Apologies for talking about Greece again but it seems that I have little choice. Suffice to say and presumably dependant on the outcome of the Greek government cabinet meeting later today the most likely outcome from this weeks’ events in Athens will be that the now forbidden financial land receives enough of what it wants from the EU, IMF and many other fools involved to allow the economy to struggle on for another couple of months.
It seems that a worse than bad dream is being played out right now in the inner sanctums of Brussels, Frankfurt, Paris and Athens. In return for euro billions more bail-out funds we suspect that Greece will have promised the lending authorities that it will bring forward whatever economic restructuring, deficit reduction and other restraint plans, further cut state spending and jobs and begin to collect more overdue taxes.
To an experienced hand watching events in Greece suggests that Athens based promises are just about as worthless as Greek made cars! OK, so there is still officially a car manufacturer in Greece – the company is called NAMCO and it used to make a vehicle called the Pony. Indeed, to the best of my knowledge the production facilities of NAMCO still exist and there even remains a long held promise to produce a third generation ‘Pony’ might eventually start. Sadly just like all those other promises about reining in the deficit the one about making cars may best be seen as yet another of those ‘Greek promises’ that will probably never be kept.
While the IMF, EU and Eurozone authorities rightly insist that Greece reins in spending, increases taxation and attempts to collect all those billions of unpaid taxes no matter what the Greek government might promise to do suffice to say that without proper government infrastructure in place it is impossible to believe any of this is likely to be achieved.
Bad enough that the Greek population have been allowed to play the tax avoidance card with such panache for so long but ask yourself this – how can a democratic political system such as one like Greece that is teetering on the brink survive pressures that might yet put one third of the population out of work? You can take a horse to water of course but you can’t force it to drink. What that means is simply a statement that the politics of what is yet to come in Greece may well be torrid. Already we are witnessing more strikes and demonstrations in and around Athens and elsewhere across Greece against the cuts in welfare spending and state employment demanded by those that are throwing a mass of money at a population that just don’t seem to get the message.
And yet despite the government employing hundreds of gardeners to do work in gardens that don’t even exist the Greek administration doesn’t appear to know how to collect tax. Turning that ship around may require substantial amounts of new legislation and meaning it could take years let alone the putting in of new systems, disciplines and training to ensure that all this is done. Two fingers to the collector of taxes for now then may continue to be the answer of many ordinary Greeks.
The scenario that I paint above might sound ridiculous but I am afraid that is about the nub of it. If anyone really believes that promises to accelerate cuts made by Greek Prime Minister George Papandreou to ensure receipt of the next EUR8bn that the economy requires, if anyone still believes that at some future point Greece will not officially default on its debt they are most probably living in cloud cuckoo-land.
Yesterday Greek Finance Minister Evangelos Venizelos was reported as saying yet again that staying in the Euro area is an irreversible and fundamental national choice. Surprise, surprise – you bet he is because he has no other option, no other choice. And yet as long as Greece does stay in the Euro we may believe that the crisis for the Euro authorities and the EU will likely go on. None of this is to suggest that I believe Greece should be thrown out of the Euro area – far from it – or that all of a sudden it should leave by its own choice – that would surely be impossible as there is no enshrined policy in existence for either versions to occur. But it does mean that I might well be led to believe soon that the Greek government should consider the prospect of slowly drifting away from the euro – using the Euro as a currency for now but also planning for a longer term alternative.
Meanwhile the EU, IMF and Euro authorities have already thrown billions of Euro’s of rescue/bail-out funding into the Athens government and no doubt they will yet be required to do even more. Are we mad enough I wonder to believe that at some point Greece will not be forced to default? Hopefully we are not that mad for the simple enough reason that despite all the promises made by Germany and France that protecting the single currency remains an absolute priority at all cost we may also believe that at some point soon the voters in these single currency EU nations really will say that enough is enough.
If the above sounds as if I believe that we should immediately turn the engine off and throw the keys of Greece into the sea all that I can say is that this would not be true. I believe that for now it is in the political let alone economic interests of the rest of Europe that we do all that we can to ensure political and economic stability in Greece. Indeed, only last week I reminded my audience that the marriage vows that Greece and the EU and the Eurozone made together at varying times and particularly when the nation was originally allowed to join the single currency apply just as much today as they did back then. Those words are simple enough – for richer, for poorer, in sickness and in health.
So it is that the ECB with a helping hand from the IMF must continue to support Greece for a time yet and that neither can the EU be allowed to stand idly by its responsibilities. To be fair the IMF as it always has in the past in situations such as this has engaged many of its top people in Athens to provide support, help and advice to the Greek government on how best to go about remedying aspects of the appalling state of the economy. Other EU governments could help too and I wonder why with all its expertise Britain doesn’t offer to help by advising the Greek government about how to better collect taxes?
Meanwhile as we forgive ourselves for laughing at the idea of the Greek government collecting new property taxes through electricity bills the more serious issue remains that cutting state jobs, benefits raising and collecting more taxes can only deepen both economic and political wounds in Greece. That means years of recession in an economy that imports massively more than it exports. Sure, tourism is important of course but with that in a population that is hit for six come other natural human jealousies.
No matter what other episodes occur in the European sovereign debt crisis there will in my view be nothing as bad as Greece. Italy’s economy and politics may well be a tale of woe but it should be containable because the Italian people have the ability to accept what needs to be done. Famous last words of course and there will be those that seek to talk that idea down. I have no wish to see the combined’ authorities walk away from Greece but neither can I really believe that throwing even more money at the situation in future will actually make it better. Indeed, there is an argument to say that politically it will make it very much worse.
Howard Wheeldon is the Senior Strategist at BGC Partners
