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!

What is Papandreou So Afraid Of?

I recently posted this on the Linkedin discussion forum 'Friends of Greece', a very active board that I recommend all Hellenes on Linkedin join.

'What happens if Greece just refuses to pay anything... No principle or interest? All I have heard is a presumptive "we MUST take this deal" by Papandreaou and other government officials...even as a child I was taught to ask the question...if we don't what will happen?'

Below is the closest there has been to any kind of response...and if that is the case then all Greeks would be infinitely better off defaulting or restructuring except for a few of the really rich:

"This is a time of responsibility for all, for social cohesion, for safety, and for democracy," he said.

Despite the violence and mass protest, Papandreou defended Greece's decision to seek aid and move ahead with the austerity and reform measures, saying the country had no other choice.

"The government understand the feelings of the pensioners who have had their pensions cut, of the workers who have had their incomes cut," he said. "But we did it to secure a future, which we would not have had without it."

"The other option was that the country would have become bankrupt, and in turn all of the Greek population would have become bankrupt," he added.'

Papandreou claims there is no other choice

So bankruptcy is just 'bad', without a coherent explanation as to why a debt-ridden country with a debt-ridden population should accept a punitive 'bailout' package without even minimal restructuring, which will only put off the inevitable for a few years of interest payments. On the other hand, here is an excerpt from an article outlining various sovereign defaults throughout recent history:

'For Greece, the prospect of default is naturally tied to other countries in the Eurozone. They are rightly worried that a default by Greece would destabilize the euro and countries like Portugal, Italy, Spain and Ireland.

While strong support was confirmed by the €110-billion emergency loan, Mr. Peijan thinks a debt restructuring could still be necessary at a later date. This is because austerity measures increase the population’s resistance over time. The willingness of the IMF and European Union to provide potentially necessary follow-up financing may also decline.

“In this case, the contagion argument would speak for a relatively high recovery value and for political pressure on Greece to offer rather favourable terms,” the strategist said. “Then, investors might be more willing to assume that this example is followed by other European sovereigns, which would reduce the pressure on these markets.”

If Greece is willing to offer relatively high recovery values to rebuild some of the political capital lost due to its incorrect debt statistics for years, Mr. Peijan expects recovery levels could be above historical averages of 50%.

However, it is important to note that Greece’s debt-to-GDP ratio of approximately 115% is well above the average for defaulters. An average recovery value of 50% left countries with a debt level of 35%. Applying that target to Greece would leave recovery at 30%.

“While this would bring Greece in more favourable starting position, it would put even more pressure on Portugal, Spain and Italy as their relative position would become worse and put their stained economies under additional pressure,” the strategist said. “Therefore, such a low recovery value might not be politically opportune.”'

Soveriegn Defaults 101

In short, based on an analysis of the recovery prospects of defaulted countries, Greece would be in a far better position should a default occur, but the country is expected to 'take its medicine' so that the rest of the PIIGs don't lose investor confidence and follow suit. How generous of Papandreou to value the rest of the EU so highly...more highly even than he apparently does his own people.

And my follow-up question to Papandreou, as Greece votes on the bailout and further unrest looms, is this: is it not the job of a democratic leader to do the will of his people?

The Speech Papandreou Should Be Giving

Mr. Papandreou,

I have taken the liberty of writing 'your' speech. It is, however, one that only a true leader can make. Given the urgency of the situation Greece now finds itself in, it is a choice you can ponder only briefly. But I tell you this – make this speech and history will remember you. Choose not to, and you will be just another goat along with those who have had their fingerprints all over this disaster. And if you do not have the courage to make it now, someone else might have to do it later– and your cowardice will only mean Greece will have to suffer and struggle longer for its freedom.

Jason Evdoxiadis


My People,

As I look around, I see that the ancestors of Alexander haven risen up, as they have on so many occasions in our history, and are resolutely telling the global bankers and their interests OXI! Demonstrators fill the city streets, demanding that their voices be heard. The proudest nation on the planet has been awakened!

In our crisis, as always, it is the people who are expected to pay. Pay for the failures of the ill-advised Eurozone, the greed of international banks, and of course, the stupidity and short-sightedness of Greece’s own corrupt oligarchy.

I think my people will happily pay. But only if in return, Greece is compensated fairly for all we have given to the world. Our royalties for creating the greatest political system that has ever existed, and is now considered a barometer of civilization and human rights. How about our mathematics, architecture, civil engineering, and philosophy? The foundations for modern medicine?

Let us also speak of more modern history. Give back our Parthenon marbles – and all other precious, stolen pieces of our culture! And where else is our gold, stolen by the Nazis, but sitting in German depositories?

With the throngs before me now, and having the voice of a nation telling me ENOUGH... I now have the strength to say OXI OXI OXI.

Our offer is nothing...not a drachma! We will pay when they pay us back 100-fold!

I would like to thank the German people for making it that much easier for us. It is not the German people, however, that we are saying no to. They were sold the same propaganda that we ourselves, not long ago, were ready to accept. It is the "farmer's fault" – the same farmer who wakes up at 5am to make sure we have food on our tables. "It is the government bureaucrats fault" – the same worker who was given a job to do and does it. "It is the tax evader's fault" – the same tax evader who saw his government wasting his money needlessly and willing to take, but give little back in return.

The greedy and corrupt bankers sat back, and through their media pawns, tried to make it all the working man's fault...the man who goes to work and tries desperately to make ends meet so he can feed his family while the banker, who adds nothing to society, decides which luxury car to drive to work – the same car that the common German man toiled to build, who to struggles with the same challenges of putting food on his table.

We are at a crossroads in this great country’s history and I know we will do the right thing...united we will flourish!

We have told the rest of the world no. We must now say yes to Greece!

We were nearly divided by the media rhetoric and by the pressure we were put under, but we did not break! We boldly rose up...we have won the battle...but a war, however still rages. We have a great opportunity...an opportunity to lead...an opportunity to create a glorious future for our children and their children and all the children to be born in Greece for a thousand years to come!

When I sat and listened to all that was wrong in Greece from various leaders and intellectuals, I could only think to myself that they were correct in their assertions. Greece has long been broken by meson, fakela, scandal, corruption, inefficiency and a willingness to blame our neighbour.

The scourge has not been fully vanquished. We will now enter a painful period and will be measured by history on how we react. Of course, we could all step back and go off to our fishing villages or our old way and the world will say "look at those Greeks...still as backward as ever...we were right…they were deadbeats". The scourge is now from within. We must purge ourselves of it, alone...united!

We must no longer fall back on old excuses, for change we must. Many of the austerity measures that were to be imposed on us were prudent – only now if we impose them on ourselves WE will reap the benefits, and all future generations will reap the benefits. Our toil, hard work and innovation will line our streets with gold and not the pockets of those who sought to bleed Greece.

It was with German discipline that we recently experienced the pride of glorious victory in the sporting arena. Think back to what it felt like...to the pride we shared as a nation. It is with that same discipline that we must approach this far greater challenge in this far vaster arena, in this far more critical pursuit.

We are only now discovering how our ancestors were able to build the Parthenon with such grace and precision. Never doubt that each one of us has those traits in our blood, coursing through our veins! I know that we can do great things and once again regain our seat as the forerunners in the world, a model of excellence for all men to behold. When we leave here we must leave with the knowledge that it is ON all of our backs and IN all of us to strive for the perfection that has lain dormant for so many centuries.

When you go back to your jobs tomorrow...your shops, factories or desks…you must go with the fortitude of a Greek and with the altered perception that all you do and all the sacrifices you make are for the restoration of Greece – and for your neighbours, your community, and your children! We must never again ask what is being done for ME – for if we all act together, all the ME's will be taken care of.

We will require bold leadership and resolute convictions. If you applaud me I will work tirelessly to foster a society where hard work, higher morality, ethics, prudence and innovation are rewarded and where sloth, corruption, theft and selfishness are punished! From now, on the fruits of what we accomplish will be ours and no one will take them away. Not the snakes from outside...or within!

Turn to your neighbour and pledge an oath "for the glory of Greece."

Zito Ellas! Zito Ellas!


Don't miss my previous two posts on Greece's turmoil:

The Time for Greek Unity is Now!

Greeks Beware of High-Pressure Sales Tactics