Booms and Busts in Greek Analyses

The last week has seen a boom in one area of human endeavour, the utilisation of metaphors drawn from Greek myth to describe the present state of play in the Hellenic Republic.  That Greece has been undergoing a slow motion tragedy, now accelerating, is undoubted by (almost) all commentators.  A modern, developed, European, democratic country is devolving before our eyes into one where malaria and tuberculosis are making an unwelcome return,   a laboratory for failed economic experimentation in which the hapless citizens are the denizens of the monetary petri dish.

 696293It’s hard to know exactly what is going on, and one cannot escape the conclusion that nobody really knows.  Having got in an unexpectedly overwhelming result in support of its position the Greek government then squandered that support by not turning up to meetings with the creditors armed with a coherent, mandated, economic policy.  Sensing, finally, the german shaped vacuum at the heart of european policy making the French stepped in, sending advisors to Greece. Meanwhile the creditors insisted that Greece adhered to the plan, that the plan would work, and if the plan hadnt worked it was not because the plan was itself flawed but that the plan had not been carried out correctly, because the plan being the plan, if it had been carried out correctly then the results envisaged in the plan would have gone according to plan.  Nobody seemed to have an actual plan. The plan being pushed now is the same plan as before, because doing the same thing time and again and expecting a different result is such a smart idea.

cartoon6547At the time of writing, Thursday night, Greece appears to be heading towards the Euro door.  That nobody knows where the door is, how to open it, what happens if somebody walks or is pushed through it, and much more importantly what lies on the other side both for the  ejectors and the ejectee is not at this stage surprisingly.  Alarming, but not surprising. The Greek parliament might well accept it, but there is absolutely no guarantee that German, Slovak, Finnish or others wlll so do. The atmosphere is rank, and has been made more so by the ineptitude displayed by the German political parties on the international stage.

Greece will almost certainly not be better off with an alternative currency, as it is heavily dependent on imports and its export base, such as it is, cannot ramp up rapidly.  The euro zone will however run the danger of a much greater, if more diffuse, set of losses.  Estimates for the losses for the official creditors, that would be you and me, are that they are larger by far than any required haircuts that might have to be imposed on the existing holdings.  In other words it will cost more for the Eurozone to eject Greece than it would cost for the Eurozone to keep it within.  This in and itself tells us that economics, or even mathematics, has flown out the window and we have been driven entirely by pique politics.  Having got rid of one Greek finance minister the Eurozone creditors found that they were actually not any better off.  It appears to be dawning on them that getting rid of the present Greek government would almost certainly result  in it being re-elected.  Both sides are stuck with each other.

ch2One other area has seen a boom. There has been a massive rise in sightings of Captain Hindsight. Mostly he lives on Irisheconomy,ie, going by a variety of different names, each posting comments more demented than the next.  This is a set of crowing, which is both retrospective and prospective.  It is retrospective in that those crowing, who are usually mid-ranking officials, Parliamentary undersecretary’s or junior ministers or whatever they are called now, and persons in the market, they look back and say “aha, if we had done in 2008 what some say we should have done, why we’d be in a place not far away from Greece now, with banks closed etc etc”.  It is of course prospective in that the presumption is that there will be a disorderly, calamitous GREXIT and the Greek will end up eating their own young.

fredgraphIreland, we should remember, is not Greece.  More particularly, Greece is not Ireland.  Ireland was like Greece in the 1970s and 1980s, with endemic tax evasion, an epidemic of graft (mostly concentrated at the top), and an economy which was really not up to the mark to put it mildly.  Unlike Greece we didn’t have the weather, but we were lucky in a succession of governments saw the writing on the wall and decided to put in place a series of slow burning but ultimately successful governance reforms.  The consequence is that by the time Ireland entered the Eurozone we had an effective tax collecting apparatus, an export orientation (even if it is not quite as rosy a picture as we might sometimes think), highly educated and mobile workforce, and were generally indistinguishable, if one didn’t look too closely, from a a modern European economy.  Greece on the other hand has not made the strides in governance, tax collection, and overall economic modernisation that it would need to have done in order to be well situated to ride out the storm.  Imagine the reaction of the Bundesgrinches if Greece were to propose a set of tax amnesties (as we did..). It would be worth it for the lols… But back to the cocks of the walks.  The biggest difference between Ireland and Greece is that any potential contagion from Greece is now, we hope, containable.  In particular the European Central bank, at least that’s what it calls itself although it doesn’t act like a central bank, has under Draghi the governor seems willing to use the immense monetary firepower available. Trichet, by comparison, seemed unwilling or unable to contemplate using same.   The second issue is that, even allowing for the present unpleasantness in China, indicators of stress in the global financial system and nowhere near as severe as they were in 2008/2010.  Putting these two together Greece has a weak hand, one which is not played particularly well. We had a strong card which we dropped behind the couch and shrugged off.

Nobody knows where this is going to end.  What we do know is that regardless of the outcome of the people of Greece will continue to suffer.  The victims of decades of domestic mismanagement and a decade of international economic insanity they will suffer.

A longer version of a column in the Irish examiner, 11 July 2015

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