The Greek Crisis Has Some Dreaming Of Independence -- From Athens

The only funny thing about the sad situation in which Greece finds itself is reading essays about what the Greek people ‘must’ or ‘must not’ do from renowned economists and leading academics writing comfortably from their offices thousands of miles from the turmoil. They are not the ones lurching from crisis to crisis worrying about when the money runs out, when the pharmaceuticals run out, when their pensions run out, or even if the food runs out.

Even Nobel Prize-winning economists like Paul Krugman urge the Greek people to rejectthe latest proposal from the creditors and risk leaving the Euro and returningto the drachma. Surely, he opines, this would be better than submitting to the even greater ‘austerity’ required by the creditors. Greece would be free of the creditors’ shackles and resume growth quickly. Nothing demonstrates the dangers of long-range analysis better than this.

In a perfect world Krugman might be right. If, and it is an enormous ‘if’ Greece had a smoothly functioning bureaucracy, a government determined to institute sweeping reforms, a political class not wedded to corruption and cronyism, and no deeply entrenched groups from  protected business interests to pampered public service employees with a strong interest in preserving the dysfunctional status quo such a recipe might work. But, alas, we are dealing with the reality of modern Greece and not some theoretical classroom exercise. And that sad reality is that without those sweeping reforms what remains of the Greek economy, regardless of the currency in use, will most certainly contract further.

Syriza could have been an agent of change. It could have instituted long-overdue reforms and, in the process, generated the revenue to improve the welfare of the people. Instead, it has proven to be nothing more than an extension, a particularly incompetent extension, of the failed political system that has decimated Greece over the last several decades. And the sad thing is if it had committed to these reforms it could have minimized the hated ‘austerity’. And the really sad thing is that the price of this intransigence is being borne by the very people Syriza said it wanted to help – the poorest sectors of the Greek population.

It chose instead to implement its school-boy theories, which by the way have not worked anywhere in the world, and substitute revolutionary rhetoric for real achievement. In the process their hypocrisy and deceit have succeeded only in alienating just about everyone who was in position to help. It would have been interesting to see, for example, if the creditors would have taken a softer tone if the government had moved aggressively on revenue producing reforms like privatization or breaking the stranglehold of protected businesses. But all we heard were thunderous pronouncements against such steps. One could almost hear the Euro Group, the IMF and the IMF pleading with Syriza to ‘give us something to work with.’ But the only thing that emerged were half-baked demands for debt reduction. Fine, but in return for what – precisely? I can imagine Christine Lagarde, managing director of the IMF, asking the Greek government what it would do to help itself.

One can argue that the European institutions made a serious error a few years ago by bailing out the private banks that had recklessly loaned massive amounts to Greece. How often should tax payers be required to rescue private banks that should have known better? When do they these banks have to pay the price for their mistakes? Wouldn’t it have been much better to force those foolish banks to take the necessary hair-cut to reduce Greek debt to manageable levels? The problem was only compounded when public institutions assumed that debt. All this may be true. But, as The FinancialTimes Martin Wolf puts it, those are now ‘sunk costs’ and it is time to move on.

Meanwhile the drama is played out on the streets of Greece as most economic activity grinds to a halt pending the outcome of Sunday’s so-called referendum called by Prime Minister Alexis Tsipras. The 72-word question is a ridiculous summation of complicated financial discussions that very few people can possibly understand. The legal grounds for the referendum are not even clear, because currently there is NO deal on the table. What, exactly are people voting on? Whatever the stated question may be, most people seem to understand that the real issue in this referendum is Greece’s position not only in the Eurozone but in the European Union itself.

A friend on the island of Andros had an interesting solution to his anger at the government and the uncertainty of the current situation – independence. “We should immediately declare independence from the oppressive, idiotic regime in Athens! We could build a real economy here based on out maritime history, but including other centers of excellence such as financial and health care.” All it needs now is a Declaration of Independence. We are, after all, close to July 4^th.

"If You're Going To Shoot Me, Shoot Me! Just Get On With It!"

ATHENS -- Fatigue, exhaustion and frustration seem to have descended on Greece like a cloud, dampening the natural exuberance and underlying optimism of many people. They are simply worn out by speculation on the outcome of endless negotiations that achieve nothing, the daily struggle with total uncertainty about their economic future, and the barrage of contradictory proclamations from an inexperienced government. “We are on the verge of an agreement with the creditors! There is no agreement! We might agree to privatise some state assets. We will NEVER sell or lease a single state asset!” And so it goes. Meanwhile hapless citizens are caught in the middle of a frightening maze.

“If you’re going to shoot me, shoot me! Just get on with it,” cried one anguished citizen. “I’m tired of this mess. We’ve been dealing with it since 2008 and there is no end in sight. I just want it over with, one way or the other.” One housewife said she hardly leaves the house these days. “I sit home on my sofa all day watching TV hoping to see some developments. Nothing.  All I’m doing  is wearing out sofa fabric.”

How many Greeks feel at the moment

More galling perhaps is the loss of self-esteem. “We used to be proud to be Greek. We were considered the home of democracy, the worthy heirs of the likes of Plato, Aristotle, and the great playwrights. Now Greece is considered just another unruly little country stuck onto the bottom of the Balkans. It’s embarrassing to admit that you’re Greek these days,” says one Brussels-based Greek.

In the current, rapidly deteriorating economic situation cash is king. No one knows if the banks and all their ATM machines are suddenly going to close. Tourists are advised to bring lots of cash. Many businesses are forced to pay cash for raw materials because suppliers limit credit to only the largest of companies. The central government has stripped municipalities of their spare cash in a desperate attempt to meet pension payments and pay creditors.

The Syriza government swept into power in January with the promise that it would stand up for the ‘little man’, roll back the hated austerity program, and force the country’s creditors to renegotiate a much more favourable package of repayments. This simply hasn’t happened. A lethal combination of inexperience, arrogance and party disunity led the new government to badly overplay its already weak hand.

For four months the Greek people have been living on promises of a better tomorrow. But that tomorrow keeps receding further and further into the distance. Faced with an intractable Eurozone making demands that a fractured, internally chaotic Syriza simply cannot deliver the government faces some unpalatable choices that could rip the party into its constituent parts.

            Some more bizarre members of the ruling party want to dump the whole negotiating process. They openly call for leaving the Eurozone in favour of the old currency, the drachma. They ignore the horrific costs of such a move for the average citizen they claim to represent. Among other things, this move would certainly reduce food supplies in the country. Greece imports about 75% of everything it eats and drinks. How are the stores going to pay for these goods with a sharply devalued drachma? How is the present generation of Greeks going to react to shortages it has never seen?

One ruling party MP, Costas Lapavitsas, blithely, almost cheerfully, admits – from the safety of his academic sinecure in London – that going back to the drachma would, of course, entail a return to rationing of most of life’s basic items – a condition Greece escaped decades ago. I'm not sure how most Greeks would react to standing in line with their ration cards waiting for their daily bread. He also says that Greece should re-align its foreign relations away from Europe, and by implication the United States, and cosy up to such economic power-houses as Venezuela, Iran and China. Never mind that Iran is working hard to re-join the Western world and that Venezuela is flat broke despite its vast oil reserves. Tough to see Greece doing much of deal with China after repeatedly refusing to let a Chinese company buy the portion of the Port of Piraeus it doesn’t already own. Maybe he meant Greece to copy that other Asian powerhouse -- North Korea.

While most of the world has moved on from this Stalinist economic view, it does represent a strong faction within the government, and demonstrates clearly why any agreement with the Eurozone could split the party wide open. This partly explains the hesitant, confusing approach of the Greek government toward any deal with its creditors to keep Greece in the Euro. The Syriza government itself may not have a clear, unified approach. Who speaks for the government?  Ministers are constantly contradicting each other. The government is caught in a bind. Sign a deal, break up the party. Reject a deal, lose Greece. That’s a tough choice for a party filled with people trying to run a country on the basis of revolutionary rhetoric more suited to university agitation than actually running a real country.

Does Tsipras even want a deal with the creditors?

Unable, or unwilling, to make that choice the party may resort to a referendum to solve the dilemma. Let the people choose whether to stay in the Euro or return to the drachma. Fine in theory. Difficult in reality. How exactly will the question be worded? Will the banks have to be closed during the period of the referendum to stop massive withdrawals? Will capital controls have to be imposed? Will people clean out the supermarket shelves and start hoarding just in case the country goes back to the drachma? The only thing that is clear at this point is that the resilience and endurance of the Greek people are stretched to their limits.

Will Greece Become Venezuela -- But Without The Oil

One can only say ‘Well Done’ to Syriza after running an energetic campaign promising the long-suffering Greek people a return to the good old days and an end to the struggle, however muted, of dragging the country into the 21^st century with much-needed structural reforms. He successfully kept voter attention focused on the hated word ‘austerity’ instead of ‘reform’.  Something no one seems to want. By comparison, the former leading party New Democracy was effectively absent-without-leave during the campaign and ceded all the high, self-righteously indignant ground to the insurgent Syriza. As one observer noted New Democracy seemed tired, worn out, and basically conceded the election before the campaign even began.

            Winning the election is one thing. Transforming the rhetoric into reality is quite another. The Greek treasury is essentially empty. It is not altogether clear just how Syriza’s bold election promises will be met. The glow of victory could quickly fade once the next prime minister, Alexis Tsipras, has to deal with the twin problems of intractable creditors and an extremely fractious party whose more radical elements view the election as revenge for losing the civil war almost 70 years ago. Memories die hard in Greece. Will he be able to tame the parts of his own party that want to replicate Argentina and rip up the debt agreements and repudiate all of Greece’s debt? It’s much too early to tell.

Syriza leader Alexis Tsipras

            His campaign was filled with promises to renegotiate Greece’s debt burden, restore pensions, roll back structural reforms, and essentially remove the influence of the creditors on Greece’s internal policies. By the way, all of this is supposed to happen with Greece remaining in the Euro. Crowd pleasing stuff. Exactly what the Greek people wanted to hear. Unfortunately it has the real impact of one hand clapping.

The creditors wisely remained largely silent during the campaign. It will be interesting to see how they react when presented with Syriza’s ‘demands’. Probably not all that well. There may be room to adjust terms at the margins – possibly extend maturities, be flexible on interest rates, etc. But I expect the creditors to remain firm, initially at least, on demands for continued structural reforms to free up protected professions and reduce the highly politicized over-stuffed bureaucracy that stifles any economic initiative.

The creditors, led by the Troika of the  IMF,  European Central Bank and the European Commission, should be careful, however, because Tspiras is very skillful at changing the nature of the debate and winning the critical public relations battle. The debate will no longer be about the serial failures of Greek policy makers over the last several decades. Their inability or unwillingness to create an economic system that relies on more than state hand-outs to favoured clients will be pushed aside.

Tsipras will no doubt attempt to turn the debt negotiations into grand statements about ‘Greek sovereignty’, the ‘will of the people’ vs. narrow-minded accountants. He will attempt to broaden the argument far beyond Greece and become the spokesman for all the ‘beleaguered, debt-ridden, down-trodden’ people of Europe. Nowhere will there be any acknowledgement that the ultimate responsibility for this current Greek tragedy lies squarely with the Greek political class, or that perhaps billions of Euros of loans just might come with a few conditions. All these unpleasant facts will be buried under tons of ‘anti-bailout’ rhetoric.

This strategy just might work. He knows his opponents’ weakness very well. The bureaucrats of the so-called Troika are not very good at public communications. They act like small woodland creatures caught in the glare of head lights when confronted with media attacks. They either become road kill or retreat rapidly behind bland, bureaucratic statements that Tsipras will tear apart as he backs them into a public relations corner. He will turn them into heartless accountants intent on stripping the hapless people of Greece of their last shreds of dignity and welfare. Hedge fund managers could possibly stand up to this onslaught. But European bureaucrats and political leaders are made of less stern stuff. They will be looking for a way out. They would undoubtedly cover their retreat by saying they acted to preserve the Euro and the concept of European unity. The Germans hate the idea of bailing out what they consider the ‘feckless Greeks’, but even they may wind up bending rather than be painted as the bad guys of Europe once again.

Unfortunately, the actual welfare of the Greek people could be lost in all this upcoming theatre where high-pitched melodrama replaces real substance. Tsipras has a real opportunity to lead Greece out of its quagmire and demonstrate just how he intends to kick-start the Greek economy to provide the jobs and income the people deserve. Can he change the mind set of his countrymen from relying on state hand outs that have a short shelf life? Will be do something like this? Or will he be content with the colourful theatrics of opposition? This is by no means clear.