Moment of Truth?

A friend of mine sent me an excellent chart from the BBC displaying Greece's debt crisis odyssey. My friend is exasperated with the debt crisis, ratings agencies, financial bailouts, incompetent politicians and financial oligarchs:
Nothing like spreading panic based on total nonsense. A default is probably the best thing that could happen now. Once you reach the precipice, the best thing to do is jump and break your leg. Sitting at the edge of a cliff, looking down into an abyss, wetting your pants, and making yourself feel better by giving a massive donation to the banking system is not helping.

I am now convinced more than ever that the capital markets need to undergo harsh medicine. The EU and the Fed need to stop interfering. No more tarp, quantitative easing, or IMF bailouts. Yes, this will wipe out the half of the financial institutions in the U.S. and Europe. However, this is happening anyways so may as well restore market discipline after years of debauchery. The banks will restructure and segregate their toxic assets (i.e. shitty loans andtrades) into a discounted asset pool for sale.

It is amazing but in a short ten years, this generation of bankers have managed to dismantle any semblance of orderly markets and created a mess that will take many years to unravel. If a bank or an institution makes dumb decisions, they should suffer the consequences. We need to return to the 1930's so that when a Banker does something really stupid, he does the honorable thing and jumps out of his office window.
I agree, the mess we are going through now is all because of the tyranny of financial oligarchs who have managed to screw up the financial system and global economy almost beyond repair. Of course, the legacy of debt is also due to political incompetence, ignorance and intransigence.

Last night, I went out to dinner to Agora, a trendy restaurant-bar right around the corner of the Athens Hilton. The place was jammed; no signs of austerity in the bars and restaurants of Athens. I was accompanied by another friend of mine's cousin, a young lady in her mid-thirties who works as an advertising professional in Athens.

I hadn't seen her in over ten years. She was just as beautiful and level headed as I remembered and we discussed the past, present and future of Greece. According to her, the real crisis is social and it preceded the economic crisis. Lots of Greeks were looking to get a job in the public sector and sit on their hands, collecting a paycheque for doing nothing and then a nice pension for life. In the private sector, she told me wages have been slashed, people are losing their job or scared they will lose it, and many businesses owe money to banks.

She told me there are no more morals and values in Greek society. "Everyone is looking to screw over the next person." I told her that's exactly what my brother-in-law told me in Crete. He too thinks the real crisis started decades ago with people losing their morals and values. He told me he overheard two customers talking about how they were going to screw over a competitor of his and not pay him back. "In the old days, people had honor, your name meant something. If you didn't have the money, you didn't buy stuff on credit. And if you did, you would pay back your debt promptly. It was dishonorable to owe money to people and never pay them back. Nowadays, it's common practice."

That's the problem in Greece. Many businesses are hanging on by a thread as customers refuse to pay them money they owe, honoring their debt. The justice system is a total mess. If you take them to court, you will wait forever to get a ruling. The government should totally reform this joke of a justice system and protect the rights of legitimate businesses. They should also reform the tax system, starting by firing corrupt tax collectors who take bribes and facilitate tax evasion.

I also had long discussions with my uncle in Athens who is a self-employed businessman and a friend of mine in Patras who works as a sales rep in a pharmaceutical company. My friend left Canada over 20 years ago to move to Greece. They both gave me a good overview of a lot of the problems in Greece that led to this massive debt bomb:
  • First, the bulk of the 350 billion euro debt was accumulated in the public sector over decades as each successive government kept buying union votes by hiring workers and promising them jobs for life.
  • There are now close to 1 million public sector employees in Greece, a staggering figure for a population of 12 million, especially when compared to Germany and France who have close to 800,000 and 600,000 public sector employees respectively for populations of around 80 million and 60 million.
  • Second, there is a lot of waste and mismanagement in the Greek public sector. The bureaucracy is sclerotic, completely frustrating foreign investors who want to invest in Greece. There is too much red tape, purposely done to protect useless jobs in the public sector. This has been going on for decades.
  • Third, some unions here act as if there is no crisis. My friend told me that workers at EPT, the national broadcasting company, recently asked for raise, completely oblivious to what's going on. He reminded me of what Reagan did to air traffic controllers when they went on strike: "He fired them all, which is what we should do here with many public servants going on strike."
  • He also told me that most of the taxi drivers are "thugs" and went years not declaring their real income. Now they are protesting because the government wants to open up their profession so more can work (the government is doing this across many professions). While he feels for the taxi drivers who bought licenses at inflated prices in recent years and stand to lose a fortune with the new law, he has no sympathy whatsoever for the majority of them and thinks Papandreou should bring in the army whenever they go on strike and act like soccer hooligans.
  • My friend told me a lot of the truck drivers and public transport workers in Greece make an insane amount of money. "Some of these guys are grossing and netting more than doctors when you include all their stupid incentives, like showing up to work on time." Have to admit, the encentives in Greece (called "epidoma") for those working the public sector, including ministers, are a total farce. They should cut them all out.
  • On tax evasion, my friend told me that bars and restaurants are charging 23% valued added tax but not cutting receipts. "I demand receipts wherever I go. Fuck 'em, they're the biggest tax cheats in Greece. I know guys selling souvlakis and bar owners grossing more than a million euros a year and declaring next to nothing on their income taxes. It's a scandal that the government hasn't been able to crack down on bars and restaurants."
  • My uncle agrees, while most legitimate businesses pay big taxes, bars and restaurants are getting away with murder. He also warned me not to generalize: "Most doctors, lawyers and business people in Greece pay taxes and are legitimate, only a small percentage are robbing the system blind. The majority of the debt was due to decades of political partisanship, waste and mismanagement."
  • My uncle also explained to me why shipowners pay no taxes. "That was because of George Papandreou Sr., Papandreou's grandfather, who rightly put that law in place to bring shipowners back to Greece and create jobs. Unlike manufacturers, if you tax shipowners, they will move to another country. That's why Greeks remain leaders in world shipping."
  • My uncle told me the real tragedy in Greece is youth unemployment, now running close to 40%. "Without any job prospects, they can't build their future. Those that are lucky will leave in search of work and a better future but most will be permanently unemployed."
  • Finally, my friend told me flat out "Greeks have been lying to their lenders which is why troika is putting pressure on them now." He added: "They have not implemented any of the drastic cuts they promised because they're all looking to assuage various unions and their political base." Like me, my friend hates the communists (what a frigging joke of a party!) and other fringe parties looking to score political points by claiming Greece can easily default on their debt and never pay back their lenders. Even Samaras, the leader of New Democracy is making poltical promises he will never be able to keep.
Nikos Konstandaras of Ekathimerini is right, Greece's moment of truth has arrived:

If there is anything positive in these feverish days, it is that no one can pretend not to understand the severity of the crisis, be they in Greece or elsewhere.

The fact that the government is preparing measures that include tens of thousand of layoffs in the public sector and a further reduction in pensions means that it understands it has no room to maneuver: It will do that which it fears will lead to its fall. It has to deal not only with the dictates of the troika but also the fact that even its strongest supporters -- such as France -- can no longer hide their exasperation with Greece’s inability to carry out policy.

Today not even the most zealous of conspiracy theorists can convince anyone that the turbulence in German politics, the cracks in the French banking system and the rollercoaster rides on the international markets are nothing but a concerted effort to buy Greece on the cheap.

The truth, though, is a double-edged sword, as foreign politicians and economic players have discovered after trying to present Greece as a ghetto of all the structural problems of the single European currency (problems that will exist as long as no mechanism evens out the differences in production and behavior between eurozone members). Populists inside Greece and in other countries are united in presenting a danger toward Greece and the European Union itself. When the catastrophe becomes evident, then the majorities in each country will turn on the demagogues. By then, though, it may well be too late for Greece.

The Greek government bears a great measure of responsibility for the crisis -- for doing too little too late, for not believing in the policies that it was forced to carry out, for not restructuring the public sector so that it would not have to take measures whose outcome it cannot predict. This responsibility, however, cannot excuse the main opposition party’s tactic of continually taking a different position to the government’s. None of its arguments seems to be leading Greece, the European Union, the International Monetary Fund and the international markets toward the path of righteousness; rather, the lack of consensus and the triumph of personal obsessions among our politicians are useful reminders of how we got into this mess.

I think this is a great comment, one that every leader should read. Greece has a 24 century history of defaults, but the time has come to clean it all up and focus on the future. This debt crisis odyssey will bring more pain, especially if myopic policymakers focus only on austerity and not growth, but it will also bring some much needed structural changes to a country that desperately needs them. I also hope it will bring about a change in the Greek mentality which has been corrupted by the worst type of materialism and a culture of self-entitlement which has evolved through years of political cronyism.

But this isn't only Greece's moment of truth. As I argued in my previous comments, policymakers across the planet need to step up to the plate and start taking tough political decisions, ones which may anger the financial oligarchs but are in the best interest of the global economy. If they don't, they will be responsible for the next global depression.

My moment of truth has also arrived as I have to head back home to Canada and prepare for my future. I leave Greece with mixed emotions. I love this country, now more than ever, and feel a bit like Henry Miller did when he left Corfu as the second world war was about to break out (Collossus of Maroussi):
I had never expected to leave Corfu under such conditions. I was a bit angry with myself for having consented to go to Athens. I was more concerned about the interuption of my blissful vacation than about the dangers of the impending war. It was still summer and I had by no means had enough of the sun and sea. I thought of the peasant women and ragged children who would soon be without food, and the look in their eyes as they waved goodbye to us. It seemed cowardly to be running away like this, leaving the weak and innocent to their doom. Money again. Those who have escape; those who have not are massacred.
There are many Greeks now struggling with austerity. They are typically pensioners living on a fixed income, the poor and working poor, but many others are on the brink living with great uncertainty. As I get ready leave Greece, I wonder how long before other countries face their moment of truth and how will their citizens cope with the harsh realities of austerity and a dim future?