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Wednesday, February 22, 2012

The Battle of Greece --- probably lost!

I remember the election campaign 2009. The face of a loud, well-fed ruling Prime Minister was on TV all of the time and I kept asking my wife where his opponent was. Every so often, she pointed to a quiet face on the screen. I told her that this man would never win an election. Mr. Papandreou won the election, nevertheless.

With Mr. Papandreou, I became a champion of the "Greek Cause". Perhaps it had to do with the fact that we both had been formed at the same university but, still: for once, here was a serious face with a serious demeanor and a very smooth and gallant way of handling himself. On one of his visits to Germany, I watched him in the company of Angela Merkel and the President of the German Chamber of Commerce. That President was the typical German professor; Merkel was the "Mutti"; and Mr. Papandreou showed class.

Perhaps showing class was all that Mr. Papandreou could do. There is ample evidence to that effect. However, whatever positive image he as a person could build up of his country, that image is gone. The price for having lost that image is something which future generations of Greeks will experience.

There are masses of Greeks who are going through extremely dire straits these days. There are, surprisingly, quite a lot of foreigners, sort of modern day Lord Byrons, who are discovering their passion for the Greek people. Perhaps a cult it being born.

But politics and finance are no places for sympathy and emotions. It's the hard facts which count in order to make money move. This is no time for romantics.

The hard facts are that Greece has, justifyably or not, totally lost credibility and reputation. "Would you buy a used car from a Greek?" --- how do you think Europeans would answer that question today?

A forgiveness of about 100 BN EUR in sovereign debt? That is an amazing number! I have no facts but I would guess that never before has so much debt been forgiven to a country in such a short period of time! A country of the First World, that is! This could be a world record which future Greek generations will, sadly, often be reminded of.

The impression settles down that EU-leaders have given up on Greece; that they have had "enough of Greece". Give them one more (final?) shot of oxygen to gain time for the stabilization of banks and the ringfencing of Greece (and perhaps the French election) and then move on to more important matters.

Anyone with experience in banking knows that it takes time to build up credibility and reputation, but both can be lost in a short time. Once lost, they are gone for a long time.

I see no way how the Battle of Greece can still be won without a complete change of pace and scenery at the leadership levels of the country. Not only for the benefit of foreigners. Above all for the benefit of Greeks. I just can't imagine that there is still a majority of Greeks who feel that their leadership is properly representing what Greece is all about.

Is this the call for an "Orange Revolution"? No, it is not. If anything, it is the call for a "Blue Revolution"; "blue" like in sky and sea of Greece. Should the rioteers of the streets of Athens be the leaders? No! The leaders should come from those decent, hard-working, friendly and open-hearted Greeks who, hopefully, still represent the majority of the population.

But the far better way would be for Greek leadership at all levels to act like the Japanese do. When Japanese leaders fail completely in their duties, they bow their heads and apologize to everyone they have caused damage to, and they leave office. Some even commit suicide. I am not pleading for suicides but I am definitely pleading for the Greek leadership to step aside and allow a completely new generation of Greeks to attempt a new beginning for the country!

In my view. this is the only way to keep the hope for winning the Battle of Greece alive!


  1. Herr Kastner,
    you say "But politics and finance are no places for sympathy and emotions. It's the hard facts which count in order to make money move. This is no time for romantics.

    The hard facts are that Greece has, justifyably or not, totally lost credibility and reputation. "

    We must get something clear here: trust is an emotion, or at least it is something that exists on the emontional level. This is why it is hard to create and easy to dissipate. Especially in the case of those who do not understand their own emotional selves - the downside of which is that they are also easily steered (note what you said in relation to the markets being steered!).

    Those who understand trust in a little broader fashion, as I trusted my husband to return home despite one of his affairs, I knew that he needed and wanted me but for reasons I never fathomed needed that little extra. To me his emotional self was worth more than his physical self, if you understand me.

    Put this in relation to Greece and you see a very different picture from that formed in the mainstream media. What is more, the Greeks need to find a solution that is truly Greek - because otherwise it won't work. Just like things aren't working right now.

    Financial hard facts: yes, the bottom line is important but remember that finance is effective in human lives. The real duty of a banker is not to deal with money - but to deal with humans. Their job is to make sure that the humans they deal with are sensible honest and hard working - in whatever enterprise they need funding in. This has nothing to do with finance as such and everything to do with emotions!

    Why? Tell me then: what do "hard facts" actually represent? They represent the activity of that person or group of people. The patterns of numbers presented are way more important than the numbers at the bottom of the page, be they good or bad. The numbers at the bottom will never tell you if the business is well founded, it will only tell you that the business made a profit the last year. Take twenty of these, and you get a picture of the company, good and bad. It is also possible to do this analysis using the figures in front of you.

    The problem with facts is that they are all done and dusted. What is more, you cannot make assumptions about the future on the basis of them. To do that you need to see the character of those facts, and that very thing lies in the emotional realm - and is the key to understanding the future.

  2. "A forgiveness of about 100 BN EUR in sovereign debt? That is an amazing number! I have no facts but I would guess that never before has so much debt been forgiven to a country in such a short period of time! A country of the First World, that is!"

    May I ask what the US default on their toxic assets was? They amounted to $6 trillion (60 times as much as your Greek debt estimate).

    Whether it was a "default" it was certainly that sum of money withdrawn at one moment from the real economy. What is more, that money had been spent not on infrastructure or such things, but had been lent out to people who could not repay the money. In what I said above - this was a failure of the lender in their first and most important duty.

    I do see you as the kind of person who has the ability to make sound judgements without thinking of the bottom line or profit before all other things as it seems too many bankers do - especially the speculators who care not a whit for the people whose lives they hold in their hands.

    1. Another point: contrary to the credit risk of a corporation which can be assessed based on hard facts, to assess the credit risk of a sovereign state is virtually impossible based on hard facts. Why? Because the servicing of sovereign debt is exclusively a function of the political will and the people’s support of that will. If Germany decided tomorrow to no longer service her sovereign debt, she could do so regardless how rich Germany and Germans are. They would, of course, have to pay a prohibitive price for that.

      If Greeks were passionate about clearing their reputation and prepared to make any sacrifice to repay sovereign debt, that debt could be repaid within months. Along the way, Greeks would have to make gigantic sacrifices like, perhaps, giving up much if not most of their savings deposits, selling some of their islands, etc. Fat chance that this will happen but I am only using it as a theoretical example. It never should happen that way.

      Another aspect is that sovereign states cannot legally go bankrupt because there are no bankruptcy laws for sovereign states. A corporation can cease to exist (see Enron) but a sovereign state cannot. So a lender could technically say “I won’t ever forgive a dime of my claims because at some point in the future, I will get my money back, if for no other reason than because they want me off their back”. It’s like making a loan to a man in his 20s on the grounds that over the rest of his lifetime he will make enough money to pay it back (unless there are bankruptcy laws for private individuals, which there aren’t in all countries; I don’t believe there are any in Greece).

      So this is a long way of saying that sovereign debts are not like other debts and that what makes sense with other debts often does not make sense at all with sovereign debt. One major reason is the issue of principle & precedent. Once you start fooling around with sovereign debt like the EU-elites have irresponsibly done, you never know that the long-term consequences will be. Why should a Portuguese or Irish tax payer not get the same benefit as the Greek tax payers?

  3. Gemma, here you are mixing two separate issues: the US government bailed-out others and, in the process, the debt of others was forgiven or simply written off. But the US government never defaulted on any of its sovereign debt, at least not in recent history, and certainly none of it was forgiven. There may have been individual states which defaulted back in the 19th century.

    I belabor this point because it is only sovereign debt where forgiveness is so utterly important. Any other debt is being forgiven all the time by simple agreements between borrower and lenders.

    With sovereign debt, it is totally different. As a matter of historical record, sovereign debt was never forgiven except in cases of one-time destructions and/or utterly extreme poverty of the sovereign nation. I googled for a list of sovereign debt haircuts in history but couldn't find one. As far as I know, Germany is perhaps the only first-world country which had its sovereign debt forgiven in the last century (certainly after WW2, and I believe also after WW1). There the issue was the one-time destruction of WW2 and unbearable reparation burdens.

    But I am not aware that any of the other usual subjects of the last decades (Russia, Latin America, etc.) were given haircuts.

    Where the EU really broke with all principle & precedent is the way they went about this haircut. Basically, the argument was "Greece can't sustain her debt”. Sounds plausible, but is utterly false in the case of sovereign borrowers.

    Sovereign borrowers are just a totally different animal than any other borrower. Greece is the best example of that. Since independence in 1821, Greece has been in non-compliance for at least half of the time, I believe. There were times in the 19th century where no one ever expected to get money back from Greece. They didn’t for a long time but then new financing was obtained and the old one could be serviced. Compared to what Greece has been through since 1821, the debt problems of the last 2 years appear very, very manageable.

    I can’t give you facts but I believe as recent as during the 1990s, Greece was in extremely dire straits as regards her sovereign debt. In percentage of GDP, I believe higher than now.

    I guess if you had asked Greece’s lenders in the late 1990s whether they expected to ever get their money back from Greece, they would have doubted it. And only a few years later, Greece could repay anyone who wanted his money back (because Greece was offered so much new money from others…).

    So here you have it. With sovereign states it is not the actual ability to repay debt (because sovereign debt hardly ever gets repaid; actually, it hardly ever gets reduced in nominal amounts). It is primarily the sovereign state’s ability to refinance its debt. Let a miracle happen and have Greece achieve a bit of a turn-around in the next few years and let a new go-go period in lending come about and --- Greece will be able to refinance debt again. Everyone says bankers have long memories; often they don’t.
    Continued below.

  4. Thankyou for your considered response.

    I agree that the US did not default as such - but from where I stand, it felt very much as if they had. That was the point I was trying to make in using that form of language. Everyone talks blithely about toxic assets and Lehman without realizing just how devastating their action was.

    What is more, the US government have shown all the solidity and skill in implementation that the Eurozone politicians have - they have sidestepped the arguments by printing money.

    It is interesting that the tacit assumption in the Netherlands where I live is that everything will just keep on ticking. I wonder if this is Merkel's attitude too? Yet in the mean time, many people are becoming poorer - not only in Greece!

    I agree with you about the banks not having long memories. However, if they are to be part of our future, they too will need the intellectual capabilities not just to look at the past figures, but also to be able to judge the future where hard facts are never found. It is not the figures or facts in themselves that count, but the paths and patterns they make - that is your guide to what is likely to happen.

    If a Greek can do that - then they too can look to the future with some certainty, even if it is a grim one they will at least be prepared for it!