Just who's taking who for a ride?

Celebrating?  I’d hold off a while before I know what there is to celebrate.  The deal that Greeks voted on was withdrawn last week by the EU negotiators.  A Yes vote would have meant an immediate General Election and the financial insecurity of nobody to negotiate on behalf of Greece with the EU.  A No vote means that there is no money in the banks tomorrow nor the day after that and the black economy is taking off like a rocket.  Neither eventuality will bring in the money needed by the Greek government to run the country.  Simply the question is about the unsustainable nature of Greeks historic debt. 

Soon a No vote may likely also mean that the Greek Government will meet bills as they arise by issuing IOUs which will eventually become tradable and may form the basis of a new currency, possibly a revised drachma.

But here’s where the big problem may start.  Currencies are tradable against one another.  Greece is very different to Ireland as Greece has a sizeable internal economy with less international trade as a percentage of GDP.  It earns a lot of foreign revenue from tourism.  Any new currency will drop in value by the day.  This will drive inflation upwards and make the country uncompetitive.  Sunseekers can get their tan elsewhere if prices rise. Greece’s enormous debt to its EU partners can’t hop on board and high tail it out of town.  It’s attached to a creditor nations set of accounts and it must be accounted for as it affects the interest rate paid for government bonds to fund short term loans.

In other words if it is written off or down, who is going to compensate a creditor nation and how can that possibly be done?  And here’s the rub, while we’re in for about €500M all told, other nations are up to their necks in it.   

I’d be very nervous of what may happen to Greece.  Let’s be honest about it, would you live their life?  What we suffered during the slump was in the half penny place compared to Greece.  In the last few days the cute nod was been given to the Greeks by the IMF and Wolfgang Schlaube that made it easy to vote no.  Already the country can hardly afford medicine nor to allow more than €50 to be deducted daily from a bank, that’s if you can find a bank ATM that works. 

Perhaps the Germans have calculated that Greece may be let go from the Euro but kept in NATO and the EU?   Moreover the right wing nationalist party supporting Syriza backed the wrong horse on this referendum.  So Syriza may be left relying on Golden Dawn as they did in this week’s referendum to continue in office.

The Irish backdrop to this is the forthcoming General Election and the arrival of Syriza’s BFF Pearse Doherty and Paul Murphy into town to get in on the PR.  Try tell Pearse that Larkin, once talking about nationalism, said that you cannot eat a flag.

Sinn Fein and AAA’s logic is simple.  The Troika should go and take their money with them.  The magic money tree will provide.  But in Greece Syriza are happy to charge for water and tax those who own property and don’t plan to change that.  They also accept that wealthy people will simply shift cash by the click of a mouse to another jurisdiction so aren’t breaking their neck to tax the rich.   Some aren’t too keen to have this pointed out.  Slogans are easy and simple to understand, so too are celebrations.  How likely is it that the majority of Greeks got to read and understand even the executive summary of both documents that were before the people today?  But that’s democracy.

But reality is more complex.  The referendum was not about changing the figures, it was about getting the nation behind its strategy.  The Greeks now will table their new proposals and including them this time on the right attachment. We’re no nearer the light switch. Let’s keep the celebrations until we’re all out of the dark.

Ages in the Aegean.

So what happened to all the euphoria on the Irish left about Greece?  Famously Harold Wilson said that a week was a long time in politics.  Epoch on the other hand is a Greek word, it means fixed point of time.  In that case a fortnight must be an epoch.

In that time it seems the Greek Finance minister has visited almost every EU country including those outside the Euro like Britain who made no contribution to the Greek bailout. He visited every significant player in the EU crisis except of course Ireland or Portugal, two countries that also experienced bail outs in 2010 which subsequently exited.  He seems to getting a persistent message from all of the EU Finance Ministers and it is one that Ireland was given 4 years ago.

The only fig leaf to the Ireland was the name checking of Sinn Fein by Alex Tsipris on election night in Athens, much to Paul Murphy’s disgust.  Paul had made his way out in the hope of getting additional media coverage in Ireland.  Paul clearly believes that less is more, ie the less he is in Ireland, the more media coverage he gathers.

80% of Greece’s debt is to other EU states.  The private sector took their hair cut years ago.  It’s national governments like Ireland that stand to lose if Greek debt is reduced further.  Ireland is in the mix for €350M which it presumably borrowed at a higher interest rate than available now on the market.  It’s a no brainer if you ask Irish citizens which they would prefer, Tax cuts as loans are paid back from Athens or ignore the Greek debt and take a hit.

Syriza was never going to get a debt write off, so it looked for a debt conference.  What it might get is an extended time to pay off the debt it has already built up.  So that’s the past dealt with. But Syriza seems to have taken the direction that Gerry Adams once advised our government when he told the troika to go and take their money with them.  They don’t want the troika back and reject further funding and being tied down to conditions. Greek loans will run out shortly, they need to get funding beyond that to deliver on their many election promises. Already they’ve started to rehire public servants that were sacked a few years ago.  While Gerry Adams never had a Plan A in mind, let alone a Plan B, Greece needs to have a subtle Plan B.

It seems that there is a proposal to sell short term bonds to bridge the gap until the summer when new loans with a lower rate might make it easier to shoulder an enormous burden.  Let’s be blunt about it, who’d risk it, given what Syriza has said already? What would that do the interest rate of the bonds? 8% on 10 year bonds froze us out of the bond markets  in 2010.  At the minute Greek 10 year bonds are non existent, it can issue just 1 year bonds or stands over 30 year Treasury notes. That’s the long and the short of funding Greece.

Greek overtures to Russia over Ukraine may on the face of it sound cute hoor politics as Germany is not as opposed to Russia as other EU countries but in the labyrinthine world of Balkan politics it may unhinge some nations.  Turkey its traditional enemy is treading on egg shells with the Syrian civil war.  Syria survives because of tacit support from Russia.  Wrong footing Turkey by a strongly nationalist Greece may be a useful diversion internally as the Greek government choreographs its U turn over debt.

So politically, internationally and from a funding point of view Greece is running from one dead end street to another. And there we were in Ireland, innocently thinking that it was all about the money.

Was it something Paul Murphy said?

Beware of Greeks bearing gifts

Once upon a time people compared Ireland to Iceland simply because their banks collapsed at the same time.  Both countries set about addressing the problems all be it in different ways with different impacts on their citizens.  No 2 countries have identical economies but when something as fundamental to any economy as a banking system collapses the reality is that no sector in that economy will escape the implications.

What dragged the Irish state down in 2010 was the reliance of the states coffers on the property sector which the bank fuelled with cheap money.  The then government’s failure to address spending added to the catastrophic decision to guarantee all bank deposits and their failure to identify how deep that banking pit had become did for us.  Their cronyism with the bankers and builders condemned generations regardless of what government would be in office to underpinning the casino capitalism which deregulation primed.  Can you remember the call for citizens; “Where’s my bail out”?.

What actually saved this country was membership of the euro.  If we had the punt, the debt would have been in foreign currency and the punt would have lost international value as interest rates would have climbed.  By now national debt would have crucified society, we’d have no hope.

Which brings me to Greece.  Tonight we will know the result of their election.  The likely winners Syriza started the election with a swagger and a list of promises.  One senior member quoted on RTE’s Drivetime this week said that if they keep just 3 of the 10 promises they make he’ll be happy.

The suggestion of Greek burning bondholders, leaving the Euro and debt default is off the agenda.  At best the Syriza spokesperson says they’ll press for a European debt conference for a write down.  Accessing the ECB’s wall of money  (otherwise called QE) requires each state including Greece to stand over whatever money is printed for that state through bond buying.

This week’s move by the ECB may in time have more influence on Europe than the Greek elections.  Greece was allowed into the Euro without real diligence being paid to the reality of Greek finances.  The Greeks have paid hugely for this.  Hospitals closed all around the country, no rail service to the Peloponnese, transport to islands cut, social welfare slashed with huge numbers of public servants let go. Heavy taxes imposed on a people where tax was by all accounts voluntary. Retirement age raised to that elsewhere in Europe.  There is little extra money in Greece’s economy, there was no suggestion as there is in Ireland of an economic pick-up.

So when the Greeks come knocking asking for another break, one can understand why Irish or Portuguese citizens might just ask “What about my bail out?”. Greece has been cut more than its fair share of slack in the last 7 years by countries like Ireland.  I’ve no problem with a Debt Conference but what about crediting those countries like Ireland that actually dealt with its debt at such conferences?

Any lender will ask themselves just one question before they loan and it is this; “Will I get my money back?”.  If a lender throws more money after bad debt, they may enter any conference on debt with a less than positive attitude. What can Syriza do then?