Memories of Mount Athos

As I prepare to return to Austria after 3-1/2 months in Greece, key impressions of my stay here come to mind. Right near the top would by my visit to the Mount Athos peninsula about a month ago; my third visit to the peninsula. Below are some impressions.

Costas (from Athens) and I are sitting in a cave at the boat landing site of Skiti Kafsokalivion watching the stormy rain pouring down, the huge waves braking at the dock and hoping that a boat will come to rescue us. This is the southernmost point of the peninsula; sort of the end of the world. It is my second day on Athos. I had planned to spend four days. Right now, in the middle of the storm, I just want to see a boat come around the cape and pick us up and take us back to Ouranoupolis.

24 hours earlier, things had been quite fine. I had arrived at Skiti Ag. Annas, where I had been before, and the plan was to walk to Kafsokalivion on day 1; from there to Prodromou on day 2; and from there to Megisti Lavra on day 3. From Lavra, I would take the bus back to Dafni to catch the ferry boat back to Ouranopoulis.

A minor problem: I had only checked the horizontal distances of the path. I should have checked the altitude changes as well! By the time I had made it to Kafsokalivion (first 800 meters up and then 800 meters down!), I was exhausted. Then the rain storm began. Then the electricity at the church where Costas and I stayed went out. No way to charge a mobile phone. No way to communicate outside. No way to read anything. No way to talk because there was no talking at the church. No way to consider climbing back 800 meters in altitude during a rain storm. In short: trapped at the end of the world with the only hope that a rescue boat would come.

Costas and I are just about to give up when a miracle seems to unfold. Clap, clap, clap. We hear approaching sounds. Suddenly, a young man appears with four mules in tow. It is Elias and he is Albanian. He is here to transport materials from the boat to the church. Elias doesn't think the boat will come but he is here anyway. 

Elias comes across as a smart cookie; in fact, a bit precocious. While Costas and I are ill equipped for the rough weather, Elias has a heavy (and expensive!) raincoat and big rubber boots. No way that he is going to get wet! I strike up a conversation with Elias. Before long, I have the strong feeling that he has classified us as 'dumb tourists'. I am sort of impressed by his natural, cocky self-confidence. Costas, a rather cultured Greek, tells me that the Albanian is just silly. He has no culture. Yeah, I tell Costas, but he looks like a survivor...

Elias has decided that no boat will come and sets out to return to the church 300 meters up the mountain. I ask him whether I could ride on one of his mules and he says yes - for 10 Euros. And, he adds, another 5 Euros for my rucksack. I tell him that this is very expensive and he tells me that it is not. 'What's 10 Euros? Just a couple of packs of cigarettes', Elias explains to me. I tell him that it is a question of having 10 Euros or not having them. Elias is not impressed. 

I tell Elias that I will pay him 10 Euros but carry the rucksack on my back. He says that this will create balancing problems for me. I remain stubborn (because I don't want Elias to literally take me for a ride) and keep the rucksack on my back. And for the next half hour, I learn everything about balancing problems when riding a mule with a rucksack on one's back...

By the time we got back to the church, it seemed that Elias, Costas and I had become rather good partners. Not friends, because Costas didn't think that Elias had culture. And Elias probably thought that both of us were rather dumb (or cultured, for that matter). But we were in conversation. Elias told us that he had been working in several European countries. The last ones were Switzerland and France. He had made good money wherever he was. Now he would stay in Kafsokalivion until next summer. The monks gave him shelter and food in exchange for work he did, and on the side he could make money with his mule business. In the summer he would go back to Albania where the beaches are wonderful and the girls are beautiful. After all, he would have to spend all the money he earned.

I finally agreed to pay Elias 25 Euros to take me up to the top of the path the next morning, and I gave him the money upfront. Costas said he would walk because he didn't want to be taken for a ride by an uncultured Albanian.

The next morning, Costas and I wanted Elias to put our rucksacks on the mule. Elias said that this would be another 15 Euros. Grudingly, we agreed to pay him, and we would pay him once we reached the top. Good thing we did because the path was narrow and the cliffs were steep. One small imbalancing with my rucksack and I might have gone down the cliff. 

As we chatted along the way, Elias told me that he could also take me up all the way to the top of Mount Athos. 100 Euros would be the price. I laughed and suggested that he was crazy.

At the top, Costas pulled out 7,50 Euros for his rucksack. I had no coins and only 50 Euro bills. Elias had no change. BUT: I happened to have a 10 Swiss Franc bill which I gave Elias in lieu of 10 Euros. And then, in the middle of nowhere, one-third up Mount Athos, the uncultured young Albanian said to me:

"Ten Swiss Francs are only 8 Euros at current exchange rates".

Little had I known that the young, uncultured Albanian was also a foreign exchange expert. Neither had the cultured Costas known that 10 Swiss Francs were worth only 8 Euros...

As Costas and I continued our walk back to Ag. Annas, I pondered the idea of ever being at the top of Mount Athos, albeit at the cost of 100 Euros. 

By the time we were on the boat back to Ouranopoulis, I felt rather certain that, possibly next year, I would take up Elias on his offer to take me up to Mount Athos. What the heck! He may be taking me for a ride but what an unforgettable ride it would be!

Test Question: EU Has How Many Currencies?

It helps to remember from time to time that the Euro is not the only currency in the EU. The EU has 28 member states, of which 11 states have their own currency. Of course, the EZ member states have by far the bulk of the EU's GDP but, nevertheless, the EU is an economic and political union which has a total of 12 currencies.

	EU members			EZ members			Local currency
	1	Austria		1	Austria
	2	Belgium		2	Belgium
	3	Bulgaria					1	lev
	4	Croatia					2	kuna
	5	Cyprus		3	Cyprus
	6	Czech Republic					3	koruna
	7	Denmark					4	krone
	8	Estonia		4	Estonia
	9	Finland		5	Finland
	10	France		6	France
	11	Germany		7	Germany
	12	Greece		8	Greece
	13	Hungary					5	forint
	14	Ireland		9	Ireland
	15	Italy		10	Italy
	16	Latvia					6	lats
	17	Lithuania					7	litas
	18	Luxembourg		11	Luxembourg
	19	Malta		12	Malta
	20	Netherlands		13	Netherlands
	21	Poland					8	sloty
	22	Portugal		14	Portugal
	23	Romania					9	leu
	24	Slovakia		15	Slovakia
	25	Slovenia		16	Slovenia
	26	Spain		17	Spain
	27	Sweden					10	krona
	28	UK					11	pd.sterling

Too bad if only one of the twelve currencies would bring the entire EU down!

What the Heck is Going on in Greece?

Even a more than casual observer can't help but despair every once in a while about the Greek situation. Of late, I have gotten used to hearing good news: a primary budget surplus is in place; the current account approaches balance; growth will return next year; and - the budget was passed last night. Additionally, foreign officials have visited Greece and expressed compliments about Greece's progress.

And this morning I read that the Troika is freezing the next tranche for lack of reforms! Below are the facts:

	Reform completions
	Plan	Actual	Percentage
July	35	28	80%
August	26	15	58%
September	47	13	28%

I wonder how many people really know what these planned reforms were; what benefits they were supposed to accomplish; which reforms were completed; and what benefits they have achieved. All we have is statistics and these statistics are certainly lousy.

Which raises the question why one plans 100% reforms when the track record shows clearly that, at best, 50% will be completed. Why not only plan 50% and make sure that they really get done. That way, one would avoid the perception of failure.

This is what Alexis Papachelas recently wrote in the Ekathimerini:

"Here’s one discussion, however, which has never reached Greek society: What are those infamous structural changes that could increase the country’s GDP by 1 or 2 percent? How many have been approved by Parliament following battles and large-scale protests? And exactly how much have they benefited the country’s real economy? How many were actually voted in the House (such as the liberalization of port services) before being subsequently annulled via circulars and other means?"

Well, if a newspaper editor doesn't know what's going on, how should anybody else?

I don't remember the author but I do remember the phrase: "The tragedy of life is not that man loses. The tragedy of life is that man almost wins".

The uninformed public is far from 'almost winning'; it is definitely losing. If a company goes through a major restructuring requiring substantial sacrifices from its staff, one of management's most important task is to keep the staff informed about 'Where were we? Where are we now? Where do we plan to get? And, Why things will be better when we get there!'

I wonder who in the Greek governments feels that his job is to do the same what corporate managements need to do when they manage a crisis?

Personal Views on Greek Mentalities

In an earlier article, a reader asked why I no longer thought that the Euro was the right currency for Greece and I responded as follows: "If the Euro is a currency which doesn't fit Greece's economic capabilities (and the culture of Greeks!), which I have felt for some time now, then there are only two options: (a) get Greece's economic capabilities so that they fit the currency or (b) change the currency to fit Greece. It would be better for Greece, long-term, to get its economic capabilities to where they fit the Euro but I have given up hope that Greece can do that".

I was then asked whether I could substantiate my feelings with factual arguments. Another reader said that his ONE eye-opener had been reading Nikos Dimou's booklet about "The Misfortune of Being Greek". He wanted to know whether I had such a ONE eye-openener, too.

In reply, I used the well-known strategy which one uses when one does not have a specific answer to a specific question: I wrote a long story in reply, hoping that readers would read their own answers into it. Below is my reply.

Not specific hard facts, rather soft facts influence this judgment of mine (which, I agree, may be totally wrong). It is a judgment which has grown over time (‘riped’ so to speak). Every once in a while, I find myself backtracking in this judgment but such periods usually don’t last very long at this point of the game.

I, too, think that a lot of answers can be found in Dimou’s booklet because I think it is really a question of mentality, national character, etc. I don’t want to put a value judgment on mentality and/or national character; I just want to recognize and accept that such things do exist and they develop over centuries. Alexis Zorbas led a life which, from a value structure standpoint, was about the opposite of the value structure which I had been raised with. From that standpoint, I should fully criticize the man’s conduct. And yet, I – like probably many people – envy him more than my mind can pull itself together to rationally criticize him. Why should he be criticized? Because if everyone behaved the way he did, society would fall apart. The point is, however: life would be so much more boring if there weren't people like Zorbas; if there were no Greeks, for that matter.

Let me quote Dahrendorf (from 1995): “For Italy, periodic devaluations are much more useful than a fixed exchange rate and for France, higher government expenditures are more meaningful than a rigid adherence to stability criteria (which are, above all, an advantage for Germany)”. That’s what I try to say about Greek mentalities and value structures. There are apples and oranges in life; thank God there are! Apples may fit the Euro; oranges may not.

Strangely enough, most of the Greeks I meet in day-to-day life are as ‘normal’ as everyone else in Central Europe or elsewhere. We have rational discussions and where we disagree, we agree to disagree. When I am with such people (including some very smart university grads), I come away with the (temporary) hope that Greece will eventually make it in a ‘normal’ world. Those are experiences with individual Greeks. My experiences with Greeks as a collective quickly bring me down to reality (by ‘collective’ I mean mostly what one hears, reads and observes through the media).

So, contrary to you, I don’t have ONE single event. Instead, it is a gut feeling that, after 4 years of rather dramatic crisis, one ought to feel a tendency, a wish for real change. Frankly, I don’t see Greece all that different today than 4 years ago (except a lot poorer) and I don’t sense much of an energetic wish for radical change running through society. 

 
However, there is ONE experience I had many years ago which I am now reminded of very often. The American bank where I spent my first career had 3 large units in Greece and I was supposed to take over country management in 1986 (shortly before that happened, my bank sold the Greek operations to NatWest and that was the end of my wife’s dream of returning to Greece, but that is a different and very complicated story…). We were based in Argentina then and I once had the visit of a colleague/friend, an American who had been country manager in Greece in the 1970s. He felt he had to coach me a bit as regarded my future job in Greece and said some like this: “You know our job application form has sections on ‘personal strengths’ and ‘areas for improvement’. You will find that Greek job applicants leave the ‘areas for improvement’ blank. When I first noticed this, I thought they were inhibited to put anything in writing and would prefer to discuss this in the personal interview. The strange thing was that, even in the personal interview, they would not volunteer any ‘personal areas for improvement’. Not because they seemed inhibited or embarrassed or anything like that. No, they were quite natural about it. They simply could not address the issue that they might have ‘personal areas for improvement’. I should add that we never had anything but the best experiences with local staff!"

A good friend of mine, a Brit who is now retired, spent the last 10 years of his career as a bank consultant based in Greece (his wife is Greek). His projects would always take him to far away places. I once asked him why he wouldn’t seek consulting mandates from Greek banks. His answer? “That would be masochistic! You cannot consult Greeks because they already have all the answers. They will not accept your advice. They will, instead, pretend that, whatever you tell them, they knew it already, anyway”.

In my early years of schooling in Austria, we learned about ancient Greeks' themes like ‘know thyself’, ‘accept yourself’, ‘know that you know nothing’, etc. etc. Somehow, it seems that these themes got lost through the centuries.

One of the key aspects of the Greek mentality, to me, is this ‘susceptibility to flattery’. It is referred to in the Encyclopedia article but also in a briefing which a former US ambassadador once cabled to Washington (published by Wikileaks). He said: “The Greeks are susceptible to flattery and quick to be offended by a perceived slight”. This susceptibility to flattery, one might also think of it as a bit of gullibility, is, to me, a landmark characteristic. Greek voters seem to fall for politicians who are good at playing on these susceptibilities. Someone like Alexis Tsipras strikes me as an expert at this game.

I have visited, as a guest, all 5 or 6 Rotary Clubs in Thessaloniki. Between them, I could easily form at least one complete Greek government of responsible and professional leaders who know what they are doing. Add to that the thousands and thousands of Greeks who have the same capabilities. Consider that against the certainly millions of decent Greeks who would like to be governed by decent leaders. The resources are there! They just don’t seem to come together.

The widely spread ‘Greek irrationality’ is part of the great charme of Greeks and it can be a lot of fun to watch; in relaxed times, I hasten to add. In stressed times, that irrationality can take one’s nerves apart (and I say this after close to 40 years of marriage with a Greek…). Colleagues at my first employer who had spent time in Greece would crack the joke that “Greeks gave the logic to the world. The only problem is that the world never gave it back to them”. Good for a lot of laughter. When it plays out in serious reality, it can drive someone nuts.

In conclusion: since I didn’t have a short answer to your question, I had to write this long piece but I, nevertheless, hope that you can understand what I am trying to get across.

Encyclopedia Britannica 1911 on Greeks

"The Greeks display great intellectual vivacity; they are clever, inquisitive, quick-witted and ingenious, but not profound; sustained mental industry and careful accuracy are distasteful to them, and their aversion to manual labour is still more marked. Even the agricultural class is but moderately industrious; abundant opportunities for relaxation are provided by the numerous church festivals.

The desire for instruction is intense even in the lowest ranks of the community; rhetorical and literary accomplishments possess a greater attraction for the majority than the fields of modern science. The number of persons who seek to qualify for the learned professions is excessive; they form a superfluous element in the community, an educated proletariat, attaching themselves to the various political parties in the hope of obtaining state employment and spending an idle existence in the cafes and the streets when their party is out of power. 

In disposition the Greeks are lively, cheerful, plausible, tactful, sympathetic; very affable with strangers, hospitable, kind to their servants and dependants, remarkably temperate and frugal in their habits, amiable and united in family life. Drunkenness is almost unknown, thrift is universally practised; the standard of sexual morality is high, especially in the rural -districts, where illegitimacy is extremely rare. 

The faults of the Greeks must in a large degree be attributed to their prolonged subjection to alien races; their cleverness often degenerates into cunning, their ready invention into mendacity, their thrift into avarice, their fertility of resource into trickery and fraud. Dishonesty is not a national vice, but many who would scorn to steal will not hesitate to compass illicit gains by duplicity and misrepresentation; deceit, indeed, is often practised gratuitously for the mere intellectual satisfaction which it affords. In the astuteness of their monetary dealings the Greeks proverbially surpass the Jews, but fall short of the Armenians; their remarkable aptitude for business is sometimes marred by a certain short-sightedness which pursues immediate profits at the cost of ulterior advantages. Their vanity and egoism, which are admitted by even the most favourable observers, render them jealous, exacting, and peculiarly susceptible to flattery. 

In common with other southern European peoples the Greeks are extremely excitable; their assionate disposition is prone to take offence at slight provocation, and trivial quarrels not infrequently result in homicide. They are religious, but by no means fanatical, except in regard to politico-religious questions affecting their national aims. 

In general the Greeks may be described as a clever, ambitious and versatile people, capable of great effort and sacrifice, but deficient in some of the more solid qualities which make for national greatness".

Source: Encyclopedia Britannica 1911

Experts Favor Debt Re-Profiling!

Back in 2011, I had written a whole series of articles on how the debt problem of Greece (or any other country, for that matter) should be handled whereby my views reflected the experiences which I had as an active participant in the debt reschedulings of Chile and Argentina in the 1980s. Interested readers can look up the respective sections in my blog inventory.

International finance and insolvency experts recently discussed this issue at a meeting in Santa Monica, California. The group included Lee C. Buchheit, often referred to as the laywer with the most experience with sovereign debt crises (Buchheit was legal counsel to Greece with the issue of the haircut). Here is the report of the meeting.

The report addresses the role of the IMF specifically but it would apply to official lenders in general (ECB, Troika, etc.; essentially the tax payers). The report summarizes the options available to officaldom as follows:

1. "Full Bailout" - Lend the country the amount needed to repay in full all obligations maturing during the program period.
2. "Pre-Emptive Restructuring" - Require a full restructuring of the country's debt at the outset of the program in order to remove any doubt about the sustainability of that debt stock.
3. "Re-Profiling" - Require a milder form of restructuring that pushes maturities out of the program period without imposing haircuts.

Back in 2011, I had argued ad nauseaum that Greece's debt should not be refinanced or forgiven but that, instead, it should be 're-profiled' ('rescheduling' was the term used in my day). I am glad to see myself supported by the views of the above experts who note the following benefits of a re-profiling:

* reduce the call on tax payers' resources
* allow time for diagnosis
* allow time for adjustment mesures to take hold
* lock in the private lenders
* allow time to hedge
* incentives for debtor countries

A very important benefit, not mentioned above, is that the country can continue to say that 'we will honor our entire debt' (regardless of whether eventually it will be able to do that or not, but 'eventually' is a long time off).

What does a re-profiling mean? That depends on how it is structured. In the extreme case, it could extend all maturities of principal and interest for, say, 10 years or more. In practice, this would be equivalent to a haircut for 10 years (or more). The debtor country has no debt service during this time and the lenders retain all their legal claims.

There is one major problem with that, and the report mentions it. There will always be holdout's. There will always be a small creditor and/or a hedge fund who will blackmail the majority (and legally he can do that!). The report does not offer a solution to that question, it only stipulates that the question of how to treat holdout's must be agreed upon at the outset.

My suggestion would be: pay them off and tell them that they will never do business again with any lender participating in the re-profiling!

The Gigantic Dimensions of Germany's Foreign Assets Position!

The table below shows the net foreign asset position of Germany as it is composed of foreign assets, reduced by foreign liablitities. All amounts are in BEUR.

	Assets			Liabilities			Net Assets
	2011	2012		2011	2012		2011	2012
A. Financial Sector	2.863	2.746		2.679	2.632		184	114
B. Private Sector	2.788	3.074		1.728	1.841		1.060	1.233
C. State Sector	238	295		1.271	1.349		-1.033	-1.055
D. Bundesbank	715	921		47	107		668	815
Grand Total	6.604	7.036		5.725	5.929		879	1.107
	Annual GDP ca. 2.660!

There are various ways to look at a foreign assets/liabilities position, depending on what point one wants to make. If one wants to make the point that Germany is exporting its savings, one has to look at the net position. Every country will always export some of its savings but it also imports the savings of other countries. When savings imports exceed exports, the country is a net borrower. When exports exceed imports, the country is a net lender. Germany clearly is a net lender to the rest of the world with 1.107 BEUR net foreign assets at Y/E 2012.

Net exports of savings and a net foreign assets position are a function of current account balances. Current account surpluses translate 1:1 into increases in net foreign assets. It should be noted that Germany's net foreign assets (net capital exports) are approaching 50% of its GDP!

If one wants to make the point that a country carries substantial financial risks outside its borders, one has to look at the gross foreign assets position. Why? Because, generally, there is no right of offset between assets and liabilitites (except, perhaps, in selective transactions like swap agreements between Central Banks). If the rest of the world went bankrupt, the German economy would be out of 7.036 BEUR (as per Y/E 2012) while the liquidator of the rest of the world would still have claims of 5.929 BEUR against the German economy.

Having said all that, the sum of German economic agents (banks, insurance companies, corporations, private individuals, the state, the Bundesbank, etc.) had 7.036 BEUR at risk outside German borders as of Y/E 2012. Is that a lot? Well, it is close to 3-times the GDP of the German economy. That's a lot!

What's wrong with foreign assets if they are wisely and safely invested? Well, they are subject to foreign jurisdictions, in the first place. Secondly, they can't all be wisely and safely invested. Money flows, directly or indirectly, from those who have it to those who need it, and those who need it are a greater risk than those who have it.

This article from the WSJ calculates that, from 2007-11, the German economy lost 575 BEUR of its foreign assets (just think of the losses which German banks and insurance companies have taken in sub-prime, Lehman, Iceland, Ireland, Greece, etc.). If that figure is only half-way correct, it would suggest that the German economy has lost 10% (or more) of its foreign assets during the period.

When savers lose 10% of their depositis, there is an uproar. Why was there no uproar (yet) despite the significant loss of foreign assets? Because those losses have not been felt directly by the German tax payers. They were recorded at upper layers of the economy (banks, insurance companies, etc.). 

When do losses of foreign assets hit the tax payers? In the short term, mostly when they flow through the budget. Those losses flow through the budget when the state itself loses foreign assets (i. e. when the state writes off a, say, rescue loan to Greece) or when the state has to spend inordinate amounts of money to bail-out a bank like HypoRealEstate because that bank lost tons of foreign assets.

As I said in the beginning, gross foreign assets are heavily driven by current account surpluses and net foreign assets are driven entirely by current account surpluses. Once Germans begin worrying about their country's foreign assets position, they may perhaps be persuaded that an economic model which continually increases that position (i. e. excessive and chronic current account surpluses) is perhaps not in the best interest of Germany.

If reason does not work, just scare Germans that their pensions and future living standards are not safe. That will work any time!