Monday, 28 May 2012

Be Very, Very Careful What You Wish For

Citizens of Tokyo, Madrid and Istanbul have just received some horrible news. According to the Associated Press those cities have been short-listed to host the 2020 Olympic games. If they value their municipal and national budgets along with their peace of mind the citizens of Tokyo, Madrid and Istanbul should immediately follow Rome’s example and respectfully withdraw from this ridiculous contest.
The London Olympic Logo

Take my word for it. We live in London which in 2005 won the exceedingly dubious prize of hosting the Olympic Games this year. And we have been paying for it ever since. Transport, never one of London’s finer points, has become impossible. Unlike Paris, London does not have a system of grand, wide boulevards that can speed traffic along. No, the streets here are narrow and crooked and crowded at the best of times. Add the Olympic buses and large trucks and you have the makings of complete grid-lock.

The Goal ....vs. .....
Roads that are not dug up are being closed so that oleaginous Olympic officials can ooze their way quickly to their favourite watering holes while the rest of us are being told of the joys of walking to work or perhaps not going to work at all. One suspects that the  real reason for London’s Olympic bid was to find an excuse to upgrade infrastructure that has not been touched since Queen Victoria was a young girl. All the inconvenience to the hapless residents of London is being excused as ‘essential for the Olympics.’ Roads, water mains, gas lines, electricity grid, and the metro system have all been torn up for the last several years in a frantic attempt to finish them before the excuse of ‘The Games’ passes its sell-by date.
.....  The Current Reality
Citizens of Istanbul, Tokyo and Madrid should hang onto their wallets very tightly when officials start talking about the cost of the games. When London was awarded the games in 2005 the cost was supposed to be a mere £2.4 billion. The most recent figure is closer to £11 billion – almost five times overbudget.  

In Theory This Will Finish In Time
Japan and Spain can afford to be a bit blasé about bidding for the games. After all they have hosted both the summer and winter games before. For Turkey, however, this is a not-to-be-missed opportunity to show all those doubters in the rest of the world that Turkey has arrived and should definitely sit at the High Table of major nations. Turkish amour propre  demands no less. No bid will be too large – not where prestige and ‘image’ are concerned. The prime minister who champions building a canal to lighten the load on the 20-mile Bosphorus Strait will certainly dig very deep to buy these Olympics. Anyone suggesting that perhaps the Turkish budget could do without the extra strain of hosting this folly will be castigated as milli hain – national traitor. I have no doubt whatsoever that Turkey could physically host these games. There will be no arguments over location of venues. Whole neighbourhoods will be levelled and roads torn up if necessary. Istanbul is a fascinating city that remains a major tourist destination. The Olympics would simply be icing on the cake. Yes, there might be the odd security issue or question about freedom of the press. But these will be buried under a mountain of pretty pictures of the Bosphorus and the Covered Market filled with tourists loading up on knock-off  Louis Vuitton handbags..

Despite all the hullabaloo and hype about the Olympics, which have come to resemble the trashy Eurovision contest, one really does have to ask if the whole thing is worth it. Have the Games gotten so big, so pompous, so political and so incredibly commercial that they have lost their original meaning? Isn’t it time to slim them down and perhaps leave events like Beach Volleyball to the beach at Ipanema where it will be followed by hordes of hormone-challenged young men?

But isn’t it really time to stop this foolish, degrading and very, very expensive competition among global cities to host the games? Why don’t the powers-that-be take the truly brave and radical step of selecting one permanent location for the Games? Think of all the money that would be saved. None of the venues or Olympic villages would be left to rot after the games. The opportunity for the type of corruption that dominates the world football organization would be removed forever. Committee members would have nothing to sell. Transparency, economy and plain common sense would win.

OK, you say. But where? Probably can not be in the United States, Russia or China. Neutral Switzerland, already over-loaded with international organizations, might be an idea. But the weather could be a problem. And do the Swiss really want hordes of foreigners (especially those without large bank accounts in Zurich) descending on their pristine mountains every four years? Probably not.

Bring The Games Home to Athens

Why not Athens? Yes, Athens. The Games started there. The infrastructure from the 2004 Games is in place. The weather is no problem. And the time zone is not too bad for television.
After being ridiculed and roughed up in the world press for the last several years, such a decision would give the Greeks something to cheer about – something that would actually add to their economic fortunes. And by the time all this comes to pass, the economy might even be sorted out.

It is definitely time to Save The Olympics. And bringing them permanently back home would be a good place to start.

Friday, 18 May 2012

The Hugo Chavez Of The Aegean

Few people understand modern Greece better than Nicholas Gage. In his poignant and powerful book Eleni he tells the story of growing up in a mountain village in northern Greece during the Civil War in which his mother was executed by communist guerrillas. He knows his Greek demagogues and extremists better than most.

When he calls the rising star of Greek politics ‘daring, cunning’ and ultimately very dangerous for Greece it is worth paying attention. His column in Friday's International Herald Tribune  puts Alexis Tsipras, leader of the rapidly rising radical party Syriza, squarely in the tradition Alcibiades in ancient Greece and Nikos Zachariadis, leader of the communists during the savage Greek civil war.

 In the inconclusive election on May 6 Tsipras brilliantly played to the anger millions of Greeks feel about the destruction of their comfortable life style.  His party’s vote increased sharply as he outmaneuvered his clumsy opponents at every turn by constantly re-defining the debate. According to him it is no longer about reform of the sclerotic Greek state. It’s all about the ‘austerity’ that the evil Troika has forced on Greece or about the evil politicians that agreed to the reform program. Many polls put Syriza in the lead for the second election on June 17.

His brilliant solution to Greece’s problems is to hire yet more civil servants (all of whom will naturally vote for him in the future), nationalize the banks, increase taxes even more, and stop all the feeble attempts at privatization and liberalization of the economy. Basically he wants to take Greece back to the conditions that created the mess in the first place.

Who is going to pay for all this? In his brave new world Greece can renege on the reform program arranged with the Troika and somehow still remain in the Euro. If, and I admit it is a big if, the European leaders stick to their guns Greece under Tsipras will simply run out of Euros early this summer. Then, in order to fulfil his extravagant promises, he will start printing drachmas­ – lots of drachmas.

But he does have one great advantage over the bureaucrats in Brussels. Party leaders like Tsipras love confrontation. They thrive on it. European Union bureaucrats hate confrontation. They want everything settled quietly and politely around long conference tables arrayed with bottles of water and neat little note pads. Tsipras could well hound them into submission with his unrelenting polemics. Jean Claude Juncker, head of the Euro Group, has already started to run up the white flag of surrender by saying that they should take another look at the Greek agreement.

The negotiating style is well known. Demand, shout, demand again, never compromise, stay there all night if you have to, shout and bang the table until your opponents give up out of sheer fatigue and hunger. This is the all-or-nothing approach where compromise is a four-letter word.

In short order, Tsipras would become the Aegean version of Hugo Chavez of Venezuela and Christina Fernandez of Argentina by riding a wave of economic populism to strong election results. Unfortunately the same wave that carries him to the top will come crashing down  on the long suffering people and bury them for a long time.  

In the old days he could play the West off the Soviet Union and basically blackmail one side or the other to support him for geo-political reasons. Now, this is much harder to do. It’s extremely doubtful that either Russia or China would volunteer to take on the Greek headache.

The investment vultures are waiting eagerly for this Greek collapse. I have been told by more than one person over the last several months that they consider a Greek default and a return to the drachma as inevitable. “Things are going to get a lot worse fairly soon. Then the prices could be interesting.”

Gage sums up the hard realities facing a Greece under Syriza.

“Yet many Greeks look to Alexis Tsipras as the leader they have been waiting for – bold, daring, cunning. What they don’t realize is that he is also very dangerous, with a vision for Greece that will isolate it from the rest of Europe and reduce its people to the kind of poverty they have not seen in half a century.”

It is nothing but very cynical deception to attempt to delude the Greek people by claiming that a repudiation of the reform program will improve their economic situation. It won't. Such a repudiation would cripple an already weak economy. The real tragedy would be to give up on reform before it has even begun to bear fruit.

Sunday, 13 May 2012

We Have Seen This Bad Film Before

Financial markets were crumbling. A seat on the Stock Exchange costs less than a taxi license. There was a sense that the centre could not hold against:

·                    Uncontrolled expenses
·                    Declining revenues
·                    No access to debt markets
·                    Powerful vested interests blocking any changes
·                    Fraudulent accounting
·                    Soaring deficits
·                    Near bankruptcy

Rating agencies had downgraded the city’s debt. The banks were unable to find any buyers for the debt required to roll over New York’s obligations. On top of this the state and federal governments had turned down any additional assistance on the grounds that the city first had to get its own financial affairs in order. Essentially the city was threatening the state and federal governments with the potential chaos of a huge municipal bankruptcy unless it got the required aid. The state and federal governments, for their part, were using the lever of potential aid to force the city to make hard choices.
New York On A Chilly Day
This stand-off culminated in the refusal of President Gerald Ford to give federal aid in October 1975 and the classic New York Daily News headline the following day. Ford to City: Drop Dead.

Change the names and you have the current stand-off between Greece and the European Union. But there is one major difference. In 1975 New York was fortunate to have several brilliant financiers and a strong governor who were given the scope to devise a bold, imaginative program involving compromise, increased state control of the city’s finances, additional state aid, and, ultimately, federal assistance. There are undoubtedly equally brilliant financiers inside and outside Greece willing to help. But, for now, they are on the sidelines while official Greece and the European Union offer only a collection of midgets who confuse self-defeating micro-measures with the bold reform required to pull Greece and the rest of the EU out of a downward spiral.

On the night of the Daily News Headline, financier Felix Rohayton was having dinner with Governor Hugh Carey at the restaurant Elaine’s in the city. When he heard of the federal rejection Rohayton recalls “I thought it was the end of us. But he (Carey) thought it was the beginning of winning. He was right.” Rohayton was to lead the Municipal Assistance Corporation set up by the state to raise money for the city. The Emergency Financial Control Board was established to bring order to the city’s chaotic financial management. The unions saw the light of day, and finally compromised on job cuts and salary adjustments.  The rest, as they say, is history. New York regained its fiscal balance and went from strength to strength – even overcoming 9/11.

What is so troubling about the Greek situation is the how rhetoric is getting further and further away from reality. The electoral fortunes of the Greek political party Syriza have risen sharply as it attacked the ‘barbarous’ conditions of the memorandum accompanying more than €100 billion in aid. The conditions are indeed tough, but then the hole that the Greek state dug for itself is very, very deep. The party makes no mention that this assistance, however tough, is keeping Greece afloat right now.

Syriza has cleverly and successfully changed the terms of the debate from overdue reform of the Greek state to the supposed evils of the Troika (European Commission, IMF, and the European Central BNK). Just listen to one Euclid Tsakalotos who calls himself an economics professor at Athens University.

“That isn’t the Europe that the original inspirators (?) of Europe imagined. We’re demanding a more democratic, a more social and a more just Europe.” Forget the fact that Greece is not in a position to demand anything, this whining and pugnacious attitude is not going to help Greece very much even if it finds some support in Europe.

Not a word here about the desperate need for structural changes in Greece. He simply wants the northern Europeans to hand over billions more in assistance without any annoying conditions. He completely ignores the inconvenient truth that without those painful changes Greece cannot possibly recover whether in stays in the Euro or not.

The pity is that many of these structural changes do not involve vast amounts of money. But they do involve taking on very strong vested interests like the bloated civil service, professional organizations, and even academia that have stifled growth and change in Greece for so long. It is these changes, far more than the abused and hated ‘austerity’ that will help Greece get on its feet.

Sadly, the rhetoric on all sides dances around this point. Syriza clearly doesn’t think they are important. The Germans prefer to force Greece into an ‘austerity’ program before focusing on the deeper structural changes. Only IMF Director Christine Lagarde recognizes the importance of reversing the order of austerity and structural change. But she was overruled by Chancellor Angela Merkel who faces an electorate furious at giving another of their precious pfennigs to Greece.

It would be nice if Greece and the EU could take a page out of New York’s book and come up with some bold decisions that actually address the whole issue of the viability of the Euro itself. Otherwise we may well see a Greek headline: Merkel to Greece: Drop Dead.

Tuesday, 8 May 2012

Maybe It's Time For Greece To Leave The Euro

From a hard-nosed economic point of view it makes absolutely no sense for Greece to leave the Euro and revert to the drachma. The disastrous consequences of such a move would go far beyond what some economists blithely characterize as ‘collateral damage.’ And yet, according to the election results, this is precisely where Greece is headed.

Voters say they are sick and tired of being bossed around by Germans and the Troika (European Commission, IMF, and European Central Bank) that have imposed severe structural reforms in an effort to fix the Greek economy and administrative structure. Voters say they want to tear up the agreement that transfers billions of Euros to Greece in return for the difficult reforms that so far have taken a great deal of money out of their pockets through reduced pensions and salaries. And most shocking of all, those nasty people at the Troika even want the Greeks to work harder and start paying taxes. The irresistible force of Greek unwillingness to change will soon meet the immovable northern European object of unwillingness to continue shovelling money to their wayward Greek cousins. One clear outcome of this clash is a Greek default and departure from the straitjacket of the Euro.

As much as I believe a return to the drachma would create even more hardship it may be the only way out of this mess. Efforts to impose a solution from the outside are doomed to fail. At this point any external solution, no matter how economically sound and well meaning, will be still born. A Greek government may be bludgeoned into signing a draconian reform package, but that package will have no credibility and will be rejected in one way or another by the people. Within a matter of months, if not earlier, Greek bureaucrats under enormous domestic pressure, will have bent and amended the agreement completely out of shape.

Let The Greek People Work Out Their Own Solution

Rather than waste time on more acrimonious debate would it not be better to stand back and let the Greeks experience the consequences of default, sky high inflation, and collapse of the banking system that would accompany a return to the drachma? Let the Greek people themselves devise a solution. The EU could then concentrate on reinforcing the firewall to make sure the Greek contagion does not spread. With much of the external Greek debt already written off the impact of a Greek default and departure from the Euro would be less dangerous than a year ago. Also after other weak countries see the post-Euro condition of Greece they may just redouble their efforts to stay in the single currency. The alternative of pouring even more billions of Euros into Greece in return for reforms is doomed to fail. The bitterness felt by the Greeks toward Germany and the Troika spills out even in casual conversation and makes it very difficult to implement any changes.

“We’re Greeks, not Germans.” “The sun shines here. We can’t work as much as the northerners.” “The Germans owe us money from World War II. We don’t owe them a penny.”
“The European Union bureaucrats are as guilty as we are. If our numbers were so crooked why did they let us into the Euro in the first place? Were they sleeping?”

All such comments miss the point that no one forced the Greek state to borrow so much money. No one forced consumers to borrow recklessly. No one forced Greek officials to siphon off so much money in corruption. No external force imposed the self-interested restrictive economic regulations that do so much to stifle growth. Removing those restrictions would not cost a dime, and would do much to stimulate the sustainable growth everyone says they want. But resistance to such a move is great.

Such points may be perfectly valid, but given the current level of popular anger, they are, unfortunately, completely irrelevant. It is time to face this reality and stop kidding ourselves. No package devised in Brussels or Berlin has a hope in hell of being accepted by the Greek people. It is time for Greece to bid adieu to the Euro and find its own equilibrium. Make no mistake. This will be extremely difficult and painful. But there is a chance that after going through this struggle Greece may just find a solution acceptable to most of its people.

From Farm Yard to Fashion Item

Without a doubt the most successful United Kingdom export, used and copied around the world , is the ‘English country squire look’  complete with waxed Barbour jacket and the iconic rubber Wellington boots. Never mind that these items were originally designed to keep people warmish and dryish in a damp and cold climate.

The Wellington boot that started life as a humble, utilitarian piece of rubber footwear serving generations of farmers and stable lads well has now miraculously been transformed into an indispensible fashion accessory from Hong Kong to Rio de Janeiro. The boot allows you to muck around the barnyard all you want, leave the boots lined up neatly in the mud room and enter the house with reasonably clean feet. As school children in rural New England we used to wear the insulated version of those boots from October until April. Once we had a teacher new to the area who wanted us take the boots off before coming into her class with its nice clean floors. This attempt at tidy housekeeping lasted only a few minutes before she decided that the potential damage to the floor was less dangerous than the lethal gasses emanating from our thick wool socks that were changed perhaps once every two months.

The Basic Wellington Boot

No self-respecting country home would be without several pairs of these boots ready to clump around damp fields covered in knee-high gorse that hides mounds of animal droppings. Those city visitors who foolishly thought they could escape the mandatory freezing country-side rambles by leaving their boots at home are boisterously handed a convenient spare pair that bears the marks of many a forced march over the moors and highlands. It is made crystal clear that the path to that warming glass of whiskey in front of a roaring fire before dinner lies through the bogs and fields well marked with ‘public footpath’ signs.

Today, however, it is clear that the requirements of highlands and farm yards have moved to the wilds of Kensington, Knightsbridge and Chelsea in London as form surely transcends function. The weather can be warm and sunny, the streets dry, and not a barnyard animal in sight – but legions of London shoppers feel compelled to replace Ferragamo with Hunter as they trod the floors of Harrods and Harvey Nichols that can be as slippery and hazardous as any Devon moor. It is not just London that has succumbed to the dubious charms of high rubber boots. Smart shopping centres in places like Istanbul, where it may not have rained in three months, are filled with people showing off their latest English country footwear.

Makers of these boots have clearly grasped this phenomenon and now market their product in a wide variety of colours, heights, and size. Where once you had the bog-standard unisex green boot you now find pink boots, ankle high boots, polka-dot boots and patriotic boots with the Union Jack on them. Not to miss out on a trend, the French produce an up-market boot called the Chameau  that can be yours for about £300, or $470, compared to about $70 for the standard version. For sure, a very nice rubber boot. But still a rubber boot. The Irish also realized a good thing, and produce a boot with leather bands that also sells for about £300. As one shop keeper explained, the Dubarry are ‘much too smart’ to use for something as basic as farm yard work. Maybe they’re suitable for a trip to the horse races at Cheltenham, in the stands mind you, not the stables.

The Vital Dubarry Accessory -- Yours for about £300
The Chameau -- Another £300 Accessory

The proper English country look would not be complete without two other fashion items – the monster Range Rover 4X4 and the ubiquitous waxed Barbour jacket. Once upon a time Rover produced a utilitarian country vehicle called the Land Rover. It steered like a tank, seemed to have no springs, and had a transmission requiring both arms to change gears, but it could go anywhere. There was a certain cachet to owning a beat-up Land Rover, but now the city-dwellers prefer the Range Rover with all the mod cons like automatic transmission, electric windows, and comfortable seats. The fact that it completely occupies many of London’s smaller streets and guzzles gasoline in a country where gas cost about $9/gallon does not seem to bother anyone. They are the indispensible to establish one’s place in the daily school run, for the jaunt to the country house in the Cotswolds, or for lining the village green during the local cricket match.  Just don’t actually take them out into the fields.

This sort of unconscious cultural image projection is a much more pervasive and powerful marketing tool than any number of mind-numbingly boring trade fairs. Take the American West, for example. Cowboy hats, boots and chaps to protect your legs from thorns and cactuses are very useful items when actually riding in the wide open spaces of western America. But now, just like the Wellingtons, cowboy boots have become just another fashion item. Walk down the wild, open spaces of any London street and you will see legions of women staggering along in high heeled cowboy boots. They are often wearing wide-brimmed cowboy hats to shield themselves from the brilliant London sun.

Forget the trade fairs and brochures to market useful things like machine tools. Just re-play British TV classics like Upstairs, Downstairs  and Downton Abbey or American Westerns like Gunsmoke and Bonanza. Then your image-fulfilling products will jump off the shelves.

Monday, 7 May 2012

At Least The Flag Has Returned

Well, at least the weather is good and the flag on Andros is flying again. A group of private Andros citizens, with no help from any official sources, decided on its own to buy a new flag and hoist it up the flag pole next to the ruins of a Venetian fort guarding the harbour. The rubbish, however, remains in the same sorry state as Greek politics. In rubbish as in national politics and economic matters the people are united in what they don’t want, but completely disunited on exactly how to achieve what they say they do want.

The Flag Is Once Again Flying

 Voters in the general elections completely rejected the two traditional forces of the so-called left and so-called right that had dominated Greek politics since 1974. Many would say that the families and groups dominating those parties have actually ruled Greece for much of the last 100  years. Antonis Samaras, leader of the conservative New Democracy, badly misjudged the mood of Greek electorate when he demanded an early general election before any benefits of the structural reform package filtered down to the people. He had hoped to use the widespread discontent with the Socialist party PASOK to catapult his party into a leadership position. This narrow political calculation backfired badly.  Instead of attaining a leadership position he has plunged Greece into a prolonged period of uncertainty. Both the main parties were severely punished at the polls, and the new Greek parliament will include parties, from the neo-Nazis to the old-line Stalinist communists. It is doubtful that any party will be able to form a government. Therefore, the country will have to go through the entire general election process again sometime this summer. Well done, Mr. Samaras.

Assuming you can even get these diverse parties to sit in the same room, finding something – anything - for them to agree upon will require more skill and statecraft than any Greek politician seems to possess. More than 60% of the votes were cast for parties that rejected the tough structural reform program that has made austerity a four-letter word in Greece. Voters demonstrated that they were shocked, Shocked at the levels of cronyism, corruption and sheer administrative inefficiency that had brought the Greek economy to its knees. Millions of those same voters, however, conveniently ignored the extent to which they had benefitted handsomely from the same pattern of cronyism, corruption and inefficiency that would make any self-respecting banana republic blush.

Poll after poll has shown that Greeks by an overwhelming majority want to retain the Euro and remain anchored in the European Union. So far, so good. But, as yesterday’s election clearly shows, those same voters are unwilling to take the steps required to remain a member of the Euro club. The parties they voted for reject completely the reform package laboriously arranged with the Troika of the International Monetary Fund, the European Commission, and the European Central Bank. They blithely talk about ‘renegotiating’ the program. If the Troika, as expected, rejects any talk of renegotiation then these political parties advocate defaulting on the mountain of Greek debt, leaving the Euro and returning to the drachma. These steps are supposed to bring prosperity back to Greece and enable the hard-pressed voters once again to fill their pockets with freebies from the Generous State. The only problem with this scenario is that the Generous State no longer has any money.

Now, thanks to Mr. Samaras’s insistence on early elections, Greece is at a point where default and return to the drachma are no longer inconceivable. The Greek stock market greeted this election outcome by falling 7% on Monday. Bank stocks were down an incredible 19%. Further time will be wasted while the parties fruitlessly try to form a government with ever more unlikely coalitions. When it becomes clear that it is impossible to find a coalition with enough power actually to run the country the whole process will begin again with another election. In the meantime, nothing will get done. This is a luxury Greece can not afford.

This national indecisiveness is reflected even in local issues like the rubbish on Andros. Everyone wants it to go away. But you ask three people just how this should be accomplished and you get at least five opinions. There’s vague talk of a modern treatment plant. But where to put it? Everyone thinks such a plant is a good idea – as long as it is far away from their land. Greece is by no means the only country to suffer from the NIMBY (Not In My Back Yard) syndrome, but unfortunately Greek institutions are not strong enough to overcome this problem and force a compromise. Elected officials on the island don’t want to offend anyone by taking difficult decisions on issues like treatment plants for rubbish and sewage. One is reminded of Charles Dickens’ character Mr. Micawber who lived on the faith that ‘something would turn up.’ Unless they take those difficult decisions, however, the only things that are going to ‘turn up’ are overflowing rubbish bins and a severely polluted harbour.