As part of setting up a blog to write about Greece, I will publish all of my old articles. I was right. I was wrong, but in either case it is interesting to see how things have evolved.
July 31, 2015
This is my last dispatch from Athens before the vacation season kicks into full swing. I am sure there are an ample amount of jokes about long vacations, but the Greeks do have a much better philosophy than the US … the Greeks work to live, and the Americans live to work. As a side note, most of my Greek friends are not taking vacation this year; they are trying to keep their business afloat.
The tone of this update is a 180-degree swing from what I have previously written. The reason is quite simply, things in Greece have changed dramatically since the “No vote” and the passage of the provisions outlined in the Euro Summit Statement. I am mindful of the fact that my comments may not be well received. For the record, I am not any less bullish on business opportunities in Greece. In fact, if my prediction plays out, there will be even more opportunities. Unfortunately, the losers in all of this are the Greek people and for that I am sorry; they deserve better.
Up until now, I have been adamant in my position that Greece would not leave the Euro. I felt that when “push came to shove” the Greeks would accept whatever it took to remain in the Euro, and likewise the Germans would be forced to allow Greece to remain.
To summarize where we are: Germany has some how managed to destroy every bit of goodwill it has gained in the last 70 years. Those of us old enough, remember JFK’s speech in Berlin in 1963’ “Ich bin ein Berliner.” Today the rally cry is more likely to be, “Do not buy German cars.” The German ambassador to the US’s article that appeared in the World Post on July 25, 2015, concerning Germany’s desire to see a strong Greece seems like it was written by a propaganda machine of long ago. The idea that Germany proved its support of Greece because the Bundestag overwhelmingly passed the agreement with the EU makes no sense; of course Germany voted to have Greece raise taxes, cut pensions and get no debt relief. Is this not what they wanted in the first place?
Greece passed the measures concerning tax increases on July 15th, which was followed by an hour of bomb throwing at the parliament and the arrest of a number of anarchists; most (if not all) were not Greeks, by the way. It seems we have gone from eco-tourism to anarchy tourism. Greece then passed a watered down series of measures on July 22nd; leaving issues concerning pensions and taxation for farmers until a later date, or not at all.
The two Greek votes were met with a series of emotions ranging from relief to euphoria. The banks reopened and everyone’s August vacation plans remained intact. Greece thanked the US for coming to its aid. The man on the street was heard saying, “Obama did this. Clinton did that. Lew has been in constant contact with Tsipras” … who knows.
Tsipras is now expected to call for elections in September to solidify his power and dump the far left wing of his government.
Things could not be worse.
First, the Greeks and the Europeans could not agree where to meet to discuss the implementation of the settlement (they finally did). Pensions are off the table, because according to the agreement, they were never on the table. I guess we all must have misread the agreement, which included the following statement:
“Greek authorities [will] legislate without delay a first set of measures. These measures, taken in full prior agreement with the Institutions, will include upfront measures to improve long-term sustainability of the pension system as part of a comprehensive pension reform programme.”
Then, the issues with the banks remain. Greece is to privatize E50 billion in state-owed assets, and then uses half of those proceeds to recapitalize the banks. There are nowhere near E50 billion in assets to privatize. And why in the world is the EU putting E25 billion into the banks in the first place? When do they realize that the banks do not need money, their customers need money? A far better solution would be to pay the established banks in Europe E25 billion to simply buy the Greek banks for E1 (not E1 per share, E1 for each bank).
And how important is the US in all of this? It seems that the US’s interest in Greece is related to the stability of the Euro (which seemed to survive just fine in the last month); stemming the flow of possible terrorists into Europe (which is less of an issue if Turkey and the US are fighting ISIS together); and finally, the US wants to keep Russian gas out of Europe and Euros out of Putin’s treasury (Azeri and Iranian gas coming into Europe via a pipeline controlled by the EU resolves this issue).
In any event, it is hard to imagine the US’s interest in keeping Greece in the Euro will last forever.
The ball is back in Tsipras’s court and this time it is not a game of brinksmanship. Tsipras has some explaining to do. Why did he pick Varoufakis as his Minister of Finance and why is he seemingly defending him? Tsipras enjoys overwhelming support, but George H. W. Bush enjoyed an 89% approval rating in February 1991 and lost the presidential election 21 months later.
The Greek economy has gone from bad to worse. The banking system remains a mess. If current banking restrictions are lifted, every Greek is going to attempt to withdraw all of their money from the banks. The banks will be forced to close again, and this time for good. The Athens stock exchange is attempting to reopen on Monday. Who is going to buy a single share of a stock trading in Greece? What does the market do? Open down 25%? Close after an hour?
It is impossible for Greek businesses to get credit outside of Greece. The amount of money that may leave the country to buy essential goods and services is severely limited. It will be no surprise when GDP shrinks in the third quarter and when unemployment spikes.
This leaves us asking the questions of the moment … Will an agreement be reached before the next payment on August 20th … I doubt it. Will Greece implement the necessary changes to satisfy the EU … not a chance. Will non-performing loans be sold, thereby freeing up the necessary capital to turn the economy around … in another lifetime. Will the banks be closed again … no doubt. Will Tsipras survive until the end of the year … if the banks close again, no.The irony is that if Germany simply goes radio silent and leaves Greece to its own devices, Germany is going to get its wish. Greece will be out of the Euro by year-end.
