Tuesday, February 7, 2012

Beware of Greeks bearing grudges...

As we peruse the news this fine day, we see the same old, same old, stories about Greece. They are demonstrating again in Greece. Am I missing something? Does this mean they are welcoming the new deal with the Troika? Or am I confusing it with the parade in lower Manhattan for the World Champion NY Giants football team? Is there more difference here than just the lack of confetti in Greece?

We read that the parties are 'coming to an agreement,' any day now, any hour, or any minute...or not. Regardless of this action, if the people are so opposed to this deal, will they eventually shut up go home and conform? Will they believe their politicians when they say that things would be worse without a deal? We should not simply sign on for this deal and expect it to go-ahead on automatic pilot. ‘Signing a deal’- if it comes to that, will not be the end of it-and everyone knows that.

The ‘Greeks’ (as in, ‘Greek people’) are not on board for this. And while everyone is making noises like oh we (the Greeks) could leave and like some EU commissioners are saying that Greece’s leaving EMU is not like man overboard… the fact is that all that talk is all posturing. Posturing is meant to make the other side see the grim reality of their bluff. But in this case, it is not a bluff by Greece but the clear rejection of the Troika’s stance by the Greek people that is most worrisome. If the three Greek political parties each agree to drink from the Troika’s poisoned chalice and if the Troika gets a piece of paper saying Greece will be compliant with the ‘bail-out terms’ and if they get a time table, too, what if the Greek people do not go along?

Beware of Greeks bearing grudges.

This is what worries me. Greece’s political parties have been cowed into Troika submission, they have been co-opted. They no longer represent the Greek people except in the most meaningless way. They cannot bargain except agree to the Troika’s terms and to try and get some scraps of dignity in return. You would think that of all people the German’s would know better having gone through the demands for unaffordable reparations after WWI. So in what way will their agreement be binding on the people who they clearly no longer represent?

And after Greece settles (or not) what then? What about other EMU members? What will they want?

Let me go back to the economic data which also have been rather fickle at year end. These data are about to go face to face with a very severe weather system in Europe. The economies in Europe, apart from weather, also have to find a way to survive amid all this austerity. Everyone in Europe has yet to explain how ‘less’ will be ‘more.’  Perhaps we should call this the German loaves and fishes miracle of austerity?

As in the US, Europe needs something that is not even being put on the table. It needs short term stimulus in return for credible clear and significant longer-term reform. You will not get it in Greece because it is so clear- so very clear- that the negotiating parties there do not rust one-another. Without trust there is no basis for a lasting deal. So Greece and the Troika might cut some ‘wink, wink’ deal and it might last for ‘a while.’ But the prospects for any real deal in Europe are undercut by the lack of trust and undermined by the lack of growth amid the pursuit of German-inspired austerity that will make things worse and maybe make them so bad, that the prospect of an eventual ‘better’ will not be credible.

Such concerns linger over the European debt negotiations. And while I guess it is true that there is no fighting like infighting among family there is something extremely bitter about this episode with Greece and there are too many others sitting in the wings watching to see how it plays out for me to jump on the feel-good bandwagon.      

I don’t think this is a Lehman moment because Greece will go its own way and create its own ripples. So stop comparing and start thinking.

History is a great teacher but it teaches us lessons and they are that history’s ‘repeats’ are not exact and that to learn from history by avoiding something that looks like a repeat will only lead to a new bit of distress and more lessons for future generations to learn from us.  The real lesson to learn is to realize you must solve the problem. Don’t paper it over. Don’t pretend it’s not there. Don’t think you can put a load on the back of a people who cannot bear it (WWI reparations?). Sometimes losses are loses and bygones are bygones. Maybe Greece needs debt forgiveness and if that seems too much like it creates ‘moral hazard,’ then look for the remedy for future behavior to play out among those who have lent and will take the loss. If the borrower will not learn discipline, then the lender must. Maybe that it where the emphasis should be because there is no use crying over spilled milk, or bad debt. There is no crying in baseball or banking, just score-keeping.  

Bankers believe in Zombies. They believe that you can take those being crushed by debt and bring them to life and make them pay. As long as a banker can stretch out the period of underpayment he can find a way to bear the loss and write it off against another stream of income he can earn. But a write off that is too big, and too sudden is too unmanageable. So understand that this (all this) is really more about coaxing banks through a difficult time and trying to keep alive the rhetoric of ‘moral hazard’ so the banks can take the moral high ground. But in truth bankers that over-lent to Greece and countries that sold to Greece military goods it did not need and arranged financing for it (Germany) are who (or whose banks) we are trying to save are just as guilty as Greece.. Greece cannot be saved. Its people know the debt load will kill it and price of reform sought will undercut their lifestyle to a point that they find it unacceptable.

Better deep in the red than dead?

But for the Greeks it is their lifestyle that is dead. They probably need to start over and to figure out what to do to make their country self-sufficient. That will not happen if they roll over for the Troika and rollover over their debt even at this great discount. There is a plan to try to fit Greece’s expenditures inside a restricted budget but there are no plans to rejuvenate Greece. The plans are supposed to achieve a shrinking of government so that there are enough revenues left to service the new lower level of debt…it’s all about banks

In the end that’s why this will fail and why Greece leaving EMU may be the best solution. It may be initially more painful, but it will allow a market system to spring up and for Greece to find its way back to being competitive. And this time I suspect Greece’s lenders will watch what they are doing and will watch one-another even more closely. Because if banks are honest about it, they have seen the enemy and he is them, even more than Greece.



Its only solution is default.The greeks could have the last laugh.


Considering whats happened in greece what does one expect.