggest that this will occur in November and after the completion of banks’ recapitalisation. In addition, Greece needs to meet its December’s obligations to IMF, which amount 1.2 bios euros.

• Greece’s government published the ministerial decree regarding the implementation of a law which was voted in August, concerning the gradual decree of age of retirement to 62 years with 40 years of insurance contribution or 67 years with fewer years of contributions.

• According to Greek government’s spokeswoman Gerovassili, there is still a 700 mios euros shortfall for pensions for 2015 and 2016. Although the Greek government insists that there will be cuts in pensions about the threshold of 1,000 euros, there are many publications which refer to pension cuts below this threshold. In addition, the Greek government brought to the table of negotiations, the further increase of employers’ contributions.

• ECB will announced the results of Greek Banks’ stress tests this Saturday October 31^st, at 11.30 am Athens time. This increases the pressure to the Greek government to submit the recapitalisation bill by Friday. As a reminder, this bill should have been ratified by mid –October. A number of reports have been published which estimate that the Greek Banks will need approximately 5-7 bios injection of private funds.

• According to various banks’ analysts, the total number will reach the level of 15 bios which could be reduced below the level of 10 bios euros, if banks implement their restructuring plans.

• According to Hellenic Asset Development Fund’s Pitsiorlas, the SYRIZA’s government will push ahead its ambitious privatisation plan which amounts 3.5 bios euros in 2016. At the moment, there are major two projects, which concern a) the privatisation of 14 regional airports to Fraport and b) Port of Piraeus which could be completed by year-end.    

Risk assessment. I remain on my previous estimates that the impact of capital controls will be less than it was initially expected,  and this will facilitate the recapitalisation of Greek Banks. In addition, the probability that Tsipras won't fulfil all his commitments which are included in the 3rd MoU, remains low.

However, there is another factor which gradually plays more significant role, enhances Greece's negotiation power, geopolitical role and if it is handled effectively by the Greek Government, then it could be used as the mean for EU funds' transfer to the Greek economy, the debt's relief and return to sustainable economic trajectory. I'm referring to the ongoing refugees' crisis.

Greece’s leftist government doesn’t face only a series of critical deadlines concerning Banks’ recapitalisation and EU reimbursements to meet obligations to IMF, but also the most significant refugees’ crisis since 1922, when almost 2 million refugees from Minor Asia fled to its territory.

Although there are significant risks associated with refugees’ crisis, if Greek government manage the situation in a constructive way and integrate those refugees in its social net there will be benefits to local economy and society.

In addition, there will be a need for additional workforce when local economy will return to growth trajectory. The question is ‘how this need for labour force is justified by the current high unemployment rate of 25%?’

The main reason is that Greece faces significant demographic crisis, which has not only impacted economic activity but has almost derailed its pension system. This crisis was further deteriorated  due to the ongoing crisis which forced thousands of Greeks to relocate to other EU countries. This relocation was partially due to economic cycle and partially due to skill mismatch. For instance,  according to World Health Organization, Greece holds the second position globally as regards the number of doctors per 10,000 citizens (62 out of 10,000 when it is 35 at EU level). And this contributed to the overall bubble of local economy which busted in 2009.  

Needless to say that structural problems of local educational system combined with cultural problems, unlimited access to borrowing money and black economy resulted to the creation of a scientific ‘proletariat’.

Last but not least, it is highly unlikely that refugees’ inclusion to local social net, will be handled by local state structures. Considering the ongoing restructuring of state sector, it will be extremely difficult to Greece’s state sector to handle such extremely high burden, which is not only associated to capacity issues but to cultural issues as well. It is highly likely that international organisations will be highly involved in matters related to refugees as it happened in 1922 national disaster.

25th Oct, 2015, Greece’s technical dramatization of negotiations intensifies, amid gradual restoration of interest for investments

• It appears that there is a disagreement between Greek government and creditors as regards the implementation of measures which are included in the 3^rd MoU. More specifically, there are obstacles on taxation of private education and foreclosures’ threshold. This prevents not only the disbursement of 2 bios euros but the Greek Banks' recapitalisation as well.  

• During his visit in Athens, France’s Hollande reconfirmed his previous position that in case Greece fulfils its obligations which are included in the 3^rd MoU, there should be an agreement as regards Greece’s debt relief. He also added that there should be more discussion as regards the threshold for foreclosures.

• Greece’s current account surplus in August closed at 2.1 bios euros which is 0.232 bios euros higher compared to August 2014. This was due to the reduction of imports by -14.7% and an increase of revenues from tourism by +7.3%. However, the value of exports decreased by -12.8% (due to oil prices’ drop).

• The number of unemployed Greeks who are seeking employment reduced to 806,429 in September 2015, compared to 815,434 in August 2015 and 823,618 in September 2014. This slight improvement is related to growth in tourism. However, the part of unemployed which remains out of local marketplace for more than 12 months is 456,329 (56.59%).

• According to the recent report of 'Review of Maritime Transport', the Greek shipping industry maintained its 1^st position globally as regards a) total capacity of ships bigger than 1,000 tonnes and b) number of ships. In addition, the Greek ship-owners increased their market share as regards global shipping cargo to 16.1% (compared to 15.4% in 2014). Last but not least, the Greek shipping industry transports approx. 50% of total EU’s shipping trade.

• The Coca Cola Hellenic which represents Coca Cola’s no2 franchise at global level, announced that OTE (Deutsche Telecoms’ Greek subsidiary) gained the contract to run its datacentre for the next 5 years. In addition, Cocal Cola will transfer its primary data centre from Switcherland to Greece.

• Renting prices for shops in Greece, are the lowest at European level (even lower than Romania and Bulgaria).  According to data published by the Bank of Greece, the total decrease of renting prices reached the level of 31% during the period 2009-14.

• Bulgaria’s surplus of current account increased by +23.7% (on an annual basis) during the period Jan-Aug 2015. This was mainly a result of a reduction in trade balance’s deficit (exports increased by +9.1% and imports by +3.7%)  

Risk assessment. Tsipras’ government attempts to return to his drama-style negotiations with creditors. However, I remain on my previous view that the impact of capital controls to local economy will be less than it was initially expected. Gradually, this becomes the view of many international economic bodies and EU Commission, which are now evaluating the reduction of local GDP to less than -1.5% (from -2.5% which was the initial estimate).

It becomes evident that the better-than-expected Greece’s economic performance will impact positively the base scenario of stress tests and eventually the recapitalisation Greek Banks’ which appears to evolve comparatively smoothly. In addition, the interest of private sector on the recapitalisation of Greek Banks will be assisted by

a) the current rate differential between Greek bonds' yield and bonds of other Eurozone countries,

b) the potential for upside, if Greece implements the changes which are included in 3rd MoU

c) the gradual increase of Greece's geopolitical role due to the on-going fluid geopolitical situation in Middle East and

d) the significant increase of competitiveness during the last 6 years. 

Although, local media are conquered by news related to a disagreement on taxation of private education and foreclosures, the most complicated item remains the restructuring of local pension system. However, the possibility that SYRIZA’s government won’t fulfil its commitments is low, considering a) Tsipras has agreed on this item b) pension system' burden is unsustainable and  impacts significantly economy and c) the implementation of pending structural reforms impacts directly the recapitalisation of Greek Banks which needs to be completed by end 2015.

Although there is a need of taxing certain parts of Greek economy which traditionally didn’t contribute to state revenues, it is absolutely necessary to reduce the overall non-salary cost to local enterprises, hidden taxes to overall economy/society and  current taxation to entrepreneurship, pensioners and employees.

Last but not least, the significant increase of citizens and enterprises’ debt to the Greek state by 1.5 bios show that further increases of taxation on the current taxpayers, will only increase private debt and won’t bring additional revenues. 

The fact that 95% of state budget is related to the increase of revenues, compared decrease of expenditure, shows that these SYRIZA’s government policies won’t succeed, and there will a shift to realism soon. This means that sooner rather than later, there will be a significant reduction of state expenditure, starting from pension system which represents its biggest and most unsustainable item.

   

21st Oct, 2015, Run Tsipras!… Run!

·         Greece’s discussions with creditors as regards the disbursement of 2 bios euros continue. It has been announced that today’s Euroworking Group has been cancelled because the Greek government has ratified only 1/3 of the 49 prerequisite measures which have agreed with creditors.

 

·         Greece’s banking sector index rallied by 5.5% on Tuesday due to press linkages indicating that there has been an agreement between government and creditors as regards the legislation related to banks' recapitalisation. Needless to say that volume remains at extremely low levels and fluctuates between 20-50 mios on a daily basis, due to capital controls.  

·         Greece's country risk gradually improves. More specifically, 2 yr. bonds’ yield has dropped to 8.2%; it was close to 58% on 10^th July. In addition, 10 yr. bonds’ yield has dropped below 8.0%, fluctuates at 7.8%; it was close to 20% on 10^th July

·         It appears there has been a progress between Greece and US as regards a joint venture aiming in creating an energy hub in northern Greece.  As it has been described in previous commentaries, the project refers initially to the creation of an LNG terminal in Alexandroupolis, which will transfer natural gas to Bulgaria and other central European countries through IGB pipeline. The energy plan is also included among EU priority energy-related projects.

·         The head of 'independent' secretariat of public revenues’ Savvidou defended her position publicly as regards a legal case, which is under investigation by local economic prosecutor. She also refused to resign from her post and expressed her intention to bring the case to justice system in order to defend her integrity.

·         There has been a significant increase of real estate purchases by non EU citizens during the last four months. These purchases are related to the program, which awards residence permits to non-European Union citizens who buy real estate in Greece. Although there have been only 983 purchases of Greek property since 2013, it appears that there has been an increase of 28.5% (on an annual basis) during the last four months. Chinese buyers come first with 335 purchases/permits, and Russians follow with 315 permits. It seems that the interest from Middle East or Ukraine is gradually catching up.

·         According to Greece’s Finance Ministry tax debt increased by 1.5 bios euros in September due to inability of taxpayers to repay their obligations. This increases the YTD budget risk to the level of 5 bios on revenues side.

·         According to the Office of Economic and Commercial Affairs of Romania, Greek-origin investments have reached the amount of 4 bios euros. Greek exports to Romania increased by 17.74% during the first half of 2015, while Greek imports from Romania increased by 4.27%.

Risk assessment. It appears that revenues hysteresis to Greek citizens, who are not able to tax evade has started to impact significantly state revenues. The increase of citizens’ debt by 1.5 bios in September should ring the bell to Greece’s leftist government which favours the increase of tax revenues compared to reduction of expenses.

Tsipras needs to run fast and implement the 33 pending actions in order to achieve not only the reimbursement of 2 bios euros but also the recapitalisation of Greek Banks. The latter is absolutely necessary to be completed within November in order to prevent a potential bail-in in 2016.

However, the Greek government consumes valuable time to an endless discussion regarding ‘equivalent measures’, which will never be found. Although it is fair to expand the existing tax base and include certain parts of economy (black economy, farmers, islands) which traditionally don’t contribute to state revenues as part of clientelism, the majority of Greek taxpayers (employees, pensioners, entrepreneurship etc) need relaxation of tax burden.

As it has been stated before, the reduction of pension system’s expenditure, in fair terms, appears as the only way to reduce tax burden, which will also allow local economy to grow. Actually, the bottom line of the new, additional taxation on existing pensions is translated to pensions’ cuts, anyway.

19th Oct, 2015, Greek economy shows signs of dynamism amid politicalsystem which faces the Fall of Athens' Wall

·         Greece’s Commons approved the omnibus bill by a majority of 154 coalition over 300. There was one SYRIZA MP who was absent during the vote; however she sent a letter according to which she would have voted ‘Yes’ if she would have participated in the vote. In addition, Independent Greeks’ Nikolopoulos voted against 6 articles of this bill.In an incident during Tsipras’ speech, a woman started shouting to him from the gallery of Commons that Greek people voted No in last referendum.  

 

·         The first omnibus bill included pensions’ cuts and measures against tax evasion. Creditors quartet will arrive in Athens tomorrow to review progress and decide on the release of 2 bios disbursement.        

·         France’s Hollande will be visiting Greece in 22nd October. He will be accompanied by a significant business contingent which will discuss ways to cooperate and/or invest in Greek assets. France has expressed interest to participate in the privatization of Greek railway network.

·         Russian companies which were planning to participate in bidding process of privatization of railway companies ROSCO, TRENOSE and port of Thessaloniki, stated that they will propose to their main shareholder (Russian state) to withdraw from bidding process.

·         According to Greece’s Foundation for Economic & Industrial Research (IOBE), expectations improved significantly in Sep’15 vs. previous month. More specifically, the business expectations index increased to 78.8 in Sep vs. 67.4 in Aug. This improvement was based on better expectations in exports’ index for the next three months, which was increased to +14.3 in Sep. vs -10.5 in Aug. In addition, there was a significant increase in sales’ expectations to +2.9 in Sep’15, from -33.1 in previous month.

·         Exports (without fuels) increased by +6.8% in Aug’15 vs. a decrease of -4.5% in Aug.’14. During the period Jan-Aug, exports increased by +12.3% vs. a decrease of -2.6% during the same period in 2014. More specifically, exports of agricultural products increased by +17.1%, olive oil by +202.4%, drinks and tobacco by +23.1% and machinery by +19%. On the other hand, imports (without fuels) decreased by -8.4% in Aug’14 and by -2.0% during the period Jan-Aug 2015 resulting to a reduction of trade balance deficit.  

·         Industrial production increased by 4.5% in Aug’15. This increase is related to a) manufacturing (+4.2%) b) exports (+6.8%) and c) production of energy (+9.0%) due to decrease of energy imports. More specifically, the basic metals’ index closed at 100.2 in Aug’15 vs. 79.5 in Aug’14, which represents an increase of +26.1% (annualised). The foods’ index increased to 119.0 (+3.4%), the drinks/beverages increased to 116.9 (+13.8%). The tobacco index increased to 118 (+38.1%). The refineries’ index increased to 121.4 (+2.2%) and electronics index at 117.8, pharmaceuticals increased by +8.9%. chemicals by 1.1%, paper by +10.5%, textiles by +23.9% and electrical equipment by +14.2%.

·         Registrations of new cars increased by +7.1% in September 2015 and by +17.7% during the period Jan-Sep. The local car market business expectations slightly improved to 84.6 which is lower compared to Sep’14. On the other hand, the decreasing trend in private construction continued in July (-25.2%) vs a decrease by -15.1% in Jun’15 and vs a decrease of -24.1% in Jul’14.

·         S&P downgraded long-term debt’s rating of the Piraeus Bank to D (from SD). This was due to the terms of bank’s exchange offer of subordinate debt (1.1 bios euros) either with cash or shares. S&P perceived Piraeus Bank’s corporate action as ‘distressed exchange’. Piraeus Bank represents one of Greece’s 4 systemic banks.

·         German Chancellor Angela Merkel has offered Turkey the prospect of support for faster progress on its bid to join the European Union in return for cooperation in stemming the flow of refugees and taking back those rejected by Europe. Merkel also said on Sunday Germany could accelerate the path to visa-free travel to the EU for Turks, bringing the process forward to July 2016 - a year earlier than planned. 

Risk assessment. I remain on my previous views that Greece’s Parliament will ratify, one way or another, all necessary legislation in order to proceed on a) Banks recapitalisation within 2015 and b) agree with creditors as regards debt restructuring. In addition, Greek Banks capital needs will be significantly lower than the amount of 25 bios euros which is included in 3rd MoU.

There are two main reasons which support the view that the Greek Parliament has no other option but to ratify the required structural reforms , a) Greece needs European support in order to safeguard its eastern borders, during a period of significant geopolitical changes in Middle East- Turkey region and b) Greece needs European support in order to secure its smooth transition towards a modern, internationalised economy.

Greece’s SYRIZA-led government ratified the first omnibus bill which is included in the 3^rd MoU. However, there is more legislation to come concerning taxation to farmers, opening of markets and professions, privatization and recapitalisation of Greek Banks. In the following 4 weeks, Greece will need to ratify significant legislation which will impact significant vested interests but overall country's risk has been reduced significantly since Sep's elections because the current parliament is more pro Europe, both in government & opposition terms, compared to previous one.

Although Tsipras has recently won a renewed mandate, it would be extremely difficult to secure the ratification of required legislation based on the current coalition. During last Saturday’s morning vote, he faced not only Eurosceptic opposition of communists (KKE) and fascists (Golden Dawn), but this of pro Europe opposition i.e. New democracy (centre right), PASOK (centre left), Potami (centre) and Union of Centrists. In addition, he used aggressive rhetoric against his potential centre left allies (PASOK & Potami) during his parliamentary speech, which looked like 'he cut bridges' with those parties.  

It is highly likely, that sooner rather than later he will need their support because the coming bills will be impacting stronger vested interests (i.e. farmers, public sector employees, pensioners and professionals). In addition, ratification is one thing but implementation of those changes is even harder and will face internal SYRIZA's opposition (i.e. privatizations).

Last but not least, it is the first time that a leftist Greek government governs and ratifies austerity measures. This ends a 70 year of leftist populism which resembles to the fall of Berlin’s Wall. It seems that with 25 years delay, we are experiencing the fall Athens’ Wall, but  in parliamentary terms .   

16th October, 2015, Optimism grow that Greece’s Banks will have manageable capital needs after stress tests

•  The EU has agreed to open new chapters in Turkey's long-stalled accession talks in return for cooperation on the refugee crisis. EU members are also considering billions in financial aid for Ankara. The EU and Turkey also agreed to "speed up" the talks on easing visa restrictions for Turkish citizens.

• According to Greece's Foundation for Economic and Industrial Research (IOBE) economic contraction will be less than it was initially expected for 2015. More specifically, it issued a revised forecast for the course of the economy this year according to which there will be a reduction of GDP by 1.5 – 2.0% vs 2.3% which was initially forecasted.
  

• Press linkages suggest that during the discussions between the Greek Banks’ leaderships and the Single Supervisory Authority’s officials, the latter implied that capital needs of Greek Banks won’t be unmanageable. These discussions occurred at ECB’s headquarters in Frankfurt and all Greek Banks’ leaderships participated in this meeting. There will be a second round of meetings of each Greek Bank with ECB’s officials, today. For the record, Greece’s government will have to submit the recapitalisation bill in local Commons by October 20^th.

• Greek Banks’ stocks rallied by +14% during yesterday trading session due to expectations that capital needs won’t be unmanageable. This helped to the overall increase of local index by 2.74% and to the increase of trading volume which approached the level of 50 mios. For the record, capital controls prevent local depositors to invest to stocks and trading volume is related either to existing investments in stocks or new funds from abroad.

• The team of experts which was appointed by government, to come up with recommendations as regards the local pension system’s sustainability enhancement, announced its conclusions. Although its report didn’t include figures, the committee recommended streamlining of all pension funds into one, a unique National Pension to apply on all pensioners and personal contributions to add to the National Pension.

• It appears that Ministry of Economy’s Stathakis is involved in a case according to which he didn’t declare 1 mios euros from his personal belongings. This represents a crime according to Greek legislation. In another case it appears that Ministry of Defence’s Kammenos uses an anti-submarine helicopter twice a day, to commute from home to his office for a distance of 40 km.

• There was a serious incident between fascist Goden Dawn’s MP Lagos and the MPS of Greece’s communist party (KKE) at the Greek Parliament. Lagos didn’t only attack verbally the MPs of communist party during his parliamentary speech, but he attempted to leave the podium and approach the place where the MPs of KKE were standing. In addition, he attacked verbally the Speaker of Commons. For the record, Lagos is involved in the assassination of anti-fascist rapper Fyssas and currently is in custody. However, he was re-elected as MP in last September’s elections.     

Risk assessment. In Greek mythology, Iphigenia was the daughter of King Agamemnon and Queen Clytemnestra, and thus princess of Argos.  After offending Artemis, Agamemnon was commanded to kill Iphigenia as a sacrifice to allow his ships to sail to Troy. Greece’s pension system appears to represent Greece’s contemporary Iphigenia, which will be sacrificed, in order to allow local economy to breath from extremely high taxation.

According to the Committee’s recommendations there will be significant impact on all pensions above 1,000 euros and less impact on pensions below this threshold. In addition pensions will be linked to pensioner’s income according to Australian system.   

At the moment, there are approx. 3 mios pensioners (including those who are in waiting list) vs. 3.5 mios contributors (employees, professionals etc). In addition, the average monthly pension is higher (approx. 1,000 euros) compared to average monthly income of contributors (approx. 700 euros). It is evident that contributions are not sufficient to feed pension system.

Last but not least, a significant % of existing pensioners are under 67 years old.  According to figures published by Ministry of Labour, the contribution of Greek state to pension funds reached the level of 200 bios euros during the period 2000-2014 which more than country’s annual GDP (approx. 180 bios). Needless to say that a sustainable pension system represents a major pillar not only for Greek economy but for any economy (including European one).

In any case, local pension system isn’t sustainable and represents one of the main reasons which results to significant tax burden and clientelism.
  

14th Oct, 2015, Tsipras proceeds with no opposition, on ratification of measures which are included in 3rd MoU

·         The discussion at Greece’s Commons continues as regards the ratification omnibus bill, which is a prerequisite for a) the completion of current evaluation of 3^rd MoU b) the recapitalisation of Greek Banks and c) the official start of discussions concerning the restructuring of Greek debt.

·         At the same time, the process of electing the new leadership at centre right New Democracy party, gradually becomes problematic. The current president of the party Meimarakis, came ballistic to the Elections Committee during its last meeting and withdrew his representative due to issues elated to party' financials and elections process.

·         It appears that there is political scandal in progress, which involves two current Ministers who didn’t declare income and possession of stocks during the previous years. So far, Flabouraris who is Minister of State and Tsipras’ mentor, has admitted that he represents one of the two cases.

·         US special envoy arrives in Athens to discuss the so called IGB gas pipeline project (Interconnector Greek Bulgarian pipeline). US coordinator for international energy affairs Hochstein visits Greece to meet with Ministry of Energy’ Skourletis before discussing the matter in a three-way meeting with the participation of Bulgarian Energy Minister Petkova.

·         Greece’s Statistical Authority, ELSTAT announced that there was less expansion of economic activity during 2014. More specifically, it announced that Greece’s GDP grew by 0.7% in 2014, vs. 0.8% which had initially reported. However, nominal GDP (inflation adjusted) showed a contraction of -1.6%.

·         Hellenic Banks Association's President and Governor of National Bank of Greece’s Chairwoman Katseli stated that Greek Banks won’t need the total amount of 25 bios which have been allocated for the forthcoming recapitalisation. He also emphasized that the potential capital needs aren’t related to internal balance sheet issues but to external factors such as economic contraction.

·         Greece’s social security funds’ financial have been showing a significant deterioration compared to last year. More specifically, revenues declined by 2.5 bios euros showing a primary deficit of 598 mios during the period Jan-Aug, compared to a surplus of 206 mios euros during the same period in 2014. This is due to a drop of 640 mios euros in social security contributions combined by a decrease of 1.5 mios euros reduction of state contribution.

·         Turkish Cypriot leader Akinci stated in NTV television network that the process of transition from the turkish lira to euro has begun in Cyprus occupied territories. He added that the transition to euro and customs union cannot be left for after a positive vote in a referendum on the Cyprus settlement. For the record, there has been an agreement between Cyprus’ President Anastassiades and Akinci on the establishment of a committee for economic harmonisation.

·         Greece dismissed Turkey’s suggestion to set up joint patrols in Aegean Sea with Turkey. However, Greece’s Foreign Ministry stated that is keen to cooperate with Turkey as regards stamping out people-smuggling networks.

·         Turkey’s Erdogan warned Russia that Turkey will seek alternative source of gas supply, after the violation of Turkish airspace by Russian jetfighters during the Syrian campaign. For the record, Turkey gets almost 60% of its gas supplies from Russia’s Gazprom. In addition, Russia has won the contract to build Turkey’ first nuclear plant in Akkuyu.

Risk assessment. Greece gradually returns to reality and normality. I remain on my previous views that a) Greece will fulfil its obligations which are included in the 3^rd MoU and b) Greek Banks’ capital needs will be significantly lower compared to the total amount of 25 bios euros which are included in the 3^rd MoU.

The risk that Greece won’t ratify the omnibus bill by end of this week, is low due to the following reasons: a) Tsipras maintains a refreshed mandate from local electorate and has no internal opposition b) opposition’s political parties (New Democracy and Potami) have entered in a internalization cycle, which weakens their political stance during parliamentary debate and c) vested interests don’t appear as a threat, for the moment.

However, Tsipras has to move fast and secure a) Greek debt restructuring and b) Foreign Direct Investments. Ahead of fluid geopolitical landscape in the region of Turkey, Middle East and Nothern Africa, Greece needs to implement all structural reforms which lead to reduction of taxation and internationalization of local economy, in order to attract significant Foreign Direct Investments.

It is not only the current rate differential between Greece and other Eurozone countries, which make investments in Greek assets appealing. It is Greece’s unique geographical position vis-à-vis the theatre of geopolitical developments. It is mainly its unique position in the region, as it currently represents the only country which is member of Eurozone and NATO at the same time.