A discussion on the economy, landscaping and jails
Grand bargain or wasted opportunity?
To Mr Jens Bastian,
I really enjoy your articles on the Greek economic situation. Excellent insight and good analysis, written without ?Greek drama? or finger pointing.
There is one thing, however, that I would like your comments on. In many news articles, including yours, it is stated that the new loan arrangement for Greece will save the country 6 billion euros. This number is not explained or challenged by anybody, and seems to start living its own magic life.
In general, when a loan term is extended and there is only a marginal/limited reduction in the interest, the result is lower overall (principal + interest) payments in the first years. However, because of the longer repayment period, the total interest over the life of the loan will be substantially more.
According to my calculation, Greece will indeed save itself a lot of money in the first three years because of the longer repayment period. Still, if one calculates the total in interest (5.2 percent for three years vs 4.2 percent over seven years) it will cost Greece 8 billion euros more for the seven-year loan.
Using various loan calculation models, I could not substantiate the ?magic? 6 billion figure.
I look forward to your most appreciated reply.
Jens Bastian replies:
Like any calculation, numbers may be deceptive.
The reduction in the interest rate from 5.2 to 4.2 percent reduces Greece’s repayment obligations in the short term.
If, however, Greece does opt to make use of the full 7.5 years to repay the loans, then the EU part of the loan facility indeed will become more expensive over time.
As the reader correctly asserts, Greece saves in the short term, but the longer maturity of the loans also implies higher repayment obligations on the yield side (i.e. servicing the debt).
However, it is not yet clear what the government will do with the longer maturity. It is not inconceivable that it will repay the IMF side of the loan (which already has a lower yield) earlier and in full while using the extended maturity from the EU loan for added flexibility.
Either way, any calculation on the downside or upside must currently remain preliminary and subject to revision.
Productivity is key
Ultimately, the crux of the debt crisis affecting Greece is that the Greek economy must become more productive. There are other countries, such as Japan (which has a debt level of around 200 percent of GDP), Belgium and Italy (both over 100 percent of GDP), that have debt problems. The difference seems to be how much faith investors and creditors have in the economies of the debtors. While Greece is considered to be an advanced economy, it lags way behind the ones mentioned in terms of economic productivity. It is not hard to understand why the strings attached to the EU/IMF bailout include major changes to the real economy, because it is the real economy that provides the revenues that pay the debt. Lack of productivity leads to a lack of faith in the ability to pay that debt.
Great statement on privatization
“Assuming the average size of a Greek deal is 100 million euros, the country will have to produce one such deal every three days to meet the goal of 50 billion euros in 1,500 days, as one investment banker put it.”
1. The country does not even have an inventory of its property
2. Nobody knows who has to sign off on the sale. The country has been trying to lease/sell the Olympic venues for years but all the administrative hurdles have resulted in nothing.
3. Many citizens are against this for reasons we don’t know. Still a good opportunity to demonstrate and have a day off.
The Greek Global Competitiveness Index 2010-2011 is just behind Guatemala and Rwanda (see http://www.weforum.org/issues/global-competitiveness).
I am sure this is going to work.
Hoppa, hoppa, ha, ha, ha.
On hilltops with a view
Nikos Xydakis?s article (commentary, March 11, 2011, ?Hilltops with a view?) refers to Greece’s hilltop building craze near scenic coastlines. This craze of hilltop building can be dated back to ancient times when temples were built, and villages entirely set into steep hillsides. Yet these very structures we admire today are regarded as charming or archaeologically interesting. The former was for spiritual/ceremonial purposes and to exploit the vistas. The latter was for practical reasons for protection against pirates and to view the cultivated fields from above. Human beings have always been attracted by hillside landscapes as well as the charms of the sea. It is hard for us to forsake this tendency. Maybe it is innate or perhaps cultivated, but this is not the issue. It would be better if instead of forsaking our desires we became aware of how to better to manage our landscape by integrating the buildings into the topography just like famous architect Frank Lloyd Wright, followed by appropriate use of plants to mitigate the impact.
A sensitive approach to architecture and landscape architecture as well as environmental management would be the wise approach. But, are we capable of a wiser and more esthetic sensitivity than the one we tend to witness in Greece among all the islands and mainland coastline? Consistency to building material, scale, siting, education and enforced planning regulations is a commitment that can only be achieved where corruption will not prevail. Where there is vision, there can be value, then will and then there is the way.
Buying out a jail term!
What kind of justice system exists in Greece where you can buy out a jail term for 10 euros a day?
Is that for real or a joke? It’s not April Fool?s Day yet, is it?