Opinion

Hugo Dixon

Athens can capitalise on market interest

Hugo Dixon
Nov 18, 2013 09:45 UTC

Greece has been the markets’ whipping boy for most of the past four years. But in the last few months, sentiment has changed and international investors are bottom-fishing – in particular for banking assets.

This gives the country a double opportunity: lenders can use it to clean up their balance sheets by selling non-performing loans; and the state can privatise its stakes in the banks. Both should grab the chance while it lasts.

Greece’s banks have been in a terrible mess as a result of the crisis. Not only were they loaded up with government bonds, which got haircut; even the big four that survived are weighed down by about 65 billion euros of non-performing loans, equivalent to around a third of GDP.

But a 40 billion-euro recapitalisation and restructuring of the sector, financed mainly by bailout money, has helped change investor perceptions. Several hedge funds – including Paulson & Co – have invested in the banks.

Last month Piraeus Bank placed 494 million euros of its shares and warrants with investors after BCP, the Portuguese lender, decided to sell out. Meanwhile, investors are heading to Athens looking to buy packages of non-performing loans on the cheap.

Greece’s reform job isn’t even half done

Hugo Dixon
Nov 11, 2013 09:51 UTC

Greece’s reform job is not even half finished. The government hasn’t done enough to root out the vested interests that strangle the economy. Nor has it cracked down fully on tax evasion or pushed hard enough to privatise state-owned properties.

On the other hand, Antonis Samaras’ coalition is so fragile that it could collapse if the troika – the European Commission, the European Central Bank and the International Monetary Fund – forces it to impose more austerity. That could lead to a new phase in the Greek crisis. The government’s best bet is to make a sharp distinction between structural reform and austerity – and persuade its lenders that it’s so serious about the former that more cuts and taxes aren’t required.

The atmosphere in Athens, which I visited last week, is tense. One reason is that two members of the ultra-right wing Golden Dawn party had just been murdered in a professional hit job. That followed the killing of a left-wing rapper by a member of Golden Dawn which, in turn, had triggered the arrest of the party’s leader. No one is quite sure whether this is the start of a cycle of violence which could destabilise the government, drive away tourists (the country’s main source of export revenues) and undermine business confidence.

ECB really must act on deflation

Hugo Dixon
Nov 4, 2013 15:00 UTC

The case for looser monetary policy should be clear when the European Central Bank governing council convenes in Frankfurt on Thursday. The question is what tools to use: lower interest rates, spraying the banks with more cheap long-term money or the ECB’s first dose of “quantitative easing”. The answer should be a mixture of all three.

Mind you, there are enough inflation hawks inside the governing council that it’s not certain it will even agree that more needs to be done. Some central bankers may argue monetary policy is already loose enough. After all, the ECB’s main interest rate is 0.5 percent and back in July the central bank said, in its first experiment with “forward guidance”, that it expected interest rates to “remain at present or lower levels for an extended period of time”.

What’s more, the euro zone is gradually recovering. In the second quarter, GDP rose 0.3 percent compared to the previous three months. As if this were not enough, Germany’s Bundesbank has started warning that property prices are getting overvalued in some German cities. Why stoke an emerging bubble with still cheaper money?