Friday 24 October 2014

Currently browsing 'Euro & Finance'

In early 2010, fears of a sovereign debt crisis, the 2010 Euro Crisis developed concerning some European states. What should be the response? How should economic and financial policies be coordinated at the EU level?


Again and again the same play in Eurozone?

Posted by on 20/10/14

Mr Pierre Moscovici takes office in less than 10 days, after a tumultuous hearing a couple of weeks earlier. During this month, stock markets were shockingly destabilized with distrust over Eurozone to put again into the spotlight. Recent reports unveiled the weaknesses of the German economy, while Britain is heading into the sixth day of protests due to constant income squeezing. In the meantime, the Greek government has declared its will to exit from IMF’s surveillance into its public finances and policy, with international reports focusing on the next day in Greece, after the almost-proclaimed national elections in the first months of 2015. In this respect, it Eurozone recovering?

Paris is in talks with Berlin with reference to the German backing towards the “exceptionality” that French economy should enjoy. As President Hollande wants to increase public debt and escape the threshold of 3% of public deficit agreed under the Stability Pact, the question of equal treatment of all member-states comes again into surface. France’s public debt is now 92% and it is expected to grow and reach almost 97% by the end of 2015. Meanwhile, Spain’s public debt is 94%, Belgium’s 102%, Portugal’s 128%, Italy’s 133%, and Greece’s 170%. From these countries, only Greece is faced with increasing distrust from the markets, with Portugal and Spain having gained significant confidence, and Italy having escaped the turmoil for the moment due to its Presidency in the Council of the European Union. But hard days are coming for Mr Renzi and his government. Nonetheless, all the above member-states have decreasing trends when it comes to public deficit – except for France.

The problem with the exceptionality of France is that it is hard to avoid it. Even if the Commission might call France to make the necessary amendments – i.e. meaning more job and income cuts and possibly higher taxation- it is quite irrelevant for a country with the power and influence of France to push further any austerity policy. What we have seen so far from President Hollande in his tenure in office is a decision-maker that can hardly accommodate his electoral promises a couple of years ago with the ongoing economic reality in Eurozone.

Having this in mind, the following question comes again: as long as Eurozone cannot deal with austerity and stabilize its economies long-term, why EU leaders do not think the opposite way and push for a more flexible monetary policy? ECB’s President Mario Draghi has already pinpointed such a possibility one year ago, at least in the context of a more expansionist policy in the short run, but still we are faced with a mix of restrictive policies that bring Eurozone closer to instability. Again.

The case of France and the expectations from the hardliners in Eurozone can certainly give us the lesson we did not learn these four years. In 2010 and in 2012 Eurozone had to deal with increased distrust from the markets, with Portugal, Spain, and Greece swept down to tough monitoring and in need of bailing-out. Now, in 2014, we risk to watch again the same scene and a really exhausting play for the people of Europe and the young generation. If we are to avoid another flash-back, the European Commission should revisit the normative approach of the Stability Pact and relax any measures taken or agreed. It might be time for more inflationary policies and less austerity, at last.

UK takes another blow over bankers’ bonus cap

Posted by on 19/10/14
EBA HQ in London
The European Banking Authority (EBA) on Wednesday released the results of its investigation into whether banks across Europe have been using ‘allowances’ to skirt the EU’s bankers’ bonus cap. This is obviously a hugely contentious issue in the UK and the fact that UK banks have been taking this approach has been well publicised and oft criticised by EU politicians. But it’s interesting to note that the EBA found 39 banks across six EU states had been using such allowances, so clearly it is an issue which extends beyond the UK’s big banks.

Nevertheless, the opinion does not bode well for the UK with the EBA concluding:
“The EBA found that in most cases institutions had topped up the fixed remuneration of their staff and had introduced discretionary ‘role based' allowances which have an impact on the limit of the ratio between variable and fixed remuneration required by the EU Capital Requirements Directive (CRD IV).”

“The report showed that most of the allowances, which were the subject of the EBA investigation, did not fulfil the conditions for being classified as fixed remuneration, namely with respect to their discretionary nature, which allows institutions to adjust or withdraw them unilaterally, without any justification.”
The report is much as expected, with the EBA making the case that the allowances are not permanent pay for a number of reasons: they are revocable with little notice, specific to the staff member not the role, often have forfeit clauses therefore not permanent and are often linked to proxies for the firms performance (such as the economic environment).

The last point in particular clearly chimes with concerns from banks that they will have less control over their costs at times of economic hardship. This is exacerbated by the point (number 37 in the report) below which is frankly just a bit strange:
"Some role-based allowances might only have been introduced to comply with the bonus cap introduced by the CRD IV while retaining some cost flexibility. Cost flexibility is of importance where the performance of the institution or a business unit is no longer considered adequate."
Surely, cost flexibility is always relevant for a business, particularly one in a very competitive environment, and not just when it is failing? We’re not quite sure what the EBA is getting at there.

What happens now?
  • The opinion isn’t binding, although the EBA has said it expects national regulators to make sure that all banks are in compliance by the end of the year, however, it has no legal way to enforce this (yet).
  • The EBA is currently reviewing its guidelines on the issue and will hold a public consultation before the end of the year with the new official rules being published in the first half of 2015 (at this point they will be legally binding).
  • In particular, if banks want to continue using allowances they will have to be “predetermined, transparent to staff and permanent”.
  • Ultimately, this throws a bit more uncertainty in the mix with banks uncertain over exactly how and when to adjust their allowances.
What does this mean for the UK?
  • Clearly, this is a bit of a blow for the UK. That said, the issue has already to an extent moved out of the EBA’s hands. The UK is challenging the original proposal at the European Court of Justice. Even if this proposal fails it could challenge the updated guidelines/rules which are used to implement the cap. Banks themselves could of course choose to launch legal challenges although this looks unlikely at this stage.
  • Banks will ultimately find a way to pay their staff the market rate. This will likely end up being in the form of higher base salaries, something which will make banks less flexible and push up their average costs. This could potentially harm competitiveness and possibly force banks to pass on such costs to consumers.
  • The biggest concern is a broader one of precedent and where laws are really made. The bonus cap was a specific law tagged onto a much larger piece of legislation to which it is largely unrelated. This significantly aided its passage through and watered down scrutiny. Then given the technical nature of the rules a lot of the holes were filled in by the Commission and the EBA in setting the exact parameters for implementation – providing a lot of power to the two institutions. The temptation to take such an approach with complex financial regulation is obvious and circumvents the little accountability and control which member states have.
This debate surely has some way to run yet but this looks to be one battle which so far the UK is losing.

Frage: “Sollten die Deutschen mit dem Sparen aufhören?”

Posted by on 16/10/14

Frage:…Sollten die Deutschen mit dem Sparen aufhören?

Antwort:… Tatsache ist, dass die Politik langsam keine Optionen mehr hat, dass dieser Einbruch hier vielleicht viel gefährlicher ist als der, den wir 2008 hatten. Das haben wir durch billiges Geld wieder rausgerissen. Aber die Politik der Notenbanken kommt jetzt an ihre Grenzen, und deswegen ist diese Diskussion über neue Konjunkturprogramme jetzt im Umlauf.

Frage: Stehen wir wirklich vor einem Abschwung – oder schlimmer noch vor einem Kollaps?

Antwort: Ein Abschwung oder auch eine Deflationsspirale ist nicht auszuschließen… Wir haben nach 2008 mit sehr viel fast schon staatswirtschaftlichen Maßnahmen, also der Politik des billigen Geldes, die Zinsen gedrückt in der Hoffnung, dass damit die Wirtschaft angekurbelt werden sollte. Das funktionierte auch einigermaßen…

Aber die Politik der Notenbank ist jetzt am Ende. Wir sind schon fast bei null Zinsen, wir haben Strafzinsen. Das erinnert ein bisschen an die Spätzeit der DDR, wo auch solche potemkinschen Dörfer aufgebaut wurden.

Frage: Der Untergang für die Europäische Union… oder für Deutschland?

Antwort: Wenn es uns jetzt trifft, dann wird es wahrscheinlich eine Abwärtsspirale in der gesamten Weltwirtschaft. Wir haben diese unsäglichen Sanktionen viel zu früh und viel zu stark gegen Russland beschlossen, die natürlich vor allem Deutschland und Österreich treffen. Andere können sich da eigentlich bequem zurücklehnen. Wir haben jetzt den Abschwung ansonsten. Da kann ich schon verstehen, dass Rufe laut werden, dass man sich dem entgegenstemmen muss und die Sparpolitik aufgeben muss.

Frage: Dafür würden Sie votieren, einen Abschied von der schwarzen Null in Deutschland zum Beispiel?

Antwort: Ja. Man muss ja sehen, dass Amerika und England und viele andere, Japan seit Jahren eine hemmungslose Schuldenpolitik betreiben, damit ihre Aktienmärkte stützen und oben halten, während wir in der Europäischen Union eine doch relativ schizophrene Politik haben. Wir haben zwar auch die Politik des billigen Geldes der Notenbanken, das ist das Gaspedal, und gleichzeitig ziehen wir dann die Handbremse mit dem Stabilitätspakt.

Wenn schon es Richtung unbegrenztes Geld geht, dann müssen wir da unter Umständen mithalten, denn sonst haben die anderen nachher eine wachsende Wirtschaft, sie haben dann zwar Schulden, aber wir haben dann keine Schulden und keine wachsende Wirtschaft. Und wenn dann die Bereinigung kommt, wenn Schuldenschnitte erfolgen, dann stehen die anderen besser da.

Frage: Das heißt, Schäuble muss nachgeben, oder er macht eine Politik zum Niedergang der deutschen Wirtschaft?

Antwort: Das ist überspitzt… Der Mann hat sich ja auf das Sparen fixiert und er kann sich ja ganz gut fixieren, wenn er mal eine Idee hat, und das ist dann seine Linie, die will er durchhalten. Aber in der Tat wäre eine Auflockerung der Sparpolitik im Moment durchaus diskussionswürdig.

Frage: Und wenn wir das machen, wofür geben wir das Geld dann am sinnvollsten aus?

Antwort: Ja, das ist schon das nächste Problem. Das ganze viele Geld, was wir jetzt gedruckt haben, das ist an die Banken geflossen, das ist zum Teil in spekulative Bereiche geflossen und es ist nicht wirklich dahin geflossen, wo es hinfließen müsste, nämlich in den Süden, dort in den Mittelstand in Deutschland, dort wo Investitionen sinnvoll sind.

Von daher ist die Idee, die Schäuble da gebracht hat, dass die Europäische Zentralbank zunächst eine Kapitalerhöhung benötigt, an der sich dann ja alle beteiligen, dass dann die Europäische Zentralbank mehr Kredite gibt, gar nicht schlecht. Aber das ist natürlich weit weg von den 300 Milliarden, die Jean-Claude Juncker gefordert hat.

Frage: Und wofür sollte das Geld ausgegeben werden? Was kurbelt die Konjunktur an? Was hilft?

Antwort: Wir haben in Europa schon natürlich Rückstände in der Infrastruktur, auch in Deutschland. Infrastruktur ist eines, Bildung, Wissenschaft, Hightech. Aber wenn wir unseren Hightech-Sektor wirklich hochbringen wollen in Europa, dann müssen wir uns erst mal aus der totalen Abhängigkeit von Amerika lösen. Das sehe ich noch nicht. China ist da etwas eigenständiger, während im Hightech-Bereich die Europäer im Prinzip ein Anhängsel der USA sind und Territorium von Google, Amazon und Microsoft. Das wird nicht einfach, da was dagegenzusetzen.

Frage: Nun sagt ja Wolfgang Schäuble, mehr Investitionen seien schon okay, aber die sollten am besten durch Strukturreformen erreicht werden. Heißt das im Klartext, Deutschland wird wieder Sozialleistungen kürzen…?

Antwort: Leider wird es das in der Konsequenz heißen, wenn es so umgesetzt wird. Aber Strukturreformen sind ja mehr. Die EU ist im Prinzip in vielen Bereich zu einer Standortwettbewerbsmaschine im Hinblick auf Kürzungen von Sozialleistungen und sonstigen Gesetzen geworden. Aber man kann ja auch positiv was machen. Man kann Fördergesetze machen zum Beispiel für den Hightech-Sektor. Leider reicht dazu die politische Kraft der EU im Moment nicht.

Frage: Die Regierung in Deutschland gibt ja auch viel neues Geld aus, aber möglicherweise für die falschen Dinge. Sollte die Große Koalition so etwas wie die Rente mit 63, den Mindestlohn und das Betreuungsgeld wieder kassieren?

Antwort: Ja, das waren Wahlgeschenke. Die sind natürlich unsinnig…, kosten viel Geld, und sie entziehen dem Arbeitsmarkt produktive Kräfte. Es ist doch viel wichtiger, dass wir Arbeitsplätze schaffen. Mindestlohn habe ich ein gewisses Verständnis für. Da gibt es auch Untersuchungen, dass der nicht auf die Arbeitsplatzanzahl drückt, dass er nicht schädlich ist. Aber eine Rente mit 63 war ein ganz klares Geschenk.

Insofern brauchen wir tatsächlich Strukturreformen, die neue Arbeitsplätze schaffen. Das wird aber auch nicht ohne Geld gehen, und es geht nicht nur, indem man einen Dumping-Wettbewerb um Billiglöhne und um die günstigsten Standortvorteile im Hinblick auf Steuern und so weiter macht, sondern da muss man sich was Intelligentes einfallen lassen, zum Beispiel ein Förderprogramm für Hightech.

Frage: Sie haben kürzlich gesagt…, Sie hätten noch nie so viel Angst ums Geld gehabt wie angesichts der Krisen in der Ukraine oder in Syrien… Was raten Sie den Bürgern in dieser Situation?

Antwort:… Die Lage ist diesmal so ernst wie seit mehreren Jahrzehnten nicht, denn wir haben wirklich viele Krisen, und die Notenbanken sind mit ihrer Politik am Ende. Man kann nicht alles auf dem Sparkonto lassen, man kann nicht alles in der Lebensversicherung lassen. Geldforderungen sind tatsächlich irgendwann bedroht. Es muss eine Mischung her zwischen Sparkonto und dann vielleicht langfristigen Aktienfonds, globale einfache Aktienfonds, vielleicht auch ein kleines bisschen Edelmetall, sodass man wenigstens eine gewisse Streuung im Vermögen hat.

Frage: Wie schätzen Sie die Chance ein, dass die Weltwirtschaft noch einmal davonkommt?

Antwort: Mit Prozentzahlen tue ich mich immer schwer, aber die Gefahr, dass sie nicht davonkommt, die ist wie gesagt sehr real und so hoch wie lange nicht mehr. Zahlen sind wirklich schwer, Fifty-fifty vielleicht das davon kommen, vielleicht auch ein bisschen mehr. Aber die Gefahr ist absolut gegeben.

Frage: Und wie schnell wird sich das erweisen?

Antwort: Das ist wieder schwer zu sagen. Im Jahr 2008 hatten wir den Kollaps und da gab es Panik, und wenn da die Notenbanken nicht eingegriffen hätten, dann wäre es damals so weit gewesen. Diesmal ist es eher ein schleichender Prozess… Diesmal kann sich das wie eine schleichende Krankheit etwas länger hinziehen. Aber ich denke, in ein bis zwei Jahren haben wir Klarheit.

EU-Russia Relations: Reloading again?

Posted by on 16/10/14

The Asia-Europe Meeting (ASEM) will be held on October, 16-17, in Milano (Italy). German Federal Chancellor, British Prime-minister, Presidents of Ukraine and France confirmed their participation at the forum. Russian Prime-minister Medvedev was declared as a participant but at the very last moment President Putin announced his arrival to Milano.

Russians also confirmed that Putin was planning to meet with EU leaders as well as with the head of Chinese Parliament Li Kecian. There is also possibility of Putin-Poroshenko talks.

Putin’s primary goal in Milano is to convince EU leaders to lift sanctions imposed by Europe. It is worth to add that the future of these restrictive measures will be the main issue at the EU foreign ministers meeting on October, 20, in Brussels.

According to Kremlin’s official statements, Putin is going to offer for Europeans to ‘reload’ EU-Russian relations. The Russian economy has entered into recession. Russia should intensify its political and economic dialogue with Western countries, otherwise the decline of its economy cannot be stopped. The main source of the Russian budget income is oil & gas export (nearly 50%), but due to the latest trends in the oil markets Russia has lost profits – up to five trillion rubles. The Russian budget was based on oil price of $114 per barrel, therefore budget-2014 revenues will be reduced by 20-25%.

Trying to redirect its cooperation vector, Russia chooses China as the main strategic partner instead of EU. Lots of agreements were signed between Moscow and Beijing during last few years. The gas contract is one of the most important. The contract is worth $440 billion and the period of its validity is 30 years. However, gas deliveries will be possible not earlier than in 2018. But by that time, the Russian economy will not be able to survive without economic and political cooperation with EU.

“Reloading” of European-Russian relations is positively assessed by EU. But the Ukrainian issue is still open. A few European countries support lifting of sanctions against Russia: Hungary, France & Slovakia. Most of the EU members agree that sanctions against Russia must not be lifted until the situation in Ukraine becomes stable.

EU representatives consider that it is not the time to begin a new “Cold War”. All parties interested in resolving the Ukrainian conflict should carry on the effective dialogue. Only political negotiations can bring results.

The issue of economic sanctions lifting will be discussed during the meetings between EU leaders and Putin. Sanctions can be canceled under the only condition: Russia should withdraw its troops from the territory of Ukraine. This condition concerns not only the Eastern Ukraine, but also the annexed Crimea. So, EU-Russia relations reloading is possible but in case of fulfillment of this demand.

According to EU experts, Ukrainian and Russian economies bear loses due to the protracted conflict in the Eastern Ukraine. The countries have deeply integrated system of co-production in many industrial fields.

ASEM in Milano may become the starting point of the Ukrainian conflict resolving. Putin face a dilemma: to support EU peaceful initiatives and to create conditions for sanctions to be lifted or to destroy the Russian economy.

Ukraine and Russia may become a reliable economic bridge between Europe and Asia.

Nobel Prize for Economics: a missed ex-aequo

Posted by on 16/10/14

Dr Jean Tirole has won the Nobel Prize for Economics having pursued studies centred on regulations suited to ex State monopolies, like Power supplies, Telecom, Gas, Banks…
Mr Tirole concludes that those sizable companies, once privatized, tend to accumulate excessive profits, often not decorously compatible with the community of citizens.
Hence the opportunity to legislate in a differentiate way, paying due regard to the potential excesses of a specific market segment.

However, we should ask ourselves if the privatization of utilities is the right way forward or rather, we should direct the glance (the study) toward a better management of State enterprises. If a State-managed utility is not efficient in administering its services to the members of the public it might need less politics and better management with adequate salaries. A political system that is not capable of managing its state-enterprises economically will, almost surely, waste as well a large proportion of the national budget.

Dr Thomas Piketty, another French economist, has achieved a research that demonstrates the diminishing growth of a country to the widening of salaries beyond a certain point. In other words, the excessive accumulation of wealth in a few, compared to the whole population of a country, causes a dwindling in the purchasing power of citizens, hence the diminishing income to the State. The difference in compensation along the professional ladder is positive to stimulate motivation but if this difference becomes excessive then the economic system misfires. The work is detailed in his book “Capital in the Twenty-First Century”, a bestseller applauded by most economists and some of the political elite but insubstantially criticised by the “financial nomenclature”. Is this the reason for a missed ex-aequo? Dear Mr Piketty, the 21st century has just begun and you might enjoy a full bounty in the near future.

Closed Doors: The ECB’s New Strategy

Posted by on 06/10/14

The draft report of the Committee on Economic and Monetary Affairs of the European Parliament over the regulations and powers of the European Central Bank to impose sanctions (EC No 2532/98), issued on September 17, includes a rather ambiguous, to be polite, provision, entitling the ECB to decide whether to publish or not decisions of its board that could jeopardize the stability of the financial markets. In other words, and with reference to bail-out member-states like Greece, the ECB can delay a publication of a certain sanction or administrative pecuniary penalty up to three (3) years after the date on which the decision was taken.

Connecting the provision of this draft with the “embezzled hearing” of the Commissioner-designate Pierre Moscovici last week, we are in front of a double dilemma: either start deliberating on the executive powers of the ECB and the depth of censorship that we might see it implemented in the months to come (i.e. considering the sensitive case of Greece and the fact that the government is not abiding by troika’s budget goals for 2014-15), or re-consider Mr Moscovici’s strategic plan for more austerity, added with sort of misleading information.

The above draft actually diminishes European Parliament’s checks and balances over ECB. On the one hand, it might be beneficial for certain circumstances, especially in a highly fragile economic and financial environment, but on the other hand the concealment of a decision for up to three years is considered a long period that inevitably creates transparency burdens in every possible respect. For member-states with increasing phenomena of corruption, such a delay could also undermine both investors and depositors and distort the credibility of the banking institutions.

From a similar perspective, ECB’s new strategy to increase its powers in such a manner can definitely lower the influence of the political system, and therefore the executive and influencing power of the European Parliament, in a top-down process affecting also the relationship between the banking institutions and the political systems of the member-states. The debate is crucial for the future of decision-making as well, as the “forced” stability of the banking system in the European Union can alter the current democratic model of policy-making and turn the markets literally dependent to selective information.

For the time being, the governing parties of Greece and of other fractious economies like Spain and Italy that implement austerity measures can only benefit from such a development.

Showdown between France and Commission set to test EU’s budget rules

Posted by on 06/10/14
It has been widely reported over the weekend that the European Commission (EC) is seriously considering rejecting France’s new budget proposal which will see it run a deficit of 4.3% next year rather than the EC target of 3%.

As the graph above shows, France has strayed significantly from the path originally agreed with the EC, even after it requested and was granted additional time to meet its deficit targets just last year.

Importantly, this is the first time a country has flagrantly flouted the budget rules. Other countries have missed their targets or asked for extensions, but with the presumption of good faith and serious efforts being made to meet said targets. However, with its latest budget France has rejected the previously agreed cuts (worth 0.8% of GDP) and offered just 0.2% of GDP in savings. In other words it has flat out chosen to ignore the rules.

This may seem like semantics but it puts the EC and the EU more broadly in a tough position. With much of peripheral Europe failing to meet the fiscal rules agreed under the Stability and Growth Pact (SGP), the Fiscal compact and the European Semester, many have already been questioning the effectiveness of these tools. Ultimately, the EC risks replaying one of the key features of the previous crisis – letting a big country break the SGP and then being unable to effectively enforce it for other countries, helping to facilitate the large build-up of sovereign debt.

This is therefore a key test of the viability of the new rules and whether this time will really be any different. Combined with the renewed bank stress tests and bail-in rules, the coming months are an important testing ground for the new financial architecture which the Eurozone has put in place.

Sadly, as Reuters highlights, another fudge looks to be on the cards. While the EC will probably reprimand France to the fullest extent before getting to outright fines, it will also work up a new looser programme which gives it more time. This helps all sides save face and avoids the risk of further weakening French President Francois Hollande to the benefit of the Front Nationale (something which the EU wants to avoid).

As for what happens now, the EC will provide a verdict on the budget by the end of the month in what will be one of the last acts of the Barroso Commission. This is of course all complicated by the hand-over of the EC and the wrangling over who will actually be in charge of enforcing the budget agreements. When all is said and done another muddle through is likely, but with the Eurozone facing economic stagnation investors may be less than convinced by such moves.

Germany is not less keen on debt than others

Posted by on 06/10/14

As the rethoric goes, Germany has always been careful in taking out debt financing. In German culture debt is considered a sin, from which the literal translation of “die Schulden” is “fault” or “guilt”.

Every day Wolfgang Schäuble, the German finance minister, remembers all other European peers that debt is the problem, not a solution.

So the story goes and that would explain the relatively low current levels of government debt over GDP ratio, at 74.55% in 2014. In that respect Germany outdistances most European partners, that are struggling to stay below 90%.

Is this performance due to a trend of low debt or simply good growth performance compared to other EU states? To check, let’s assume that France, Germany, Italy and UK would have all grown at Italy’s GDP growth rate from 1991 until today. The result is shown in the graph, where data are taken from the IMF website.

Now Germany is not performing so well. France and UK are looking even worse than Italy.

So, it might be the case that the problem of the Maastricht debt/GDP rule is not the “debt” but the “GDP”. Asking for more relaxed conditions in public spending to boost GDP does not look like a stupid idea afterall.

Launch of Next Europe

Posted by on 30/09/14

My new book Next Europe is now officially launched. Of course this comes with a modest campaign to create attention for the book.

I published several opinion articles, on news sites as well as in the Dutch paper Het Parool. You can read the ‘launch article’ at EurActiv (English) and on (Dutch).

The presentation took place on September 22 at the Press Club in Brussels. More than 100 people attended the event. First I gave a short summary (link to Prezi) of Next Europe to the audience, followed by the handover to Constantijn van Oranje-Nassau, chief of cabinet of Commissioner Kroes. A panel of experts – Shada Islam of Friends of Europe, Claude Grunitzky of TRUE, and Marietje Schaake of the European Parliament – gave their first responses.

Shada Islam: ‘This is an insightful study of Europe by a young, thoughtful EU Watcher.’

Dutch public radio 1 made a report on the launch event, you can listen to it here.

On October 14, Next Europe will be presented in Amsterdam, followed by a debate with Paul Scheffer and Adriaan Schout. Programme and registration on the site of Pakhuis de Zwijger

Photos of the Brussels launch, September 22 at the Press Club



Re-branding Greece: 7 Tips for Sustainable Nation Branding

Posted by on 29/09/14
By Stavros Papagianneas Between 2009 and 2011, Greece went from being seen as a full member of the eurozone to “Ground Zero” in the Nation Brand Index. Today, it is time for a rebranding of the country. Here's seven ways Greece can put itself on the map again...

Greece is the poorest country in the EU

Posted by on 29/09/14

Since 2008 the Greek state has experienced one of the deepest and persistent financial and economic crisis in its short history. A crisis that has dismantled its social nets, increased unemployment to unprecedented levels, broken out extreme right parties, lowered trust to the entire political and banking system. In contrary to other countries in the EU that implement programs against social inequality, Greece is way long behind reaching the minimum levels of a so-called “welfare state”. People vie for social care more than ever, but state’s reaction to increasing demands is considered inconsistent and burdened with bureaucratic dysfunctions. Meanwhile, there are no prospects for recapturing income losses in the near future.

Greece is the only member-states in the EU that has not implemented the guaranteed minimum income (GMI) system. There are no criteria for establishing the lowest level of living conditions, and there is no political consensus with reference to the minimum wage requirement that is necessary for someone in order to avoid being considered as poor or socially excluded. In many cases, those eligible for receiving state aid, cannot successfully advance for job opportunities, and remain desperately dependent to the slow bureaucratic procedures.

In the meantime, according to a recent study of the Research Committee of the Greek Parliament, 2,5 million people are found below the minimum income line, i.e. referred to the income that is not sustainable to acquire a minimum living standard, whereas 3,8 million people are at risk of poverty due to lack of income, shelter or food. In other words, and in real-economy terms, over 5,5 million people in Greece are either unable to pay their daily living or close to become so. In a population of around 11 million, more than 1/2 Greeks or citizens of Greece are considered poor.

As we have many times wrote over the past couple of years, the problem in Greece is so complex and unique that no study can effectively address it. Nor any politician can tackle it in absence of the necessary consensus by the entire political system. To a certain degree, the problem is found in the slow process of bureaucracy, the lack of cross-reference when dealing with annual income by the relevant authorities, the deep distrust over the tax system. On the other hand, the incompetence of the civil society to influence and affect decision and policy-making is also considered as a major drawback.

Under the current economic conditions, and in areas that the state cannot reach, there are some minimum efforts that can be assumed by private sector’s corporate social responsibility (CSR) through the civil society and the support of volunteer centers. The first recommendation is to guarantee food and shelter for everyone; the second one is to connect income policy with volunteer or social work and lifelong learning; the third one is the issuance of coupons for the purchase of basic goods and services that are not covered by the current social policy; the fourth one is the broadening of social clinics in highly-affected areas for the treatment of unemployed, people without social insurance, and immigrants.

However simple and rational such policies might sound, they demand a high mobilization and effective campaigning – and here is where CSR and well-known foundations can bring about developments, along with civil society organizations that do have the know-how and the will to proceed accordingly.

Greece’s fiscal crisis and its impact on the public sector

Posted by on 28/09/14

Elina Zagou, Judicial, County Court Katerini, Greece
Fotis Zygoulis, Head of the Independent Planning and Design Department of the Municipality of Heraklion Attica, doctoral candidate at the University of Athens +302132000118, Greece
Email:  fotiszygoulis at,  elinazagou at

Greece in the year 2014 is now in the seventh year of recessionary economic cycle, which causes adverse effects on the social, economic and political spectrum. The crisis served as a catalyst for structural reforms, especially for countries like Greece, which signed agreements on international and European aid that posed as a prerequisite a number of radical changes concerning the organisation and functioning of public administration.
The current financial crisis exposed the weaknesses of the Greek political system regarding patron-client system. The dominance of the patronage system characterized during the previous years both the recruitment of public servants and the public administration’s attitude towards society and economy.
Greece’s economy in the last 40 years was based on excessive consumption, external and internal public borrowing. While European funding had been channeled primarily to consumption, without taking into account the needed investments, the country’s economic development and infrastructure, the improvement of good governance, the state was overloaded with an army of public servants. An unequal distribution of public administration’s structures emerged which resulted in a wastage of public expenditure, loans increasement, a huge debt and a gradually reduced efficiency of the public sector.
The peculiarity of the Greek public sector is the large size and exorbitant public expenditure on wages, but also the low efficiency along with extremely low quality services to citizens. However, the efforts of Greece since the end of 1990 to introduce the Economic Monetary Union reflected in quantitative restrictions on employment policy in public administration. Recruitment had been diminished, and in many cases the replacement of the outgoing staff was limited to one to three or one to five (although these measures were not applied across the whole public sector, applied unevenly and in some cases gradually abandoned).
Since 2009, due to the Fiscal Memorandum with Troika, there was applied a strict replacement staff rule in the public, (one to five). The Medium Term Financial Strategy Government Program extended this rule for the years 2012-2015 and “strengthened” in one to ten in 2011.
In the recent years an attempt was made to adapt to the Troika. So there has been a beginning of a series of serious reforms leaded by the Ministry of Administrative Reform, in order to evaluate both the structure and staff of the Public Service in order to remove structures that have nothing to offer to society or coexisting with other sharing the same powers and lastly to evaluate the public administration’s personnel . Also in the framework of the Memorandum with Troika, traditional public structures have been abolished under the ‘mobility’ project in order to fill positions of government, which were in an emergency state.
The economic and administrative restructuring project in Greece involves the following steps:
Reduction of the operating costs of central government by 200 million
Reduction of public investment program by 400 million euros.
Introduction of the rule 1:10 concerning the recruitment in public interest’s enterprises
Reduction of staff salaries in the public sector by 22 per cent
Reduction of 150,000 civil servants
But the crisis has worsened the economic situation of civil servants with the upcoming reduction of the average wage and the number of salaried personnel by the state budget. The simultaneous reduction of the amount of earnings made unattractive the public sector to the existing personnel. The moreover wider obsolescence of human resources, inevitably led to a drop in morale and a reduction of the employee productivity, while it is often associated with increased incidences of corruption.
The unemployment rate in Greece and in the EU (2000–2012)

European Union (27 countries) Greece


Source: [Eurostat, „Unemployment statistics‟,]

The proposals which have been implemented during the last six years concern: Management by objectives – Suspension and recruitment limitation – Meritocracy in the selection and promotion – Motivation Productivity – Enhancing mobility – Simplified pay system – single payroll – Redesign education systems for public officials.
Greek financial crisis is a window of opportunity to promote reforms. The decrease of the average wage and the number of salaried by the state budget is the main priority in the period of last three years. Cutting salaries (average more than 35percent), while the number of salaried by the state budget has been reduced by 9.9% (76,408 persons) in relation to 2010 has leaded to a massive exodus of Greek public servants to retirement.
The reduction of the number of civil servants in Greece was not accompanied by radical changes related to the modernization of HR management. The lack of goal setting, performance measurement indicators and the continued patronage of the State with regard to the appointment of heads of organisational units in Greek government has canceled the practice of this kind of numerical and quantitative limitations operations and has not contributed to an improvement of the quality of services offered by Greek civil servants.
The effects of reduction of the salaries of civil servants in the Greek economy Greek economy has been described in the OECD report entitled: Fairly Sharing the Social Impact of the Crisis in Greece 2014 which clearly shows that the salaries of civil servants by 2010 were incomparably higher than those of their colleagues in the private sector contributing thereby to great inequality among workers. However the salaries of civil servants channeled mostly to private consumption. For this reason, the reduction of the salaries of civil servants affected both the corresponding reduction in private sector wages and general economic cycle.
The ongoing crisis has dramatically affected all structural deficits that characterize the Greek public administration. The decision-making system, structures for implementation and monitoring of public policies which, because of their systemic nature, may be considered as “standing weaknesses” of the entire framework for the organization and the functioning of public administration. Problems such as poor utilization and misallocation of human resources, the absence of modern methods, techniques and tools administration and lack of the public sector coordination led to the current disease situation of the state.
The problem of the Greek Public Sector neither is determined nor is based only on the size which can be solved only through a reduction in staff or salaries of public employees. The hot task today is to upgrade the quality of services provided to citizens and businesses through a rationalization of structures. The administrative burden of the operation of the Greek public bureaucracy is seriously affecting the economic growth more than the reduction of salaries of Greek civil servants.
Fournier, J.-M. and I. Koske (2012), “Less Income Inequality and More Growth – Are they Compatible? Part 7. The Drivers of Labour Earnings Inequality – An Analysis Based on Conditional and Unconditional Quantile Regressions”, OECD Economics Department Working Papers, No. 930, Figure 11.

OECD (2012), Economic Policy Reforms 2012 – Going for growth, Greece-country note, February 2012.
OECD (2011), Greece: Review of the Central Administration, OECD Public Governance Reviews, OECD Publishing,
OECD, (2012a) Public Sector Compensation in times of austerity, OECD Publishing, Paris
OECD (2012c), Greece: Review of the Central Administration (Greek version): OECD Public Governance Reviews, OECD Publishing,…
OECD, 2012d, Developing Human Resource Management Strategies to Support Strategic Agility in the Public Sector
Ministry of Administrative Reform and E-Governance: National Strategy for Public Administration Reform 2014-2016
Unofficial Translation of the OECD report on the Greek Central Administration (2011) from the National Alumni Association of Schools of Public Administration and Local Government
Effects of restrictive policies on public services Athens 2013 Social Multicenter ADEDI
“Local Government: Economic Status of Municipalities, The Impact on human resources of the Municipalities’ Social Multicenter ADEDI 2014
“A new strategy for the management of human resources in public administration” P. KATSIMARDOU Buas INERP 2012
“Crisis and Reforms in public administration” Anthi Karagiannis, 2012 European Centre of Excellence, Jean Monnet Program
Karkatsoulis P. (2012) Administrative reform is necessary and feasible!, Paper presented at a panel discussion organized by ELIAMEP, Kantor and the Citizens’ Movement and Transparency International, Athens, April 3rd, 2012

On Evgeny Vitishko, multilateral development banks and criminalisation of criticism

Posted by on 28/09/14

The recent rejection to release Evgeny Vitishko’s, an imprisoned environmental activist in Russia, illustrates the backlash against fundamental rights and freedoms in some countries. Multilateral development banks need to take notice of this trend and be more wary of the risk that their lending may strengthen authoritarian regimes.

by Klara Sikorova, cross-posted from the Bankwatch blog

On September 24, the Krasnodar Regional Court rejected the cassation appeal filed by the Prosecutor’s Office against the sentence of Evgeny Vitishko a Russian civil society activist known for his criticism of the environmental damage caused by the Sochi Winter Olympic Games. Vitishko was charged with a fabricated crime and sentenced to a three-year prison term in a penal colony in February this year.

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While the court’s ruling is condemnable, it is sadly predictable. Russia is infamous for using and amending existing legal and judiciary instruments to scale up restrictions on civil rights groups and individuals critical of the regime.

What is alarming is that this approach is becoming a modus operandi in more countries and not only among authoritarian regimes but also where transition to the Western type of democracy is at stake. Under the disguise of protecting national security and stability governments have curbed fundamental rights and freedoms and thus eroded the possibility for an open political debate.

Geographically, this mostly involves Former Soviet Union countries and the Middle East and North Africa (MENA) – regions where international financial institutions (IFIs) such as the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB) and the World Bank have committed to enable a successful political and economic transformation. A very short overview of cases of legal interventions enabling the reprisal against rights and freedoms shows that these are introduced with increased frequency despite the IFIs’ presence and EU attempts to support democracy.

Politically motivated online censorship and surveillance

Due to its potential to be the freest space for communication and access to information, the Internet has become a target for restrictive measures. In its annual report assessing the rate of disruption to freedom of information through online censorship and surveillance, Reporters without Borders ranked Belarus, Turkmenistan, Russia and Uzbekistan as the “Internet enemies” states because of systematic repression of Internet users. Egypt, Kazakhstan, Tunisia and Turkey are listed as “countries under surveillance” for using draconian measures to control freedom of expression online.

The news broke last week that Turkey has amended a law to allow the state telecommunication agency to block websites without a court order as a means of protecting public order or preventing a crime.

Around the same time, the Egypt government has contracted a domestic sister of a US Blue Coat cyber company to procure the surveillance technology that enables the tracking of online communication. While the Ministry of Interior rejected the rumours, it has admitted it has been monitoring online communication to be on the top of political issues and electronic crimes.

Restricting foreign funding

In less developed countries, civil society groups depend on foreign funding to exercise their independent role. The governments of Russia, Egypt and most recently Hungary have waged war against civil society criticism by obstructing access to financial aid from abroad. In 2012, Russia approved a “foreign agents” law which tightens controls over civil society groups that receive foreign funding. Egypt has been pondering a law which would oblige NGOs to receive official consent for financing from abroad. This September, the Hungarian government raided the offices of NGOs distributing Norwegian funds under the pretext of fighting political influence.

Cutting down on freedom of assembly

Russia curtailed on protest rallies in 2012, when it amended a law to introduce large fines for violating rules on public events. Azerbaijan followed the suit and passed legislation approving a nearly tenfold increase in fines for participation in an unapproved public protest. In its 2013 law on public assembly, Egypt granted security officials discretion to ban and forcibly disperse a public protest or a meeting on vague grounds.

Development banks off target

As the human rights situation is deteriorating and transition countries are reversing after two decades of reforms, the impacts of the development financiers’ lending must be called into question.

Azerbaijan currently appears as a model case for IFI lending that is likely to strengthen the elites in authoritarian regimes while turning a blind eye on human rights abuses. In the pursuit of independence from Russian gas the EU and IFIs are eyeing the Trans-Adriatic Pipeline (TAP), that is part of a plan to transport natural gas from Azerbaijan to Europe.

In February this year, the EBRD released an economic assessment of the impacts of the Sochi Winter Olympics. Two days before that date Vitishko had been arrested before being able to deliver the draft report on detrimental environmental impacts of the Games (pdf) for a discussion in Sochi.

Although these two cases stand separately, the legacy of Vitishko and his colleagues at the Environmental Watch on North Caucasus demonstrate the urgent need for the IFIs to bridge the political and economic transformation with the observance of fundamental rights. Without achieving this more cases like Vitishko’s will regrettably keep appearing.

Greece’s economic comeback is marred by uncertainties

Posted by on 22/09/14

Petros Christodoulou, a Greek investment banker, once quipped “most of the bad news about America’s subprime-mortgage market will be out by the end of August.” It was the beginning of August 2007, just a few weeks before the financial whirlwind that almost sucked in the global economic system unleashed. At the time, Greece was still a successful and prosperous European country, buoyed by the lowest borrowing costs in history. But its comeuppance was soon to follow, as a series of rapid revelations over faulty accounting methods wiped out more than 25% of its GDP and pushed 30% of Greeks below the poverty threshold.

In addition to “accounting errors” a number of financial deals allowed Greece to cut its deficit, in return for repayments over time. Using cross-currency swaps, Goldman Sachs channelled $1 billion of funding to Athens in 2002. On the receiving end of the deal, working at the time in the National Bank of Greece, was the aforementioned Christodoulou, himself a former Goldman alumnus. Such shady dealings were made possible by the integrated capital markets that came with the EU, superimposed over a climate of seething corruption.

Indeed, corruption and tax evasion are at the heart of the Greek tragedy. Otherwise how can one explain the audacity of multiple governments to hide a rapidly rising budget deficit? When the truth came out in December 2009, it became evident to everyone that Greece was not only cash-strapped but outright bankrupt. With Europe’s economy hanging over the edge, and the future of the Euro in doubt, the country was forced to contract two successive IMF-backed loans worth €240 billion, raising its debt from 115% in 2009 to an eye-watering 174% of GDP in 2014. Seven consecutive years of economic decline ensued.

Painful structural reforms were passed, as the government scrambled to overhaul as much as it could, from the pension system to private universities, in hopes of bringing to light Greece’s shadow economy, estimated at 25% of GDP. After street protests, intense rioting and political hand wringing, it seems that good news has finally come to the Greek peninsula.

According to the IMF and the European Commission, the country is set to see its first year “in the green” since 2008, with an expected 0.6% expansion. Moreover, Standard & Poor acknowledged this prediction by upgrading its debt rating, from B-minus to B. Although still five notches into junk territory, the embattled country has finally managed to make a successful return to financial markets. On September 12th, the Greek Finance Ministry hailed its sale of some 1 billion euros worth of three-month and six-month treasury bills, noting that strong demand exceeded initial targets of the bond sale.

With the economy showing timid signs of improvement, can one assume that corruption has been stifled? Unfortunately, not so much, as recent evidence shows that the government’s efforts simply “gave Greeks more official protocol to manoeuvre around”. Transparency International still rates Greece as Europe’s most corrupt country, tied with China for the 80th place in the world.


Source: Zerohedge.comsource:

Although petty corruption is still common, it pales in comparison to what happens at the governmental level. From fraudulent privatizations to businessmen in cahoots with politicians, a foray into Greek corruption reads more like a “How-to” manual. When Prime Minister Andreas Papandreou was told that a leading Greek bureaucrat accepted a big bribe from an Italian company, which wanted to build a hydroelectric dam, he jokingly said that there’s no problem if an official “makes a little gift to himself”. This phrase “became the official green light for generalized corruption at all levels in the 1980s”.

Perhaps one of the most interesting, yet underreport cases in recent memory, involves the Greek shipping magnate and football fanatic Evangelos Marinakis, owner of Olympiacos FC and head of the Greek Super League. Despite being associated with a criminal organization officially charged with match fixing, bribery of officials, politicians and judges, the “untouchable” Marinakis has recently been elected as local councillor in Greece’s third largest city of Piraeus. He will be serving at the pleasure of the city’s mayor, Ioannis Moralis, a former Olympiacos Vice President, whose campaign was largely reliant on the financial support of Marinakis.

Drawing comparisons with Italy’s Berlusconi, Reuters dryly stated that “rarely has big business mingled so openly with politics in a country where contacts between the two are usually conducted behind the scenes“. This is no doubt a worrying development. With the election of the Marinakis/Moralis ticket, Greeks have shown that the same double-dealing spirit that had almost bankrupted the country is still alive and well. Not even an almost total collapse of the country managed to shake up the public consciousness into realizing that it is neither Brussels nor Germany at fault here; it is their own inertia.

As for Petros Christodoulou, after having served for two years as the general manager of Greece’s Public Debt Management Agency, the main government body tasked with restructuring the country’s burdensome debt levels, he was appointed earlier this September as CEO for Marinakis’ shipping company. Indeed, as long as the powerful grow more powerful and inequalities rise with the populace’s consent, the Greek taxpayer will always get the short end of the stick.


France and the EU: there is no “exception française”

Posted by on 18/09/14
By Ernst Stetter In a speech earlier this week, French Prime Minister Manuel Valls said, “it is France and France alone that decides what the country has to do”, stipulating that there should be a serious talk with Germany, which has to assume its responsibilities for Europe. Helpful? Not so much...