Thursday, June 25, 2015

The International Statistical Institute (ISI). Statement on Official Statistics in Greece. June 2015

June 12, 2015

The International Statistical Institute (ISI) welcomes the Statement of 21 May by the European Statistical System. With regard to the situation in Greece, the statement draws attention to the reinforced provisions on professional independence in Regulation (EC) No 223/2009 whereby the recruitment of the new President of Greece’s Hellenic Statistical Authority (ELSTAT) must follow a transparent procedure and be based on professional criteria only.

Transparency and professionalism are two fundamental values that underpin our ISI Declaration on Professional Ethics, which guide statistical activities across the world.

The ISI also welcomes the proposal from the Greek Appeals prosecutor Antonis Liogas that judicial authorities drop the investigation into claims that the current head of ELSTAT, Andreas Georgiou, inflated the country’s public deficit figure for 2009. Prosecutor Liogas noted that the probe so far has not revealed any evidence suggesting that Georgiou and two other ELSTAT officials accused of wrongdoing massaged the figures. This is the second time that there has been a recommendation for the case to be dropped. The final decision will be taken by a council of appeals court judges.

The ISI has previously made three statements concerning the statistical issues in Greece, expressing concern over plans to prosecute the current head of ELSTAT Mr. Andreas Georgiou. In the second statement, dated February 2013, the ISI stated that ‘the charges against Mr. Georgiou and two of his Managers of exaggerating the estimates of Greek government deficit and debt for the year 2009 are fanciful and not consistent with the facts’.

The principle that ‘official statistics should be prepared using objective methods and following international standards’ is critical to their acceptability by users. Since 2010, Greek Statistics have passed all European quality checks.

The ISI expresses the hope that justice will prevail in this case and that the threat of prosecution will finally be lifted from Mr Georgiou and his Managers.

Vijay Nair
President, ISI

Stephen Penneck
Chair, ISI Advisory Board on Ethics

Thursday, April 02, 2015

The implications of a Grexit for Greece and for the EU

Probably, the best and more balanced analysis that has appeared so far, on the implications of a Grexit.

By Richard Barwell, senior European economist, Bank of Scotland.
WSJ, April 1st 2015

A Eurozone Without Greece
It’s time to think more seriously about this possibility.
By Richard Barwell
April 1, 2015 3:48 p.m. ET

The 24-hour news cycle is causing a cacophony of speculation about Greece leaving the euro, the so-called Grexit. Amid all the arguments about whether Greece will or should exit, there has been a lot less thought given to what would happen if Greece does return to the drachma. It’s time to think more seriously about this possibility.

A Greek exit would have far-reaching consequences for the eurozone, weakening the ties that bind the single currency together in some respects, strengthening them in others. On balance the latter will probably dominate, reducing the chance that other countries leave. If Greece leaves the eurozone, it would create a number of precedents that would influence how people vote and politicians behave elsewhere in Europe.

If the Greek people choose to leave in a referendum, they will send a powerful signal that they, and not the central bankers, officials and politicians in Frankfurt, Brussels and Berlin hold the destiny of the euro in their hands. But if it’s the Greek politicians who make the decision to leave, based on an electoral mandate rather than a referendum, that could make voters elsewhere think twice before voting for antiausterity candidates.

There will be lessons for politicians about the dangers of brinkmanship, especially if a Grexit happens almost by accident. If the funding problems facing the government and the banks escalate out of control, capital controls would be triggered, making a vote on Greece’s future—whether by Parliamentary elections or a referendum—far more likely. Politicians in smaller economies might in future be more likely to cut a deal with creditors, and politicians in creditor countries might be more likely to offer better deals, including debt relief. After all, Greece would almost certainly unilaterally default on its debts when it leaves.

Meanwhile, a Grexit would resolve the uncertainty over how to leave the single currency. The euro wasn’t designed with an easily accessible escape hatch. If Greece does leave, it will establish a precedent, but not one that others may wish to emulate, since it might also have to leave the European Union too.

Most important of all, a Grexit might set an economic precedent. If the Greek economy should recover after leaving the eurozone, it would be much harder to convince others that they should stay.

However, a painful economic afterlife seems far more likely. The Greek economy would get caught in a pincer, with a sharp and sustained contraction in credit and an increase in uncertainty propelling the economy back into a deep recession. There would be a significant risk of further, lasting damage to the Greek economy through the destruction of jobs and companies.

Even the sharp depreciation in the currency would be a double-edged sword. There would be a painful squeeze on disposable income as imports become much more expensive. This would at least partly offset the boost to Greek exports, assuming companies elsewhere in the eurozone don’t reroute supply chains out of Greece to avoid invoices billed in drachma. Likewise, it is brave to assume that there would be an influx of foreign capital until the political and economic uncertainty has been resolved.

Greece would also be giving up the long-run benefits of euro membership, such as increased trade and competition, a more-efficient allocation of resources, a greater capacity to insure against risk that comes from unfettered access to European markets, and the greater stability that comes from delegating the conduct of economic policy to more effective institutions outside of Athens. The complexity of creating credible domestic-policy institutions in the aftermath of a Grexit shouldn’t be underestimated.

Beyond these near-term challenges, there are two important medium-term consequences to consider.

A post-Grexit eurozone would be more susceptible to the kind of speculative attack on the currency union that took place in 2012. Given a resumption of sovereign stress in smaller countries, investors would quickly start to demand sizeable compensation for the risk that they may not be paid in euros in a future break-up scenario. Spending would grind to a halt and capital would fly out of the countries concerned.

The European Central Bank’s most potent policy tool, its quantitative easing program, isn’t designed to deal with this problem, and the instrument that is—the Outright Monetary Transactions program to buy a small set of sovereign bonds in the secondary market—may not be big enough to stabilize markets in a future crisis. The OMT can only be used to save countries that commit to saving themselves by driving through reforms.

We should expect a political response to fight those forces threatening to pull the eurozone apart. A Grexit could ultimately bring the union closer together, with fiscal union and common debt issuance going hand in hand with binding and credible commitments on structural reforms helping to turn the eurozone into an optimal and far more stable currency area.

This is all moot if Greece’s leaders hammer out a deal with creditors and avert an exit from the eurozone. But prudent policy makers and investors should spend some time considering how they would answer some of the questions that a Grexit might raise.

Thursday, February 05, 2015

A Greek drama: part 3 with SYRIZA at the helm.

A third option besides a Grexit or renegation: concentrate the European investment plan on (post) crisis countries and release the Euro constraints on innovation.

Jo Ritzen, IZA Bonn, Maastricht University, Vibrant Europe Forum

The Greeks have voted massively for SYRIZA, the party that promised renegotiations between the EU (and the IMF) and the Greek State to roll back austerity. The appeal of SYRIZA to the voter is clear: Greece is suffering: (youth) unemployment is high, good health care is no longer available for many Greeks and there is a lot of poverty, while the expected economic recovery seems to remain around the corner.

It was a mammoth task to get Greece back on track after in the first part of this Greek drama in 2009 it became clear that successive Greek Governments had cheated. The Greek Government debt was almost twice as high as officially communicated. The financing deficit of the Government was 3 to 4 times higher than hitherto communicated. The country had - according to current standards- already been bankrupt for many years .

How then to return to normality? Grexit was an option: Greece leaving the European Monetary Union (not the EU) and a restructuring of Greek debt (written off in part and for another part put on the back burner). For Greece Grexit would have amounted to “cold turkey” where all cuts in Government spending which now have been spread out over a number of years would have been applied instantaneously. There are no creditors to give new loans to a bankrupt country which has not reformed.

Instead of a Grexit the EU and Greece chose for another option: an infusion of funds of the EU and the IMF, such Greek could finance its debt with an interest rate of about 2%, while the funding of the running deficit (expenditure minus government revenue) would be covered by a emergency fund. Greece promised in return that it would enact the necessary austerity measures for the deficit to decline gradually to the 3% norm of the Euro-union. That was part 2 of the drama.

And now part 3. Renegotiation on the debt is not necessary: this is not the main problem. Negotiations for additional financial help in order to reverse the budget cuts are completely unthinkable: this would not fly with the citizens of the member states who had already trouble with the funding of the emergency fund out of their pockets, however dire the Greek situation is. Grexit is looming again with disastrous consequences for Greece.

There is a third option next to Grexit or renegotiation, which may be face-saving for SYRIZA and is found in Juncker’s 300 billion Euro investment plan (with a hoped for multiplier of 3), together with a relaxation for the 3% rule for budget deficits of the Euro-union for extra expenditures for innovation. This investment plan led by vice president Kaitanen of the European Commission may help Greece to find again the way towards economic growth and towards more private sector employment. It would also help if the EU would widen its investment plan by allowing additional investments in R&D to be placed outside the 3% rule for government deficits, as advocated by the Vibrant Europe Forum. In this option the agreement between Greece and the EU needs not be changed. In particular, Greece needs to continue with the agreed terms in levying taxes especially for higher incomes, in ensuring the independence of the judiciary and in the transformation of the loss-making state-owned enterprises (a job machine for former politicians) into profitable or at least self-supporting companies. These are essential for sustainable economic growth in Greece.

Greek dramas generally have five parts. Perhaps this drama can be limited to three.