Monday, 17 October 2016


[Attention! Work in progress]

Why are we talking about this at all?

This all started in February - when the Greek government, citing a then-unpublished study by the European University Institute of Florence, prepared a Bill for MPs to debate that would cap the number of Greek broadcasting licences at four. Despite not having read the Florence Institute Report (as it is now widely known), the coalition's MPs duly voted the measures through. Fast-forward to September, when the Government awarded these four licences in a bizarre auction/show trial process in which would-be oligarchs were forced to camp alongside government officials for three days - no doubt to the satisfaction of many Greeks. The shake-down was trumpeted by the Greek government as a resounding success - the Florence study had suggested a reserve price between EUR0.5m and EUR3.5m; the Government set a starting price of EUR5m; the highest bidder ended up paying 75.9m. In total, the Greek government raised EUR246m. By the time of the auction, six of the eight outbid broadcasters, facing forced closure, were already on the case, having taken the matter to Greece's constitutional court - the Council of State.

A tumultuous interval followed, in which the Government and its proxies made what seemed to be efforts to by turns blackmail and bribe judges. The Council of State's president adjurned one plenary citing political interference, his decision prompting two of its vice-presidents to resign from the Union of Judges and Prosecutors in protest. Eventually the Council of State found that the licencing law was unconstitutional - a split (14 to 11) decision to the effect that the licencing of broadcasters is not within the gift of Government but that of the National Council for Radio and Television. This cannot have come as a shock to the Greek Government. After all, they took a gamble precisely in order to circumvent the NCRT, whose leadership must be determined by cross-party consensus. Opposition parties could and did effectively block any appointments, and thereby the licencing process itself.

In any case the CoS's ruling unravelled a key plank of the Greek government's policy - and one of the few it had full control over - but also forced them to return the funds already committed by the winning bidders, which had already been pledged many times over to pet projects. This humiliation was hardly the first in the licencing saga - one of the top bidders had by that time had to withdraw their bid as their financial means statement turned out to be bogus - but it was the worst. Almost immediately, the Greek government and sympathetic journalists denounced the Council of State's decision as an attempted coup that would force children to go hungry, and launched into a bizarre discussion of whether the judiciary should have the power to rule a 'just' law unconstitutional at all.

Was Greek TV really that bad?

In short, yes. It was never actually very good. The Greek media landscape came to life as the plaything of dictators, and to this day our Constitution continues to stipulate, chillingly, that "Radio and television shall be under the immediate control of the State." Following a near-decade of Borat-style ignominy for Greek State television, (between 1981-9, ERT had thirteen chairmen and DGs, and sixteen news-directors with an average term of about eight months), Greece embarked on an ill-fated deregulation of  television broadcasting in 1989, with the government auctioning four regional TV licences. Upon deregulation, and with a few considerable exceptions, the sector exploded into an orgy of unimaginative programming and re-runs. TV stations proliferated, and even the biggest remained persistently unprofitable, and dependent, as were newspapers and radio stations before them, on a mix of 'either considerable yearly subsidies or soft state-bank loans or on the wealth of their owners.' In international comparisons, news pieces on Greek TV stations were much less likely than those in other countries to feature third-party expert opinions, and Greek TV channels were much less likely to offer science programmes.

So Greek TV was poor, and the people knew it. The Eurobarometer surveys, for example, reveal that only one in five Greeks tend to trust TV channels and on last count (Nov 2015), ours was the worst reading in Europe, with France, Spain, Cyprus and Slovenia following at a safe distance. This follows a steady loss of faith in television that started as far back as 2003, and a divergence between trust in television and trust in the press from late 2004 onwards. Interestingly, trust in the press has recovered slightly during the crisis, while trust in television  kept drifting. Meanwhile, anyone with an internet connection flocked to online portals, blogs and social media for not only their news but also the satisfaction of pushing back against the news agenda.

The Greek media aren't just increasingly mistrusted at the grassroots level, they are also rated increasingly poorly by a small, incestuous circle of experts in the field. Reporters without Borders ranks Greece 89th of 179 in its press freedom index for 2016 (with a score of 31.01, where 0 is the best possible and 100 is the worst possible; this is rated as 'problematic' under their methodology). Our ranking is up from 94th of 179 in 2014 but down dramatically from 18th of 160 in 2005, weighed down not just by falling pluralism but also by increased use of actual violence against reporters. The latter has come from vested interests, angry crowds, criminals, but also very often from their own employers and co-workers (see eg here).

At the other end of the political spectrum, Freedom House ranks Greece 94th of 199 countries with a score of 48 where 0 is the best possible and 100 is the worst possible (methodology here). This puts Greece in the 'partly free' category, ranking as one of the worst countries in Europe for press freedom. Interestingly, in Freedom house's ranking it is the weakness of the legal environment that weighs Greece down the most. Here too Greece's ranking has fallen dramatically since 2011, by 18 places.  

The EU-funded Media Pluralism Monitor* found a medium/high risk to medial pluralism in Greece in 2014 and also highlighted the legal framework as our biggest problem. However Greece did not participate in the Monitor in 2015 and the 2016 assessment is not out yet.

If the Greek people don't trust TV news anyway, why is it such a big deal?

Apparently the experience of watching news on the TV is a more passive one than, say, that of reading a newspaper or browsing the internet. Old people, the theory goes, are a particularly vulnerable, captive TV audience. My analysis of DiaNEOsis's surveys of 2015 suggests, for example, that right-wing women and older people do indeed trust the media more. And even those who don't trust the actual information, the theory goes, may still be susceptible to scaremongering through the TV as it bypasses their critical faculties. Stay tuned as I discuss this further.

Were Greek TV stations financially viable?

Depending on their audience the Greek government flits from one faux-technocratic excuse for its approach to TV licencing to another; the viability of TV stations is only one such. That's not to say this isn't important. The Greek government may be arguing in bad faith but its argument is still sound. A chronically unviable large TV channel is likely to be surviving on a cross-subsidy from corruption-tinged public works money and is likely to be leveraged to push more such prizes in its proprietors' way. Alternatively, it might be a zombie relying on endless loan rollovers which, in an economy such as Greece's, is only made possible by capital injections courtesy of the taxpayer. Or it might be both. And banks themselves have a media agenda which indebted press outlets might feel obliged to serve. We know, for instance that research has found a tentantive link between pro-bank newspaper bias and debt in Italy.

It's easy to see what happened to broadcasters' finances by looking at Eurostat's detailed enterprise data for the sector. Pre-crisis, the entire sector made some EUR1.2bn in turnover and employed 9,000 people (a number still used by the sector to lobby government in 2015). By 2014, and despite a tiny recovery from 2013 onwards, it was turning over barely one sixth of its pre-crisis figures and employing just over a quarter of what it once had. You can see the details of all major media restructurings in Greece here. There is still, in theory, some money to be made in the sector - the EUR246m oligarchs paid for licences provided them with access to just EUR41m worth of operating surplus in the short term. This is down, however, from EUR269 in 2008 and could, in theory, return to higher levels. A set of TV channels starting from scratch could, in theory, make money. But the existing channels were labouring under enormous debts - Mega alone owed EUR116m earlier this year.

Most of the fall in revenues happened between 2010 and 2012 and was driven by food, drinks and tobacco ad budgets being cut. The top ten advertising sectors* and their approximate advertising spend can be seen below (see links below for sources). It takes a long time for this detailed information to be released so the 2012 figures are genuinely the most recent ones.

Manufacture of food products, beverages and tobacco 484682837
Manufacture of chemicals and chemical products356367
Manufacture of basic pharmaceutical products and pharmaceutical preparations334360
Wholesale trade, except of motor vehicles and motorcycles5481124
Retail trade, except of motor vehicles and motorcycles475486
Warehousing and support activities for transportation86100173
Public administration, defence, compulsory social security495267
Creative, cultural and entertainment activities9096103
Activities of membership organisations657975

* a statistical mystery: for reasons I cannot fathom, both Eurostat's I/O tables for the Greek economy (latest edition 2010) and Elstat's tables for 2010 to 2012 record zero spending by financial services firms on advertising and market research. I find this very unlikely.


Friday, 16 September 2016


'Greece needs EUR100bn to get it out of today's recessionary spiral. We know how to release it.'

I'm wary of Big Numbers. They tend to stick regardless of their source, the methodology involved in calculating them, or any caveats well-meaning originators attach to them. Citing Big Numbers is thinking big, maybe. But it's also asking for trouble. So who came up with this one? Step forward Kyriakos Mitsotakis, the leader of Greece's opposition.

The figure, to be fair, predates Mitsotakis' ascension to the ND leadership- it was first mulled by the Hellenic Federation of Enterprises in Dec 2015, only to be resurrected by him in June 2016. And it's not hard to see where the numbers come from; here are the figures on Gross Capital Formation in Greece going all the way to 2015, and a breakdown by industry and asset is available going from 1995 to 2014. You can also look at the figures for business investment by detailed sector in tradeservices and construction and industry, although again the data only go up to 2014 (2013 if you want all of those yummy 4-digit industries!).

As far as I can tell, the HFE researchers have used the data above to compare pre- and post-crisis figures for fixed capital formation other than construction of dwellings, then calculated the shortfall between actual investment and some counterfactual extrapolated from pre-crisis numbers. This isn't a bad idea, as long as we know what we're working with. For the avoidance of doubt, this isn't 'economics' and neither is my commentary. It's playing with numbers to assist our thought process.

Extrapolating from a pre-crisis trend assumes that the level of investment by Greek businesses in the run-up to the crisis was sustainable and growth could have continued much as it had before - avoiding the excesses of 2007-8 but still on the same basic trajectory. That's unlikely. If we assume that the level of investment would remain constant at 2008 level turns out to be harsher than just mean reversion. Assuming a linear trend is more generous. Both estimates converge on a shortfall of some EUR89-EUR109bn between 2009 and 2014 (the last data available to researchers when the estimate was first produced) or EUR137bn to EUR108bn between 2009 and 2015.* That explains where the EUR100bn number came from.

An alternative might be to assume that 2008 was the peak of a credit bubble and use 'bubble free' figures that allow for a correction. I'm not going to bother with something detailed for the purposes of a thought experiment, so let's just take the 2001-08 (post-Euro) average as the benchmark for what 2008 should have looked like and assume that investment would then grow in a linear fashion based on the pre-crisis trend. This would produce a 2015 gross capital formation figure (ex dwellings) not far from the 2008 average. It would also mean a shortfall that is only about three quarters what the HFE estimated - about EUR73bn between 2009 and 2014 and EUR95bn between 2009 and 2015.

Here's what the various estimates look like when plotted against historical data:

Now if you find these counterfactuals a useful place to start, the logical next step is to apply the same kind of thinking on a sector-by-sector basis. Here a few things become glaringly obvious:
  • The big difference between my 'bubble-free' estimate and the simpler ones is precisely investment by real estate firms. By my estimate, there is no real net shortfall; the bubble has burst and that's all. By the estimates I think the HFE carried out, there is a huge shortfall. I think I'm right and they are wrong.
  • A lot of the investment shortfall is in the public sector. By my reckoning, EUR31bn of the lost EUR76bn of investment were in the broad public sector (including public administration, education and health) and about EUR21.5bn in public administration alone.
  • The other big contributors to the shortfall are shipping, sectors directly linked to domestic consumption - wholesale and retail and agriculture, and sectors linked to the real estate market. I would argue that this investment, totalling a net EUR40bn of the missing EUR76bn, cannot return while trade and the labour market remain subdued, but will likely be attracted to the sectors naturally as the former recover. 
  • This is some interesting arithmetic - the missing EUR100bn is actually EUR76bn and could in fact be mostly due to public investment cuts. I cannot be certain that all of this investment was productive or needs to be restored. It may take a much smaller, and cheaper, boost to trigger investment into much of the private sector- as long as it is allowed to reach the businesses that can put it to good use.
  • One sector's investment was, nevertheless, boosted tremendously by the crisis - "membership organisations" have been investing in commercial property and other non-housing construction in an explosion of spending that started in 2009. Since "membership organisations" or s.94 in the NACE classification include a) the church b) political parties c) professional and business lobbyists d) unions, I can come up with any combination of conspiracy theories. Unfortunately I can't get much more detail than this as Eurostat doesn't publish detailed enterprise statistics for NACE s.94.
To confirm some of this thinking I looked at the Conference Board's Total Economy Database  and its estimates of how disinvestment has contributed to the recession. Again, I have not tried to retro-engineer the Conference Board's Growth Accounting but used simple extrapolations instead. What I got what this: essentially disinvestment in capital itself accounted for just under 10 percentage points of lost growth. Most of the damage was done by a loss of multifactor productivity, which means that the Greek economy has, over the years of the crisis, become fundamentally worse at allocating resources. Surely, disinvestment has contributed to this, but it's hard to know by how much.

* I can create extrapolations up to 2015 for capital formation excluding dwellings because, even though I don't have an asset x sector matrix for 2015 I know that almost all the investment in dwellings during the crisis era has come from the real estate sector. I can therefore make a pretty accurate guess of the 2015 matrix.