Sunday, January 30, 2011

Protests of Hope, Protests of Privilege

As I see Egyptians stand up to demand a voice and a better future, I can't help but be a bit jealous. Jealous not of the challenge they face, but of their energy and their courage. Think about what they are fighting for and contrast it with what the Greeks have fought for this past year. Call it the protests of hope versus the protests of privilege.
Besides general protests for general grievances, what we have seen in Greece is: seamen and dock workers protesting the opening of Greek ports to ships with foreign crews; public transport workers against the restructuring of loss-making state-owned companies; truckers against allowing more trucks on the streets; doctors and hospital workers over health care reform; public sector workers who get paid 40% more than private sector employees over wage cuts; lawyers, pharmacists and engineers over opening up their professions to competition; workers at the state agency on gaming over new tax provisions and deregulation; students and academics over reforming this joke called the "Greek university."
These are not the protests of hope. They are the protests of fear - fear to compete, fear to change, and fear to want more. "Crucial turning points in history tend to occur, we are told," wrote Isaiah Berlin, "when a form of life and its institutions are increasingly felt to cramp and obstruct the most vigorous productive forces alive in a society - economic or social, artistic or intellectual - and it has not enough strength to resist them." 
Where are those "vigorous productive forces?" The pseudo fighters are vigorous and they are a force, but they are not productive. They fight to protect and to preserve. They fight to make others subsidize them so that they can change the least themselves. True, they have gotten a rotten deal - this is a country in crisis. True too that they have been led by politicians incompetent and corrupt. But neither the politicians nor the crisis came from the heavens. This was homegrown, made in Greece.
The most one can say is that the number of people protesting, their stamina and their intensity has dwindled. Blame fatigue, but also a government that will not budge. What a pity when the most vibrant push for reform comes from government ministries and from technocrats flown in from Brussels and Washington, DC. Where is Greece's fighting spirit, the craving for a better future? Where are the protests for government's weight to be lightened, for the obstacles to progress to get out of the way, for people to get a better chance to make something of themselves? These are the protests of hope and we haven't seen them yet.

Tuesday, January 25, 2011

Another Dismal Year for Greek Tourism

Greek tourism once again failed to provide the stimulus which politicians and economists hope it would. While easy to blame the financial crisis – and the contraction in travelers’ income – Greece’s challenges are structural, not cyclical.

The Bank of Greece has published data only up to November, but this is a seasonal business, and December usually accounts for below 2% of annual revenues. So what does the data tell us so far? Gross tourism receipts fell by 7.3% in 2010; net receipts, which subtract spending by Greeks traveling abroad, fell by slightly less, 7%. This decline comes on top of an 11% drop in 2009, so 2010 is about 17% below the 2008 peak. In nominal terms, this puts Greece back to where it was in 2003 or 2004; in real terms, even further since Greek tourism has experienced a steady decline in the last decade (see here).

The Greek Statistical Agency has data for non-resident arrivals (a proxy for tourists) going back only to 2007, when Greece received 16.1 million tourists. That number declined in both 2008 and 2009 when it bottomed out at just 14.9 million. Interestingly, arrivals increased by 1.5% in the first three quarters of 2010. What is happening, therefore, is that more people have come to Greece in 2010 but they have spent less money; analyzing these spending patterns is key to understanding what is happening to Greek tourism.

The Bank of Greece reports on three types of data points: number of nights stayed per visit; spending per journey; and spending per night (just divide the first two variables). Then the Greek Statistical Agency reports on non-resident arrivals to give a sense of market share. Put these together and the following conclusions emerge:

Duration: On average, tourists stayed in Greece for 9.5 nights in 2009, down from 10.7 days in 2005. In terms of variation, tourists from Cyprus stayed for almost 16 days while tourists from Albania stayed just 2.7 days. In 2010, there was some recovery in the duration of stay in Q1 and Q2, though not Q3 (which is the most important quarter).

Spending per night: On average, tourists spent €73.5 per night in 2009, up from €69.7 in 2005. Looking at the range, it went from €144 (Albania) to €55 (Cyprus) – interestingly, the positions are exactly reversed with longer stay meaning lower revenues per night. Even so, a Cypriot tourist still spent more than twice more per journey than the average Albanian tourist. In 2010, spending per night registered a steady decline, building on losses registered in 2009.

Spending per journey: On average, tourists spent €697 for a journey, down from €745 in 2005. In 2010, there was also a steady decline in Q2 and Q3 in spending per journey (Q1 was up but Q1 is almost meaningless given the size of the tourist influx). In terms of spread, Australian tourists seem to spend the most for their journey (€1,354) while Albanians spend the least (€384).

Put all this together and you have the graph above: there is a nearly neat distinction between EU tourists and non-EU tourists. Europeans tend to spend less per overnight stay than “premium” non-EU tourists from Australia, Russia, Switzerland, Canada and the United States. In fact, as the bubble chart shows, European tourists tend to spend less money while staying more nights, while non-European tourists spend more money and stay longer. The problem is that the European tourists from countries in this chart make up over half the total; by contrast, the “premium” visitors from Australia, Russia, Switzerland, Canada and the United States make up just 10%.

All this shows a deep structural crisis: Greece can attract European tourists, who make up 90% of the total visitors (this included non-EU European tourists). However, it seems to attract them by offering cheaper and cheaper offerings, or by offering more days at a lower price per night. Outside Europe, Greece has made some gains in increasing its intake of Australian tourists, but these are more than offset by a diminishing number of American and Canadian tourists. Russia is the striking exception – high paying and growing numbers, making up 3.2% of the total tourist base in the first nine months of 2010. But this is an exception to a broader downward trend.

Monday, January 24, 2011

Is Greece’s Trade Deficit Shrinking?

Besides balancing its budget, Greece needs to also balance its external accounts. Not once in the last thirty years has Greece exported more than it imported and while “balance” is no virtue by itself, the steady increase in the country’s foreign indebtedness signals a loss of competitiveness and an inability to produce as much as the country consumes. So was Greece able to correct its large current account deficit in 2010? The short answer is no. The longer answer is maybe.

In 2009, Greece ran a current account deficit of €25.8 billion, or 11.1% of GDP. In the first 11 months of 2010, the current account was down just 2.6%, far below the more ambitious target of a 27% reduction set when Greece got its bailout money from the IMF and the Europeans. On that level, Greece seems to have made very little progress in reining its current account deficit. But look deeper and the picture is more nuanced.

Goods: The goods balance was meant to shrink by 16%; instead it fell by 4%. The main reason, however, was the rise in the country’s oil bill (up 24%) and ship purchases (up 12% as Greeks “imported” more ships than last year). Exclude these two items, and the goods balance fell by 17.6%, which is above the initial IMF forecast.

Services: The services balance was meant to increase by 40%; instead it rose by only 4.6%. Tourism disappointed as net receipts fell by 7%. Transport revenues (mostly shipping) increased by 14%, more than compensating for the drop in tourism. The rest of the sectors showed a modest improvement (fewer imported services than last year). At the heart of the failure, however, is a dismal tourism season.

Income and current transfers: In both of these sectors, the initial projections proved way wrong. Against a 23% expected increase in income, the reality was just a 1.7% rise; for current transfers, the balance went from plus €1.2 billion in 2009 to just €200 million for the period to November 2010. Investment income and transfers between either governments (official support) or individuals (remittances) are mostly to blame for these trends.

Stepping back and looking at the big picture, several trends become clear:

(a) With continued high oil prices, Greece will need to redouble its efforts to bring its current account in balance. In 2010, oil averaged just below $80 a barrel; now, prices fluctuate between $90 and $100. So the oil bill could increase in 2011 making life harder for Greece.

(b) Shipping is offering some reprieve. The Baltic Dry Index, which is an index for charter rates on dry cargoes – is just above its lowest point after Lehman Brothers. An increase in charter rates would do wonders for the Greek current account. However, as Greek ship-owners continue to purchase ships, the impact on the current account will be muted somewhat (purchases being treated as an import - see here).

(c) Tourism needs to recover. Receipts have fallen by 7.3% in 2011 (to November). Amazingly, arrivals increased by 1.5% in the first three quarters of the month, even while receipts declined. This means that besides just attracting more people, Greece needs to attract tourists who will spend more money. Therefore, the chronic challenges of Greek tourism of which I have written before seem to still be with us.

Sunday, January 16, 2011

Greek Budget Review: 2010

The Ministry of Finance has published its Budget Execution Bulletin for December 2010, thus offering initial estimates for all of 2010 (here). At the end, the Greek government was able to increase revenues by 5.5% in 2010 versus a 6% target; it reduced spending by 9% versus a 7.5% target; and it shrank the deficit by 36.5% versus a 33.2% target. As the numbers for the whole year become available, it is useful to review how these figures played out during the year.

In early 2010, the government had a target to increase revenues by 11-12%, a target that was in fact supported by the data that came in for January and February. Starting in March, however, there was a progressive decline in the year-on-year increases in revenues (cumulative): from 16.6% growth in January to as low as 3.3% growth in August. The target, meanwhile, had remained constant until May and then rose in June as a result of the program agreed to with the IMF and the Europeans.

 Starting in September, these dynamics reversed. Faced with the reality of significantly lower revenues than budgeted, the government started to adjust its targets: in September it reduced its 2010 target from 13.7% to merely 8.7%. Then in November, it brought it down again to just 6%. Yet the performance of revenues began to improve: from a low point of just 3.3%, revenue growth reached 5.5% in December 2010.

Spending was a completely different story. While for revenues, the government was only twice within its target (January and February), for spending, it was almost always within target. At the start of the year, it had modest ambitions of reducing spending by just 2.8%. Against this target, spending was declining at 10%-11%, meaning that the government would clearly be able to cut spending by much more than initially anticipated.

It took a while, however, before the government made a step-change adjustment to its target. Throughout the second quarter, it was clear that the spending achievements far outpaced the spending targets: the declines were almost twice as large as the targets. But after a peak in June, the spending reductions started to moderate. While the government made an adjustment to its target from 5.5% to 7.8% in September 2010, the contraction in spending reductions was such that in September, October and November, the actual reductions to date were lower than the targets. It was only in December that the reduction again exceeded the target.

In terms of the budget deficit, Greece started off targeting a 27% reduction, a number that in retrospect proved low. As the deficit figures showed continued strength, the government made progressive adjustments to its target, slowly raising it from 27% in January to 39.5% in June. Starting in August, however, as revenue growth slowed and spending cuts moderated, the deficit target started to seem like it would be missed. From July to November, the deficit reduction went from 39.7% to 27.4%. It was only in December that it recovered, ending at 36.5%, a little above the 33.2% target and a little below the 39.5% maximum target.