A Final Reckoning on Greece...Maybe.

This may be my last post on the 'Greek' matter. I have had a lot of feedback, most of which was positive – however, although the implications of what I’ve been discussing impact us all, it was generally viewed as a purely Greek theme, and even offended some.

It was always the purpose of my blog to highlight and comment on economic and political themes relevant to everyone. And there is no arguing that we live in an intricately-connected global economy - perhaps market events of recent days have vindicated me by demonstrating that the Greek crisis is entirely relevant to anyone with a bank account or tax roll number!

With any financial transaction there must be a debit, and an equal credit. The Greek debit – total debt – is currently in excess of 400 billion dollars. So where did the money go? With my limited time and research capabilities, it is impossible for me to do a comprehensive accounting, but a reasonable appraisal can most certainly be done with a look at the various involved governments and large stakeholders.

The main component is interest, bank fees and multi-national profits from when Greece was deregulated – Greece was prey to predatory lenders and other interests the moment it entered the Eurozone. While sources are scarce, one estimate had interest payments on public debt making up over 40% of the country’s budget deficit, a number which is projected to rise throughout 2010. Factor in the 5% interest the IMF loans will add and the number will be closer to 100% this year. All of the struggling PIIGS share a commonality in that they have massive external debt benefiting non-national players, with correspondingly large interest payments.

A smaller, yet still staggering component are the funds Greece’s government borrowed that were variously distributed to the country’s elite through; bribery, the privatization of state-owned companies and services (which were then issued bloated government contracts), funding of Greece’s notoriously high trade imbalance (nearly 40 billion Euros this year, mainly to the more prosperous Eurozone nations) general high-end corruption and theft, public works like airports and the Olympics (much of these bloated costs finding their way into the elite’s pockets), and finally, some excess spending on public wages used to placate the worker’s unions.

A list of the beneficiaries (from largest to smallest) of the +400 billion Euros would go something like this:

1. Banks (fees, commissions and interest)
2. Corporate interests (mostly non-Greek)
3. Corrupt wealthy Greeks and Greek government officials
4. German labour via massive trade imbalances
5. Greek labour and general population (actual cost of infrastructure)

It should be borne in mind that 1 and 2 are by far the largest numbers - the austerity measures, on the other hand, are focussed mainly on public-sector cuts and seemed designed to eradicate Greece’s strong unions. The smallest beneficiaries of Greece’s huge debt are expected to “take responsibility” for paying the piper, while the country’s wealthy elite (or at least their bank accounts) are quickly decamping to friendlier shores. They’re already fuelling a buying frenzy in London, where Greeks have doubled their ownership of real estate to 6% in the last year, with many properties in the £2 million range. Over 10 billion Euros has left the country since January alone.

If there is any doubt that the top bracket will weasel out of paying their share, consider that in the wealthy northern suburbs of Athens, 324 people admitted to having a swimming pool on their tax returns. The actual number, as revealed by satellite photos? A staggering 16,974 pools. The workers and those without the means to avoid the punitive austerity measures will see only one option for avoiding further poverty – an explosion of participation in black market economy, already estimated at 25% of Greece’s GDP.

Let me make this abundantly clear – only the most delusional of economists could actually believe that the austerity measures will “fix” Greece. Most mainstream articles and analysis I’ve read lately include small, off-hand caveats that restructuring will likely be necessary at a later date, despite the aggressive denials from Germany et al that Greece will be offered any “help” aside from high-interest loans.

In essence, the burden of the Greek debt crisis rests on the people who arguably benefited the least – the average, low-income citizen, and the country’s union labour. Is there still any confusion as to why the protests are so impassioned, so desperate? It would be like my taking out massive loans in your name, throwing you a few dollars and a new television, and then running for cover when the creditors came calling.

Papandreou knows this – hence his impotent bluster about cracking down on corruption and tax evasion among the elite. He’ll shortly be offering up a few Enron-style scapegoats in the courts, but we all know how much that did to “fix” America’s problems.

“Acutely aware that the vast majority of Greeks are baying for the blood of those perceived to be responsible for the dire straits of the country's public finances – crooked politicians and businessmen – Papandreou appears determined to push ahead with "catharsis".

The government has announced it will revise the constitution to lift parliamentary immunity for politicians by June. The lifting of the ban is expected to apply to politicians in power in the early 1980s when Papandreou's father, Andreas, was at the helm of government. Prominent cases involving corruption will also be brought before the courts in the coming weeks in an effort to appease an increasingly angry population.”

The courts, as is the case everywhere, are hugely inefficient and embarrassingly slow. It will make for good TV drama, but if stolen funds from Greece’s debt are not repatriated it will only embolden the crooks.

What he should be doing is a full crack-down on tax evasion by those in the top tier who benefited far more than the average worker from Greece’s debt – the same corrupt politicos and business leaders buying up multi-million dollar London homes as “safe harbors”. Get that stolen money back into Greece or start pressing criminal charges for all offenders, with a public “deadbeat” registry. Offer a 1-year amnesty for those who willingly repatriate their assets and come clean with resignations, disclosures and/or restitution in the form of a tax set at a rate where it hurts just enough, but still beats the real prospect of jail or having to flee one’s homeland.

Reward whistle-blowers and others who rat out large evaders and corrupt individuals after the year’s amnesty is up (and not before, as just about everybody was in on the take, and it is time that Greece begins to heal its resentments. Halt payments to the bankers and multi-nationals who profited from the debt until they too pitch in their fair share...which was the lion’s share.

The Greek people are far from stupid, and a few token, high-profile sacrificial lambs will not be enough to a population barely scraping by already, and rightly fearing additional austerity measures not yet made public. Papandreou needs to take major steps to even out the distribution of responsibility for Greece’s crisis or chaos will continue…and justifiably so. The speech I wrote may need some tweaking, but can still be made if someone with courage would step up!