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Wednesday, September 30, 2015

The Alexis Tsipras - Bill Clinton Chat: A Missed Opportunity For Greece!

On September 27, the Clinton Global Initiative gave PM Alexis Tsipras a unique opportunity to 'sell' Greece to an audience of potential US investors. Tsipras failed miserably in this task.

A rejunivated, girlish-looking Madam Ambassador Yanna Angelopoulou (59), in a short dress, first introduced "the man who inspires me, inspires all of us with his energy, his passion and with his compassion" - former President Bill Clinton (69). And then she introduced the man "in whose hands the Greek people put their faith and their future" - Prime Minister Alexis Tsipras (41). A gentlemanly Clinton politely received Angelopoulou's kiss on one cheek but as she prepared to kiss the other cheek, he abruptly turned away. For Tsipras, Angelopoulou only had a handshake. And off the father-son conversation went.

A somewhat frail sounding Clinton felt it appropriate to kick off the conversation by reminding everyone that "it is important not to forget that this is a very rich country, Greece. It's rich in natural resources, it's rich in human resources, it's people work on average 25% more hours per week than German workers." So why, then, is Greece in so much trouble? Clinton's answer: "It's been victimized by a tax base that does not include the wealthiest people in the country (the camera forgot to shift over to Angelopoulou) and by a long past of promises from the public sector that can't be funded or fulfilled." And then Clinton turned to Tsipras and asked him true to form: "I want you to say whatever you want to say but I would like to begin by asking you 'Where do you go from here?'" Tsipras seemed a bit caught off guard by that simple question which prompted Clinton to follow-up with a big grin: "You are like the dog who chases the car. What do you do when you catch it?"

Tsipras then managed to get all the right buzzwords into his first sentence: "Greece as a negative example of tough limitations of austerity measures; a bad recipe increased public debt from 120% to 180% of GDP; a memorandum based on internal devaluation and austerity, etc." And the second sentence followed up with the delaration that "this is not a Greek problem. It is a European problem". And just in case Clinton did not know it, Tsipras said: "You know, there is a conservative spectrum in Europe". "Unfortunately," he added quickly.

Tsipras then remembered that Clinton had asked where he planned to go from here. That was easy to answer: "We have to continue the fight to recorrect the direction of Europe". But when it came to specifics, Tsipras quickly had to revert to his briefing papers where it said: "For the first time we have a realistic program to implement which does not exhaust itself on recessionary austerity". But the most important thing was, Tspras now speaking without notes, that "there is a commitment on the part of our partners to start the crucial discussions to reprofile and to restructure our debt. So were are going to deliver our commitments even though we have difficulties ahead but it is necessary for the other side to deliver their commitment for the relief of our public debt." That had to be said!

Tsipras then embarked on a summary: "All of this is necessary to create an atmosphere of trust and credibility to the markets and to regain, to reclaim economic stability in order to have investments in Greece. This is very important in order to come back to growth. We must fight for the necessary reforms. Internally, in my country, it is necessary to make changes, it is necessary to make reforms in taxation, in the public administration and to try to create a friendly environment for investors, to cut the ties with the clientilistic state of the past, to hit tax evasion and corruption, to create a meritocracy in the public administration and then to try to have foreign investments because this is very crucial to come back to growth" - Milton Friedman could not have phrased it better!

Clinton did not let Tsipras get away with lofty phrases. In his inimitable way he asked Tsipras: "Do you believe that the path of the next 4 years is clear enough so that you would feel comfortable, if everyone in this room was a potential investor in Greece, telling them that it's safe to move now?"

Tsipras seemed totally surprised by this simple question and he started shuffling in his preparatory notes. "This is a good question!", congratulated the former Nobody the former two-time President of the United States at long last (Clinton probably thought to himself "Kid, that is not only a good question, that is THE most important question!"). So what was the answer?

"Positive", Tsipras finally managed to say. Grexit is no longer an issue. The conservative forces had wanted a division of Europe but Greece joined with the progressive forces that work towards a united Europe.

Clinton seemed uninclined to let Tsipras get away with small talk: "If you had a wishlist that could be immediately fulfilled, which sectors of the economy are most important for foreign investments and which would create, from your point of view, the largest amount of growth and the largest amount of employment?" Oops, Tsipras' assistants had forgotten to make preparatory notes for that question. Tsipras meandered from tourism to agrigulture, to healthcare, to pharmaceuticals, to energy, etc. It would have been better if he had handed Clinton the McKinsey Report "Greece Ten Years Ahead".

Clinton, the devil, still did not let Tsipras off the hook. "You said energy investments are very important. Are the laws such that, if one comes in there and makes a significant investment in making you more energy independent, that they can recover their investment". And pointing at the audience of investors: "If we bring these investors there, have they got a way to get their money back? You know, they could put a lot of people to work!".

Regrettably, Tsipras had not been coached that if one does not immediately respond so such a question in a determined and specific way, the audience will conclude that the answer is negative. And instead of responding immediately, Tsipras squirmed and put on an artificial laugh. No Alexis, Clinton did not mean it as a joke! And then Tsipras - brace yourself! - explained that Greece was still a corrupt country and that the question could only be answered affirmatively after the reforms have been made!

At this point, Tsipras had clearly become uncomfortable. It seemed to have dawned on him that his memorized campaign slogans were insufficient to answer Clinton's specific questions. Perhaps he even condemned in his mind his advisors for not having prepared him better for the interview. Clinton, who had obviously noticed how Tsipras gradually disintegrated, decided to let him off the hook and offered the following way out: "So you are saying, in no uncertain terms, that it is not necessary for people to wait until every last detail of the new arrangement on the debt refinancing is worked out. To know that it will be worked out, that the government is going to be there for 4 years and that better to invest sooner rather than later, so if you buy low, sell high, increase growth in employment and that in itself will stabilize the political and economic climate." No reaction from Tsipras. "That's basically your message, isn't it?", Clinton followed up. Only nodding from Tsipras.

Tsipras no longer seemed part of this conversation by then. In the presence of the seasoned Bill Clinton he had recognized his own insufficiencies and seemed extremely uncomfortable with his role. So Clinton turned the tables and made himself the spokesman for Greece. He made the pitch for Greece, Clinton-style. He was thinking of finding ways how millions of Greek-Americans who may not have a great deal of money individually could pool their money into a fund to start new businesses. Investors should not wait because at some point "we undermine your position by waiting". Clinton went so far as to justify why Tsipras hadn't said much: "The time is now to do something. The time has come to stop fooling around with it. And you are being awfully kind for not saying it that bluntly but I think that's accurate. Basically, your message is 'I got this under control, please don't wait any longer to start investing'. Is that a fair statement'?

If only Tsipras had managed to say "Yes, that is a fair statement. Thank you for making it on my behalf!" Instead, he managed to say - nothing. Just an uncomfortable laugh. And then he fell back into campaign soundbites about Greece.

What a wasted opportunity!

The obvious intention of the Clinton Global Initiative was to promote foreign investment in Greece before an audience of potential foreign investors from the US. One wonders why the staffs of both sides had not gotten together beforehand and scripted a question-answer routine which would optimally serve that purpose.

As it turned out, Tsipras was absolutely unprepared to act as his country's 'chief salesman'; perhaps even incapable of a task like that. Tsipras simply could not make a convincing sales pitch for Greece before a very friendly audience and with the support of a most friendly host.

Sunday, September 27, 2015

Greece's Former IMF-Representative Hits Back!

If you are a country's representative at the IMF and a new government, or rather a new Finance Minister, replaces you rather quickly, it is only natural that you don't only have positive feelings about this government. This is the position which Thanos Catsambas, Greece's IMF-representative and Alternative Executive Director of the IMF (until April 2015), finds himself in.

In today's Ekathimerini-commentary, Catsambas writes about the Miracle That Didn't Happen. The miracle would have been that Alexis Trispras would have formed a broad-based coalition government; that he would have chosen ministers on the basis of competence and reform willingness; and that he would have requested from parliament extraordinary legislative powers for this broad-based coalition of competent ministers. Since this miracle did not happen, Catsambas concludes that the way towards an accelerated Grexit has now been paved.

In this context, it serves well to read a paper by Thanos Catsambas which he published earlier this month: Myths, Misinformation and Truths about the Greek Crisis. If, after reading the paper, I would have had to guess the name of its author, I would have guessed Prof. Hans-Werner Sinn. No wonder that the SYRIZA government did not want this man to be their representative at the IMF. Below are two excerpts which provide a flavor of the paper:

“The present Greek government argued formally and informally that austerity was the cause of the crisis and that it must end. The reality, of course, is the reverse: the latent  crisis  in  the  years  preceding  2010  was  the  cause  of  the  subsequent  austerity, because  any  economy  that  reaches  the  point  of  default  must  go  through  a  period  of adjustment to stabilize its faltering macroeconomic imbalances. Simply stated, a country that has been living beyond its means for decades, and for which the Day of Judgment has arrived, must go through a period of fiscal consolidation with a decline in its standard of living”.

“By the end of April, the IMF, the ECB, the European Commission and the US government (the latter had played an increasingly important role in the resolution of the Greek crisis behind the scenes) had all concluded that the Greek side was so inexperienced and ignorant about fundamental concepts of macroeconomic management, that further negotiations in good faith would be a waste of time. Therefore, they decided to present the Greek authorities with “take it or leave it” proposals, albeit in the beginning gradually and in a measured pace ... Surely,  the  decision  makers  of  Syriza  (who,  it  is  now  revealed,  were surrounded by inexperienced, ineffective, and well-paid “international advisors") showed an  amazing unfamiliarity  with applied  macroeconomics  while  promulgating  advanced theoretical  concepts  coupled  with  a  contempt  for  down-to-earth  arithmetic.”

Regrettably, Catsambas - like so many others like him - commits the oversight of not pointing out how much of an austerity adjustment Greece has made so far. The government's total primary expenditure had declined from 128 BEUR in 2009 to 88 BEUR in 2014. That is a reduction of 40 BEUR or 31%!  

Catsambas argues, probably correctly, that Greece had no alternative but to go through that adjustment given the excesses in previous years. One has to bear in mind, however, that most, if not all, European countries consider it 'austerity' when they reduce the growth in spending but not the spending in nominal amounts. Since Greece reduced spending in nominal amounts and it did so in dimensions which may not have been seen in any other developed country before, it would have been necessary to point this out.

If nothing else, it would have made Greeks feel better and perhaps more inclined to accept Catsambas' argumentation.

Tuesday, September 22, 2015

New Optimism For Greece? Not Just Yet!

For the record, I need to state my conviction that SYRIZA's extraordinary success at the elections is the best possible guarantee for stability in Greece in the foreseeable future. If Greece had not reached an Agreement with its creditors in the summer and, above all, if SYRIZA hadn't been the party negotiating and signing this Agreement, I would feel differently because, then, SYRIZA would have undoubtedly become a source of instability. And notwithstanding that SYRIZA negotiated and signed the Agreement, they would still have become a source of instability if they had ended up in opposition.

As I said above, I am talking about stability in Greece 'in the foreseeable future'. How long that future is foreseeable is the subject of guessing but I maintain that it is now longer foreseeable than under any other constellation. But the issue is not near-term stability alone. The much greater issue is whether near-term stability will be used to lay the groundwork for future growth and prosperity. On the latter I would not put my money at this time.

Said the bricklayer to the passer-by who had asked him what he was doing: "I am putting one row of bricks on top of the other and cement in between". Responded his bricklaying colleague: "Sir, I am building a cathedral!" Will SYRIZA focus on bricklaying or on cathedral-building? The odds are that it will not be cathedral-building, at least not a very beautiful cathedral.

Greece as a beautiful cathedral, in my mind, would be "a modern and prosperous Greece: a Greece characterized by economic opportunity and social equity, and served by an efficient administration with a strong public service ethos" (EU Task Force for Greece). I haven't heard much about this type of a cathedral from SYRIZA; nor from any other of the larger parties. The focus is on the Memorandum and its implementation; in other words: on bricklaying.

If the builders have a clear vision of what the cathedral should eventually look like, it won't matter if a row of bricks is laid the wrong way. The mistake will be discovered and corrected. If there is no such clear vision, the mistakes in the rows of bricks will determine the eventual outcome. And there seem to be quite a few mistakes in the Memorandum.

It does not appear that the bricklayers will be given much opportunity to discuss any mistakes in the bricklaying plans. They will be expected to do the job; period. If one thing has become obvious during the final days of the negotiations, it was that Greece has worn out the patience of its creditors. If Alexis Tsipras thinks that he can start his song-and-dance all over again ("I now have a new mandate from the Greek people and we need to discuss"), he will not find an audience. If Tsipras thinks that he can get by with the trick of alibi reforms (which trick his predecessors often used), he is in for a rude awakening.

Most importantly, if Tsipras thinks that implementing a program which he does not believe in will become a success, he is delusional!

Tsipras can only be good for Greece long-term if he makes a true U-turn. That is to say: a U-turn by intention and not only by default. For that, he needs to move himself at the head of the reform pack instead of acting like its victim. And, most importantly, he needs to form a team which lends credence to such a U-turn.

If I had to pick one economic indicator which indicates whether the Greek cathedral will be a beautiful one or not, it would be foreign direct investment. The Greek economy cannot make the jump into modernity without FDI, if for no other reason than the needed know-how transfer which FDI brings along. There is one question which Tsipras and his team should ask themselves all the time, namely:

"Is what we are doing conducive to new foreign direct investment or not"?

Only when one can begin to answer this question positively can one truly hope that there will be "a modern and prosperous Greece: a Greece characterized by economic opportunity and social equity, and served by an efficient administration with a strong public service ethos".

As Tsipras re-assumes responsibility for Greece's future, he must bear in mind that, so far, he and his SYRIZA have scared foreign investors.

Saturday, September 19, 2015

A Marxist Will Vote For Dimiourgia, Xana!

My neighbor and best friend Yiannis, the intellectual Marxist, told me this evening that he will vote for Thanos Tzimeros tomorrow. Thanos who?, I asked him. Of the dimiourgia, xana! party, Yiannis educated me. He had seen an interview with Tzimeros who, according to Yiannis, was the only candidate who talked about specific numbers and facts when it came to savings in the public sector and where. And then I remembered.

I had come across dimiourgia, xana! back in June 2012 and was most impressed by what I could find out about them. So much common sense and reasonableness! On June 16, 2012, the day before the election, I wrote an article where I recommended the following to Alexis Tsipras:

"Vote for dimiourgia, xana! and get your entire movement to vote for them so that they can form the next government on their own. Give them about 20 years' time. When they are done, you run for the office of Prime Minister yourself. You will still be younger than Andreas Papandreou was when he became Prime Minister the first time. And after 20 years of dimiourgia, xana! you will have so much of other people's money at your disposal that you can easily waste it for another 20 years and build your place in Greek history books!"

I had not realized that dimiourgia, xana! was still around, much less that they are competing in tomorrow's election. The sad fact that a party like this gets literally no attention from Greek voters would suggest that it's not only the Greek politicians who are to blame for Greece' mess but also the Greek voters who ignore forces which support common sense and reasonableness.

It speaks for my friend Yiannis that his ideological orientation does not prevent him from recognizing common sense and reasonableness!

Thursday, September 17, 2015

Greek Elections - Who To Vote For

It seems to me that the most important outcome of the upcoming Greek election is that SYRIZA does not end up in opposition. While Alexis Tsipras has lost quite a bit of his former fiery self, he would quickly return to that in an opposition role. And, more importantly, SYRIZA in opposition could (and probably would) boycott the implementation of the Agreement which it had made with the creditors. The argument would be simple: "Yes, it is us who signed the Agreement but no, we would never have implemented it in such a destructive way!" And, sadly, chances are that many Greeks would, once again, believe him. Net result of all of this: instability.

Tsipras has ruled out a coalition with ND in any form or fashion. While that may only be tactics, one is well advised not to bank on it. The surest way to make sure that Tsipras and SYRIZA do not end up in opposition is to vote for them.

I have not studied in detail all the measures required of Greece by the Agreement but I have read that about 120 reform measures must be implemented before the end of this year and that many of these measures will really hurt. If anyone has a chance to survive the backlash of such measures, it is a leftist party. But no party can survive such a backlash if they have a leftist party in opposition. Much less a leftist party led by the pied piper Alexis Tsipras.

So, I am amazed as I watch what my fingers are typing right now but they are indeed typing: VOTE FOR SYRIZA!

Thursday, September 10, 2015

Yanis Varoufakis In Tim Sebastian's Conflict Zone

Yanis Varoufakis' blog tends to announce the news before it happens. That was the case when he became Finance Minister (which he made public on his blog before it was officially announced) and it happened again with his appearance on Tim Sebastian's Conflict Zone (whose recording he posted before it was aired).

Sebastian definitely upset Varoufakis' followers. A 'disgrace to his profession', an 'ignorant bully'; a 'propagandist paid by the Eurogroup', etc. were some of the reactions. Well, going to a Sebastian interview and expecting a balanced discussion is like going to a Eurogroup meeting and expecting an intellectual debate about macroeconomics in the Eurozone --- it is naive to the extreme!

"Why, following the referendum which gave you the No-vote you wanted, did the government squander that? What would you have done differently from the government?" (22:10)

"When you look back at your time as Finance Minister, did you do more harm than good?" (23:30)

The odds that these two questions would be asked by Sebastian would have been close to 100%, if one had concerned oneself before the interview with possible responses to possible questions. And one could have prepared short and concise answers to each of these two questions. Instead, Varoufakis' answers were wishy-washy or non-existent.

To the first question, he could have replied: "I would have proposed to the Eurogroup, the following day, new terms & conditions acceptable to us and I would have impressed on the Eurogroup that these new terms & conditions were backed by the overwhelming support of the Greek people. I would also have informed the Eurogroup that, alternatively, Greece would have no choice but to opt for our Plan B".

Regarding the second question, Varoufakis could have used the very same phrase which he had used earlier in the interview when he was describing the Eurogroup's refusal to change Greece's program: "Human nature has a certain reluctance to admit failure" (4:05). 

Thursday, September 3, 2015

Yanis Varoufakis' Plan for Greece's Recovery & Growth

Ever since I started this blog, I have been urging the need for a Long-Term Economic Development Plan for Greece and I have been criticizing the Greek leadership for not developing such a plan. Occasionally, I was asked what I meant by such a plan. In response, I always referred to McKinsey's "Greece Ten Years Ahead" proposal of mid-2011 which had received only very little attention. One may not like McKinsey and/or one may consider their proposal as being utterly neoliberal. That's fair. But that does not free a leadership from its responsibility to develop its own plan.

Over a month after resigning as Finance Minister, Yanis Varoufakis took issue with the complaint that the SYRIZA/ANEL government never presented a plan. In a respective article in his blog, Varoufakis claimed that Greece had not only made one but, in fact, two separate proposals. They were titled:

A Policy Framework for Greece's Fiscal Consolidation - 11th of May, 2015
and
Ending the Greek Crisis - 11th of June, 2015

Varoufakis claims that 'they' never paid any attention to his proposals and he subtly suggests that the real reason was that those proposals 'made it hard for them to admit that the real reason they refused to engage with our sensible, sophisticated proposals was that they only cared about humiliating our government and derailing the negotiations'.

Who is 'they'? According to Varoufakis, the first proposal of May 11 was submitted 'to many of my Eurogroup colleagues' and the second proposal of June 11 was sent 'to key Eurogroup members'.

I give Varoufakis the benefit of doubt that these proposals were truly prepared and submitted in earnest (as opposed to an alibi action to be able to claim later that "we made you proposals but you never paid any attention"). And yet: one has to be absolutely astonished at the process which was chosen. Just like it wasn't (and shouldn't have been) the Greek Finance Minister who personally wrote A Policy Framework for Greece's Fiscal Consolidation (Varoufakis says that 'teams of experts from all ministries' worked on the project), no one should expect the other Finance Ministers to personally read A Policy Framework for Greece's Fiscal Consolidation. That's not the way top-level decision-makers behave.

Policy proposals like the above need to be coordinated, streamlined etc. at the technical and administrative level before they get presented to top-level decision-makers. I agree that the primary responsiblity for such proposals lies with the Greek government but once the Greek government has its proposals in line, it needs to build allies. One would have to involve 'teams of experts' from all walks of EU life. That could be the Troika itself; it could be the OECD; it could be the German Council of Economic Advisers, etc. etc. Such proposals need to carry weight!

And --- they need to carry the right kind of weight! Varoufakis' idea of the right kind of weight was to form a Board of International Advisors including well-known economic heavyweights. Well, I think it was a plus not to show Paul Krugman and Joseph Stiglitz as board members but I would suggest that the mere mentioning of academic names like James Galbraith, Jeffrey Sachs or Larry Summers made the stomachs of many conservative European Finance Ministers turn.

Varoufakis does not explain how these proposals were 'submitted to many of my Eurogroup colleagues' or 'sent to key Eurogroup members'. For all I know, he might have dropped a copy on Mr. Schäuble's desk with the comment in passing: "Wolfgang, take a look at this. Would appreciate your opinion!" Well, I doubt that this would have triggered more than a puzzled look on the part of Schäuble.

So if the form of making the proposals was totally inadequate, how was the substance of the proposals?

Neither of the two documents carried the title of Long-Term Economic Development Plan for Greece, and that is good because neither of the two was such a plan. The appropriate title was A Policy Framework for Greece's Fiscal Consolidation because that is what the documents were; for the most part, at least. What is the difference between a plan and a policy framework?

Well, Varoufakis' policy framework talks about fiscal policy and debt sustainablity, about public investment policies, about banking and social security funds reforms, about democratic governance reforms, about public debt management, and so forth. All very important issues but, interestingly, none of these issues found their way into McKinsey's proposal. McKinsey focused exclusively on about a dozen key economic sectors where growth could be unleashed as part of a New National Growth Model.

One almost has to look with a magnifying glass to find something about the real economy and/or the private sector in Varoufakis' policy framework. There is only a small section with regard to product markets and it includes the stunning revelation that "the Greek government is aware that the world economy is highly competitive". Its conclusion is that "Greece will focus on providing advanced tradable services, suited to Greek conditions", and the reader is referred to a 'section (7) below', which section cannot be found.

The section about the services market is a bit more extensive and it begins with poetic prose: "As the birthplace of democracy, a leader in culture, a home to world famous cuisine, a magnet for tourism, and with a competitive edge in many service, Greece aims to promote its service sectors, including green tech, culture, transport, higher education, culinary and other distinctive and high-end services". There are about 10 bullet point headlines about different service sectors and my favorite is that 'Greece proposes to pioneer in the development of retirement communities for middle class retirees from across Europe'. Put differently, the equivalent of a 'Florida for Europe', which I have always thought was an interesting proposal (whether Greeks would like to be overpopulated by middle class retirees from Northern Europe, let alone from Germany, is a different question...).

The original policy framework of May 11 was then reworked by Varoufakis personally and became the document titled Ending the Greek Crisis of June 11. This document has some real meat to it.

It goes in detail into fiscal and structural reforms which Greece intends to make to promote growth and it proposes ways to refinance Greece's public debt without any new monies for the Greek state and without haircuts. Most importantly, is has a large section titled "Homegrown, Investment-led Growth". That section is worth reading!

Those who are eager to hear how Greece plans to unleash growth in the private sector will again be disappointed. The section is primarily about the public sector but it has a revolutionary twist to it: to use state property for the benefit of the country! When I read the proposal, I was not quite sure whether the author was some neoliberal professor from the University of Chicago or the erratic Marxist Yanis Varoufakis. It calls for the creation of a new holding company in order:

"To bundle assets that can be potentially envisages as non-public into a central holding company to be seperated from the govenment administration and to be managed as a private enterprise entity with the goal of maximizing the value of its underlying assets. The Greek state will be the sole shareholder but it will not guarantee its liabilities or debt."

And now get this: "Assets will include: ports, airports, land, real estate, energy assets, utilities assets (water, gas, electricity grid), traffic infrastructure, licences, offhsore and onshore mining rights, state-owned companies and other assets which could potentially be put to private management. The total value of these assets is currently estimated to be in excess of 70 BEUR".

The private management of the state-owned holding company would borrow 30-40 BEUR against the value of its assets in order to restructure and modernize the assets. The investment program would run over 3-4 years and would result in additional spending of 5% per year. It would trigger a growth multiplier for the entire economy assuring annual growth rates in excess of 5% for several years. The primary surplus of the state would achieve 'escape velocity'. But don't stop there yet! After a couple of years, the holding company 'would be granted a banking license, thus turning itself into a fully fledged development bank capable of crowding in private investment to Greece'.

The document takes pains to never mention words like 'profit' or 'profitability'. Instead, one reads about 'maximizing the value of underlying assets' or how 'asset values should increase by more than the account amount spent on modernization and restructuring', about 'boosting the value of the assets according to the probability of future privatization', etc. The fact is, however, that the value of an asset is driven by its real or anticipated profitability. So what we have here is an erratic Marxist emphasizing profitability and that makes the document revolutionary.

The proposal is quite similar to what the consulting firm Roland Berger had published in mid-2011 under the title "EURECA project - Hellenic Recovery Fund - a solution for Greece and Europe!" The difference is that Varoufakis, quite surprisingly, thinks that a private management can work successfully in a state-owned entity whereas Roland Berger proposed to transfer ownership to a private fund from the start. And that is really the key issue/weakness in Varoufakis' otherwise extremely creative proposal: What is the likelihood that a holding company which is owned by the Greek state and which holds the bulk of Greek state assets will be allowed to be managed - like a private company - according to rational objectives and plans, particularly when those objectives/plans have profitability as their ultimate goal?

Varoufakis claims that 'they' (selected Eurogroup colleagues) leaked to the media that his proposals were worthless. Were they worthless?

Not at all! On the contrary, I think both documents could have been excellent discussion drafts to be worked on by teams of experts of all walks of EU life. Some aspects should have been eliminated, others should have been added. Above all, a true National Growth Model for Greece's private sector (along the lines of McKinsey's proposal) should have been added to it. And at the end of this exercise, the final product could have been a plan which investors might have been happy to bet on.

Wednesday, September 2, 2015

Miracles Of The Greek Economy

If memory serves correctly, the Greek economy grew 0,9% in the 2nd quarter of 2015, roughly twice as much as the German economy. Today, I had an experience which might be part of the explanation for that growth.

We needed a new overhead sunshade for our relatively large balcony. I checked the internet and found about a dozen names in Kalamaria. After the first 6 names I gave up: the places were either closed in mid-afternoon or the businesses had shut down. Except for one. I won't mention his real name for reasons described below but I will call him Yiannis.

I felt sorry for Yiannis. His office was below street level; kind of dark; he was sitting at this desk; apparently thinking; no sound whatsoever. And he sat there with a sad face like he had been waiting for a customer for days. What surprised me was that Yiannis showed no reaction whatsoever about a potential new customer coming through his door. We made an appointment for today.

Yiannis took the measures, showed us a few pictures, made some calculations and then made us an offer of 1.300 Euros. He said the actual price would be 1.500 Euros but he lowered it by 200 Euros so that we would save ourselves the trouble of asking other people to make offers. And, incidentally, the receipt would be for only 700 Euros. He made that sound like it was part of his general business conditions. If we accepted his offer today, he would install the sunshade tomorrow.

Yiannis' performance didn't quite make sense to me. On one hand, I assumed that he was literally dying to transact some business. On the other hand, he didn't show it at all. The way he made his offer was like "Here it is; take it or leave it! I don't care!"

We started talking about the economic crisis and how his business coped with it. And then I learned another lesson about the Greek economy.

Never, never ever, Yiannis said, had business been as good as so far this year. They had to work Saturdays and Sundays and still could not handle all the orders which they had received. And all customers paid cash. Why was that so? Yiannis says that people had become so worried about the money they had left so that they decided to spend it on investments which carried value.

Prof. Paul Krugman always argues that governments have to set 'acts of irresponsibility' in order to get people to spend their money again. Greeks apparently proved him correct.