While the Greek economy is in
a state of confusion and disarray, the government announced that it is bringing
into law a new (as it suits fit) voting law, which will allow the right to vote
at 17, as if Greece has just that one problem. Also it will allow the “simple
analogy” rule, which is simply whatever percentage a party gets, times 300, is
the number of seats in Parliament. The bonus of 50 seats to the first party
will be abolished.
But in order to be effective
from the next elections, the bill must pass with at least 200, which the
government does not have. So the bill will be in effect the next following
elections. But who gives a damn about this. The real problems facing the Greek
society, and the economy, are economic.
Last month three medium to
large companies announced they declared bankruptcy, among them the non-other
all mighty Athens Ledra Marriot Hotel. In the beginning of June the two largest,
well known, and reputable bookstores in Athens closed. This past week two more
companies announced that they would file for bankruptcy, a large supermarket
chain, Marinopoulos, and Jet Oil, a company in the retail oil business.
The latest casualties claimed
that the precipitous drop in sales, coupled with high debt, and claims from
creditors, were the cause of their unable to continue operations. In fact, the
supermarket chain owes 1.4 billion euros to creditors, and banks. The company
went to court, and received a temporary protection until September, during
which it has to come up with a viable plan to operate. One company in the
industry has shown interest, but it will all depend on the due diligence under
way.
Both Jet Oil, with a high market
share, and expansion to the Balkans, and the supermarket, had low liquidity,
current assets less than current liabilities, and both were highly levered
companies with debt.
The weird story is that the
supermarket chain had three years to file and report a balance sheet. It
consistently was hiding the reports of the certified accountants, and their
notes on the balance sheets, and how they were prepared. And the company just
escaped with a fine of 1300 euros...
The interesting story on the
Greek banks (see my blog at http://infofinancejournal.blogspot.gr) is the
decision which is a result of the memorandum, in the replacement of the board
of directors as well as the CEO. The market fears that these decisions are a
way to control the Non-Performing Loans of businesses, and also that the
foreigners will have no obligation to report to the minister of finance.
High taxes, a rise in the
value added tax, abolishment of tax reliefs, like to the free lancers, and the
property tax which has been imposed and remains permanent now, are a means to
boost revenue. However, the government and the institutions know very well that
these measures will not bring about a rise in revenue at the end of fiscal
2016, and as a result, they will have to initiate the automatic cuts in
pensions and wages that they have signed. The purpose is to achieve a budget
surplus of 2- 2.5% by 2017. The reason that these targets will not be
accomplished is simply, the Greek people, although many want to pay, they do
not have the ability due to wage cuts, pension cuts, and the high unemployment
at 24%.
This week surfaced a book
published by James Galbrieth, in which he describes the time during which he
was an advisor to the former Greek finance minister. In the book, he says that
he and the former finance minister had a secret plan B or X during last year’s
potential exodus of Greece from the euro, the well-known Grexit.
In his book, which the
government denies it happened, he describes that plan B was to nationalize the
Bank of Greece, keeping the Greek banks closed for a prolong period of time, enlist
all public servants, change all bank deposits to a new currency, and apply
capital controls. The well-known noble prize economist claims that this plan
had the approval of the Greek prime minister.
Finally, this week I had the
opportunity to watch an investigative committee of the Greek Parliament on the
Greek banks and their approval of loans to political parties and media
companies. The cause was the “red” loans” Non Preforming loans of banks, which
during their recapitalization, were paid by the taxpayers…
The witness testifying was
the CEO of one of the four Greek banks, and questions were very interesting. In
some he declined to respond, invoking his legal rights.
The forty minutes which I watched
was very interesting. The questions were to the effect, why did Greek banks
continue to extend loans to “friends” without collateral, with elevator drop in
sales, with negative owners’ equity, without secured guarantees. The banks
accepted as collateral homes pledged by the companies, or their owners, when in
real estate market, fair market values have dropped 70 %.
They questioned of fair
banking practices, like giving loans to a media owner to buy the shares of his
company, thus becoming majority holder. The questions if it is fair business
banking practice to accept as collateral personal guarantees when they had no
assets, or accepting as collateral intangible assets, such as business logos. The hearings will continue
next Tuesday and I will sure to watch.
And finally, the government has began the process for granting licenses to the electronic media - television companies. Up until now there was chaos in the market, so by August the government hopes to finalize the granting of licensing to four television channels. The license will go the higher bidder.
Bill T. Alexandratos, MSc. BA
Finance
