Showing posts with label European Central Bank. Show all posts
Showing posts with label European Central Bank. Show all posts

Tuesday, December 26, 2017

Bubble Watch: The Fed KNOWS We"re in a 1999-Type Mania...

The Fed raised rates another 0.25% the week before last.


This marks the 5th rate hike since the Fed embarked on its policy tightening in December 2015 and the fourth rate hike in the last 12 months. The Fed’s latest statement also indicates it plans on raising rates three more times in 2018.


It is easy to gloss over the significance of this, but the Fed’s actions are indeed unusual; other major Central Banks (the Swiss National Bank, Bank of Japan, European Central Bank and Bank of England) are all currently running QE programs (the BoJ, ECB and BoE) or openly printing new money to buy stocks outright (the SNB).


What precisely is the Fed doing? Why the urge to tighten when other banks are all printing new money by the billions?


The following quotes from Fed offer us clues.


Fed Monetary Policy Report, June 2017:


“Forward price-to-earnings ratios for equities have increased to a level well above their median of the past three decades,


Fed minutes, July 2017:


"Since the April assessment, vulnerabilities associated with asset valuation pressures had edged up from notable to elevated, as asset prices remained high or climbed further, risk spreads narrowed, and expected and actual volatility remained muted in a range of financial markets."


Janet Yellen response to question from IMF Panel, October 2017:


Market valuations “are at high level in historical terms” when assessed on metrics akin to price-earnings ratios,


Fed Minutes, October 2017:


"In light of elevated asset valuations and low financial market volatility, several participants expressed concerns about a potential buildup of financial imbalances,"


Janet Yellen during Fed presser December 13th, 2017:


Stock valuations are at high end of historical levels.


I want to be clear on the significance of these statements.


The Fed’s primary role is to maintain financial stability. This means that the Fed will always downplay risks in its public statements. Indeed, former Fed Chair Ben Bernanke once stated that Fed policy is “98% talk, 2% action.”


With that in mind, the above quotes are astonishing in their clarity: the Fed is explicitly stating (in Fed terms) that the markets are in a bubble. And the Fed didn’t just do this once, the Fed has been warning about asset valuations/froth in the system for six months straight.


So just how “frothy” are things that the Fed is being so explicit?


Try “1999-levels” frothy.


Perhaps the best means of measuring frothiness in stocks is the Price to Sales (P/S) multiple. Most investors prefer to use Price to Earnings (P/E), but I am wary of that method because earnings can easily be fudged via gimmicks (different methods of depreciation, write-offs, reducing loan loss reserves, tax loopholes, etc.).


Sales, on the other hand, are very hard to fudge. Either money came in the door, or it didn’t. And if a company gets caught fudging its revenues, someone goes to jail.


With that in mind, consider that the S&P 500’s current P/S multiple has surpassed its former all time peak from 1999: a period that is now widely considered to be the single largest stock bubble in history.


Put simply, stocks are extraordinarily overvalued by a reliable measure.



H/T Bill King


However, there is one main difference between 1999 and today...


Namely, that the Fed has been INTENTIONALLY creating bubbles for nearly 20 years today... and it"s out of more senior asset classes to use!


Let me explain...


The late ‘90s was the Tech Bubble.


When that burst in the mid-‘00s, the Fed created a bubble in housing.


When that burst in ’08 the Fed created a bubble in US sovereign bonds or Treasuries.


And because these bonds are the bedrock of the US financial system, the “risk-free rate” of return against which ALL risk assets are valued, when the Fed did this it created a bubble in EVERYTHING (hence our coining of the term “The Everything Bubble” and our bestselling book by the same name).


On that note, we are putting together an Executive Summary outlining all of these issues as well as what’s to come when The Everything Bubble bursts.


It will be available exclusively to our clients. If you’d like to have a copy delivered to your inbox when it’s completed, you can join the wait-list here:


https://phoenixcapitalmarketing.com/TEB.html


Best Regards


Graham Summers


Chief Market Strategist


Phoenix Capital Research

Citi"s "What If?" Scenarios: Part 2

Yesterday we published the first set of 7 "What If" scenarios that didn"t make it into the Citi Credit team"s (already rather gloomy) year-ahead forecast. Because while Citi"s "base case" was clearly bearish (our summary can be found here), what was left unsaid was even more unsettling, if not troubling. As the bank"s credit team wrote "what about the outcomes that didn’t quite make it into our base case? The scenarios that aren’t central, but which aren’t entirely implausible either – both bullish and bearish." Citi then listed the following 7 scenarios in the first part of its quasi-forecast:


  • idiosyncratic risk is returning to credit?

  • European corporates get more aggressive?

  • global growth & commodity prices disappoint?

  • inflation accelerates as output gaps close?

  • the US yield curve inverts?

  • central bank tapering really is a non-event?

  • the market doesn’t like the choice of ECB successor?"

A full discussion of the above scenarios was posted yesterday.


Today, we follow up with part 2, or the second set of 7 hypothetical questions for 2018, which shifts away from economics and finance, and focuses on politics and Europe. As Citi"s credit team writes "you tend to worry less about your leaky roof when the sun is shining. And at the moment the cyclical economic upturn is beaming across Europe. Yet there are clouds which might conceivably hold moisture – or as our economists have put it: political risk is not dead in Europe."


So to avoid a leaky roof turning into a flood, Citi once again set out some of the economic and fundamental scenarios for 2018 that aren’t in the bank"s base case, but which remain reasonably plausible nonetheless; specifically Citi looks at the list of "potential political dark horses for next year." These include the following "what ifs":


  • … the market falls out of “amore” with BTPs?

  • … Catalonia declares independence (and means it)?

  • … meaningful EU reforms actually happen?

  • … the UK leaves the EU without a deal?

  • … Brexit is called off?

  • … Corbyn becomes PM?

  • … US tax reform fails?

While Citi concedes that there are many others it could have included, like Middle-East tensions, North Korea tensions, global trade relations, US mid-term elections, escalation in the South China Sea or relations between Russia and the West, these will have to wait for another time. Until then, here is a breakdown of the political "What Ifs" that would keep Citi at night if they were allowed to be part of the bank"s official base case.


1. the market falls out of “amore” with BTPs?


Markets seem largely to have grown comfortable with the idea of an unusually large number of different political constellations that are feasible after the next Italian general election. Legally, they must take place by May, but national newspapers have reported that a deal has been made to hold them on March 4.


Our economists see a centre-right victory as marginally the most likely outcome, but longer-term, big question marks remain over which individual party will dominate within the bloc and the true depth of ostensible EU-scepticism. A grand coalition over the middle also remains a possibility, albeit a fading one. Either would probably be seen as somewhat positive by markets in the immediate aftermath. However, with the M5S still gaining in many polls at the expense of a struggling PD, their involvement in a future coalition of the left remains a reasonable probability. Although M5S has certainly shifted its stance on the EU significantly, with its candidate for PM declaring he wants to stay in the EU and toning down his party’s opposition to the euro, other of their desired reforms would likely be seen as negative by the market. A less likely coalition between M5S and a party on the right, like Lega Nord, could potentially be more confrontational and even less marketfriendly.


While the moderation in stances and the cyclical upturn in Italy have diminished the probability of more extreme outcomes, demand for BTPs could still prove fickle amid the uncertainty and a reduction in ECB purchases.


Indeed, you could argue that private investors fell out of love with BTPs quite some time ago. As illustrated in Figure 1, just about every other major investor type has become a net seller (to the ECB) or a non-buyer of BTPs over the last couple of years. To change that behaviour, we think it remains pretty likely that there will need to be an adjustment in prices. As our rates strategists have pointed out, the ECB could counteract this through an “Italian Operation Twist” (lengthening the maturity of their BTP holdings), but such a response might not come immediately, given the ECB’s reluctance to favour individual countries, unless associated with the conditionality that comes with an economic adjustment programme.


To our minds, this remains one of the most significant political risks to € credit in 2018. Most likely the spillover on credit would be concentrated on Italian and other periphery names, banks in particular. The scenario of a full-on funding crisis is a much lower probability in our view, but would obviously have more systemic implications across the € credit market.



* * *


2. Catalonia declares independence (and means it)?


Then there is the question of Catalonia. Opinion polls suggest that the separatist and non-separatist camps are neck and neck. How the marginal mandates fall will have a very important bearing on what happens next. The scenario where nonindependence parties secure a majority would probably put the whole question on the backburner for the time being, even if they fail to form a formal coalition. Yet with risk premia already so suppressed we doubt that the reaction in the broader market would be discernible – it would not change our central scenario at all.


However, most polls still suggest a narrow majority of seats will go to the three independence parties. In recent statements, two of the three have moved away from a formal deadline for independence, and indicated more openness towards alternative solutions to independence, implying a moderation in their stance. As such, even if they secure a small majority of seats, there is a good chance a repeat of the standoff from October with the central government can be avoided.


Risks arise in the scenario where the more radical separatist parties do materially better than the polls suggest. In particular, if the independence parties were to achieve more than 50% of the overall vote (as opposed to a mere majority of seats). We think the probability has receded greatly in recent weeks, but in an outcome where tension with the government in Madrid escalates again and major protests break out in the region, a more assertive unilateral declaration of independence remains conceivable.


Although actual independence from Spain even in the long term would remain unlikely even under such a scenario, we’d expect a rise in Spanish risk premia especially on those companies with direct exposure to the region. We note that the main banks have already shifted legal domicile to ensure access to ECB liquidity. In all but the most extreme situations we would expect the broader reaction across € credit to remain muted, as it was in October.


We would assign no more than a 10-15% probability to such an outcome and for impact on the wider € IG market you have to move significantly further out on the tail.


* * *


3. Meaningful EU reforms actually happen?


Optimism about major EU reforms following Macron’s election were dealt a significant blow by German voters in September. Yet there seems to be widespread recognition among policymakers that Europe runs a high risk of another sovereign crisis whenever the ongoing cyclical upturn ends, unless the framework is reformed. Banking union remains incomplete, capital markets union remains an ongoing project and with limited scope for a major increase in the EU’s budget, a strengthened lender-of-last-resort mechanism for sovereigns, like the European Monetary Fund proposed by the Commission, would potentially increase resilience considerably.


The differing objectives in European capitals likely either imply protracted negotiations or watered-down compromises that fail to provide markets with much reassurance. Even beyond resources devoted to Brexit negotiations, tensions with several Eastern European member states (though outside the Euro area) also act as a distraction. Poland’s prime minister has stated that he expects the Commission to propose an article 7.1 determination as early as next week. Article 7 is intended to safeguard the values of the EU, which may ultimately result in a member state having voting rights suspended. 7.1 is a warning stage in that process.


As such, major reforms are not in our base case for next year, but are not  inconceivable either. We would argue that sovereign risk premia in European credit are minimal at the moment, limiting the upside from such a scenario to a handful of basis points. Evidently, a strengthened framework ought to have the biggest impact on periphery credit, especially those whose fortunes are tied to their sovereigns, most obviously the banks.


4. the UK leaves the EU without a deal?


In a strictly legal sense, it’s difficult for a “no deal” scenario to materialise next year. According to Article 50 TEU, the EU treaties only cease to apply either when a withdrawal agreement comes into effect or after two years have passed since activation, i.e. March 2019. In practice, though, even with the first phase of negotiations now agreed, the chasm between what many in the UK believe can be achieved on trade in a short space of time and what the EU seems likely to offer means that a complete breakdown of negotiations is a real possibility.


And realistically, to allow for ratification across member states a final deal will need to be reached before the end of 2018. The fact that the trade agreement with Canada was nearly prevented by opposition in Wallonia, while the EU-Ukrainian trade deal was delayed by a Dutch referendum, illustrates that ratification is by no means guaranteed. Article 50 does, of course, leave scope for an extension should more time be needed, but this too, requires unanimity of the EU27 (and the UK) in the Council – and as such may not be completely straightforward.


So if negotiations do break down to the extent that “no deal” becomes central scenario, that should be reflected in spreads already next year.


From a trade perspective, the particular weak spot would be those sectors of the UK economy with a high EU trade intensity while not being covered by WTO goods trade rules, like tech and transport. More than tariffs, we suspect the chief impact would come through increased friction, in the form of additional paperwork and lack of mutual recognition of standards.


The sector that is most obviously exposed is the heavily regulated world of financial services. Admittedly, all banks passed the rather strict “hard Brexit” stress test conducted by the Bank of England, but spreads on those UK banks and insurers that depend on Europe for a significant proportion of their revenues should still react to the considerable uncertainty associated with a “no deal” scenario,  if it becomes central late in 2019.


The broader impact of “no-deal” on domestic UK sentiment also needs to be considered. It would evidently depend on the policy stance adopted by the UK government. But given both the limited fiscal space it is already confronted with, together with the balance of Brexiteer opinion favouring a more protectionist “drawbridge” Brexit as opposed to the “Singapore-on-Thames” that some aspire to, the economic consequences for the UK would likely be severe and rapidly felt. Though some of the negative impact of a “no deal” would likely be offset by a weakening currency, we doubt that would suffice to counteract the otherwise deeply market-unfriendly implications.


A trajectory towards a no-deal Brexit probably has only limited implications for broader credit spreads, but it should still leave spreads on credits with material exposure to the UK, and UK-EU trade in particular, 10-30bp wider relative to our central scenario.


5. … Brexit is called off?


Calling off Brexit (Brexit-exit) entirely would, in practical (though not in legal) terms, almost certainly require another referendum – it is hard to imagine any politician doing without consent from the electorate. Until now a second vote hasn’t appeared very likely. But a Survation report for the Mail on Sunday last week found that 50% of voters now want a referendum on a final deal, while only 34% were against. As recently as in June, the same poll showed a majority against a second vote, so this is a significant shift, likely in response to the arduous negotiations.


However, we think a second referendum called by the current government remains unlikely unless there is also a significant shift in the polls on the likely outcome. Though even among Leave voters only a small minority (28%) now expect the UK to secure a “good deal” in its negotiations with the EU, YouGov data indicates that the decline in support for Brexit among UK voters is still quite small. Many polls still suggest the outcome of another referendum would be within the statistical uncertainty. However, as Gordon Brown has suggested, it is possible that this changes if more of Teresa May’s red lines are crossed next year.


If the UK did opt for a second referendum and voted to call off Brexit, between the ambiguity in article 50 and goodwill among other member states, we believe the rest of the EU would agree on surmountable terms.


All else equal, Brexit-exit should be a positive for UK assets, and would likely help £ spreads erase some of their YTD underperformance against € and $ credit (albeit the latter have been boosted by ECB buying and the prospects for US tax reform respectively). Even the scenario where the UK ends up staying in the Single Market and the Customs Union for all intents and purposes is probably a positive relative what is priced currently (unless it involves the scenario below also). And the probability of that happening is significantly higher than of Brexit-exit. Either would in our opinion be viewed as a positive for European cohesion as a whole, shaving perhaps 3-7bp of spreads from our base case scenario.


6. Corbyn becomes PM?


We assume that PM May will survive both the recent brouhaha over the Irish border, being voted down in Parliament and, more importantly, trade negotiations over the coming year. But not with great conviction. The status quo remains highly vulnerable: after all, the threat of a Corbyn government is probably one of the main factors that has held Ms May’s fragile coalition together thus far, in our  view. That logic should continue to hold over 2018, but even if the appetite for another election is miniscule within the Conservative party, the risk of a party split remains elevated. Recent opinion polls suggest that Labour is pulling ahead, with some suggesting they would potentially end up with an overall majority.


For markets, this would have mixed implications.


On the one hand, a Labour government would almost certainly mean a more flexible approach to Brexit. While the Labour leadership has not come down firmly in favour of continued customs union and single market membership (with their preference in favour of keeping the UK “in the customs unions and single market in the transition period and leaving the options on the table for after the transition period”, in the words of Labour Brexit spokesman Keir Starmer), a Corbyn premiership would certainly make that more likely.


At the same time, Mr Corbyn’s policy platform of higher taxes and nationalisations is unlikely to be welcomed by business. Shadow Chancellor John McDonald recently stated that shareholders in key utilities would be offered government bonds in exchange for their shares at rate determined by the government. In theory, government ownership should be positive for bondholders, but under the  associated uncertainty we doubt that’s how risk premia would react initially. And Corbyn’s strong rhetoric towards the City of late doesn’t portend a particularly easy relationship were he to be in power either.


Ultimately, a narrow mandate, a coalition or merely the responsibilities of government might demand a more pragmatic approach once in power. But in the run-up to an election where opinion polls show a Labour lead, we doubt markets would afford UK credit the benefit of the doubt. We’d put the probability of a Corbyn premiership in 2018 at around 15-25%, so it is already somewhat reflected in our base case for £ credit. This anticipates underperformance of names with a high degree of UK exposure, but in an election scenario there we still see further downside to our forecast numbers.


7. US tax reform fails?


As far as credit specifically is concerned, our previous principal worry over US tax reform, namely that the removal of interest tax deductibility would lead US companies to transfer more of their issuance to overseas entities, potentially driving up reverse yankee supply significantly, has largely been dealt with by the current plan’s allowance for interest to be tax deductible up to 30% of earnings. But to the extent that the envisaged mandatory repatriation lowers US corporates funding requirements (a prospect our US colleagues are admittedly more sceptical of than most), failure to pass tax reform would increase the funding requirement in US credit next year, potentially adding to reverse yankee issuance too. On its own this would be a somewhat bigger spread negative for the US, and a smaller one for euro credit, especially for existing reverse yankee bonds.


Failure to get tax reform through would also curtail the earnings boost that European multinationals (concentrated in the health care, consumer staples, industrials and commodity sectors) can expect to see from a reduction in tax rates on their US subsidiaries (estimates we have seen put this in the range of 2-4%). This would be a bigger deal for equities than credit, and it’s not clear how much the assumption of a tax reform-driven boost to earnings have been factored into consensus expectations yet anyway, but at the margin this would also be a small negative for the companies that stand to benefit most.


Overall though, a failure to get tax reform through, after health care reforms had to be shelved earlier this year, would call into question the feasibility of the Republicans’ legislative agenda. Our economists have factored in a 0.4% boost to US growth next year from tax reform, and a scaling back of US growth expectations. We think the spillover on global risk appetite would likely lead to at least 5bp of widening from current levels.


So ‘what if’ then?


As mentioned at the onset, none of these scenarios are base case individually. They weren’t meant to be. But what’s striking is how many are at play in 2018: we managed to come up with more with more than 40 "what ifs" in less than an hour. What you see above is merely a selection. To us, it again illustrates the uncertainty around the prevailing paradigm as we head into 2018. How they play out remains to be seen and there are positive risks too, but overall the exercise has really rammed home how lop-sided risk-reward is at the onset. When spreads are at historical tights, no news is probably the best news one can realistically hope for.









Sunday, December 24, 2017

How To Survive Today"s Bubbly Market

Authored by James Rickards via Bonner & Partners,


To paraphrase one of the great gems of Wall Street wisdom, “Nothing infuriates a man more than the sight of other people making money.”


That’s a pretty good description of what happens during the late stage of a stock market bubble. The bubble participants are making money (at least on a mark-to-market basis) every day.


Meanwhile, the more patient, prudent investor is stuck on the sidelines – allocated to cash or low-risk investments while watching everyone else have fun. This is especially true today when the bubble is not confined to the stock market but includes exotic sideshows like cryptocurrencies and Chinese real estate.


It gets even worse when investors are taunted by headlines like the one in a recent article, “Investors Can Either Buy Bubbles or Be Left Far Behind.” The article is a case study in the “Bubblicious Portfolio.” Infuriating indeed. Actually, it should not be.


On a risk-adjusted basis, the prudent investor is not missing much.


When markets go up 10%, 20%, or more in short periods, market participants think of their gains as money in the bank. Yet, that’s not true unless you sell and cash out of the market. Few do this because they’re afraid to “miss out” on continued gains.


The problem comes when the bubble bursts and losses of 30%, 40%, or more pile up quickly. Investors tell themselves they’ll be smart enough to get out in time, but that’s not true, either.


Typically, investors don’t believe the tape. They “buy the dips,” (which keep dipping lower), then they refuse to sell until they “get back to even,” which can take ten years. These are predictable behaviors of real investors caught up in real bubbles.


It’s better just to diversify, build up a cash reserve, have some gold for catastrophe insurance, and then wait out the bubble crowd. When the crash comes, which it always does, you’ll be well positioned to shop for high-quality bargains amid the rubble. Then you’ll participate in the next long upswing without today’s risks of a sudden meltdown.


OK, so I just argued that the stock market (and other markets) are in bubbles. But where’s the actual proof of this?


Actually, it’s everywhere.


The Shiller Cyclically Adjusted Price-to-Earnings (CAPE) ratio – a good indicator of how expensive stocks are – is at levels only seen at the 1929 crash that started the Great Depression and the 2000 dot-com bubble. Likewise, the market capitalization-to-GDP ratio is above the level of the 2008 panic and comparable to the 1929 crash.


The list goes on, including historically low volatility and unprecedented complacency on the part of investors.


For almost a year, one of the most profitable trading strategies has been to sell volatility. That’s about to change...


Since the election of Donald Trump, stocks have been a one-way bet. They almost always go up, and have hit record highs day after day. The strategy of selling volatility has been so profitable that promoters tout it to investors as a source of “steady, low-risk income.”


Nothing could be further from the truth.


Yes, sellers of volatility have made steady profits the past year. But the strategy is extremely risky and you could lose all of your profits in a single bad day.


Think of this strategy as betting your life savings on red at a roulette table. If the wheel comes up red, you double your money. But if you keep playing, eventually, the wheel will come up black and you’ll lose everything.


That’s what it’s like to sell volatility. It feels good for a while, but eventually, a black swan appears like the black number on the roulette wheel, and the sellers get wiped out. I focus on the shocks and unexpected events that others don’t see.


In short, we have been on a volatility holiday. Volatility is historically low and has remained so for an unusually long period of time. The sellers of volatility have been collecting “steady income,” yet this is really just a winning streak at the volatility casino.


I expect the wheel of fortune to turn and luck to run out for the sellers.


But it’s time to add another warning sign to the list. Certain high-yield (or “junk bond”) indices have fallen below their 200-day moving averages. This can be indicative of a stock market correction.


Junk bonds are riskier than equity. When they get in trouble, it’s a sign that the corporate issuers are having trouble meeting their obligations. That, in turn, is indicative of reduced revenues or profits, tight financial conditions, and lower earnings.


Panics in October 1987 and December 1994 were preceded by distress in bonds about six months earlier. While there is no deterministic relationship, bonds are a good leading indicator of stocks because they are higher in the capital table and feel distress sooner. The October 1987 one-day 22% decline in stocks and the December 1994 Tequila Crisis in Mexican debt were ugly for investors. The bond market gave a six-month early warning both times.


It may be doing so again.


But what the Fed? Is it setting markets up for a fall?


It’s true that the Fed has been raising interest rates since 2015 and had engaged in tapering for two years before that. Yet these actions hardly constitute tight money. The tightness or ease of monetary policy needs to be judged relative to financial and economic conditions.


You can have “easy money” at a 10% interest rate if inflation is running at 15% (something like the conditions of the late 1970s). In that world, the real interest rate is negative 5%, (10% – 15% = -5%).


In effect, the bank pays you to borrow. That’s easy money.


By most models, including the famous Taylor Rule, rates in the U.S. today should be about 2.5% instead of 1%. We have easy money today and have had it since 2006. This comes on top of the “too low for too long” policy of Alan Greenspan from 2002–2004, which led directly to the housing bubble and collapse in 2007.


The U.S. really has not had a hard money period since the mid-1990s. That’s true of most of the developed economies also.


What’s going to happen when central banks start to normalize interest rates and balance sheets and return to a true tight money policy in preparation for the next recession?


We’re about to find out.


Central banks all over the world including the Fed, ECB, and the People’s Bank of China are in the early stages of ending their decade-long (or longer) easy money policies. This tightening trend has little to do with inflation (there isn’t any) and more to do with deflating asset bubbles and getting ready for a new downturn.


But, in following this policy, central bankers may actually pop the bubbles and cause the downturn they are getting ready to cure. This is one more reason, in addition to those described above, why the stock market bubble is about to implode.


It’s important to realize that market crashes often happen not when everyone is worried about them, but when no one is worried about them.


Complacency and overconfidence are good leading indicators of an overvalued market set for a correction or worse.









Friday, December 22, 2017

Will QE Be the Needle That Bursts the Bond Bubble in 2018?

If you wanted more evidence that Central Banks will stop at nothing to induce inflation, consider that yesterday Bank of Japan stated that it will continue with its QE program and with negative rates for as long as it takes to achieve 2% inflation.


Mind you, Japan’s economy has just posted its SEVENTH straight quarter of growth, having exited its last recession at the beginning of 2016.


Put another way, the Bank of Japan is running CRISIS-type monetary policies (NIRP and ~$750 billion in QE per year) at a time when the economy has been growing for nearly TWO YEARS.


Throw in the ECB which will continue €30 billion in QE per month in 2018 and you’ve got a combined $1.1 TRILLION in Central Bank liquidity hitting the system next year…. when inflation data is already spiking up around the globe.


Why does this matter?


As I explain in my bestselling book The Everything Bubble: the Endgame For Central Bank Policy, sovereign bonds trade based on inflation expectations.


Put simply, when inflation spikes higher, so do bond yields.


When bond yields rise, bond prices fall.


When bond prices fall, the Bond Bubble bursts.


When the Bond Bubble bursts, the EVERYTHING bubble follows.


Well, guess what? The yield on numerous sovereign bonds are already spiking, and this is BEFORE inflation has even really hit!



Put simply, the bond yields for countries representing over 60% of global GDP are already warning that the bond bubble is in major trouble.


What"s coming will take time for this to unfold, but as I recently told clients, we"re currently in "late 2007" for the coming crisis. The time to prepare for this is NOW before the carnage hits.


On that note, we are putting together an Executive Summary outlining all of these issues as well as what’s to come when The Everything Bubble bursts.


It will be available exclusively to our clients. If you’d like to have a copy delivered to your inbox when it’s completed, you can join the wait-list here:


https://phoenixcapitalmarketing.com/TEB.html


Best Regards


Graham Summers


Chief Market Strategist


Phoenix Capital Research

Tuesday, December 19, 2017

ECB Trapped: Steinhoff Liquidity Collapses As Lenders Pull Credit Lines

When yesterday we discussed the latest troubles facing embattled retailer Steinhoff, whose bonds are owned by none other than the ECB, we said that while the company"s bonds mature in 2025, its bankruptcy is at most months away. In retrospect, and in light of the latest news, that may have been optimistic, because it now appears that a bankruptcy may be imminent and is at most just weeks away. According to Bloomberg, Steinhoff - which is facing an accounting scandal that led to the recent departure of its CEO and destroyed most of the company"s value - said lenders are starting to cut off support.


The reason why Steinhoff is suddenly facing not only a solvency but liquidity crisis is that the company which owns Conforama in France, Mattress Firm in the U.S. and Poundland in the U.K. isn’t yet able to assess the magnitude of financial irregularities disclosed two weeks ago, it said in a presentation to lenders in London on Tuesday (presentation below). The South African company also said it didn’t know when it would be able to publish audited results for 2017 and 2016, nor whether additional years will need to be restated.



Furthermore, Steinhoff also revealed that it didn’t have “detailed visibility” of the cash flows of individual operating companies. The units rely on the company for working capital and “the forecast position for each operating company is evolving daily,” it said. PricewaterhouseCoopers has been hired to investigate the accounts, while AlixPartners LLP is working on an analysis of the cash flow.


In short, the company is flying blind with no budgeting and no corporate overnight.


The presentation also said that the company is still grappling with the task of getting to the bottom of the crisis, which has led to the resignations of CEO Markus Jooste and billionaire Chairman Christo Wiese. As Bloomberg adds, Steinhoff said earlier Tuesday that Chief Operating Officer Danie van der Merwe, 59, had been made interim CEO to helm the recovery attempt, while Conforama boss Alexandre Nodale will serve as his deputy in a new four-member management board.


Needless to say, the last thing secured creditors want, is not knowing the "revised" value of the collateral that secures their loans, especially in the case of a rollup which "suddenly" turned out to also be fraud. Hence: everyone is rushing to get out the back door. Predictably, Steinhoff"s shares - already decimated - resumed their plunge, and ended their recent dead cat bounce by slumping more than 205% in Frankfurt to the lowest since Dec. 8 before paring losses to trade 12 percent lower.


Finally, Steinhoff revealed that it had outstanding debt of 10.7 billion euros ($12.7 billion) as of Dec. 14, the slide below revealed. Almost 4.8 billion euros of that was in Steinhoff Europe AG, an operation based in Austria. About 690 million euros in notional facilities have been rolled over to date, according to the presentation.



As a reminder, the ECB is a creditor to Steinhoff Europe AG Austria.


Which brings us to the question he brought up yesterday: will, or rather when now that Steinhoff"s bankruptcy now appears imminent, will the ECB sell its Steinhoff bond holdings? As we showed yesterday, Mario Draghi appears to be getting ready to do just that. As BofA pointed out, Draghi seems to be taking a more defensive stance with regards to owning Fallen Angel bonds like Steinhoff"s.


Note that the CSPP Q&A has been updated as of 29th November 2017, and the paragraph on ECB selling now reads as follows:








Q1.5 Will the Eurosystem sell its holdings of bonds if they lose eligibility?


The Eurosystem may choose to, but is not required to sell its holdings in the event of a loss of eligibility, e.g. in case of a downgrade below the credit quality rating requirement.



Previously this phrasing was far more specific, with forced selling (or otherwise) not even presented as an option:








Q8 Will the Eurosystem sell its holdings of bonds if they lose eligibility? For example, if they are downgraded and lose investment grade status?


The Eurosystem is not required to sell its holdings in the event of a downgrade below the credit quality rating requirement for eligibility.



Of course, once the ECB breaks the seal and it become public knowledge that the world"s biggest hedge fund not only buys - as everyone had known - but also sells when it has to, all hell could break loose for those IG bonds on its books which are about to be downgraded to junk by one or more rating agencies, leading to the perilous scenario we described yesterday, in which "fallen angels" become very painful "falling knives."


Until then, we will just keep an eye on Mario Draghi for the answer how long he can continue to burn taxpayer money by holding insolvent bonds and pretending that nothing has changed...



* * *


Steinhoff"s full presentation to (evaporating) investors is below (link)










Bank Of America: "This Is A Sign Of Irrational Exuberance"

Two weeks ago, when discussing a recent Albert Edwards piece, we said that the word that has come to define the new normal better than all others, is "paradox", as in nothing makes sense, or rather everything makes sense if one only flips logic and reason 180 degrees. A "paradox" was on full display in the latest Bank of America Fund Managers Survey which found that once again, the percentage of respondents saying equities are overvalued hit a new record high of 45%; and yet the average cash levels continue to fall as one professional after another - whose year end bonus depends on whether they outperform the market - rush to allocate funds to equities, which most now agree are an asset bubble.


And while we call this "paradox", Bank of America has another, more familiar name for the phenomenon: "this is a sign of "irrational exuberance"."



Yet while breakneck allocation to stocks continues apace, there has been notable rotation within the sector, and as the next chart shows,  the November rotation shows buying of cyclicals and value, and selling of 2017 winners such as EM, Japan, Tech. It is unclear what is going on in December when everything appears to be bought.



Also of note: the tech sector allocation appears to be rapidly declining, and in December fell to 24% overweight, "the long-term average and the lowest z-score for tech in 3½ years."



But while the "growth" narrative may be fading for now, Goldilocks remains the consensus view for the global economy, with 54% of investors surveyed expecting above-trend growth and below-trend inflation in the next 12 months, just 2% lower than last month’s record high. As BofA adds, "Goldilocks is now the consensus view for the global economic outlook" while the "below-trend growth/ inflation" outlook rose 2ppt to 27%, close to May"11 lows & a total reversal from Jun"16.



Meanwhile, the yield curve reaches its flattest levels since the GFC as net 0% investors say they don"t need fiscal stimulus, the highest since 2011.



And speaking of the yield curve, net 8% of investors surveyed expect the U.S. yield curve to flatten in 2018, the highest level in 18 months



Separately, as reported earlier, "Long Bitcoin" is again considered the most crowded trade (32%) for the second time this year, followed by Long FAANG+BAT (29%) and Short volatility (14%)



As also noted, a central bank error, i.e. "policy mistake" by the Fed/ECB continues to be the top tail risk cited by investors (23%); the top three are rounded out by a crash in global bond markets (15%) and a Chinese debt crisis (14%)



When asked about the consequences of the GOP tax bill, a whopping two-thirds of respondents, a stunning consensus for this survey, expect tax reform to result in higher bond yields and higher stocks, while only 3% think tax reform will lead to lower yields and lower stocks.


 



Also, just 7% of investors say global interest rates will be lower in the next 12 months; 77% say interest rates will rise.



Translation: one year from now stocks and yields will be far lower.


Also, in December global investors favored banks, technology, industrials, insurance and discretionary while avoiding staples, telecoms and utilities. Which means the contrarians should do the opposite.



Here is how Michael Hartnett summarizes the big picture themes from the December FMS:


  • Golditrumps: consensus still smitten by Goldilocks...54% expect "high growth, low inflation" in 2018. Almost 2/3 investors believe US tax reform will induce higher stocks & rates, but fiscal stimulus has coincided with lower, not higher profit expectations, and that will need to change given EPS leads relative performance of cyclicals by 3 months (Exhibit 10).

  • Pro-cyclical Consensus: Investors are long macro "boom", short "bust"; long stocks, EU/Japan/EM stocks, financials (2nd largest ever), materials (highest since 2/2012) vs short government bonds, US stocks, healthcare & utilities. Pro-cyclical consensus entrenched by US tax reform across asset classes, bar, intriguingly, leading tech sector where allocations dropped to lowest since June 2014.

  • FMS Crowded Trades: ...#1 long Bitcoin (32%), #2 long FAANG+BAT (29%), #3 short volatility (14%), while expectations for a "flatter yield curve" surged (highest in 18 months), all trades vulnerable to higher inflation & aggressive ECB/BoJ Quantitative Tightening in 2018.

  • Contrarian Recession Trades: ...a recessionary bust even more contrarian than inflationary boom, lower rates more contrarian than higher rates, making short equities-long bonds, short banks-long utilities, short EAFE-long US stocks the most contrarian trades of all heading into the new year.

Finally, when asked when this bubble finally ends, investors were split on the expected timing of equity markets peaking in 2018: 25% see a peak in Q1, 30% in Q2, and 28% in the second half of the year









Monday, December 18, 2017

Greece Is The Patsy For Europe"s Failure (And The Ordeal Is Far From Over)

Authored by Raul Ilargi Meijer via The Automatic Earth blog,


I feel kind of sorry this has become such a long essay. But I still left out so much. You know by now I care a lot about Greece, and it’s high time for another look, and another update, and another chance for people to understand what is happening to the country, and why. To understand that hardly any of it is because the Greeks had so much debt and all of that narrative.


 


The truth is, Greece was set up to be a patsy for the failure of Europe’s financial system, and is now being groomed simultaneously as a tourist attraction to benefit foreign investors who buy Greek assets for pennies on the dollar, and as an internment camp for refugees and migrants that Europe’s ‘leaders’ view as a threat to their political careers more than anything else.


 


I would almost say: here we go again, but in reality we never stopped going. It’s just that Greece’s 15 minutes of fame may be long gone, but its ordeal is far from over. If you read through this, you will understand why that is. The EU is deliberately, and without any economic justification, destroying one of its own member states, destroying its entire economy.



*  *  *


A short article in Greek paper Kathimerini last week detailed the latest new cuts in pensions the Troika has imposed on Greece, and it’s now getting beyond absurd. For an economy to function, you need people spending money. That is what keeps jobs alive, jobs which pay people the money they need to spend on their basic necessities. If you don’t do at least that, there’ll be ever fewer jobs, and/or ever less money to spend. It’s a vicious cycle.


We may assume the Troika is well aware of this, and that would mean they are intentionally killing off the Greek economy. Something I’ve said a thousand times before. Still, both the Greek Tsipras government and exterior voices continue to claim the economy is recovering. Even if that is mathematically impossible. There undoubtedly are sectors of the economy being boosted, but they are only the ones the Troika members are interested in.


The economy’s foundation, the ‘normal’ people, who work jobs if they’re lucky, are not recovering or being boosted. Quite the contrary. Half of young people are unemployed and receive no money at all. Most of those who do have jobs receive less than €500 for a full month of work. Mind you, this is while the cost of living is as high as it is in Germany or Holland, where people would protest vehemently if even their unemployment benefits were cut that low. Unemployment benefits hardly exist at all in Greece.


This situation, as also mentioned often before, means that entire families must live off the pension a grandmother or grandfather gets. As of next year, such a pension will be cut to net €480. Of which most will go to rent. And the cuts are not finished. There are plenty neighborhoods in Athens where there are more boarded-up shops then there are open ones. It is fiscal waterboarding, it is strangulation of an entire society, and there is no valid economic reason for it, nor is there a justification.


If Greece had access to international debt markets, if would perhaps pay a higher interest rate, but investors would buy its bonds. The Troika denies Greece that access. Likewise, if the ECB had not excluded the country from its QE bond-buying programs, the country would be nowhere near its present disastrous predicament. The ECB’s decision not to buy Greek bonds can only be a political one, it’s not economic. There is something else going on.


Here’s that latest pension news:


Greek Pension Cuts To Hit 70% Since The Start Of The Bailouts


The next batch of pension cuts, voted through in the last couple of years and set to come into force within the next two years, will take total losses for pensioners since the start of the bailout period in 2010 up to 70%. A recent European Commission report on the course of Greece’s bailout program revealed that the reforms passed since 2015 will slash up to 7% of the country’s GDP up to 2030. The United Pensioners network has made its own calculations and estimates that the impending cuts will exacerbate pensioners’ already difficult position, with 1.5 million of them threatened with poverty. The network argues that when the cuts expected in 2018 and 2019 are added to those implemented since 2010, the reduction in pensions will reach 70%.


 


Network chief Nikos Hatzopoulos notes that “owing to the additional measures up until 2019, the flexibility in employment and the reduction of state funding from 18 billion to 12 billion euros, by 2021, one in every two pensioners will get a net pension of 550 euros [per month]. If one also takes into account the reduction of the tax-free threshold, the net amount will come to 480 euros.” Pensioners who retired before 2016 stand to lose up to 18% of their main and auxiliary pensions, while the new pensions to be issued based on the law introduced in May 2016 by then minister Giorgos Katrougalos will be up to 30% lower.


 


More than 140,000 retirees on low pensions will see their EKAS supplement decrease in 2018, as another 238 million euros per year is to be slashed from the budget for benefits for low income pensioners. The number of recipients will drop from 210,000 to 70,000 in just one year. There will also be a reduction in new auxiliary pensions (with applications dating from January 2015), a 6% cut to the retirement lump sum, and a freeze on existing pensions for another four years, as retirees will not get the nominal raise they would normally receive based on the growth rate and inflation.



As half of the pensioners see their pensions cut to €480 a month, they’re not the worst off in the country. There are about a million unemployed who get nothing at all, and 580,000 who do have ‘jobs’ but ‘earn’ just €407 a month. And that’s if they’re lucky enough to get a contract. Many don’t, and work for even less. Yeah, that’s how you keep unemployment numbers down; Americans should know all about it.


Unemployment Decreases, Yet 580,000 Workers Earn Just €407 Per Month


Greece’s jobless rate fell to 20.2% in July-to-September from 21.1% in the second quarter, data from the country’s statistics service ELSTAT have showed. About 75.6% of Greece’s 970,000 jobless are long-term unemployed, meaning they have been out of work for at least 12 months, the figures showed on Thursday. Greece’s highest unemployment rate was recorded in the first quarter of 2014, when joblessness hit 27.8%.


 


Athens has already published monthly unemployment figures through June, which differ from quarterly data because they are based on different samples and are seasonally adjusted. Quarterly figures are not seasonally adjusted. At the same time, part-time employment has been constantly increasing. According to latest data, 580,000 workers earn just 407 euros per month. An amount that is for sure not enough to help people come through the month. And this data refers to declared work contracts. In undeclared work market people earn even 200 or 300 euros.



While all these Greeks don’t make enough to feed themselves and their families, the Troika-induced tax rises keep on coming like a runaway train with broken brakes. Every single day, more people are added to the list of those who simply can’t afford to pay their taxes, under the guise of going after ‘strategic defaulters’. There is no way out if this other than large scale debt forgiveness, debt restructuring, debt write-offs. Consumer spending is what keeps economies alive, but in Greece that is what’s shrinking day after day.


Greeks Crushed By Tax Burden


Tax authorities have confiscated the salaries, pensions and assets of more that 180,000 taxpayers since the start of the year, but expired debts to the state have continued to rise, reaching almost €100 billion, as the taxpaying capacity of the Greeks is all but exhausted. In the month of October, authorities made almost 1,000 confiscations a day from people with debts to the state of more than €500. In the first 10 months of the year, the state confiscated some €4 billion, and the plans of the Independent Authority for Public Revenue provide for forced measures to be imposed on 1.7 million state debtors next year.


 


IAPR statistics show that in October alone, the unpaid tax obligations of households and enterprises came to €1.2 billion. Unpaid taxes from January to October amounted to €10.44 billion, which brings the total including unpaid debts from previous years to almost €100 billion, or about 55% of the country’s GDP. The inability of citizens and businesses to meet their obligations is also confirmed by the course of public revenues, which this year have declined by more than €2.5 billion. The same situation is expected to continue into next year, as the new tax burdens and increased social security contributions look set to send debts to the state soaring. Notably, since 2014, there has been a consolidated trend of a €1 billion increase each month in expired debts to the state.


 


There are now 4.17 million taxpayers who owe the state money. This means that one in every two taxpayers is in arrears to the state, with 1,724,708 taxpayers facing the risk of forced collection measures. Of the €99.8 billion of total debt, just €10-15 billion is still considered to be collectible, as the lion’s share concerns debts from previous years, in many cases of bankrupt enterprises and deceased individuals.



Lately, a narrative is being force-fed into, and by, western media about Greece becoming some sort of paradise for investors. But why would anyone want to invest into an economy that clearly is no longer functioning, not even viable? Well, in such an economy, all kinds of things can be bought on the cheap. And because Greece is very beautiful, and has beautiful weather, why not buy it all and turn it into a tourist colony owned by foreigners and the odd rich Greek?


One tiny thing: they would prefer a different, even more business-friendly government. As if Tsipras hasn’t crawled up the Troika’s where-the-sun-never-shines parts enough. That’s the context into which to place for instance Kyle Bass’s comments:


Kyle Bass: Investors to Pour Billions into Greece after Political Change


Hedge fund manager Kyle Bass believes that Greece will come out of the crisis and investors will pour billions into its economy once the government changes, according to a CNBC report. The founder and chief investment officer of Hayman Capital Management; which manages an estimated $815 million in assets, is closely following the course of the Greek economy and political situation, and has invested in Greek bank stocks.


 


Bass says that foreign investors are waiting on the sidelines for a political shift to take place in 2018. “My best guess is a snap election for prime minister will be called between April and September of next year and Prime Minister Alexis Tsipras will lose power. When that happens, there will be a massive move into the Greek stock market. Big money will flow in as investors feel more confident with a more moderate administration,” Bass said.


 


“It’s going to take Kyriakos Mitsotakis; president of New Democracy, the Greek conservative party, to be voted in as prime minister to reform the culture and rekindle investor confidence,” the investor said. “I have no doubt 15 billion euros in bank deposits will come back to Greek banks if he’s elected. The stock and bond markets will also jump following the election.” Bass says that global investors are waiting for the political change in order to invest in real estate, energy and tourism.


So far, the hedge fund manager noted, Greece has proceeded with privatizations of its main port; regional airports; its railway system; the largest insurance company, and there are more important ones to be completed within the next two years. “There is so much potential in Greece,” Bass said, noting that investors are waiting for the right moment to enter, the CNBC report concludes.



Kyle Bass and all his ilk are lining up for the goodies for pennies on the dollar. If only the desolate pensioners and unemployed young are desperate enough to believe that, and vote for, a right-wing government is good, simultaneously, for both their interests and that of international vultures and hedge funds.


Funds Take Positions Ahead Of Government Change In Greece


Brevan Howard Asset Management, one of Europe’s biggest hedge funds, revealed to Bloomberg on Tuesday that it has set up two investment funds whose exclusive targets are assets in Greece such as real estate, enterprises and securities, and is aiming to collect 500 million euros from private investors. Co-founder of Brevan Howard and head of one of the two funds Trifon Natsis said that some 250 million euros has already been collected. The company was co-founded by four others, including Alan Howard, in 2002. “After eight years of crisis and recession that’s hit Greece, we’re at a point where the tail risks have disappeared and the country is stabilizing at a low base,” he said.


 


“We anticipate a material uplift in the Greek economy and asset prices.” “The likely political transition over the next 12 to 18 months will add momentum and reinforce that process,” Natsis said. Brevan Howard seems to be in agreement with Hayman Capital, whose head Kyle Bass said a few weeks ago that the brewing change in government in Greece within the next 18 months will benefit the market: “You’re starting to see green shoots, you’re starting to see the banks do the right things finally in Greece, and you’re about to have new leadership,” he stated recently.



My personal assessment after spending much of my time over the past 2.5 years in Athens is that they will be disappointed. Not only does a country, to make it attractive for foreigners, need a functioning economy, which Greece no longer has even at a “low base”, but the anger that has been building up here, which was held in check by Syriza and its ultimately empty promises, is bound to explode when some right winger manages to seize power.


Athens is the most peaceful city you can imagine, the only violence is between ‘anarchists’ and police, and it mostly takes place at set dates and places. Violence among people is virtually non-existent, despite all the deception, the betrayal, the poverty and the youthful testosterone energy that has nowhere to go. But that’s not going to last, I’m afraid.


And that will also be because many Greeks understand the contents of the following, devastating, interview by Michael Nevradakis for Mint Press News with Nicholas Logothetis, former member of the board of the Greek Statistical Authority (ELSTAT). Greece has been set up. And many people here know it. They have put their hopes in the democratic process, in voting into power a different government from the same old clique they have seen for many decades.


The likely winner of the next elections is New Democracy, led by Kyriakos Mitsotakis, the man the hedge-funders want in. Mitsotakis, a banker, is very much part of the old Greek elite, his father was a prime minister. If he gets elected things are not very likely to remain peaceful. Says my gut.


Update: while I was writing this article, the following came out. Eurogroup head Dijsselbloem admitting the first Greek referendum had nothing to do with helping Greece, the reason always provided for why it happened. Instead, it was always, as we’ve said so many times, meant to save German and French banks. And now that he’s leaving the job, Dijsselbloem, who obviously feels untouchable, just lays it out there. After having played a large role in destroying the country, the society, the economy. It’s almost hard to believe. But only almost. Because the Troika doesn’t answer to anyone. Then again, Greece has an independent judicial system.


The Aim Of The First Memorandum Was To Rescue Investors Outside Greece, Dijsselbloem Admits


The main aim of the first Greek memorandum, especially, was to rescue investors outside Greece, outgoing Eurogroup chief Jeroen Dijsselbloem admitted in the Europarliament on Thursday. “There were mistakes in the first programmes, we improvised. The way we dealt with the banks was expensive and ineffective. It is true that our aim was to rescue investors outside Greece and for this reason I support the rules for bail-ins, so that investors aren’t rescued with tax-payers’ money,” said Dijsselbloem in reply to independent Greek MEP Notis Marias.


 


Dijsselbloem noted that it had been a huge crisis because the fiscal sector had faced the risk of a total collapse that would have left many countries with a high debt. However, he pointed out that banks had only needed €4.5 billion in the third programme because the private sector had a huge participation. Referring to the non-performing loans, he said that a private solution that did not once again place the burden on tax-payers was near. He also pointed to measures being taken in Greece for the protection of the socially weaker groups, to make sure that they were not the victims of the auctions.


 


Referring to the early payment of the IMF loans with the remaining money of the programme, the Eurogroup chief said that this made sense financially, given that the IMF’s loans were more expensive than those of the Europeans. However, from a political point of view, the Eurogroup prefers that the IMF remain fully involved in the Greek programme, with its own responsibilities, he added. In any case, he noted that the final decisions on debt relief will be made later, when the programme is concluded and the sustainability of the Greek debt has been examined.



As an introduction, a piece of that interview with former Greek Statistical Authority bioard member Nicholas Logothetis (see the rest below). Greece being set up is not just some fantasy idea.


In my opinion, joining these medieval memorandums, which have brought about this economic crisis that Greece is still experiencing, was beyond any doubt pre-planned and predetermined. This arises not only from Strauss-Kahn’s own admission that the IMF had been preparing every detail of this with Papandreou, it also arises for other reasons that subsequently became known – that Greece was chosen by the designers of the European Union to become the guinea pig for the implementation of harsh austerity and other forms of economic punishment, set up for all as an example to be avoided, in the context of a new EU economic policy for handling the member countries with fiscal problems.


 


Indeed, the policy of the memorandums gave the opportunity not only to the IMF to put a foot in Europe – until then its activities always were, with devastating consequences, limited to developing countries in Africa and Latin America – but also gave the opportunity to the French and German banks to get rid of their so-called toxic bonds, that were loaded onto the Greek people by turning a private debt into a state debt.


 


In order to achieve all of this, of course, they had to plant the appropriate person in ELSTAT at a time when certain statistical adjustments were required, in order to support their treacherous plan. Where did this lead eventually? To the bankruptcy of the Greek state.



This is some story. It’s being denied in what just about amounts to a full blast PR campaign by many of those involved on the Troika side. Their narrative is: how dare the Greeks attack, and drag into court, their own unblemished ex-IMF statistician (who’s not even a statistician)? Whereas the actual question should be: how dare the Troika et al attack the Greek judicial system?


They’re getting away with it so far, but there are still court cases pending. And as Nicholas Logothetis says, he is confident that the Greek court system is the only party that has the power and the independence to set this straight.


I wanted to take bits and pieces out of this, shorten it etc., but it’s just too good. Sorry, Michael, sorry MintPress! It reads like a crime novel. And you can never again say you didn’t know. We can only hope that the Greek court system will hold Europe to task.


But while they can probably call on Papandreou to stand trial, what about Strauss-Kahn or Lagarde? Or Schäuble and Dijsselbloem? What if they can even prove Greece was set up, who’s going to pay the damage done to the Greek population, society, and the Greek economy, over a decade?


It’ll take many decades for the country to recover from what has been perpetrated upon it. And this could only happen because western media have been too lazy and compliant to question what has been going on. 90%+ of what you’ve been reading about Greece has been fake news. Note: I always put everything I quote in italics, but this is an exception to that rule:


Here we go:


The Trials of Andreas Georgiou and the Fraud That Drove Greece into Austerity


The mainstream narrative regarding the cause of the severe economic crisis Greece has experienced is that the Greek people and Greek state were irresponsible with their finances, lived “beyond their means” at the expense of EU taxpayers, and provided overly generous social benefits and pensions to an underproductive, uncompetitive, and lazy populace.


These characterizations have then been used to justify the successive memorandum agreements, or “bailouts,” and the austerity measures that have been imposed in Greece since 2010, as the country’s “just deserts” — the “bitter medicine” that must be prescribed to correct Greece’s previous ills.


 


A different view exists, however — one that is based on allegations that Greece was driven into the memorandum and austerity regime not by economic incompetence and cultural deficiencies, but by a fraud that was perpetrated against the Greek people and the country of Greece.


 


In this interview, which aired in November on Dialogos Radio, Nicholas Logothetis, a former member of the board of the Greek Statistical Authority (ELSTAT), describes allegations that have been made against Andreas Georgiou, ELSTAT’s former president, and against EU statistical authority Eurostat, regarding how Greece’s deficit and debt figures were illegitimately inflated in 2010, providing the rationale to drag Greece under a regime of austerity and extreme economic oversight.


 


Logothetis details how debt swaps and other questionable financial dealings were added to Greece’s debt and deficit, as well as the consequences of these actions, the criminal and civil convictions against Georgiou, and the court cases that are still pending.


 


MPN: Let’s begin with a discussion about Andreas Georgiou, the embattled former president of ELSTAT, who oversaw the augmentation of the Greek deficit and debt. Describe for us Georgiou’s background prior to taking on the role of president of ELSTAT. Was Georgiou even a statistician?


 


NL: No, he wasn’t. The operation of the Hellenic Statistical Authority (ELSTAT), as a continuation of the initial National Statistical Authority, as we called it, officially began in late June of 2010. This was the time that the members of ELSTAT’s management board were selected and approved by the conference of parliamentary presidents, with the required supermajority of four-fifths.


 


Georgiou has been working at the International Monetary Fund since the late 1980s. For a few years before he came to Greece, he was deputy head of a division of the IMF’s statistics department, the financial institutions division. However, the Greek Ministry of Finance announced the appointment of ELSTAT’s board of directors through a press release to all Greek newspapers. In that press release, it presented Georgiou as deputy head of the entire IMF statistics department, a very big department in the IMF and a very important one, hiding his actual organizational position in the IMF, a position of an economic nature rather than a statistical nature, in a subordinate division of the statistics department.


 


Obviously, the objective of the Greek Minister of Finance was to present Georgiou as an experienced statistician with a significant management position at the IMF, who supposedly left America and came here to “save” Greece by putting in order all of its statistics. In fact, this gentleman was not only unable to run an important institution such as ELSTAT, with over 1,000 employees, but he wasn’t even a statistician, with no academic publications and no knowledge of statistics.


 


Moreover, for at least six months after assuming the ELSTAT presidency, Georgiou still held his organizational position at the IMF, something that was explicitly forbidden by ELSTAT’s founding law.


 


MPN: What were the actions undertaken by Georgiou as president of ELSTAT? In other words, how were the Greek deficit and debt figures manipulated and in what other ways were Greece’s official economic figures altered?


 


NL: First of all, Georgiou’s first moves were to remove from the other members of the board any ability and initiative to propose discussion topics or to be involved in the calculation of the deficit or the debt. They were forbidden even to communicate with the remaining staff of ELSTAT! This behavior of Georgiou was not only due to his inability to act as a manager but also due to the fact that he understood from the very beginning, even from the second meeting of the board in September 2010, our refusal to adopt the deficit and debt calculation procedures he wanted to follow. He knew that eventually, the majority of the board members would not approve his deficit figures to be officially published before the end of October 2010.


 



Andreas Georgiou, stands outside the headquarters of the Statistics agency, in Athens, Greece. (AP/Petros Giannakouris)

 


Shortly after the last meeting of the board in early October 2010, the final silencing of the whole board followed and we were never convened again, thus leaving the way free for Georgiou, always under the auspices of senior Eurostat executives, on the one hand, to change the founding law—as he always wanted, to turn ELSTAT into one-person authority—and on the other hand, to inflate the 2009 figures. Exactly how he did this became clear later, but we had suspected soon enough what he was going to do.


 


My first disagreement with him was when I realized he would add to the deficit figures and to the national debt of Greece the Simitis swaps — that is, the swaps that former Greek prime minister Costas Simitis had made use of in 2001 in order for Greece to get accepted to the Eurozone. Allow me to briefly explain what these swaps are, as they indicate clearly an activity typical of the statistical mishandlings that had always been used and are still taking place in our country, every time the government’s leaders want to achieve something with communication or financial benefits for themselves or for third parties. Swaps are a type of a bond, a banking derivative or simply a stock exchange bet, a currency exchange bet. Many countries do it, even now they are doing it, converting their existing debt into currencies of other countries, say in Swiss francs or Japanese yen, betting that the value of that currency will rise and at the maturity of this debt, the owner will gain from the difference in the value of currencies.


 


In a way, what happened in 2001 is that much of Greece’s debt was converted into yen, but at the value that the yen had in 1995, which was higher than that of 2001! Remember, the swaps were made in 2001, but the price of the yen in 1995 was the one used for this swap. We can put a big question mark here because I don’t know how legitimate this was, to consider as valid the exchange value of the yen of six years ago. But anyway, this was what happened.


 


From this action, Greece was theoretically gaining an amount of 2.8 billion euros, which theoretically reduced our debt by this amount, and also reduced the annual deficit below 3%, thus meeting the requirement of the Maastricht Treaty for Greece’s entry into the Eurozone. But let us not forget, however, that this was a bet. It’s not unlike, say, a bond that matures and is redeemable after 30 years: at the time of the swap, there was no applicable European regulation allowing the “bond” to be cashed in prior to maturity, and therefore the swaps were of indeterminate value.


 


However, Walter Radermacher — at the time the general director of Eurostat, the EU’s statistical authority — decided only for Greece and only for that time and while the value of the yen had collapsed, that this swap value had to be included in our total debt, thus raising our national debt by 21 billion euros because of the losses of the yen. So we found ourselves with an additional fiscal debt of 21 billion euros.


 


Radermacher’s additional act was to instruct Georgiou to divide this amount by four and to include what came out of it in the deficits for the years 2009, 2008, 2007, and 2006. So eventually, for 2009 and all the three previous years, we found ourselves with an additional deficit of about 5.5 billion euros. But I’m pointing out again that swaps should not be used in any way before their maturity, in order to manipulate negatively or positively the fiscal debt, let alone the yearly deficit.


 


Another illegal augmentation of our deficit made by Georgiou included the addition of 3.6 billion euros in hospital costs that were not even approved by the Court of Auditors. The Court of Auditors is one of the three institutions of Greek justice, along with the Supreme Court and the Council of State. With regards to this cost, as it turned out later, no one committed to it and no one was paying for it. And finally, the major swelling of the budget deficit was accomplished by the overnight inclusion of the deficits of 17 public utilities, violating many Eurostat criteria and rules. That alone added 18.2 billion euros, equivalent to 20 billion dollars, to the fiscal debt of Greece.


 


As a result of all the above, Greece ended up with a huge deficit for the year 2009 — 36 billion euros, or equivalently, 15.4% of GDP. This legitimated the first memorandum, paved the way for the second and worst memorandum, and justified the imposition of these cumbersome austerity measures, such as the pension cuts, social insurance and healthcare, and the tax increases — huge tax increases — measures that we are still suffering today.


 


MPN: Dominique Strauss-Kahn himself, the former president of the International Monetary Fund, has gone on the record as saying that he met with George Papandreou to discuss an IMF “bailout” of Greece in April 2009. This was several months before Papandreou was elected as prime minister and at a time when Papandreou was saying, while campaigning, that plenty of money existed to fund the social programs he was promising to Greek voters. Do you believe that the economic “crisis” in Greece was pre-ordained or pre-planned?




Greek Prime Minister George Papandreou, right, shakes hand with the head of the International Monetary Fund, Dominique Strauss-Kahn, during a joint news conference in Athens, Dec. 7, 2010. (AP/Thanassis Stavrakis)


NL: Yes, I do. In my opinion, joining these medieval memorandums, which have brought about this economic crisis that Greece is still experiencing, was beyond any doubt pre-planned and predetermined. This arises not only from Strauss-Kahn’s own admission that the IMF had been preparing every detail of this with Papandreou, it also arises for other reasons that subsequently became known — that Greece was chosen by the designers of the European Union to become the guinea pig for the implementation of harsh austerity and other forms of economic punishment, set up for all as an example to be avoided, in the context of a new EU economic policy for handling the member countries with fiscal problems.


 


Indeed, the policy of the memorandums gave the opportunity not only to the IMF to put a foot in Europe — until then its activities always were, with devastating consequences, limited to developing countries in Africa and Latin America — but also gave the opportunity to the French and German banks to get rid of their so-called toxic bonds, that were loaded onto the Greek people by turning a private debt into a state debt.


 


In order to achieve all of this, of course, they had to plant the appropriate person in ELSTAT at a time when certain statistical adjustments were required, in order to support their treacherous plan. Where did this lead eventually? To the bankruptcy of the Greek state.


 


MPN: Andreas Georgiou is no longer in Greece, despite the fact that various legal cases and judicial decisions are outstanding against him. Where does Georgiou find himself today and what is he presently involved with?


 


NL: He’s away, because he knows what he’s faced with, with trials and legal cases. Georgiou is currently in his comfortable villa in Maryland. He left Greece in the summer of 2015, one month before the end of his five-year term as ELSTAT chairman. Coincidentally, this was shortly after the call from the House of Parliament to testify before the examination committee that had been formed at that time to investigate the reasons for our accession to the first memorandum. He never came to the examination room, pretending to be in the hospital with “pneumonia.” Who on earth has ever heard of a pneumonia case in the middle of the Greek summer?


 


Anyway, immediately after his “discharge” from the hospital, he left for America. I repeat, one month before the end of his term and without requesting a renewal of the chairmanship position for another five years. He could have done that, but he didn’t, apparently having realized that he could not have avoided the imminent court hearing on the prosecutions for breach of duty and for the felony of inflating the deficit figures — which in the legal language is expressed as “felony of false certification at the expense of the state” together with the “aggravating order for public abusers,” a very impressive legal phrase. This is a legal category that leads to life imprisonment.


 


I presume that he’s engaged at this time in preparing his defense, through statements via his lawyers in Greece, while he remains absent, missing from every trial that has taken place regarding him.


 


MPN: A few months ago Georgiou was found guilty by the Greek justice system. What were the charges for which Georgiou was convicted and sentenced?


 


NL: There are two convictions Georgiou had this year. In March, in a criminal court, he was convicted for libel and for written defamation, and he was given one-year imprisonment with a three-year suspension. He appealed through his lawyers, but the Penal Court of Appeals condemned Georgiou again, giving him the same sentence.


 


Georgiou’s crime was that, in an official ELSTAT news release, he accused former ELSTAT board member Dr. Nicholas Stroblos of being a statistical swindler, obviously trying to divert guilt from himself for statistical fraud. I’m pointing out here that Dr. Stroblos is the former director of the national accounts department of ELSTAT, whom Georgiou illegally replaced with one of his now co-defendants. Consequently, Stroblos sued him in both criminal and civil courts and, apart from the one-year imprisonment imposed by the criminal court, the civil court fined Georgiou 10,000 euros for damages resulting from libel.


 


Georgiou’s most recent conviction is concerned with one of the three accusations included in the prosecution for breach of duty. The first accusation was related to the fact that he was in parallel for several months, from July to November 2010, as head of the statistical authority in Greece but also as an employee of the IMF, a duplication of employment explicitly prohibited by ELSTAT’s founding law 3832 of 2010. That law required him to work exclusively and with full employment in the ELSTAT board. Georgiou deluded the Greek parliament about his ongoing post with the IMF — and note that the IMF is one of the lenders of Greece — while at the same time he had accepted the post as president of ELSTAT’s board. He would not have been selected as ELSTAT president, not even as a simple member of the board, had the parliament known about his double post.


 


The second accusation concerned the fact that Georgiou did not convene the ELSTAT board for a whole year, violating the law that required meetings at least once a month.


 


The third accusation, and the most important of all three, concerned the fact that the decision to endorse the revised figures for 2009’s deficit was taken only by Georgiou, without the agreement of the other members of the board — which had been selected, I remind you, and approved exactly for this purpose by the conference of the parliamentary presidents with a majority of four-fifths. For this accusation, he was convicted in the context of breach of duty, and this had to do with the publication of deficit figures without our approval, as required by law. Georgiou appealed this conviction to the Supreme Court, and we are waiting to see what the Supreme Court will decide.


 


Georgiou was acquitted on the charge that he did not timely convene the ELSTAT board, although this is intimately interconnected with the non-convening of the board for the approval of the data, for which he was convicted. So we ended up with a paradoxical situation here. He was also acquitted of the charge that while he was a member of the IMF — that is to say, a servant of the lender — he was also chairman of ELSTAT — that is, a servant of the borrower — something that is inconceivable worldwide and yet happened in today’s occupied and economically enslaved Greece.


 


Naturally, the people who were present in the courtroom were annoyed and protested these acquittals, but when they heard the announcement of his conviction on the third charge they were relieved, of course, and for this charge he was sentenced to two years’ imprisonment with a three year suspension — without being granted, of course, any mitigation.


 


I, together with fellow whistleblower and former ELSTAT board member Zoe Georganta, filed an objection against the court judgment for the two accusations for which he was acquitted, and we expect a Supreme Court decision as to whether or not Georgiou will go to a new trial for these new accusations. At the moment, the two acquittals cannot be considered irrevocable. But it is true that the most important accusation, for which Georgiou desperately wanted to be acquitted, was the one for which he got convicted.


 


Indeed, the fact that Georgiou published the inflated elements of the deficit without approval by the ELSTAT board not only proves his guilt of the second accusation, of not convening the board as he should have, but it also implies a deception, because he knew that his swollen deficit figures would never be accepted by a majority of the board members. He further recognized that such a disagreement would sooner or later become public and reveal the irregularities he used with the help of Eurostat itself. Such a revelation would result in the failure of the plan to legitimize the first memorandum and thence to impose onerous austerity measures on Greece. That was not acceptable by the initiators of this plan, who I believe had to use Georgiou and instructed him to silence the rest of the ELSTAT board.


 


MPN: Following the guilty verdicts against Georgiou this past spring, a barrage of positive coverage and PR in favor of Georgiou appeared in the Greek and international media — including Bloomberg, the Washington Post and Politico. We also heard numerous statements of support from major political figures in Greece, the European Union, and elsewhere. These statements criticized the supposed lack of independence of the Greek justice system in the verdicts against Georgiou. How would you describe or characterize Georgiou’s network of support within and outside of Greece, and these arguments made in his favor?


 


NL: Yes, indeed, various statements have been heard and continue to be heard in support of Georgiou, trying to sanctify him, to elevate him as a serious personality and as an honest scientist. All this in order to justify everything he did illegally as ELSTAT president. All that has been said rests on myths that have been circulated by the domestic and foreign supporters of Georgiou, who are desperate that the case not be brought to the court of justice — the major case of the inflation of the deficit figures.


 


But this also proves their own guilt in the matter. If they really believe that Georgiou is innocent and that we are the slanderers and the liars, why don’t they let Greek justice do its job and prove his presumed innocence in a court hearing? I would even expect Georgiou himself to be the first to grab this opportunity to be redeemed. This furious effort of all his supporters to prevent the case from being brought to trial reveals their panic as well as their guilt, because they know very well that in the forthcoming court hearing all the evidence will be revealed proving that Greece has suffered the greatest national betrayal since the time of the Thermopylae treason, 2500 years ago, when Efialtes betrayed the Greek army which was fighting the Persian invasion.


 


The participation of all those major political figures in Greece and the European Union in the betrayal perpetrated by Georgiou will also be revealed. Indeed, the core of this support network includes first and foremost Eurostat, whose senior staff advised Georgiou on how to inflate the 2009 deficit and also how to change ELSTAT’s founding laws in order to neutralize the rest of the board.


 


Imagine therefore what impact Georgiou’s conviction would have on Eurostat’s image! Eurostat’s political chief is the European Commission, Brussels — that is, one-third of the troika — with all that implies, of course, for many high-ranking political figures in the European Union and beyond. So one can clearly understand why high-level managers from Eurostat and major political figures from the EU itself are continuing to build a wall of protection and support for Georgiou — in the hope that the government and the Supreme Court of Greece will believe all these myths they are promoting.




Greece’s Statistics agency employees walk past the logo of the agency in Piraeus, near Athens. (AP/Petros Giannakouris)


The first myth is that in recent years Georgiou was acquitted many times but the persecution against him continues. That’s what they say. The supporters of Georgiou claim again and again that Georgiou was acquitted, but it’s not true. The acquittal may occur only after the irrevocable final judgment in a court trial, or after an exonerating court order is accepted by the Supreme Court. As appeals against all rulings in Georgiou’s case have been filed with the Supreme Court, he has not been acquitted irrevocably for any charges brought against him.


 


On the contrary, he has had an irrevocable conviction for defamation, as I said before, and a conviction for one of the three accusations for breach of duty — regarding which the Supreme Court decision is awaited, whether or not it will become irrevocable. But the other two accusations for breach of duty for which he has been acquitted, as I have already said, for these we have filed a complaint and they cannot, therefore, be considered irrevocable or a final acquittal. So it’s in keeping with due process that the prosecutions against him still continue.


 


The second myth goes as follows: Georgiou took over the presidency of ELSTAT after the first memorandum. He cannot, therefore, be regarded responsible for the memorandum and the economic crisis that followed. Well indeed, when Georgiou took action in ELSTAT, we were already under the first memorandum. If you remember, our entry into the first memorandum was announced by George Papandreou in his speech made on the Greek island of Kasterllorizo in April 2010, and the reason for this was allegedly the high level of the 2009 deficit, which was put by Papandreou at 13.6% of GDP. That’s equivalent to about 30 billion euros.


 


However, it was not the actual deficit, but the prediction by Papandreou of what it would be after all relevant calculations took place. Papandreou did not have the right to take such an important decision, one that would affect Greek society so much, based only on a prediction that had not even been approved by the Court of Auditors. We would be the ones, as ELSTAT’s management board, to supervise the calculations of the actual deficit, to approve it and publish it in October 2010, six months later.


 


Actually, if we had been given the opportunity to do that and found these deficit figures to be less than 10%, we would have been able to denounce the first memorandum and cancel it! And of course, the rest of the memorandums that followed. But obviously, this would not be something that the designers of the first memorandum wished to happen, and so the appropriate person must be found who, with specific statistical adjustments, could make the deficit of 2009 “confirm” the “validity” of Papandreou’s deficit “forecast” in April 2010, and fully justify our entry into the first memorandum. This is what they wanted.


 


Furthermore, in order to avoid any controversies with the rest of the board that could endanger their plan, it was decided to neutralize not only the dissidents on the board but the whole of ELSTAT’s board. As a result of all these unlawful actions, the first memorandum was legitimized — and the door opened for the second and worst memorandum and obviously the rest of the memorandums that have followed, and for the austerity measures that have been imposed since then. Therefore, it’s perhaps wrong to say that the first memorandums was due to Georgiou. It’s more appropriate to say that all memorandums and their related medieval austerity measures that we still have on our backs are actually due to Georgiou!


 


The third myth: since Eurostat has approved Georgiou’s practices and figures, they must be right, they must be correct. But would it have been possible for Eurostat not to approve these statistics, provided by Georgiou, and the methods of administration that he was using? It was Eurostat’s director himself, Walter Radermacher, who gave orders to Georgiou as to what data to add to the deficit. Correspondence has been revealed, from Radermacher to Georgiou, that shows how to add this amount of debt that was incurred by the Simitis swaps, how to add it into four years’ deficits until 2009 — prior to the expiry date, as we previously explained, and although no European regulation existed at the time that would allow this.


 


Also, it was the permanent representative of Eurostat at ELSTAT, Hallgrimur Snorrason, who — with the assistance of Eurostat’s legal adviser, Per Samuelson — advised Georgiou on how to change ELSTAT’s founding law in order to transform ELSTAT into one-man authority. It’s hardly surprising therefore that Eurostat approved the practices and the deficit figures of Georgiou. Of course, that does not mean that they were correct.


 


The final myth that I want to mention is that his proponents are saying Georgiou applied all proper European regulations. On the contrary, most European regulations and Eurostat’s own criteria for the deficit and debt calculations were violated by Georgiou and his advisers from Eurostat, in order to justify the unjustifiable integration of deficits of many public utilities into the 2009 deficit — a decision that would require a thorough study of several months for each public utility. You can’t just decide to include the deficit of a utility in the public debt; you need a thorough study, for several months, six months. So what kind of European regulations did Georgiou actually apply, I wonder? No one knows.


 


MPN: What is plainly evident is that there is a very extensive and very powerful network of support for the likes of Andreas Georgiou, a network that includes powerful media voices, major politicians and political figures, major centers of power and influence and decision-making. How can such a powerful and seemingly unified network of political and media forces even be countered by the Greek people?


 


NL: Indeed, Georgiou’s support network, composed of high-ranking political figures — domestic and foreign — is powerful. But no matter how much influence this network can have on political affairs in Greece, I think that it is not in a position to influence the Greek justice system, which I consider impartial. The fact that the case has reached up to the level of the Supreme Court, which so far has justified many of our objections and appeals against Georgiou, gives us hope that ultimately the systemic power network that exists supporting Georgiou can be successfully dealt with.


 


At the end of the day, our justice system, perhaps the only irreproachable institution in our country, seems to have borne the burden of this matter. I believe that the truth will soon be revealed, no matter how many powerful political and media forces try to force an acquittal of Georgiou.


 


MPN: What are the judicial cases still outstanding regarding the ELSTAT case and Andreas Georgiou? What are the charges which Georgiou is still facing? And what is your expectation regarding the outcome of these cases?


 


NL: Most importantly, the cases of the false inflation of data and of the breach of duty by Georgiou, involve crimes of public document forgery and violation of ELSTAT’s founding law. As I have already said, Georgiou was convicted of one of the more important accusations related to the breach of duty — that of the publication of the 2009 deficit figures without the approval of the ELSTAT board. He has been acquitted on the other two charges — the duplication of his appointment in the IMF and ELSTAT and the non-convening of the board — but we have appealed these two verdicts, and we hope that the Supreme Court will decide to repeat the trial for these two related charges.


 


If this affair is remanded back to the trial courts, we certainly expect Georgiou to be convicted, because the evidence we have against him is rock solid and undeniable. This is what Georgiou’s supporters know. That’s why they push as hard as they can to prevent the case from reaching the high court of justice.


 


MPN: In what way do you believe the verdicts that will be reached by the Greek justice system concerning the ELSTAT and Georgiou cases impact the future of Greece, particularly with regard to the austerity policies and memorandums that are being imposed and the non-serviceable public debt of Greece?


 


NL: I agree with you that Greek debt is non-serviceable. Even if we get away from the memorandums, we don’t get away from the related loan agreements, and we will continue to be under supervision by the EU until we pay 75% of our debt, something impossible for the next 60 years!


 


If, however, as we hope, there is an irrevocable conviction of Georgiou for the act of inflating the deficit figures, this will prove that all these medieval memorandums were imposed on the basis of false figures — which gives Greece the right to claim compensation from the European Union for the damage we suffered in the last seven years of the financial crisis.


 


Article 340 of the Treaty on the Functioning of the European Union gives us the right to claim this compensation, and we have even estimated the financial loss since Georgiou set foot in Greece, a cost that may well exceed 210 billion euros. A compensation of this magnitude would certainly overturn the disgraceful economic situation we are experiencing today. However, I emphasize again that a necessary condition is an irrevocable conviction of Georgiou regarding the felony of inflating the deficit figures.


 


And what about these instigators who used Georgiou to carry out their treacherous plans? Even Grigoris Peponis — the impeccable investigator who proposed the criminal prosecution of Georgiou in the first place — has suggested that the possible existence of certain instigators within the Greek and European political systems, who directed Georgiou on what to do, has to be taken into consideration. These are the ones who do not want the case to reach an open court hearing — the ones who are so desperate for the acquittal of Georgiou as early as possible, in order to cover their own involvement in the above crime, because they’re well aware that we have evidence of their unlawful intervention in inflating the deficit and also in transforming ELSTAT from an independent authority into one-man authority.


 


If the Supreme Court sends Georgiou to trial in the high court of justice, all his supporters know that this will mean a likely conviction for him. The support network will then collapse, and they will find themselves accused for their betrayal of their homeland and crimes against its citizens. Our country will then pass from an underprivileged position of a beggar, to the strong position of a challenger, on the basis of specific articles of the Treaty on the Functioning of the European Union itself.




Protesters hold a banner during a rally in Athens, Thursday, Dec. 8, 2016. (AP/Yorgos Karahalis)


As far as we are concerned, we do not really care about the strict or non-strict punishment of Georgiou, who is now a pensioner of the IMF. What interests us is to prove his guilt and thereby to remove the injustice that has been committed against Greece through the false inflation of the public debt and deficit of 2009, and also prove the criminal involvement of the European Commission and Eurostat. This will only be done when the case is referred to an open court hearing, in which Eurostat and Georgiou will have to be present, in order to testify under oath whether or not they have falsely inflated the statistical figures of Greece, and the reasons for doing so.


 


I do not know when and if this will happen, and how many battles we have to give from now on in order to achieve this. Some tell us that there’s no point in continuing to fight, as it seems that with such a front of support for Georgiou by strong decision-making centers, the battle has already been won against us. We reply by saying that if we stop fighting, there will simply be no other battle — something we don’t want, because let’s not forget what Bertolt Brecht said once: “He who fights, can lose. He who doesn’t fight, has already lost.”


 


MPN: Looking at the situation in Greece today and the economic claims that are being made by the Greek government — that the country has returned to economic growth, that Greece has turned a corner — do you believe that the Greek statistical figures today are credible, or are they perhaps still being manipulated?


 


NL: Unfortunately, the statistical figures have already been exploited by any government in power so far in Greece. We have seen this happen with the alchemies of swaps in order to get into the Eurozone. By the way, I wish that we had never gotten into the Eurozone in the first place! Our economy was not in a position to handle such a strong and competitive currency. We saw another exploitation of the statistical figures, of the deficit, this time. They became the reason for an economic crisis of the past seven years.


 


I cannot say what is happening these days with the statistical figures, as I am not in ELSTAT. But we will find out sooner or later what is happening. The truth always comes out for any case of mishandling of statistical figures. We’ve seen this happen. But unfortunately, as long as there is no reliable team to correctly manage the handling of the statistical data in the Greek Statistical Authority, I’m afraid we should again expect irregularities and alchemies of the data.