Monday, September 21, 2015

It’s All Up to Tsipras Now?

The BBC reports, Greece election: Alexis Tsipras hails 'victory of the people':
Greece's Alexis Tsipras has said his left-wing Syriza party has a "clear mandate" after winning a second general election in less than nine months.

But he said Greeks faced a difficult road and recovery from financial crisis would only come through hard work.

Syriza won just over 35%, slightly down on its previous result and still short of an overall majority.

But it will renew its coalition with the nationalist Independent Greeks. Opposition New Democracy gained 28%.

Far-right Golden Dawn came in third with 7%, slightly up on January's poll.

Syriza was first elected in January on an anti-austerity mandate, but was forced to accept tough conditions for Greece's third international bailout.

Sunday's snap election was called after Mr Tsipras lost his majority in August.

Some of his MPs who had opposed the new bailout conditions split to form a new party, but it has failed to get into parliament. Turnout was low.

It has been raining heavily in Athens, a drenching downpour that left one Greek observer looking at the skies, and wryly suggesting that the gods were angry at Sunday's election result.

And it is hard to avoid the suggested symbolism, not of heavenly wrath but of a country where the summer seems to have ended abruptly, and where the celebrations of Syriza supporters last night have now given way to the harsh reality their re-elected government must face.

It has agreed to tough austerity measures insisted on by the IMF and European Union, and now these must be implemented - cuts to pensions, rises in taxes and an end to some of the regulation and financial allowances that have kept many professions protected.

Farmers have already been readying their tractors for road blockades; some of the unemployed are contemplating their own protests. The new government's honeymoon will be a short one.

"I feel vindicated because the Greek people have a clear mandate to carry on fighting inside and outside our country to uphold the pride of our people," Mr Tsipras told supporters in Athens.

"In Europe today, Greece and the Greek people are synonymous with resistance and dignity.

Mr Tsipras was joined at the celebrations by Independent Greeks leader Panos Kammenos.

"Together we will continue the struggle we began seven months ago," Mr Tsipras said.

Among the challenges facing Mr Tsipras will be satisfying international creditors that Greece is meeting the terms of the latest bailout package worth up to €86bn ($97bn, £61bn). It involved more austerity for ordinary Greeks.

Creditors carry out a review in October and there is still some opposition from within Syriza.

The European Commission on Monday urged Syriza to press on with reforms.

"There is a lot of work ahead and no time to lose," spokesman Margaritis Schinas told reporters.

Jeroen Dijsselbloem, who heads the Eurogroup meetings of eurozone finance ministers, said he was "ready to work closely" with the new Greek government.

European Council President Donald Tusk said in a letter to Mr Tsipras that many of the biggest challenges facing the EU were the same as those facing Greece "including the refugee crisis and the creation of sustainable growth and jobs".

The Greek electoral system means the party with the largest number of votes wins a bonus of 50 seats - and Syriza will have 145 seats in the 300-seat parliament, only four fewer than in Mr Tsipras's January victory.

The Independent Greeks party, which is anti-austerity but agrees with Syriza on little else, won 10 seats. New Democracy won 75, Golden Dawn 18 (click on image).

Mr Tsipras won despite voters' rejection of austerity in a July referendum.
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New government's priorities

  • In first 100 days: Cut wage and pension costs again, but less than in previous five years (2% increase in workers' pension contributions, 2% increase in pensioners' national insurance contributions)
  • Reform early retirement: Decide which categories will qualify for it (and revamp whole pension system before January)
  • Recapitalise banks and set timetable for lifting capital controls
  • Hold more talks on debt repayments with EU-IMF lenders, with goal of debt relief deal in January
  • Adopt more tax reforms: farmers to see income tax double and fuel subsidy scrapped; new penalties for tax evasion (VAT increase was passed in July; corporation tax was raised by 3%, to 29%)
  • Privatise more than half of state electricity network (regional airports and much of road network already privatised)
  • Liberalise closed professions, eg removing taxi drivers' fixed tariffs
  • Reinstate charges in state health service originally scrapped by Syriza (eg €5 charge for visit to doctor)
(Source: Dimitrios Syrrakos, Manchester Metropolitan University)
I can't say I was shocked with these results but in voting in Syriza once again, my fear is that Greece is going nowhere real fast. Below, a few brief thoughts of mine on the Greek election results:
  • Who exactly voted for Syriza?: The majority of Greeks voting for Syriza are the poor, unemployed (especially young unemployed), and civil servants looking to keep their jobs and benefits. Anyone employed in the private sector, running a business and is market oriented voted for New Democracy. 
  • What did Tsipras gain from these elections?: A lot of Greeks bemoaned that these elections were a waste of money and unnecessary as the results didn't change much since the January elections. While this is true, they served a strategic purpose for Alexis Tsipras. He got rid of all the left-wing lunatics in his party and replaced them with moderates who will toe the party line. No more challenges from Lafazanis, Konstantopoulou and Varoufakis. They've all been "marginalized and neutralized" which is a good thing for Greece and Syriza (the former two didn't manage to garner 3% of the vote and Varoufakis didn't even bother running but he's still very active on Twitter and his blog, preparing for his next job or speaking engagement).
  • Strange alliances will test coalition government?: Even though Syriza didn't get the majority of seats, the coalition with the right-wing Independent Greeks led by Panos Kammenos will be enough to form a majority government. The two parties are united only by their anti-austerity views but the truth is Kammenos is a political opportunist who would do anything to hold onto power. As we watched the election results in Montreal, my buddy almost heaved watching Tsipras embracing Kammenos (see picture above) : "It's like watching Donald Trump hugging Bernie Sanders. I can't believe what I'm seeing." I too wonder how long this honeymoon will last but knowing Kammenos's lust for power, I strongly doubt he will rock the boat.
  • The creepy rise of Golden Dawn: One thing that concerns me is the creepy rise of the ultra nationalist Golden Dawn party. I'm sure the crisis with migrants contributed to this rise as Greece is ground zero for entry into Europe. Still, there's a growing backlash against immigrants in Greece which is very disconcerting and the Golden Dawn party is made up mostly of right-wing nuts who disrupt parliament every chance they get. If it were up to me, I'd outlaw this party and the Communist party and throw them all in jail for holding such warped right-wing and left-wing views (call me a fascist, I don't care, these fringe parties have to go!).
  • Greeks are disenchanted: A lot of Greeks didn't even bother voting. In fact, 45% of the electorate didn't turn out to vote. You will see a few pictures of Syriza supporters dancing in the streets but don't be fooled, there's nothing to dance about. A friend of mine in Athens shared this with me: "The common Greek doesn't care. Low turnout at the ballot box. Was strolling in Athens last night right after Syriza was announced victorious and to my surprise nothing was going on, it was very quiet."
  • It's all up to Tsipras now: My father who is vacationing in Crete made a good point when we talked on Sunday afternoon. "In a way this is good. Tsipras passed the last bailout so let him own it and implement it." 
My father's point was echoed by Hugo Dixon of Reuters in his comment, It’s all up to Tsipras now:
It is all up to Alexis Tsipras now. The Greek leftist politician’s electoral triumph means no domestic forces can stop him implementing the country’s 86 billion euro bailout deal. The big question is whether the prime minister has the will and the competence to do so. If not, his victory could soon turn to disaster.

Tsipras secured a big win in the election held on Sept. 20. Despite breaking almost all the promises he made when he was first elected in January, he ended up with almost the same percentage of the vote and the same number of members of parliament. Tsipras’ old coalition partner, the right-wing Independent Greeks, also got back into parliament, with the result that he won’t need to bring in any new partners to form a new government. Together they will have about 155 MPs in the 300-seat parliament.

The Syriza leader’s victory is all the more impressive because it was achieved after pursuing a disastrous negotiating strategy with Greece’s euro zone creditors which resulted in the country’s banks being closed for three weeks and capital controls being imposed.

Tsipras also suffered a big split in his party, with a group of far-left MPs supported by Yanis Varoufakis, the firebrand former finance minister, forming their own party in protest at his agreement to the bailout’s terms. They fared so miserably in the election that they didn’t get back into parliament.

The splinter group’s failure is a cautionary tale that will strengthen Tsipras’ hand in his own party. Syriza still has lots of MPs who are unhappy about the bailout, which calls for Athens to combat an array of vested interests that have bedevilled the country for decades, cut social benefits and increase taxes. But these parliamentarians will be loath to rebel given that they now know it probably presages electoral oblivion.

What’s more, four of the six opposition parties – which collectively will have about 110 MPs – are in favour of the bailout. They will ensure that any votes needed as part of that agreement sail through parliament.

If Tsipras implements the deal, the upside is considerable. In return, Greece’s creditors will give it relief on its humongous debts; the European Central Bank will include the country’s debt in its quantitative easing programme, driving down its borrowing costs; and capital controls will be lifted rapidly. The recession-ridden economy could even start growing again by the middle of next year.

Unfortunately, there is a lot that can go wrong. For a start, Tsipras might listen too much to far-left factions within his party, even though he doesn’t need to. If so, he might drag his heels on implementing the programme.

A bigger risk, though, is that he just won’t be competent enough to govern. Many of the ministers in his first cabinet were not on top of their briefs and spent their time obstructing anything agreed with the creditors.

A repeat performance would be disastrous because Tsipras committed the country to a series of rapid-fire reforms. Having been disappointed so many times by Greek governments’ failure to deliver, the creditors insisted on a front-loaded programme with the bulk of the measures due by October.

Not only are many of the reforms, such as the revamp of the pension system, complicated. Athens is supposed to pass a supplementary budget next month that spells out the fiscal measures for the next three years.

The creditors will review whether Tsipras has delivered his side of the bargain. If he has, they will negotiate a debt relief deal.

The euro zone will also give Athens another dollop of bailout cash. The government will be able to use some of this to pay bills to suppliers that have been accumulating for months. The cash injection could more than counterbalance the extra austerity envisaged under the programme. The biggest chunk of bailout money, up to 25 billion euros, will be used to recapitalise Greece’s banks.

The October deadline is almost certain to slip. If this is just by a month or even two, that won’t matter too much.

But if Greece fails to receive a positive review by the end of the year, things could get serious. This is because from next year the euro zone’s new rules on bank recapitalisations kick in. Depending on how much extra capital Greek banks need, this could mean uninsured depositors have to be “bailed in” – with a portion of their savings forcibly converted into shares.

Such an outcome would be devastating for the economy, delivering another blow to confidence. The possibility of Greece being driven out of the euro, which has receded in the past two months, would return with a vengeance.

Tsipras knows all this. Hopefully, his election victory won’t go to his head. He needs to get cracking.
Tsipras definitely needs to get cracking and start implementing the reforms creditors are demanding. But will he have the political will to carry through such reforms?

That remains to be seen. One of my friends who is very familiar with Greek politics and the economy is extremely skeptical, sharing this with me:
"Nothing will change. This vote is a disaster for Greece. The only industry bringing money into the country is tourism which remained strong this summer despite the crisis. Syriza's victory will freeze all major investments in Greece. Nothing is moving in terms of credit. Businesses are unable to secure loans and most aren't paying their existing loans. People aren't paying their rents. They took money out of the banks -- lots of money -- and are paying for essentials, but once this money runs out, all hell will break loose."
Admittedly, my friend is quite cynical and pessimistic but he's not far off. There are no major investment projects in Greece because foreign investors don't trust this government to deliver on its reforms. The Greek economy is holding on by a thread and many industries (like construction) have been decimated and are unlikely to come back until foreign investment comes back strongly.

On this last point, Greece can learn a lot from Portugal. Earlier this month, Sharon Smyth of Bloomberg reported,Lone Star Seeks $1.1 Billion to Enlarge Portuguese Golf Resort:
Lone Star Funds is seeking partners to invest 1 billion euros ($1.1 billion) in Vilamoura, a residential golf resort in Portugal’s Algarve region that’s more than eight times the size of Monaco.

The U.S. private-equity firm is teaming up with Vilamoura World to double the number of homes at the resort to about 10,000 within five years, according to Paul Taylor, chief executive officer of the Portuguese developer. They also plan to build as many as five hotels with about 4,000 rooms on the site, which already has five 18-hole golf courses and an 825-berth marina.

International home buyers are targeting Portugal after the government introduced measures which allow non-Europeans to live in Portugal in exchange for property investment of at least 500,000 euros. The program has raised 1.47 billion euros of investment since it began in 2012, according to APEMIP, Portugal’s Real Estate Professionals and Brokers Association.

“Due to the golden visa scheme, we are seeing a lot of interest from China, Brazil and even India,” Taylor said. He said a reduction in expatriate income tax to 20 percent from 48 percent is also attracting investors.
Economic Revival

Portugal’s economic revival, following a three-year bailout program that ended in May 2014, is also fueling demand for hotels and other commercial properties. Investment in Portuguese real estate totaled 972 million euros in the first half, according to data from CBRE Group Inc. That exceeded the 847 million euros that was invested in the whole of last year.

Lone Star bought Vilamoura from struggling Spanish savings bank Catalunya Banc and Algarvetur in March for an undisclosed amount. The resort, about a 20-minute drive from the international airport in the city of Faro, spans about 17 million square meters (183 million square feet). No one at Lone Star was available to comment.

“There is a real investor fever for residential golf resorts in southern Europe right now,” said Patricio Palomar, head of alternative investments at brokerage CBRE Group Inc. in Spain. “Investors have seen the risk profile of countries such as Portugal diminish as its economy improved and prices bottomed, its a good time to invest.”

The economic recovery in northern Europe, the traditional source of holiday makers to Portugal, will also boost demand for hotel rooms and holiday homes, Vilamoura World’s Taylor said. In 2014, Portugal attracted 16 million tourists, up 14 percent on the previous year, according to Portugal’s official tourism institute. Visitors to the Algarve totaled 3.6 million spending a total of 695 million euros, according to the organization.
Lone Star Funds, the private equity firm founded by billionaire John Grayken, has been very busy in Europe lately. Apart from Portugal, it will invest as much as 500 million euros ($565 million) this year buying land for Spanish housing developments as demand picks up. This is all part of Grayken's big bet on European real estate which he initiated two years ago.

Now, why isn't Lone Star or any other large private equity fund investing in major developments in Greece? The answer is simple, the Greek government hasn't fostered the right investment climate and the Greek legal system doesn't protect the rights of foreign investors to carry out such projects.

And that's a real shame because if Grayken is making money in Portugal and Spain, I guarantee you he'd make an even bigger killing in Greece where there's a huge need to develop similar resorts. In fact, I would urge John Grayken and André Collin, Lone Star's president, to take trip to Southern Crete now in October and see for themselves the last true paradise that has yet to be developed in Greece (I'll even set them up with their own personal tour guide who knows the region very well).

Finally, as the Guardian notes, Greece’s tragedy, which is far from over, is playing out against the background of a simmering crisis in the global economy. Now more than ever, the country can ill-afford to go back on much needed reforms.

Below, the AFP reports Greece's charismatic leftwing leader Alexis Tsipras romped to victory in Greece's general election Sunday, winning his second mandate as premier this year despite a controversial austerity deal struck with European leaders.

Second, former  Greek Finance Minister Gikas Hardouvelis discusses Syriza winning the election and the challenges ahead for Alexis Tsipras. He speaks to Bloomberg's Guy Johnson on "Countdown." Good interview, listen to Hardouvelis, he gets it.

And lastly, Andrew Naylor, executive director at Cicero Group, says Prime Minister-elect Alexis Tsipras' strong victory at the national elections gives him the mandate to push through key reforms.

Greece has huge potential. The problem is Greeks have to escape the culture of entitlement that has destroyed the country ever since old man Papandreou came into power in the early eighties.

Quite eerily, when I listened to Alexis Tsipras's victory speech on Sunday, it was very reminiscent of Andreas Papandreou and that really discourages me and Greek entrepreneurs in Greece looking for a change in rhetoric. Hopefully, Tsipras has wised up and is now ready to deliver on much needed reforms. That all remains to be seen.



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