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 .