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CH4S Admin , Outstanding Contributor
39,254 Posts
Discussion Starter #1
12/08/2011 03:45 PM
'Big Bang Approach' Needed
OECD Report Questions Greece's Ability to Reform
The need for deep structural reforms in Greece is well-known. But a new OECD report indicates that Athens may be incapable of such far-reaching changes. Ministries don't communicate, officials don't keep records and oversight is virtually nonexistent. The only thing that might help, it says, is a "big bang."

These days Greece will take all the good news it can get, even if it isn't all that good. This week, the Organization for Economic Cooperation and Development (OECD) released a report indicated that income inequality is on the rise across much of the developed world.

Why is that good news for Greece? The income inequality report overshadowed a separate tome released by the OECD this month which blasted Athens' bureaucracy. Going by the rather bland title "Greece: Review of the Central Administration," the 127-page report can be quickly summed up: The government apparatus in Athens is virtually unable to implement reform.

"It is not clear how existing and new entities of (the government) will work together in order to secure the leadership needed for reform, including the necessary strategic vision, accountability, strategic planning, policy coherence and collective commitment, and communication," reads the damning report.

Such reform, however, is urgently necessary. Theheavily indebted country remains dependent on aid from Brussels to keep its head above water. Should it ever wish to regain its financial independence and be able to borrow money on the bond markets at reasonable prices, vast adjustments are essential, affecting virtually every area of public life in the country. But even as many reforms have been passed by the government in Athens, implementation has been spotty, the OECD report says.

'Neither the Capacity nor the Ability'

"For the first time, we wanted to show -- systematically and with proof -- what isn't working at the administration level and what is preventing Greece from making progress on structural reforms," Caroline Varley, OECD senior policy analyst and co-author of the report, told the German daily Die Welt. "So far, Greece's central governmental apparatus has neither the capacity nor the ability to undertake large reforms."

The report was commissioned by the Greek Ministry of Administrative Reform and E-Governance and provides a detailed examination of the state of central administration in the government. It focuses on efficiency and effectiveness as Athens struggles to introduce necessary reforms.

It found that communication among the country's 14 ministries was appallingly paltry. Furthermore, the huge number of departments within ministries -- many of them consisting solely of a department head and others with just one or two subordinates -- results in widespread inefficiency and lack of oversight.

"Administrative work is fragmented and compartmentalized within ministries," the report writes. "Ministries are not able to prioritize ... and are handicapped by coordination problems. In cases where coordination does happen, it is ad hoc, based on personal initiative and knowledge, and not supported by structures."

Shoddy Record-Keeping

Were such coordination even to take place, the report indicates that administrators do not have access to the necessary data, nor does such data exist in many cases. "The administration does not have the habit of keeping records or the ability to extract information from data (where available), nor generally of managing organizational knowledge," the report found.

The problems found in Greece's central administration, says the OECD, are the result of decades of clientelism and the sheer volume of the laws and regulations that govern competencies within the ministries. The report found 17,000 such laws, decrees and edicts.

How, then, should Greece solve the problem? The OECD proposes a "big bang approach" -- meaning a massive administrative restructuring. And, co-author Varley says, it needs to happen quickly. "Greece has only a small window of time to change and reform itself," she told Die Welt. "And it is getting smaller."


'Big Bang Approach' Needed: OECD Report Questions Greece's Ability to Reform - SPIEGEL ONLINE - News - International
Related SPIEGEL ONLINE links:
Euro Crisis Uncertainty: Anxious Greeks Emptying Their Bank Accounts (12/06/2011)
Euro Crisis Uncertainty: Anxious Greeks Emptying Their Bank Accounts - SPIEGEL ONLINE - News - International
Interview with Ex-Greek Prime Minister: 'The EU as an Institution Is Still too Slow' (11/30/2011)
Interview with Ex-Greek Prime Minister: 'The EU as an Institution Is Still too Slow' - SPIEGEL ONLINE - News - International
Euro Zone on the Brink: A Continent Stares into the Abyss (11/28/2011)
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Agreement in Athens: Papademos to Lead Greek Unity Government (11/10/2011)
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Related internet links
OECD Report on Greek Administration
Greece: Review of the Central Administration | OECD Free Preview | Powered by Keepeek Digital Asset Management |
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CH4S Admin , Outstanding Contributor
39,254 Posts
Discussion Starter #2
Doubts Grow over Greek Debt Restructuring

01/09/2012 09:07 AM

Resistance from Private Creditors
Doubts Grow over Greek Debt Restructuring

By Sven Böll, Martin Hesse and Julia Amalia Heyer

The outlook for cash-strapped Greece is looking increasingly bleak. Government reforms are behind target, and negotiations with private creditors over voluntary debt relief are stalled. A disorderly default could be just weeks away.

At least the backdrop to the heated exchange was glamorous. The venue for the mid-December conference, which was hosted by the US Chamber of Commerce, was the Hotel InterContinental in Athens. Poul Thomsen, wearing a purple tie, was standing on the floor of the ballroom. Thomsen, the International Monetary Fund's envoy for Greece, summarized the country's reform efforts to date in harsh terms. "Reforms are running behind schedule in most areas," he said. There was no longer even a pretense of hope. When Thomsen predicted that the economy would shrink in 2012, someone in the room shouted angrily: "Your troika is destroying us!"

Two years after the crisis began, the Greek tragedy is reaching a new climax. The economic data are distressing, the reforms are progressing very slowly, and now negotiations with private lenders on a voluntary writedown of Greek government bonds appear to be on the rocks.

The Greek economy was actually expected to shrink by only 3 percent in 2011. But according to current calculations the contraction was closer to 6 percent. Hopes that the economy will regain strength in 2012 will probably remain unfulfilled. Instead, it will most likely continue its downward slide -- for the fifth year in a row. It is becoming more and more apparent that without general debt relief that includes all groups of creditors, from private banks to the European Central Bank (ECB), Greece will hardly be able to free itself from its predicament.

But the Greek government and the so-called troika, consisting of the European Union, the IMF and the ECB, are determined to stick to their current strategy. IMF envoy Thomsen plans to return to Athens next week, and he is already starting to ramp up the pressure. In light of the country's gloomy economic outlook, the troika wants to revise the benchmark figures for the restructuring program approved in October.

An Emerging Economy?

According to an internal document, the troika sees three possibilities: Either the Greeks must impose even tougher austerity measures, or private creditors must accept a larger debt haircut or the country's creditors must provide Greece with additional funds.

The troika document also says that the administration in Athens is falling far short of the agreed reform targets. For example, the troika notes that Greece is not sufficiently complying with its promise to collect more taxes, while the proceeds from the country's privatization program are well below expectations.

Last fall, the IMF and the EU determined that Greece's debt would have to be cut to 120 percent of GDP to be sustainable. The country's debt was to be reduced to this level by 2020, and to a lower level in subsequent years. But now the IMF recognizes that this is probably not possible. In any case, even a debt-to-GDP ratio of 120 percent could still be too high.

In a report released last August, IMF economists concluded that emerging economies could support maximum debt levels of 63 to 78 percent of GDP in the long term. "Now that they are confronted with the reality on a daily basis, the IMF people are realizing that Greece, in structural terms, should really be classified as an emerging economy," says a senior official at Germany's central bank, the Bundesbank.

Unrealistic Assumptions

A study by economist Henning Klodt of the Kiel Institute for the World Economy shows how unrealistic the troika's assumption was. Klodt calculates the amount by which current revenues must exceed expenditures in the Greek budget to get the country's debt under control. He concludes that even if there are significantly lower interest rates combined with very optimistic assumptions about the economy, the surplus would have to amount to more than 10 percent of GDP -- a value that, as Klodt notes, not a single industrialized country has ever achieved in recent decades.

"When the most recent restructuring program was approved, it was already clear that the assumptions were unrealistic," says Oxford-based economist Clemens Fuest, an adviser to the German Finance Ministry. If the numbers are adjusted downward once again, says Fuest, the troika will be being more honest.

But the troika is not as honest as to admit the impossibility of its own mission. Instead, it continues to stall for time and is pinning its hopes on private investors coming around.

Prime Minister Lucas Papademos expects the negotiations with private creditors on debt restructuring to be complete by mid-January. Otherwise, he warns, Greece could face the immediate threat of a disorderly bankruptcy in March, when €17.5 billion ($22 billion) worth of bonds will mature.

Stalled Negotiations

But the negotiations between Greece and the financial companies represented by the Institute of International Finance (IIF) are hanging in the balance. Although IIF Managing Director Charles Dallara recently said that progress was being made, he also made it clear that the lenders are not willing to take more than the agreed 50 percent haircut.

Other players are even more pessimistic. "There is not even a common negotiating position on the part of the lenders," says the representative of one participating German bank.

Besides, the investors also have highly diverging interests. For instance, hedge funds have bought up large numbers of bonds, some of which already mature in March. They have no interest in a debt restructuring. Insiders estimate that speculative investors could be holding up to €50 billion in Greek debt. And bankers, like Commerzbank CEO Martin Blessing, feel that a debt restructuring limited to private creditors is fundamentally wrong.

"The IMF is calling for up to 90 percent in debt relief," complains one banker -- a claim that sources in the IMF deny. But if the haircut is so large, there is a risk that, even if the lead negotiators are in agreement, not enough creditors will play along so that the targeted debt ratio of 120 percent can be reached.

Abandoning the Pretence

Experts are convinced that real financial relief for Greece can only be achieved through a general debt writedown. But then the pretense of a voluntary restructuring could not be maintained. Both Europe's governments and the ECB would have to accept substantial losses, Greece could be forced to withdraw from the euro zone, and speculation against other crisis-stricken countries could escalate.

Nevertheless, even German politicians are slowly realizing that the current strategy is not sustainable. "It is quite possible that we will also have to write off some of the Greeks' debts," says Gerhard Schick, financial policy spokesman for the Green Party in the German parliament. "After all, it doesn't make sense to demand debt repayments that can never be made."

Translated from the German by Christopher Sultan

Resistance from Private Creditors: Doubts Grow over Greek Debt Restructuring - SPIEGEL ONLINE - News - International
Ponzi Planet: The Danger Debt Poses to the Western World (01/05/2012)
Ponzi Planet: The Danger Debt Poses to the Western World - SPIEGEL ONLINE - News - International
Time Running Out: Greece Urgently Requests Clarity on Bailout Deal (01/03/2012)
Time Running Out: Greece Urgently Requests Clarity on Bailout Deal - SPIEGEL ONLINE - News - International
Delusions of the Euro Zone: The Lies that Europe's Politicians Tell Themselves (12/30/2011)
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Deeply Divided : New Greek Government Runs Out of Steam (12/28/2011)
Deeply Divided  : New Greek Government Runs Out of Steam - SPIEGEL ONLINE - News - International

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