THE BLOG
07/29/2016 10:58 am ET Updated Dec 06, 2017

Clear Sailing ... Until September

Greece did manage to secure €7.5 billion in additional funds from the EU.

Greece took a sigh of relief, but only because everyone can now proceed with their vacation plans.

Of course, come September, the "you know what" hits the fan ... again. Everyone is going to return to their new tax bills and the prospect of an imminent default. Greece needs another €10.0 billion before year-end 2016. Greece claims they will be able to close the gap as the result of a stiff increase in taxes, but we will see.

It is hard to predict the ultimate outcome of all of this. I do not think Greece is going to become another Venezuela, at least not now, but you wonder how much more of this the populace can take. An odd statistic is the drop in sales at grocery stores. In the first quarter grocery store revenues were down 7.8%. Are people not eating?

I am not sure what else the Greek government can offer the EU to appease them. Whether you believe in the trickle-down theory of economics, or not, more cuts to benefits and raising taxes is not working.

At this point Greece is so starved for capital, that without a significant injection of new capital, Grexit is the only alternative.

Speaking of Grexit, the number one question I receive is what impact the Brexit will have on Greece. The answer is none. England wants to leave the EU; the EU wants Greece out. As an aside, the following episode reminds me of how little is known about Greece in the US. I attended an event several weeks ago. We were addressed by a member of Congress who said that Great Britain had voted to leave the Euro, but that the Greeks had voted to remain. I had to ask myself, "Did I miss that vote?" Of course not, in fact on July 5, 2015, Greece voted 61/39 to reject the EU bailout proposal (and presumably leave the Euro). Of course, the Syriza government somehow managed to ignore the referendum and accept the bailout. The point is, do not necessarily believe what you read (or hear).

And speaking of not believing what you read, according to www.capital.gr, "Greece's international role is upgraded. Prime Minister Alexis Tsipras' meeting with the U.S. President Barack Obama in Warsaw on Saturday on the sidelines of the NATO Summit meeting concludes a series of high-lever meetings with world leaders such as Russian President Vladimir Putin and Chinese Premier Xi Jinping, government sources said on Sunday. These meetings show Greece's upgraded international role as well as its emergence as a pillar of stability in the wider region, the sources said, adding that the prime minister's visits to Turkey, Egypt, Israel, Palestine and Iran are part of the same policy. The relations of friendship and cooperation built by Greece with a series of countries contribute to the creation of a pillar of peace and stability, particularly necessary at a time of intensification of regional tensions and conflicts. The prime minister likens Greece with 'a tree that has its roots in the West, but spreads its branches towards the East, South and North'."

Now for the facts ... Obama did meet Tsipras at the NATO conference, although Tsipras did not make the cut of The New York Times picture with various world leaders. Yes, Putin did come to Greece, but it was to tell Tsipras that the Russians wanted the Greek national railroad (which they lost to the Italians) and the Port of Thessaloniki, so the Russians can have direct access to the Mediterranean without having to go through the Bosporus. And finally, Tsipras did go to Beijing to meet the Chinese PM Li, but what the story forgot to mention was that Tsipras was summoned to Beijing after the Syriza government tried to pull a bait and switch with the Chinese concerning the Port of Piraeus. It seems the Chinese won the tender to buy the half of the port it does not already own. The documents were prepared for signing, but it seems the Greeks changed the contracts and attempted to have the Chinese sign a different version. That was not well received in Beijing.

A skeptic would say that this new found international diplomacy is simply to distract the Greek people from problems at home. On the other hand, Tsipras is going to be forced into real international diplomacy following the attempted coup in Turkey. Eight military officers from Turkey landed in Greece following the coup attempt. Turkey has demanded their extradition so they can be tried and potentially face the death penalty. Under EU directives, Greece is not obliged to return these individuals. It will be interesting how Tsipras performs now that he really is on the world stage.

Since summer vacation is upon us, I am not going to rail on about the 160 billion of non-performing loans or the need for additional capital at the banks, although NPLs and top-management changes remain hot topics. Rather, I thought I might focus on the current political scene.

First, every political party is wildly overestimating its popularity with the Greek people. Syriza, New Democracy, Independent Greeks, the Communists, etc. all believe they are going to score large gains in the parliament when Greece has its next elections. There is some speculation that Tsipras wants to call for elections this October in order to reshuffle the government and insure the votes necessary for the next round of cuts to employee benefits and work rules. This worked out well for Tsipras a year ago, although I am not sure I would bet on history repeating itself.

Tsipras seems to be taking a page out of the "autocratic handbook"; he is (not so subtlety) attempting to solidify his control over Greece. Tsipras's first move was to eliminate the provision in Greece's voting law that provided the winning party in an election a bonus of 50 seats in order to form a government. Therefore, if you are the winning party with 33% of Parliament (corresponding to 35% to 40% of the popular vote), plus one (101 seats), you then magically get another 50 seats and you are deemed to have a majority.

Syriza scrapped this provision because Tsipras is afraid that Syriza will be the second party in new elections, and the 50 seat bonus could give New Democracy a real chance to form a new government. Tsipras is betting that without the bonus seats, Syriza has the best chance of forming a coalition with Independent Greeks and Pasok. This new provision will not go into effect for the next election, but for the following one, meaning that for New Democracy, it could be now or never.

The next push by Syriza to take greater control of the Greek state is the auction of the television licenses. Greece has seven national licenses, but they want to limit the number to four. Those four licenses are being re-auctioned. This would be like the U.S. government announcing that NBC, CBS, ABC and Fox no longer owned their broadcasting rights and reselling those rights to the highest bidder.

There is ample speculation that this relicensing is being conducted to insure more pro-Syriza reporting. The European Commission has weighed in with its displeasure. EC Spokesperson Nathalie Vandystadt had said: "The Commission fears that these changes are not in line with requirements of EU law which guarantee the independence of the national telecoms regulator, more specifically its independence from the government."

Normally, one might be concerned about these recent political developments, except for the fact that Greece is still part of the EU and therefore has to play by EU rules.

And speaking of EU rules, the next item on the agenda (mandated by the EU) is for Parliament to amend work rules. The biggest issue is how many people can be fired at one time; the old rule was 5%, the new rule is 10%.

Additionally, the EU has finally had enough with the lack of movement on NPLs by bank management and the European Central Bank has mandated that the boards and senior management of the four systemic banks be made up of individuals with banking careers, who have not been tied to the Greek banks for several years. The result of this mandate is that there will be wholesale change of leadership with the banks. Presumably, these changes will take effect between now and the end of summer vacations.

Skipping to another topic ... the category of strange statistics, my favorite last week was that tax revenues from the Greek islands are down 45%+ from a year ago, despite the fact that the number of tourists is up 13.5%. Anecdotally, I was told by a friend that all of the credit card machines on Paros are "not working" and that everything must be paid for in cash. Here is another ... there were 800 new mortgages issued in Greece during the first six months of 2016. During the same period in 2006, the number was 80,000.

Oh well, enjoy August.

P.S. Despite all of my negativity about the current state of affairs in Greece, I am going "out on a limb" to say that we will begin to see a turnaround in Greece in 2017.

The much maligned Taiped announced the sale of Trainose (the Greek national railroad) to Trenitalia. While this has received a lot of criticism in the Greek press for the low nominal price of €45 million, in reality the sale comes with the forgiveness by the EU of €800 million of advances made to Greece. The sale of Trainose could fundamentally change the logistics business in Greece for the good. Taiped should be congratulated.

The change in the banks' management will lead to NPLs being sold. It may not happen immediately, but we will finally see some real movement.

The issue of debt relief for Greece is no longer a matter of "if," it is a matter of "when." When Greece completes the required EU mandates the relief will come. A positive sign (which could come as early as the fall) is when Greek government bonds are include in Europe's quantitative easing program.

The fall is not going to be pretty, but it could be the last major storm in Greece.

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The picture is from an anarchist attack on the Turkish embassy in Athens on July 26, 2016.