Turn Left At Aristotle

The Hellespont. A name fabled in history, the narrowest point of the Dardanelles Straits separating Europe from Asia. The place where Xerxes with his Persian army of 300,000 in about 480 B.C. crossed into Europe on his way to Thermopylae and ultimately Salamis where his fleet was destroyed by  Themistocles. Frustrated at his initial failure to cross the straits Xerxes ordered his army to give the swiftly flowing passageway 300 lashes to show it who was boss. It must have worked because his huge force was able to cross on a hastily constructed bridge – the only time a bridge has crossed the Hellespont.

About 150 years later Alexander and his army of 30,000 tough Macedonians and their allies together with a cavalry of 5,000 had a smoother crossing on rented galleys. The crossing was unopposed and Alexander turned the transport over to his general Parmenion while he dashed off to nearby Troy to pay homage to Achilles. As his galley neared the Asian shore he hurled his spear onto the beach to declare his intention to conquer Asia. A few days later he began his long march to India  by crushing a much larger force of Persians and Greek mercenaries at the River Granicus. About a year later Alexander repeated  by this feat by destroying the Persian army once and for all at the Battle of Issus in what is now southern Turkey.

As we waited for the ferry near the 15^th century fortress of Kilit Bahir (Lock of the Sea) to Canakkale these images of ancient history suddenly seemed not so ancient. The landscape has not changed very much, and the area has been spared the worst of the unlovely development that plagues much of the Turkish coast. You can’t help thinking of people like Xerxes, Alexander, Leander and Hero, and Byron. After Bryon made the difficult swim across the straits in 1810 he admitted that he didn’t see how Leander had much energy left for his tryst with Hero after he repeatedly swam across the straits to be with her.

Friends had invited us to their home in Assos – just across from the Greek island of Mytilene – and told us to take a left at the statue of Aristotle, go past a defunct cheese shop and wind up at their house literally on top of the ancient city where Aristotle once taught. It’s a long drive from Istanbul, but, once beyond Tekirdag, the road goes through beautiful farm land with fields of sun flowers before winding down to the long Gallipoli peninsula separating the Dardanelles from the Gulf of Saroz.

Aristotle at the entrance to Assos

One reason the Gallipoli peninsula remains relatively free of development is that most of the area is a national park dedicated to the memory of the Battle of Gallipoli in 1915 when allied forces tried, and failed, to knock Ottoman Turkey out of World War I. The entire battle field is dotted with monuments and cemeteries – none more poignant than the one at a place called Lone Pine where hundreds of young Australian soldiers of the Light Horse Brigade are buried. I have often swum at ANZAC (Australia New Zealand) cove, looked up at the imposing cliffs and thought “They never had a chance against the Turkish forces perched on top.” It was curious sort of battle where the soldiers developed a grudging respect for each other. One monument captures this attitude well. A giant Turkish sergeant carries a wounded British soldier to the British trenches, puts him gently down and returns unmolested to his own side of the battle.

As the ferry pulls into Canakkale on the Asian side you can see a replica of the real hero of the naval operations at Gallipoli. Not some grand battleship bristling with guns, but a tubby little mine layer named Nusret. It was mines very cleverly placed by the crew of the Nusret that caused so much damage to the allied fleet that it gave up the idea of forcing the straits.

Once on the Asian side you wind up a steep hill and suddenly the plain of Troy opens in front of you. A small sign indicates a dusty road leading to the excavation of several layers of cities, once which could have been the fabled Troy of Homer’s epic poem. Perhaps, perhaps not. But it does not take a great deal of imagination to sit on the walls looking over the plain toward the sea and picture Achilles, Hector, Agamemnon, Priam, Patroclus, Odysseus and all the others involved in that long war more than 3,000 years ago.

One thing Homer, or other poets, got right was the description of the geography of the region. Our friends in Assos had descriptions of 19^th century British travelers who rode all over the Troad with their copies of the Iliad in one hand and a map in the other. According to them the descriptions in the Iliad of the hills, streams, islands, and distant mountains match almost perfectly with the current topography – at least the topography of the mid-19^th century.

In this part of the world ancient history is not ancient at all. It is with us every day as another bit of this history is uncovered by your door step. The feats Alexander should be considered part of the current affairs curriculum, not history.

Back To The Barracks

There has been much breathless reporting about the sudden resignations of some of Turkey’s top military officers on the eve of the annual meeting where senior promotions are made. The reports would have us believe that these resignations signal the military’s deep discontent with the ruling Justice and Development Party (AKP).

The fact that much of the officer corps does not like AKP is not exactly hot news. What really annoys the officers is that there is very little they can do about it. Their once dominant role in Turkish politics has been steadily eroded over the last few years. The military used to regard itself as the only true defender of Ataturk’s Turkey. As such they could decide what was good or bad for the country. Politicians and the democratic process in general were viewed with deep suspicion, and both were dispensable if the need arose.

This was before the advent of AKP and its dominant leader, Tayyip Erdogan. Bolstered by his unprecedented popularity and stunning success at the polls, Erdogan has turned the tables on the military. He is now the one who dictates policy and determines what is good or bad for the country. The military has forced into a subordinated role similar to the military role in most real democracies.

Erdogan maintains this is all done in the name of democracy. True, but there is an undeniable element of revenge. It was the military, after all, that suppressed the forerunners of AKP and supported the jailing of Erdogan himself on charges of inciting tensions in the country. AKP justice officials have returned the favor by jailing several high-ranking military officers on charges (as yet unproven) of plotting to overthrow the civilian government.

In a broader context what has happened to the military merely reflects the larger changes in Turkish society since AKP came to power in 2002. The traditional aggressively secular economic/social/bureaucratic elite that had basically run the country for the last 70 years has been pushed aside by a new elite based in small towns around Anatolia instead of the power centers of Istanbul, Izmir and Ankara. This new elite is socially conservative and angry at the second-class treatment they had to endure for the first 80 years of the Republic. I remember clearly a meeting with one of these Anatolian elite in 2004 when he said the traditional power structure had “abused Ataturk’s legacy for their own ends. It is our turn to rule now.”

A good friend of ours is a charter member of the old elite. He and his wife have busy professional lives and their children go to the one of the best universities in America. He recognizes the changes and says they are not all bad.

“There is a reason that Erdogan gets 50% of the vote. His people work extremely hard. There is no question that the living standards of the lower-middle classes have improved dramatically. For the first time they feel that someone is actually working for them.”

“Just look at Istanbul. The city is much cleaner and public services have improved dramatically. I voted for the opposition party because I think we need a strong opposition, not because I thought they would do a better job running the country. They wouldn’t. Let’s face it. AKP represents the real face of Turkey. We’re not France or Switzerland. We’re Turkey. The so-called Islamic trend is way overdone. The worst thing you can say about many AKP supporters is that they are very conservative country bumpkins. That hardly makes them Islamic fundamentalists.”

“They may have as many corrupt officials as any other Turkish political party, but,” he adds with a wry smile, “at least their corruption appears to be productive.”

Whether Erdogan is becoming a typical autocrat supremely confident in his own opinions and deaf to all criticism is another matter altogether. But for the moment there is no denying that he is the most dominant force in Turkish politics for several decades.

One threat to AKP’s dominance is the economy. They came to power on the back of Turkey’s worst economic crisis, and gained increasing popularity as the country climbed out of that hole and grew rapidly. Erdogan continues to insist that the economy is fine and that Turkey will avoid the problems affecting many other countries. He does not acknowledge, in public at least, the gaping current account deficit, or increasing inflation. Turkey’s continued economic growth depends largely on continued external funding, and there are signs that could become more difficult. Interest rates on two year government bonds are about  8.5 – 9%  and inflation is at least 7%. How long are these very slim real rates of return going to entice investors? One leading economist believes rates will have to increase soon, and this could put some people like real estate developers in a tight spot. Turkey’s growth has been fueled by rapid credit expansion driven by demand for homes and cars. What happens to those borrowers when their interest payments shoot up? Who will they blame? For the moment Erdogan does not want to hear these doubts, but sooner or later inconvenient, very hard economic truths will begin to intrude on his version of reality.

Full Speed Ahead

The fact that Turkey is bursting at the seams is clear even before the plane lands. Our short flight from Athens was in a lazy holding pattern over the Black Sea because traffic had backed up at Istanbul’s Ataturk Airport. And this was a 3 pm on a Monday afternoon.

As we pulled up to the jetway I could see planes from every corner of the globe. The passport queue was long, but moved rapidly as each of the booths was manned by officials who took a cursory look at the passport, slammed down the stamp, and waved you through. I remember times past when you could wait 45 minutes. The booths then were manned by only one or two extremely bored officials who laboriously examined each page of your passport to see if you really were the person you claimed to be.

The baggage claim area is dominated by at least three very busy duty free shops where passengers were loading up on relatively inexpensive booze and cigarettes. The road into the city runs along the Sea of Marmara lined with clean parks filled with people escaping the heat and humidity of July in crowded city of 13 million people.

We had not been back to Istanbul since leaving about 18 months ago, and signs of construction activity are evident everywhere you look. Massive new buildings are going up, the tunnel under the Bosphorus has reached its final stages, and the number of cars has seemed to double. The Bosphorus itself seemed more crowded than ever with tankers, bulk carriers, ferries, private yachts, fishing boats, and water taxies. My first impression was that wealth has definitely increased.

The car swept through the 1,500-year old land walls of the old city, along the sea walls and finally around Seraglio point beneath Topkapi Palace to the Galata Bridge across the Golden Horn. We could see the balcony of our old apartment in the Cihangir section of the city where we would sit for hours looking at the incomparable view of the Golden Horn, the old city, the entrance of the Bosphorus and the Princess Islands in the distance.

Hotels are fully booked, but our friends at the Four Seasons along the Bosphorus managed to find us space in this busy season. There are two Four Seasons hotels in Istanbul, and each of them offers the best service by far of any of Istanbul’s great hotels.

View of the old city from the hotel

The next few days were busy with visits with old friends, dinner at favorite restaurants, and, of course, visits to the Covered Bazaar and the Spice Market with an old school friend and his wife who just happened to be visiting Istanbul. While I was loading up on roasted almonds, pistachios, dried apricots and a kilo of baklava Mariella was having lunch with friends in one of the modern shopping centers in a distant section of the city. She is a great advocate of public transport, and reported gleefully that the trip from the shopping center to the Covered Bazaar to meet us took only 45 minutes using the vastly improved metro and tram system. By car it could have taken well over an hour. Even the dolmuses (shared cabs) have improved and many are air conditioned.

Sunset at a roof-top restaurant in the Pera neighborhood

One consequence of the country’s economic boom is that the number of cars has increased greatly while the number of roads has not. Evening traffic along the Bosphorus road is a nightmare. One night it took more than an hour to go just over a mile from our hotel to a restaurant up the coast. We would have been much smarter to use a water taxi. When we returned about midnight it was just as bad as the nightclubs and outdoor concert venues were just warming up.

How long can these economic boom times continue with growth of more than 8%? That is the main question people ask themselves. Will this boom be followed by an equally deep recession? Warning lights are beginning to flash. Inflation is creeping up (Turkey is definitely more expensive than it was 18 months ago), rapid credit expansion fuelled by demand for cars and homes, current account deficit exploding to record numbers, and financing for large infrastructure projects becoming more difficult. Groups that won large privatization projects like the Ankara natural gas distribution system, the port of Izmir, or several electricity distribution areas had to withdraw because they couldn’t find financing. The stock market has declined sharply this year and the Turkish lira has begun a long overdue depreciation.

So far the government maintains its usual upbeat tone. Prime Minister Tayyip Erdogan steadfastly claims that the global economic crisis will not affect Turkey at all. The Central Bank governor who recently warned against borrowing in foreign currency was encouraged to change his tune. A few days later he, too, said everything was rosy. Time will tell. But for the moment the vitality and energy of the country are driving it forward at a rapid pace.

The Loneliest Place In Athens

The loneliest place in downtown Athens these days is a high-end retail store. If you so much as pause in front of the store salespeople who normally would only snarl at you for daring to interrupt their cigarette break or their phone conversation now grab you by the arm and drag you into the store. “Would you like a bottle of water, a cup of coffee, anything at all?” When you try to explain that you’re really not interested in yet more silver plate trays or elaborate tea services they rush to show you the ‘new’ inventory. Sadly this ‘new’ inventory turns out to be carton after carton of merchandise they have been unable to sell for the last several months.

If the constant round of protest marches was not enough to deter even the hardiest shopper the taxi drivers are now striking. One of the unexpected side-benefits of the strike is that pedestrians now have a decent chance to cross a street without having to twirl and twist like a matador dodging speeding taxis displaying their utter disdain for traffic signs and stop lights.

The cabbies object to the fact that the government is planning to break the taxi cartel by issuing more licenses to would-be cabbies. In one sense the cabbies have reason to be furious. It’s not so much the extra cabs competing for fares that upsets them, but they stand to lose most of their investment in the cab license. Many of them paid over €100,000 for the licenses and some even mortgaged their homes. Now, with the threat of an unlimited number of cabs hitting the streets, the value of those licenses has dropped like a stone. Cabbies planning to sell their licenses and retire now face the prospect of not being able to retire for several more years.

Despite the searing heat Athens is quite pleasant in the middle of the summer. Many people have deserted the city for the islands, and even the hardiest of protestors seem to have taken a break from the hot work of marching, chanting, and battling riot police. Tour buses from the cruise ships grind through the narrow streets up to the splendid Acropolis Museum. The braver passengers leave the air-conditioned comfort of the museum and trudge up the steep hill to view the splendors of the Parthenon and the Erechtheion – even if the six original caryatids on the latter have been replaced by reproductions. As they dutifully follow their ‘Marvels of the Mediterranean’ tour guide under the broiling sun while she expounds at length on the sublime architecture, Harold from Columbus is beginning to wilt as he starts hallucinating about the more immediate marvels of an ice-cold gin-and-tonic served by some young Russian waitress in the air conditioned bar back on the cruise ship.

People in Greece breathed a sigh of relief when the latest rescue package was announced last Thursday. It will stave off immediate bankruptcy, but serious questions remain about the willingness and the strength of Greek politicians to make the radical long-term changes required if Greece is ever to become a competitive economic entity. The rescue plan comes with a healthy dose of Euro-fudge that makes heroic assumptions about budget balances and proceeds of privatizations. With revenues down because most tax collectors are on what they call a job slow-down (this begs the question of when there was ever a job speed-up) and spending remaining stubbornly high the primary budget deficit has actually increased.

There is an uneasy feeling that Greece has somehow ‘gamed’ the system and successfully called the European Union’s bluff. As long as the threat of financial contagion to other countries remains Greece can basically threaten the European Union with the old cry “If we go down you all go down!” At this delicate point in European finances no one was willing to test this thesis. Athens is filled with skeptics who believe that the Greek government has no intention of making the hard reforms required by its European benefactors and the International Monetary Fund, and will simply play the same game when it runs out of money again in about a year’s time. In truth, the reforms will be hard. The socialist government will have to break up the cozy jobs-for-votes scam it has been running for decades. Favored groups may be faced with the cold  wind of competition. The pervasive corruption that affects all levels of government will have to get cleaned up. It’s much easier to threaten the rest of Europe with chaos and get some extra money. Only next time it may be different. If the EU can spend the next several months protecting Portugal, Ireland and Spain from the potential tsunami effect of a Greek default, the leaders may be less willing to throw more money at Greece.

Adding insult to injury, there are news reports that the number of illegal immigrants landing on Greece’s shores has dropped significantly. Apparently the word has filtered down the immigrant pipeline that Greece is no longer such an attractive destination. When you're down, you're really down.

Pity the National Bank of Greece. It can’t buy a break. It had planned to help its own capital situation by selling 20% of its very profitable Turkish bank, Finansbank. The potential deal was announced several months ago when the market capitalization of the Turkish bank was around $8 billion. Unfortunately for NBG, the Turkish market has been hit with a bad case of investor jitters and has dropped sharply this year, making any deal very hard to complete. Investors have become spooked by Turkey’s large current account deficit, about 9% of GDP and have started dumping the Turkish lira. With the market cap of Finansbank now hovering just above the 2008 purchase price of $5 billion any deal looks like it will have to remain on the shelf for a little longer.

We’re now back in Turkey for several days to see the view from the other side of the Aegean and see how Turkey is dealing with its own economic problems.

From Players to Mere Spectators

Despite the drama, the protests, the widespread moaning and shouting surrounding the recent narrow approval of austerity measures imposed by its European partners the Greek government will look back on that vote as the easy part of the long-overdue reform process. When you’re in water way over your head and going down for the third time you tend to climb on any life boat that comes along and worry about the conditions of your rescue at some later time.

Now, if Greece’s political leaders are serious about the country’s long-term health, they face the extremely difficult task of actually reforming the stagnant, self-serving economic system that has become completely dysfunctional over the last several decades. Unfortunately, so far none of the political parties has demonstrated the strong will that is required to undo the structure that generated the current quagmire because it is that very structure that has, up to now, kept them in political power. Every time the political leaders attempt to unravel the tangled web of the Greek economic structure and smooth the way for personal initiative the affected interest groups – ranging from self-important bureaucrats to taxi drivers – threaten retaliation. And the politicians beat a hasty retreat.

On top of this problem there is even some question whether the political leaders truly understand the gravity of the situation they face. Newly appointed finance minister Evangelos Venizelos recently went to Brussels and attempted to re-negotiate the most recent bail out agreement. Before the words were out of his mouth the usually mild mannered Finnish commissioner Olli Rehn angrily told him that renegotiation was out of the question. Prime Minister George Papandreou addressed a European gathering of socialists and slammed the rating agencies for suborning democracy in Greece. Papandreou seemed unaware that the rating agencies were merely responding to conditions that he and earlier generations of Greek politicians had created. Opposition leader Antonis Samaras is not much better. His contribution to the debate is that Greece should be lowering, not increasing taxes. He may be right, but his point is irrelevant because there is absolutely no chance that Greece’s paymasters in Brussels will buy that one. So far Samaras has resisted any attempt to climb out of the rut of narrow, short term political interest and join in a national coalition to forge a better future for Greece. If he did join a coalition he might actually have to come up with some positive, realistic suggestions.

He misses the point in that the actual tax rate is less important than collecting taxes at any rate. So far no Greek government has been particularly good at this. Samaras says he wants a ‘creative shock’ for the economy that lower tax rates could bring. Again both he and Papandreou miss the point that there is a great deal they could do to ramp up the Greek economy without spending a penny. Simplifying obscure regulations that strangle innovation at birth, modernizing the legal system, eliminating over-lapping jurisdictions in ministries, etc., etc. could encourage investors to take a more favorable view of Greece.

As one Greek friend put it, “Right now there is no sign that our so-called leaders recognize their errors. The first step in any recovery is for each and every one of our politicians to get on their knees and apologize for their mistakes and the mistakes of their fathers and grandfathers. Then we might actually get somewhere.”

The reality of Greece today is that it has lost control of its own fate. Mandarins in Brussels, Paris and Berlin have more influence than Greece’s own politicians. Jean-Claude Juncker, Prime Minister of fiscally prudent Luxembourg and head of the Euro Group, put it bluntly in a recent interview that Greece faces a ‘massive’ reduction in national sovereignty. This is a very hard pill to swallow for people who believe they brought democracy and civilization to the rest of Europe.

This situation is nowhere more evident than in the Greek banking system. Every Greek bank went on a lending binge over the last several years that saw the loan-to-deposit ratio climb to more than 130%. This is no problem if you have reliable funding to cover the yawning gap between deposits and loans. Now, however, the only funding source available to the Greek banks is the European Central Bank. And if Greece ever falls into formal default this funding is in real danger. And it does not help matters that the flow of deposits out of Greek banks has picked up from a stately walk to a jog. Any more bad news and the jog could move up to a sprint. Their fate is entirely in someone else’s hands.

The tragic irony of this situation is that if the Greeks had devoted half the energy they spent on fiddling an admittedly corrupted system to real economic activity the country would be flourishing. If Greeks who loudly proclaim their patriotism demonstrated this patriotism by actually paying taxes instead of resorting to every dodge known to man and God their country might have been able to retain a vestige of sovereignty. Instead of major players in this drama, they are reduced to mere spectators.