Home' Trinidad and Tobago Guardian : April 17th 2014 Contents BG20 | THE ECONOMIST
BUSINESS GUARDIAN www.guardian.co.tt APRIL 2014 • WEEK THREE
The journey has been an epic
one, but Greece has reached,
if not the destination, at least
a milestone. The last time that
its government raised long-
term funds was in March 2010,
only weeks before the markets lost confidence
in Greece altogether, forcing its first bailout.
This week the Greek government returned to
the markets, raising $4.1 billion in five-year
bonds at a yield of slightly less than 5.0 per
cent in a heavily oversubscribed issue.
The amount might be small and the yield
high, compared with borrowing costs in other
rescued countries such as Portugal, whose
five-year notes were trading at around 2.6 per
cent. Even so, the notion of any bond issue
at all still prompts eye-rubbing, given the
depth of the Greek crisis.
Six consecutive years of recession have seen
the economy shrink by a quarter, prompting
social and political turmoil that at its worst
seemed likely to push Greece out of the euro
zone. For most of the past four years, a return
to the markets on any terms seemed incon-
ceivable, a view underscored by vaulting bond
During this period Greece has been wholly
reliant on help from euro-zone governments
and the International Monetary Fund to meet
its financing needs. In May 2010 it received
its first three-year bailout, of $150 billion. The
aim then was that it should start tapping the
markets again as early as 2012. Instead, within
less than two years, Greece required a second
and even bigger bailout, raising the total
amount of funding from euro-zone lenders
and the IMF to US$340 billion by 2016, equiv-
alent to 135 per cent of last year s GDP.
The scale of the rescue effort was made
necessary by the delay in recognising that
Greece was bust and needed a debt restruc-
turing. Much of the early official lending was
used to repay private creditors as the bonds
they held matured. In early 2012 Greece did
carry out such a restructuring, wiping out
more than US$140 billion of government debt.
Despite this relief, the crisis intensified. In
two nail-bitingly close elections held in the
summer of 2012, the country came close to
a catastrophic "Grexit" from the single cur-
If Greece has come a long way from those
dark days, it still is far from being able to sup-
port itself financially. Like the rest of southern
Europe, it has gained as investors take a more
favourable view of the euro zone and also
anticipate possible quantitative easing by the
European Central Bank.
Though Greek 10-year bonds fell this week
to below 6.0 per cent, however, that is still
much too high to be affordable for a country
forecast by the IMF to grow by only 0.6 per
cent in 2014 and experiencing deflation, with
prices falling by 1.0 per cent in the past year.
Greece remains in the dock compared with
Ireland and Portugal, the second and third
countries to require bailouts, whose 10-year
yields are less than 3.0 per cent and 4.0 per
Indeed, Greece would be unable to access
the markets but for the massive support it
continues to receive from the rest of the euro
area. Despite the default, public debt, at 175
per cent of GDP this year, is much higher than
before the first bailout.
That burden is made bearable only through
concessions by the European lenders who now
hold most of the debt. Their loans are at ultra-
low interest rates. They have been extended
to such a degree that the average maturity of
Greek debt is extraordinarily high, at 17.5 years.
European countries such as Germany in effect
have restructured their lending to Greece with-
out having to admit this awkward fact to voters
by formally forgiving some of it.
Even more help will be necessary. The IMF
continues to insist that euro-zone governments
will have to make further concessions if Greek
public debt is to be put on a sustainable tra-
jectory. The fund believes that relief worth
4.0 per cent of GDP is needed in the next
year or so, if the objective of debt of 124 per
cent of GDP by 2020 is to be achieved, with
more to come if this is to be yanked down
below 110 per cent by 2022.
Even with extra help the targets are heroic.
Greece has only barely managed, in 2013, to
achieve a surplus on its primary budget---ie,
excluding interest payments ---of 1.5 per cent
of GDP. That was higher than expected, and
is a massive improvement on the dire position
in 2009, when there was a deficit of 10.5 per
cent. If the debt goals for 2020 and beyond
are to be met, however, that surplus must rise
to 4.5 per cent of GDP by 2016 and be sus-
tained at 4.0 per cent in the 2020s.
That is not wholly unfeasible---Belgium
managed to run an average primary surplus
of 4.3 per cent of GDP between 1987 and
2008---but it is a tall order for a country that
has spent more than half the time since it
became independent in 1830 in default.
More than this week s foray into the markets,
what matters is whether Greece really has
changed its ways. That seems far from clear.
The latest slug of bailout money has taken
ages to be approved because the regular pro-
gram review by the IMF and European author-
ities got bogged down in ill-tempered nego-
tiations as the government resisted more
Adopting those reforms and sustaining pre-
vious efforts are essential, however. The IMF
has estimated that reforms could boost GDP
by 4.0 per cent in five years and by 10 per
cent in the long term. The reform fatigue in
Athens may be understandable, but it betrays
a reluctance to accept that the country was
the architect of its misfortune.
Greece entered the crisis as a dysfunctional
state with an impaired economy. It is hard to
imagine the country sustaining a decade or
more of self-denial if left to its own devices.
The grumpy political mood in Greece suggests
that it has not fully gotten the message about
how much more has yet to be done.
@2014 The Economist Newspaper Ltd.
Distributed by the New York Times Syn-
Greece returns to the markets, for now
Earlier this month, when Frank "Perk" Hixon Jr, formerly
a senior executive at Evercore Partners, a small investment
bank, pleaded guilty to insider-trading charges, it marked the
80th conviction for that crime that prosecutors in New York
had secured since 2009.
During much the same period the Securities and Exchange
Commission, Wall Street s main regulator, has taken action
against insider trading 249 times. The most notable of these
cases, the conviction of Rajat Gupta, a former boss of McKinsey
and former board member of Goldman Sachs and Procter &
Gamble, recently was upheld on appeal.
Many still question the value of pursuing insider-trading
cases, but the ability of enforcement agencies to bring and
win new cases is beyond argument. Their success is all the
more striking in that the crime itself is a relatively new one.
The first insider-trading case was brought only in 1961 and,
but for the principle involved, was forgettable. The defendant
was a stockbroker who sat on a corporate board that had
approved a dividend cut. He tipped off another stockbroker,
who sold shares for clients before the news became public.
The penalty was trivial: a small fine and suspension imposed
by the New York Stock Exchange.
It was accompanied, however, by an extensive opinion setting
out a theory for insider-trading enforcement written by a law
professor, William Cary, who recently had become chairman
of the SEC.
It required the takeover boom of the 1980s, and the resulting
value of early information on deals, to bring Cary s ideas to
the fore. Since then prosecutors have honed their methods
for proving wrongdoing, using "electronic bread crumbs" to
follow the crime back to its source. Evidence against Hixon,
for example, included the times of trades made in the name
of a former lover and of a relative, along with the location of
the computers used to make them. This information squared
with his travel schedule and with the moments when he gained
access to valuable information.
Credit-card receipts, mobile-telephone records and details
of the use of public-transport passes have become standard
tools for investigations. People increasingly leave trails of data.
Secrets may be getting harder to keep.
Regulators and prosecutors also are pushing to expand the
scope of the law. It is broadly accepted that employees who
are exposed to commercial secrets in the course of their work
have a duty to avoid trading on them or tipping off others
about them. By the same token, outsiders have a duty not to
misappropriate such information.
On the margins, however, the extent of these duties can be
hard to define. An article published last year in The Columbia
Business Law Review by Stephen Crimmins, a lawyer formerly
with the SEC, shows the tension. Last year a jury exonerated
Mark Cuban, owner of the Dallas Mavericks basketball team,
for selling a stake in a company after being told that it would
take an action he opposed. He was not an executive, and he
did not leak the information; he simply used it himself. A jury
concluded that he had no duty to the company.
Last year another jury determined that there was nothing
wrong in using valuable information overheard when a friend
was speaking on the telephone.
In yet another case decided last year, a jury found in favour
of workers at an Illinois rail yard who had bought shares in
their company after seeing unfamiliar people in suits looking
around. They had concluded that a takeover was imminent.
In 2009 a computer hacker who stole inside information from
a public-relations firm about one of its clients was spared
insider-trading charges in connection with the crime.
The Justice Department has said that it is assessing whether
high-speed trading violates insider-trading rules, in as much
as it involves divining trades that are about to be executed
and jumping in ahead of them.
"Insider-trading theories can be stretched to cover all sorts
of things," Crimmins says, but doing so undermines clarity
about what is legal.
That may not bother prosecutors.
@2014 The Economist Newspaper Ltd. Distributed by
the New York Times Syndicate
The heat is on insider trading
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