Soccer and Women

“We will reduce the deficit, we will control the debt and there will be no need for a bailout,” the Greek finance minister, George Papaconstantinou, said in [recent] interview in his office… “We are not Iceland; we are not Dubai.” NY Times, December 12^th. The world markets are not so sure. Greece is sinking into the kind of over-borrowed morass that has tanked more than one economy in this recent meltdown. Elections in October placed the Socialist government of Prime Minister George Papandreou in the saddle of this European Union nation. He recently announced that there would be a budget deficit of 12.7%, which is a multiple of the 3% limit set by the European Monetary Union… $430 billion and fast approaching an aggregate debt of 110% of the country’s GDP.

These numbers seem tame by US standards, and while the UK, Spain and Ireland face heavy debt loads, the underlying economics in Greece makes the current crisis, the worst in decades, particularly burdensome. Just as price fly upwards (Greek wages are low, but they face European prices), there are pressures for the government to mandate huge cuts in labor costs, implementing wage and hiring freezes immediately.

That does not sit well with powerful labor unions, and Greeks have an enormous propensity to protest, often violently. Expensive social programs combined with the pressure on the lives of ordinary Greek citizens to live the European lifestyle without earning the same pay have created debt load that exceeds the system’s ability to support such borrowings. After 15 years of prosperity and growth, the Greek financial world is now in tatters. But cuts will not go down lightly. “The president of the civil servants’ union Adedy, Spyros Papaspyros, said the union was prepared to strike if cutbacks were unilateral and severe. ‘If funding cuts are made in critical sectors such as health or welfare, we create a serious risk of destabilization,’ he said.” The Times

The major credit rating agencies have downgraded Greek bonds, and as a result, the interest rate the government has to pay on its deficit borrowings rose significantly (about 50% on its two year bonds!) in a single week. And if the economy stinks, the streets of Athens are smell even worse as a two-week strike by garbage collectors raged on. Greece has always been fractious, as anyone studying the battles between the ancient Greek cities of Athens and Sparta can attest. And Greeks are notorious for finding ways to avoid taxes and slide their economic activities beneath the radar. The Times suggests that as much as 30% of the Greek economy is underground and off the books.

What’s a government to do as it runs desperately short of cash? “Mr. Papandreou stressed the need for drastic measures. ‘We acknowledge the scale of the problem that we are faced with, and we are determined to make the shift toward a sustainable and healthy economy,’ he said in Brussels... He called for a ‘merciless crackdown on the corruption that is endemic in society and on widespread tax evasion.’” The Times. Yeah, right. Greek citizens are hardly ready to bring that underground economy to the surface and decimate their already limited ability to live in a European world on Greek wages.

Want a typical Greek perspective? “As he sat in a cafe with friends in the chic Kolonaki area on a recent afternoon, Antonis, 33, who disclosed only his first name, proudly announced that he refused to pay taxes… ‘Why should I pay?’ he asked with a grin. ‘I don’t care about my government; I don’t care about my country,’ he added. He conceded, however, that he did care about soccer and women.” The Times.

The lesson in this is that there are many shoes left to drop, many economic shocks that have yet to be felt to the system, and since the global economy is just that, an economic explosion thousands of miles away can send cracks and rubble all over the financial world. We are, like it or not and despite the growing pressures in the US for increased isolationism, in the same damned boat!

I’m Peter Dekom, and I approve this message.