Greece Is Booming!

When my wife and I last left Greece on December 13, 2019, we had no idea that it would be 1-1/2 years until our return. Well, Corona did that to us. But now, since 3 weeks ago, we are back in Kalamaria, a beautiful suburb of Thessaloniki. And, frankly, it feels like the Greece we returned to is a different country than the Greece we had left.

The first signs that the Greek state was no longer as dysfunctional as it had often presented itself in the past came in February 2020 when Corona started showing up in several European countries. Greece immediately took action whereas most Central European countries pondered the situation and announced that they would take immediate action once that became necessary. With the benefit of hindsight, we now know that this indecisive approach was a big mistake.

The lockdown procedures where rather similar in most countries: prohibition to leave homes except for 4-6 specific purposes. In Austria, for example, there were extended debates about those exceptions leading to substantial delays. And when the exceptions were finally agreed upon, there was really no plan how to control them. Greece, instead, implemented quasi overnight a system where QR-codes had to be obtained for exceptions via SMS. And significant efforts were made to control compliance. I remember that the Greek authorities often announced the number of checks they had made, the number of fines and the total amount of fines. That obviously promoted discipline among the people.

When I told this to my Austrian friends, they said that such was the behavior of a police state. Well, police state or not, when it helps keeping infections and casualties low, Greece was far ahead of most European countries (only some Scandinavian countries were equally successful). So Greece came through the first wave literally as a hero and I could only marvel at that.

By October, the influenza vaccinations were scheduled to begin. Austrian authorities had campaigned for months to motivate people to get influenza shots. The vaccination rate had only been 8% the year before and they wanted to increase that rate to 20% this year. There was only one slight problem: Austria did not have sufficient vaccines! Something had gone wrong with the orders, the authorities explained. And while we were desperately waiting to get the vaccines (by December!), my wife reminded me literally every day that her Greek friends had already been vaccinated. That pained!

As the Corona vaccinations began in early January of this year, Austrians were informed about the national vaccination plan with all of its priorities but there was zero information as to how one could register for vaccinations. Again, my wife told me that her Greek friends were already registering and had received vaccination appointments. That was a very painful period for me. 

In summary, during our 1-1/2 year absence from Greece, I observed from Austria that the Greek authorities handled the situation much better than most other European countries, certainly better than Austria.

When we returned to Greece late last month, a number of things quickly caught my attention. Above all: this was not the country which was expected to be debt slaves for decades and live in poverty and depression. On the contrary, everything and everyone seemed to be booming like in the good old days: overcrowded markets, shoppers all over the place, full cafés and restaurants, overboarding traffic and traffic jams with gasoline prices 30% higher than in Austria, etc. This prompted me to look at some economic indicators which I hadn't done in a long time.

There is no question in my mind that Alexis Tsipras - despite all the chaos which he caused in many areas - accomplished two major things for the benefit of Greece. First, following the (self-inflicted) near collapse in mid 2015, Tsipras had signed practically everything which the Troika proposed without objections. The Troika measures were rather brutal in many ways and I do not believe than anyone other than a leftist politician could have done that (because the leftists in opposition would have torpedoed most of the measures). In sum, however, these measures had positive effects as evidenced by the fact that Greece is now being attested much better competitive ratings than only 5 years ago. And, secondly, Tsipras had refused to enter into a stand-by agreement with the Troika following the termination of the program in 2018. Instead, he opted for the cash reserve strategy and the Troika started it off with a dowry of 15 BEUR.

Since then, the Greek state followed the motto "the time to take up debt is when one doesn't need the money". Today, cash reserves of the state (financed with new debt) allegedly exceed 40 BEUR and another 30 BEUR will come from the EU Resilience and Recovery Fund. Since significant debt maturities will not come until the early 2030s, the Greek state is now completely 'overfinanced' for the next 10+ years and, thus, there cannot be foreign payment problems. Prime Minister Mitsotakis has pursued and even expanded the cash reserve policy - in the last year alone, foreign debt increased by 50 BEUR to 500 BEUR!

Rating agencies are allegedly considering an upgrade of Greece's rating to investment grade. This is very interesting in as much as Greece today has significantly weaker economic indicators than 5 years ago: the debt/GDP ratio now exceeds 200%, the fiscal budget (prior to Corona it had been positive!) is now deep in the red and the current account, which 5 years ago had been almost in balance, registered a deficit of 11 BEUR in 2020, which deficit is likely to increase in 2021. When Greece experienced the sudden stop back in 2010, these indicators were not worse than now.

The fact is, however, that the funds which will flow into Greece in the next few years will be reminisicent of the 'Euro-party' in the 2000's. The Euro-party ended in disaster because the funds were largely misapplied. Optimists argue that this mistake will not be repeated this time around, if only because of the EU's supervision. We will see. The fact is also that Greece now has, for the first time in a long time, a government which includes a significant number of competent and professional individuals. To me, the superstar is Kyriakos Pierrakakis who is responsible, among others, for Greece's digitalization. The man seems to be a magician. I recently read an article which claimed that new digitalization has already saved 23 million working hours in the public sector. There is undoubtedly a bit of propaganda behind that statement but still, there is positive evidence. My neighbor tells me that he can now take care of most of his official business without having to go to public offices. Even though he is not very computer-literate, he can handle most things electronically. And then there is the issue of the Greek land registry. This project had originally been started by King Otto and his 3,000 Bavarian public servants back in the 1830s and hundreds of millions of EU subsidies had been wasted in recent decades. Allegedly, this project is now nearing completion and Greece will have complete digital land registry.

Miracles are unlikely to happen. In daily life, Greeks will undoubtedly continue to live with corruption and tax evasion. However, in those places where it really matters (at the upper levels of public administration, politics, corporate governance, etc.) a trend in a positive direction should be expected. I would not be surprised if this lead to a positive feedback loop and I would certainly not be surprised if foreign investors were to show significant interest in Greece very soon. That would not only bring additional capital to Greece but, above all, know-how.

All of this could suggest that one should invest in the shares of Greek banks. After all, this is where the tsunami of cash will flow in the next years and the business of the banks should be booming. However this will also be the potential Achilles' tendon. The critical issue will be how all that cash is applied, towards profitable investments or towards unproductive investments and/or activities. Time will tell whether economic rationality will drive the conduct of Greeks in the future or not.