Thursday, July 9, 2015

Greecing the Wheels

Putting aside the actual “solution” to the demise of the Greek economy – a negotiated settlement to remain in the Eurozone or a departure into its own currency structure – life in Greece is and will remain intolerable at every level for the foreseeable future. The German-led austerity program has tanked the Greek economy so overwhelmingly (a whopping 25% overall decline) that whatever prospect might have existed for Greece to service its EU bailout debt has now become a virtual mathematical impossibility. Strangely, if you were to take accrued interest out of the equation, Greece would actually have a shot of paying back principal, but most Germans want it all. They will never get remotely what they crave under any scenario. Never.
Let’s face it; Greece is dead broke. Insolvent. Bankrupt. As for the four major Greek banks, 35% of their loans are “non-performing,” and these financial institutions are also sliding into oblivion. Will they rise from the ashes in a new legal configuration, merge with large international banks or just die? Will Greece track Cyprus’ imposition of a “deposit haircut” – a hard reduction of their depositors’ accounts?
Light on manufacturing and devoid of many essential natural resources (like petroleum products), Greece imports 65% of everything it consumes. Perishables are rotting in the harbor. “Cargo containers of food, some medicines and other daily necessities are beginning to pile up on the docks at Piraeus, the international seaport outside Athens, because capital controls make it difficult or impossible to pay the shippers…
“[Importer Nikos] Manisoitis, who is also president of a local business group, the Piraeus Traders Association, said that some importers at the port had boarded planes with up to 60,000 euros, or about $66,000, in cash for day trips to Britain, Germany or other European countries to pay their suppliers. That has become necessary, he said, to sidestep the government-imposed capital controls that have been in place since June 28. While not restricting the physical flow of cash within the European Union, the controls have forbidden making electronic payments outside of Greece.” New York Times, July 8th. Where they can (the lucky ones), Greeks are buying “stuff” under the assumption that whatever they buy will be worth more than a new currency or a savings account taken down in a haircut. But if the present is bad, the future will probably be worse.
How’d you like to be taken to a local hospital only to discover that there they are running out of pain-killers, anesthetics, antibiotics, bandages, disinfectants and a litany of vital medicines that can be found in every other European hospitals? Greece or South Sudan? And when the blackouts start rolling in, and the generators cannot start for lack of fuel, what then? That’s what happens if Greece doesn’t get additional funding, and some hospitals are already cutting back on surgery and care.
With massive pay-cuts – from government salaries to vested pension payments – the nation is facing unemployment rates at 26% and rising (youth unemployment sits at 50%!). A nation of small shopkeepers and farmers – with little in the way of large private corporate employers – Greece also faces the demise of so many little entrepreneurs. The land of defaults and shortages, of unemployment and massive business failure. Will mass transit shut down? Will you be considered fortunate if you can afford a bicycle? Where they have the necessary family connections, droves of Greeks are traveling back to small farms where their relatives at least can grow food, but this is hardly the picture of a modern Western nation.
Politically, dire straits create a basis for major political realignment. Extremism always grows in the fertile field of utter economic catastrophe. Russia is watching, waiting to step in and make a difference if Europe abandons its own. If China were not facing its own economic issues, it probably would be more proactive in the Greek failure. The pressure applied from Germany was at the heart of an economic support program – the conditional bailouts – to hold Greek feet to the fire. “Make them pay!” is the popular cry that keeps Angela Merkel’s head turning to look over her shoulder, even as her advisors are telling her that this is an impossible course. That this is becoming a powerful humanitarian crisis on a grand scale seemed not to matter to so many Germans.
Germans are different in their economic priorities and most of the developed world. While all Europeans are outraged at the discovery that Greece out-and-out lied on the condition of its economy when it jointed the Eurozone, Germans are focused on fiscal and monetary “responsibility,” even it that entails suffering. Germans are all about frugality; they rely on cash investments (annuities, insurance and savings – less from asset investing) and fear inflation more than any other economic demise. Yes, saddled with massive “reparations” extracted by the victorious allies after WWI, German actually themselves defaulted on its debts “back then.” These were payments to the allies for war costs and damage.
After WWI, suitcases full of cash were required to buy a loaf of bread – hyper-inflation – that gave rise to Hitler’s era of cruelty, violence and shame. Recession, depression? They can live with that. Hyper-inflation hits at the heart of those cash investments; depression doesn’t. That there is no realistic way for the Greeks to pay back their debts to the European Central Bank (ECB – pictured above), IMF, etc. is simply not a relevant consideration to the average German. They won’t even listen to rather clear admonitions from the IMF that Greece just cannot pay back existing debt and needs massive new cash infusions to stabilize. Suffering? So what?
As the economic structures of the nascent European Union financial structure were being determined in the 1990s, France turned her attention to containing British “cowboy” financial practices (they were too “American”) and allowed Germany to configure the ECB, which was promptly structured to contain inflation as its number one priority. Did I mention that the ECB is headquartered in Frankfurt, Germany? No one pictured a member-default scenario such as the Greece debacle, so no one particularly cared that Teutonic Germany was handed the financial reins to this new centralized banking system. France was distracted.
Hey Germany! Assume you push a weak Greece out of the Eurozone. Add Spain, Italy and Portugal to the potential exit package. That’ll bolster the euro like no other. Without weak nations, the euro will soar! Great, huh? Except German manufacturers will rise in comparative cost such that the universe of potential buyers of their high-end manufactures will dwindle… and with it the German economy.
The Greek people weren’t those who misrepresented their nation’s financial condition to get into the Eurozone. As billionaire tax scoff-laws fail to pay Greek taxes, the ordinary Greek citizen is writhing in economic pain. The popular German approach only makes sense to Germans, but it is heartless and impractical. It’s time for the European leadership to retain their humanity and deal with this untenable situation on a humanitarian and practical basis. But wait; is there a ray of quivering hope?
Have some faith; perhaps there are a few in the German government who are beginning to believe that they might be doing more harm, even to themselves, by trying to avoid the obvious: “Germany conceded on Thursday [July 9th] that Greece would need some debt restructuring as part of any new loan program to make its economy viable as the Greek cabinet raced to finalize reform proposals to avert an imminent economic meltdown.
“The admission by German Finance Minister Wolfgang Schaeuble came hours before a midnight deadline for Athens to submit a reform plan meant to convince European partners to give it another loan to save it from a possible exit from the euro.” Reuters, July 9th.  Oh, at the eleventh hour, Greece also seemed to back down a bit, asking for EU support over more time (three years), but making concessions that were off the table before: "Greece finally met a deadline that counted on Thursday and made a series of sweeping proposals that its creditors needed by midnight to set off a mad rush toward a weekend deal to stave off a financial collapse of the nation.
“The package met longstanding demands by creditors to impose wide-ranging sales-tax hikes and cuts in state spending for pensions that the left-leaning Greek government had long resisted... In the text of proposals sent by Athens late Thursday, the government conceded to demands it had previously refused to accept - mostly on moving various categories of goods and services to higher sales tax rates - in exchange for a new 53.5 billion-euro ($59 billion) bailout package...The government said the proposals would be voted on by Greece's parliament late Friday before an emergency summit Sunday of all 28 European Union leaders.", July 9th.  Tick. Tick. Tick.       

I’m Peter Dekom, and it’s time to return a pragmatic heart to economic leadership in Europe.

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