Friday, 13 July 2012

No News Is Good News

I recently received an excited call from a friend in Athens. “You know, for the first time in I don’t know how long there was no story about Greece, not a word, in The Financial Times!” After a trip to Greece it does indeed seem as if a relative, tenuous calm has settled over the country after a winter and spring fraught with demonstrations, threats of imminent bankruptcy, and elections. Maybe it’s the summer season when the beaches are more attractive than the barricades. Maybe it’s just sheer crisis exhaustion. In any case, the new government may well have won a grace period to get started on the mammoth task of national reconstruction.
The Financial Times - Nothing On Greece Today
In fact, if one looks beneath the static and noise about Greece, the situation shows clear signs of improvement. A recent Goldman Sachs report says “there is evidence that significant structural progress has been made in terms of ‘rebalancing’ Greece.” The report notes that exports continue to grow at double digit rates and labour costs have declined almost 30% relative to core Europe. Unit labour costs have dropped about 16% since the program began in the second quarter of 2010 – close to the program’s requirements. In short, the much discussed internal devaluation is happening. On top of these developments the trade deficit is near zero. The report also notes that despite ‘headwinds’ caused by the prolonged election period and ongoing steep decline in output, ‘budget execution data for the period January – May 2012 suggests that the program is broadly on track.’ The primary budget deficit (not including interest payments) was almost €2 billion less than expected.

None of these developments has yet been reflected in the bond market or, more importantly, in news reports about Greece. The media commentary seems focused on disaster scenarios and the question of when not if Greece leaves the Euro. Potential foreign investors don’t even want to hear the word Greece. One allegedly experienced private equity investor in New York reacted with shock and horror at the thought of capitalizing on low asset values in Greece. “Yeah, prices are low and they’re going to stay low. This is Greece we’re talking about, man. Speak to me when they leave the Euro.” This was from someone who has seldom been further east than Coney Island. While other potential investors are bit more worldly the general attitude is the same. My comments about Greek investments potentially exceeding the gains from Russia since 1998, Turkey since 2002, or the S&P 500 since 2009 fall on deaf ears.

It would help a great deal if Greece could complete even one major privatization – sale of state assets. These are difficult transactions in all countries, but even more so in Greece where there seems to be an in-built fear and deep distrust of anything to do with the private sector – Greek or foreign. There is an abiding belief that only state ownership guarantees equality of service (all bad, but at least bad for everyone) and protection of the interests of the ‘people’. The miserable reality of 80 years of state ownership in the former Soviet Union never seems to dissuade anyone from this viewpoint.

The Greek gaming company OPAP is supposed to privatized
An otherwise extremely intelligent friend reacted with total indignation at the thought of selling even the money losing state companies. What was his real fear? He was convinced the private buyers would fire all the workers and shut the company down. I pointed out that it wouldn’t make much sense to pay billions of Euros for a company only to shut it down. His response? “Huh, just you wait and see.”

The  argument that private owners could possibly run the companies more efficiently, avoid political interference, and make long-overdue investments didn’t impress him either. Finally I asked why he would continue to entrust the country’s economy to the same state bureaucracy that created the mess in the first place.  Ah, he says, the Swedish state is very involved in the economy, and that works fine. I tried gently to remind him that Sweden, where people generally pay taxes and abide by regulations, is not Greece. When I pointed out that Turkey is moving aggressively this year toprivatize large state enterprises like the oil pipeline company, the state tea producer, and the post office he started to hyperventilate and I decided it was time to agree to disagree.

Turkish state tea operations set to be privatized

This deeply ingrained mindset will not change quickly. But, despite this prevailing attitude, changes are in fact being made. But, as I overheard one tourist on the Acropolis looking at the construction cranes around the Parthenon, much remains to be done. “Hon, no wonder these people are in trouble. They been working on this for 2,500 years and they’re still not finished.”

Still working on the Parthenon

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