Saturday, September 19, 2015

Greek Shipping and EU revisited

The third Greek bailout program has now been passed by the Greek parliament and at least the basic tax increases on Greek shipping have become public.  We can now begin to take stock on the damage done to the Greek shipping community by the SYRIZA government and the EU/ Eurogroup bureaucracy.

The tax increases are hardly helpful for a business under a great deal of stress due the very poor dry cargo markets, where the majority of Greek shipping companies in Greece are concentrated.  None of this is positive for the increasing unemployment in the Greek maritime sector. There are 4% tonnage tax increases each year for the next three years.  There is also a continuation of the 'extraordinary' (now becoming permanent) levy on Greek maritime service businesses on the foreign exchange brought in to Greece for covering their office and administrative expenses.  Already tonnage taxes in Greece are much higher than other jurisdictions. 

This makes third party ship management in Greece problematic given that ship managers in major jurisdictions like Cyprus, Dubai, Singapore and Hong Kong do not have this burden.  Ironically, the EU approved the low rates in Cyprus, whilst insisting on rate hikes in Greece.  The other jurisdictions are blessedly outside the Eurozone, without fiscal problems or over indebtedness. There is little prospect of their hunting down their businesses and citizens by repressive taxation as happens in Greece and the  EU as a whole to cover their political mismanagement and losses from repeated  policy failures. 

The only positive thing to be said in terms of advantage for Greek offices is that rents and salaries in Greece are extremely low compared to rival jurisdictions.  The other places are economically healthy, Greece is in a deflationary spiral with massive unemployment and falling real estate prices.  The tax increases are offset by lower personnel and administration costs in Greece as opposed to the other rival jurisdictions.

There are, however, other negatives in Greece beyond these new EU tax measures on the Greek shipping industry.  The two most serious negative factors are the broken local banking system with capital controls and the general uncertainty of the future, including exposure to further tax hikes and erosion of offshore status of Greek shipping in Greece.  All this creates a bad business environment for an industry that is facing a lot of structural problems due changes in world trade and a particularly bad situation in the dry cargo sector, where the majority of offices in Greece are exposed.

The most unpleasant aspect is the situation with Greek banks and capital controls.  The Greek banks are now facing new stress tests and recapitalization issues.  Lending has been at a standstill for months now. The small and medium Greek shipping enterprises dependent on the local Greek banks for the financing of their fleets are suffering the consequences.  The capital controls extend to their US Dollar accounts in complete contrast to the situation prior Greek entry to the Eurozone and the drachma.  In those days, US Dollar accounts were considered freely convertible foreign exchange and there was never any issued about the solvency of the local Greek banks.  Bank finance for vessel purchase to rollover and renew their fleets is now again on hold.

Ship owners like most of the Greek bourgeoisie cling to the Eurozone.  This is becoming more and more problematic as the political and economic situation continues to deteriorate in Greece and the process of the Greece state insolvency takes its course without any debt relief in sight. 

The broader fundamentals internationally are not good.  The EU is unstable with mounting sovereign debt, very poor growth and defective, dysfunctional institutional structure.  The US is entering the last year of a two-term Presidency, where historically there have been major market meltdowns in US equities markets.  The most important of all for shipping, global trade patterns are now changing because the China story is over with falling GDP growth rates and instability in Chinese financial markets, which have caused recently  fall-on turbulence and volatility in US financial markets .  

The China situation has had already a strong effect on dry cargo markets. The tanker markets are still buoyant with the low oil prices.  With the end of the current globalization super cycle, production in the coming years may become more localized and this would have a profound impact on the shipping industry.

No comments:

Post a Comment