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Thursday, July 2, 2015

My Big Fat Greek Debt Crisis

When I lived in Argentina during the economic and financial crisis of the 1980s, I made an interesting observation. The Argentine economy and its problems were at least as complex as Greece's are today. And yet, a taxi driver could plausibly explain everything during only one trip from the airport to downtown Buenos Aires.

The video below shows the Greek equivalent of the Argentine taxi driver. In fact, he is a Greek-Australian. In only 3:47 minutes he explains what Greece's problems are all about.

My Big Fat Greek Debt Crisis

George Papaconstantinou vs. Paul Krugman

The following pieces from the NYT have made the rounds:

"Greece over the brink", by Paul Krugman
Letter to the Editor, a response by George Papaconstantinou

How anyone can be blind to the unbelievable economic damage which has been inflicted upon Greece in the last 5 months by its current government escapes my imagination.

On January 30 of this year, the newly appointed Finance Minister Yanis Varoufakis told the world via the Huffington Post: "You have to be prepared to blow the whole thing up!" Well, Sir, mission almost accomplished (except that it seems to have become a suicide bomb).

Deriving Hope From Chaos

When I read good books, my ageing brain tends to recall only one thing --- that it was a good book! One such book was "Modern Greece: What everyone needs to know" by Stathis Kalyvas. I don't remember many of the details but I do remember a couple of overriding themes.

When Modern Greece embarked on major new projects, the goals were set unrealistically high and the result was often complete failure. And yet --- Greece managed to come out of such ventures in better shape than it had been before.

And, secondly, when Modern Greece got into financial trouble, a new period of prosperity was built on the ruins of default and/or bankruptcy. Financial trouble, if not to say chaos, typically lead to responsible government; austerity brought the government's household in order; creditworthiness returned; foreign money started to flow again; and that foreign money was used wisely for investments. The only element which was in place then but is missing now is a local currency which could be devalued.

When looking at the present Greek government, it is hard to see how that government - even if the debt crisis were resolved at once and forever - would be able to lead Greece into a period of prosperity on the ruins of default and/or bankruptcy. At the same time, a good alternative does not appear in sight.

The only thing which is certain is that Greece will not cease to exist as a country and chances are great that, when the grandson of Stathis Kalyvas writes a book about Modern Greece in a century from now, he will once again describe the present period the same way that his grandfather described Greece after its total financial collapse in 1893.

Tuesday, June 30, 2015

A German Journalist Blows His Stack!

Rolf-Dieter Krause is the Brussels correspondent of the German ARD. Age 64, he generally comes across as a balanced and experienced person who has seen a lot of things in his life. Yesterday, he participated in the "Hart-aber-fair" show of ARD. He was asked by the moderator if he could, if he made a great effort, still have some understanding for the Greek government. Below is his reply: 

I have no understanding (sympathy) for them. You know, there is one point from which I will not depart: politics must serve the people! But what this government has carried on over the last months serves those poor Greeks who now have to bleed not in the slightest way. And that upsets me in a way that I truly find it difficult to control myself.

This government is doing nothing for their people! That doesn’t begin with them, though. Why is it only in Greece that the programs have not worked? To answer that, one really has to go back a long way. In a way, all are to blame. The Social Democrat Papandreou at least made Greece honest when he admitted the falsifying of statistics and that his budget deficit was much larger than previously reported. For that honesty we have not treated him very nicely. Mr. Samaras, the Christian Democrat, first refused, at a time when a lot could still have been rescued, to form a national unity government. Europe’s Christian Democrats literally begged him to do so but they couldn’t force him. Even Samaras only implemented reforms when pressured from abroad. This issue of ‘ownership’ which is often mentioned, i. e. that a government acts on its own behalf instead of putting all the blame on outside parties, never struck roots in Greece. Samaras cut expenses. He rejected the Troika’s calls for greater social balance. He said that that was his responsibility. He told the Troika: “You get your numbers. How I achieve them is my decision”. Mr. Samaras rejected innumerable suggestions  and Europe’s Christian Democrats let him act freely.

And now these fellows from SYRIZA come on stage and start playing games with Europe and give the Europeans the runaround. And they indeed lead the Europeans a dance like a bear with a ring through its nose in a circus arena. I assure you that in this last proposal to Greece, there are points which the Bundestag will only approve with the fist in its pocket, if it ever does approve it. Particularly the CDU/CSU. There are now concessions which CDU/CSU never wanted to make. And I could not fathom that they would be so dumb as to not accept it. But they interrupted the negotiations. Right in the middle of them. They had been on the home stretch. The other Finance Ministers decided nothing. The Greek delegation received a call or an SMS from Athens and that was the end of it. They couldn’t even tell their partners why they had to stop negotiating.

And you know, anyone who acts like that when, at the same time, there are truly humanitarian crises in his country, is unbelievably irresponsible and should be sent to the devil. Yes! But the Greeks are the ones who have to do that!

Sunday, June 28, 2015

Alexis Tsipras Lost His Cool!

Ever since Alexis Tsipras became Prime Minister, I had been impressed by how he handled himself outside Greece's borders: cool, calm and collected. No intellectual arrogance; no moralizing from the high ground; not provocative. Actually, a nice fellow with the innocent charme of a newcomer. Sometimes I literally got the impression that Chancellor Merkel had developed a personal liking to this handsome young man. And Jean-Claude Juncker, of course, couldn't hold his affection back.

Friday evening, upon return from Brussels, he seems to have lost his cool, and I regret that. As much as I can sympathize with a national referendum, the decision seems to have come without due deliberation of the timing and ill prepared. To top it off: Tsipras' TV announcement was anyting but statesmanlike. He sounded more like a rebel with a cause.

I do not share the opinion that a representative democracy essentially outrules referenda because the voters select their leaders and those are charged with the responsibility of taking decisions. When Switzerland has to decide on matters of national importance, they often ask the people to decide via a referendum. Sometimes the people are smarter than their elected leaders. The government of a welfare state might decide on an additional week of annual vacation just to get votes. The Swiss people decided in a referendum that an additional week would cause economic damage.

But in addition to insufficient deliberation and preparation, there is another problem which one of my anonymous readers commented as follows:

"The referendum will backfire on Tsipras. On June 17, Tsipras was saying during Austrian PM Faymann's visit: 'I am not the type of man that who, when in difficulties, throws the ball back to the people. If there is an agreement, it will be the goverment that will lift the weight of the decision and the same in case of non-agreement'. In 2011, Tsipras was accusing George Papandreou that his referendum would be like 'playing dice with the country'."

There have been so many reports that it becomes difficult to differentiate between fact and fiction. FinMin Varoufakis allegedly commented in the Eurogroup that he expected a 'yes' victory at the referendum. This raises the question of how he could possibly not have struck a deal, any deal almost, if he knew that that's what the Greek people wanted?

This strikes me a bit like a cup final where the game is in overtime and neither side wants to take chances. Then there is a small mishap in the penalty area. The forward from the attacking team could just let it go by but, instead, he jumps on the chance to obtain a penalty kick and he gets it. 

Tsipras lost his cool for a short period of time. The creditors could have shown sympathy and helped him get out of the bind into which he had gotten himself. Instead, the creditors jumped on the chance to get a penalty kick and it now looks like they will successfully score.

Too bad. Really too bad!

Friday, June 26, 2015

Refugees: Austria versus Greece

I could not find any statistics about 'refugees' in Austria. What the government publishes refers to 'first time asylum applicants'. I assume that refuges who cross the border into Austria become automatically 'first time asylum applicants'.

From January-May 2015, Austria registered 19.571 first time asylum applicants. That's about 3 times the level of the previous years. The most important countries of origin were Syria, Afghanistan, Irak and Kosovo. Over 1.000 of the asylants do not have accomodations at this time. Essentially, they have to sleep on floors in asylum camps. The 19,571 first time asylum applicants represented about 0,2% of Austria's population.

For months, the Austrian government has debated what to do with those asylants without accomodations. Some proposed the erection of tents while others argued that housing asylants in tents was unworthy of a civilized country. The latest proposal was to allocated the 1.000 'homeless' to the regional districts of which Austria has 95. That would have meant about 10 per district. Yesterday was high noon to resolve this issue once and for all.

On the nightly TV news, one could see the most important representatives from the two coalition parties, from the Chancellor down, sitting around a huge table. There were at least 10 people on each side. And once again, the meeting was adjourned without a solution. Instead, both sides were blaming each other for playing politics on the backs of asylants.

I then switched over the the German ARD where they showed a report about refugees on the island of Kos. What is happening there truly defies description. According to Wikipedia, Kos has a population of about 33.000. If their refugees accounted for the same percentage of the total population as in Austria (0,2%), then Kos should have had at most 70 refugees so far this year. As it turns out, that's less than the number of daily arrivals.

And then the report showed how the locals did their best to take care of these refugees. How food was collected from hotels and how the locals put it into individual packages. Throught the report, it was obvious that the locals cared about the refugees and did their best to help them. Their motto seemed to be: we are living through tough times as a country but there is always enough to help people in need.

Watching that report, I couldn't help but think how distorted the view of Greece and Greeks has become in the process of the debt quarrel. It certainly wouldn't hurt if the negotiators in Brussels took time out to watch the ARD report. It might affect their judgment.

Wednesday, June 24, 2015

A Plan For Growth?

I fail to understand why Greece would have made the proposal which they sent to the EU on Monday this week. I read the letter which Alexis Tsipras signed and which was made public by Ekathimerini. I wanted to count how often the words "taxes", "rates", "contributions" occurred but I gave up. And whenever they occurred, it was in the context of increasing (instead of decreasing) them.

Higher taxes? Higher rates? Higher contributions? A recipe for growth? Well, I guess most people would agree that they are a good recipe for slowing down economic activity.

According to the reviews I read, this was the only way for the government to satisfy creditors without crossing its own red lines. At the same time, I read that these measures would take more money out of the economy than any of the previous memoranda.

Before the technocrats went to work, EU politicians expressed their enthusiasm about Greece's proposal. So much for the competence of EU politicians as regards understanding how growth works.

One almost has to be thankful to the IMF because they spotted right away that relying almost exclusively on revenue increasing measures to close a fiscal gap is about the worst thing which Greece could do at this stage of the game. Regrettably, there were no significant expense cutting measures.

One despairs. For once, Greece submitted a proposal which EU politicians liked but, on closer examination, it turns out the this proposal is worse than anything the Troika could have dreamed up.

Quo vadis, Greece; quo vadis?

Monday, June 22, 2015

An American Who Does Not Understand What's Going On In Europe

A retired American banker in his late 70s, once my boss at an American bank, sent me the following email. 

"What is it that I am not understanding about the so called "crisis"?

They have two options:

- accept Eurozone and IMF demands for pension cuts and tax increases in return for loans (why would anyone want to give them MORE money?).

- face bankruptcy and default (and then presumably get kicked out of the Eurozone and the Euro).

If they accept option 1, the politicians get removed from office and the country goes even more berserk -- big deal NOT.

If they go option 2, they are like many other countries and municipalities which have done so without having to commit hara-kiri.

I realize that like here in the U.S. during the early 2000's, money was easy and the European banks threw money at them (we all have made similar mistakes ), but everyone, including the Greeks, had to know that it was going to be difficult to impossible to have all those loans repaid.

And why is it so crucial that the Greeks be in the Euro? Will Europe fall apart if Greece exits the Euro?

Help me understand this. It seems entirely too simple to me." 

I told him that there was a long answer and a short answer to his question, and that the short answer was: Europe is quite different from the USofA.

Sunday, June 21, 2015

How Top Level Decision-Making Works (Or Does Not Work)

Much has been written about FinMin Varoufakis' all-encompassing proposal which he made at the last Eurogroup meeting and which is here. Varoufakis has claimed that the others didn't even pay attention to it. Schäuble has made the cynical comment that "if there was a proposal, then none of us understood it."

I would like to give my reaction to the proposal, not to the content of it but, instead, to its form. The issue is decision-making at top levels.

Top executives are not interested in prose. In fact, at the last bank where I worked, the management board had explicitly prohibited prose in board presentations. Only facts in the form of bullet statements and numbers, and all of it on only few presentation slides. Explanatory comments could be made by the presenting person (again in bullet statements and not in prose). When we had difficult deals for board approval, we would spend days finetuning the formulation of the bullet statements to make them conduicive to board approval.

It was understood that all facts and numbers presented had been thorougly substantiated and checked for plausibility by the technical staff. The presentation had to clearly point out what the board should approve and why, and what the consequences and/or alternatives would be if the deal was not approved.

If a top manager had presented to the board something like Varoufakis' paper, the board members would have exchanged puzzled looks. What's the point of all of this? Doesn't he understand that we are here to make decisions and that we are not a debating club? The credibility of that top manager would have suffered greatly.

My understanding is that Lazard's is advising Varoufakis. If they had been given the paper and asked to put it into the kind of form which top level decision-makers require, they would have done that within 24 hours.

Why did Varoufakis not do that?

Rescues Can Be Failures, Too!

Skiing in the Alps can be dangerous. Many skiers deviate from the official slopes, with or without professional guides. The authorities have marked dangerous areas with all sorts of red flags and red lines and those who cross them are fully aware that they do so at their own risk.

There are many avalanche accidents every year. Most, fortunately, have a happy ending but every once in a while skiers get submerged by the avalanche. Rescue teams show up immediately and, fortunately, in many cases their rescues are successful. However, there are quite often avalanche accidents where the rescue teams fail and casualties take place. And, every once in a while, there is an accident where rescue teams failed and where their failure may be due to mistakes in the rescue effort.

It is not unusual that the relatives of victims of avalanche accidents where mistakes of the rescue teams are insinuated, subsequently sue the rescue teams. And it can happen every once in a while that they win their case in court; i. e. the rescue teams are declared guilty under the law.

Which raises the question why rescue teams had to go out and rescue in the first place.