Friday, February 10, 2012

"Fake" or "honest" help for Greece?

Let’s assume that after WW2, the US had lent Germany billions so that Germany could have serviced the 3rd Reich’s debt. Would that have been “help for Germany”? Instead, Germany’s debt was forgiven and the German Wirtschaftswunder was jumpstarted with the Marshall Plan. That was “help for Germany”!

Some of the things which have been done to date have indeed been “help for Greece”. The EU Task Force would be a prime example. But to call the using of Greece’s balance sheet (and tax payers’ money) to bail out banks is everything but help for Greece. Most of the charade we have seen so far is nothing other but a recycling of money.

The real trouble is the difference between Germany/Germans after WW2 and Greece/Greeks today. After the disaster of the Nazi-era, one could be fairly sure that whatever jumpstart-help one would provide for Germany, the Germans would use it wisely. In Greece, unfortunately, it is very difficult to imagine that jumpstart-help would be used wisely. Realists would argue that much of it would quickly land in private accounts in Switzerland.

Here is the problem. How can one invest new funds wisely in an economy which has the lowest EU-rating as regards the ease of doing business (World Bank) but the highest EU-rating as regards corruption (Transparency International)?

Nevertheless, without new investment, primarily new foreign investment into the private sector, Greece will soon be a political powder keg at the EUs Southeastern corner. That can’t be in the interest of the EU, either.

One alternative would be not to send money to the private sector but machinery & equipment instead. There may be other alternatives. But all the efforts should really be spent on those kinds of considerations instead of the money-recycling which has been going on for 2 years now.


  1. Perhaps Uncle Sam has learnt his lesson with post WW2 Germany. After WW1 the US demanded back the loans it had made to France and the UK to fight the war. Which they didn't have the means to pay. So they really put the screws on Germany for war reparations, which led Germany to print money - with the consequences we all know.

    So if Germany is serious about the Euro, which I think it is, it should bail out Greece. The problem is - it won't. So Greece has to leave the Euro.

    1. But the point of my post was/is the question of how one could bail out Greece if one wanted to. As it stands today, one could forgive Greece her ENTIRE sovereign debt and Greece would still require about 2 BN EUR a month funding from abroad to pay for imorts and to replace the withdrawals of bank deposits.

      So forgiveness of sovereign debt, Eurobonds and whatever are no solutions. The only solution is to get the Greek economy going so that it generates value on its own (instead of only consuming with borrowed funds) and whoever comes up with a working answer to that question ought to be a candidate for the next Nobel Prize.

  2. One of the big problems with modern machinery is finding the staff to operate it.

    Putzmeister was recently sold to the Chinese, and it was suggested to me by Canutely King that one of the reasons for its staying in Germany was the skilled labour that make the pumps and other things that Putzmeister make.

    I wonder how Greek industry would manage. If Greece is anything like Britain, it will have seen a decrease in the number of people who have skills. These people do not grow on trees, they need years of training. What is more, they need the incentive to work.

    How many Greeks would there be willing to work for German rates of pay and their conditions. I mean that sincerely: I have no idea what a skilled factory worker is paid in Greece. In Germany it is not that generous as I recall.

    1. Let me give you an example. My wife comes from a village of about 2,000 people. Primarily agricultural. After the EU and all the grants that came with it, someone (a Greek) started a factory there. Textiles, I believe. Employed a couple of hundred people at least. Once the Euro had arrived, the factory closed and production was moved to cheaper Bulgaria.

      Now, if every Greek town of 2,000 started factories like the above, a lot of good things would start to happen. Obviously, you wouldn’t want to start with the sort of highly specialized machinery construction of Southern Germany, but textiles were not that highly sophisticated, either.

      With specialized machinery Greeks can’t compete with Germans and with textiles they probably can’t compete with the Chinese but there have got to be some things where Greece can reasonably compete. Mind you, not for export. Initially only for domestic consumption, preferably to substitute for imports.

    2. Thankyou for your response, herr Kastner.

      You describe a phenomenon that is familiar to me: the price is cheaper so the business goes east. In this case Bulgaria, in others, Indonesia, the Phillipines and of course China. It is happening in Germany, Britain and of course, Greece.

      If Greece is going to have a chance with any of these start-up industries, you will need some hefty tarriff barriers, or complete bans on imports of certain goods. That is not going to impress the markets that lend to Greece.

      The point that was brought up the other day was of tinned fruit grown in Greece but canned in Germany. A riposte on the Slog spoke of export subsidies and the like* - and in this respect too, the EU needs a good shake up if places like Greece are to have a chance with their own canning factories. Then the produce really would be "made in Greece". In no small way, export subsidies have also made the industrial centre stronger.

      (*I am no expert on this, but I knew about N. Irish farmers hiring out their pigs for the day. A lorry driver would take them from Fermanagh to Monaghan and back and claim the subsidies on them each time he crossed a frontier. It became known as "Dizzy Pig Syndrome")