More than ten facts and one question about Greece and the EU financial crisis

Pytheas Market Focus ÂŽ

July 2015

By Harris A. Samaras

www.pytheas.net

Pytheas Market Focus ®

About the Author – Harris A. Samaras An Economist and presently the Chairman & Group CEO of Pytheas, an international investment banking organization. Harris has also worked with the Bank of America Group, Thomson Financial BankWatch, and Moody’s Investors Service. His expertise lies primarily in the areas of investment and corporate banking, private equity and finance, risk management, corporate restructuring and business development. His research and extensive publications in these areas range across practice rather than theory, economic and business thought, entrepreneurship and geopolitics. He has been an adviser to various governments, central banks, financial institutions, and other corporates and has been a member of the board of directors of multinational organizations.

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Pytheas Market Focus ®

Fact 1 Greece will never be “allowed” to exit the Eurozone, even if the Greeks vote for a zillion times “No”! Only a mindfully blind, naive or uninformed person cannot realize that the Greek Financial Crisis is as much an issue for Brussels as it is for Athens. Unless of course you are Mr. Schäuble, a self-proclaimed “pragmatist” that seems to look at life in black and white only (but with no shades of grey in between whatsoever), pondering over his life, I believe, of the difference and correlation between, humility and humiliation… justice and cruelty… forgiveness and vindication… complicity and cynicism… patriotism and nihilism… If, however Greece exits, the collateral damage will kill the Eurozone – despite to what certain EU officials exercising populism unconvincingly preach – and it will lead to far-reaching economic consequences across the continent. It would without any doubt undermine the European banking system within days and increase the public debt of other European countries. If Greece is let to go bankrupt, the very principle of the EU will be challenged. Unemployment will rise again, Germany’s including (which has up to now only benefited from an undervalued Euro). Note that in the 50s Europe was founded on the forgiveness of past debts – particularly Germany’s – generating a massive contribution to post-war economic growth and stability. Fact 2 Greek debt is unsustainable. Both Athens and Brussels were aware from the very beginning, that Greece would have never under such austere circumstances been able to repay its debts at the announced short period. The EU should have not and cannot expect a miracle from Greece. It was and it is impossible! Fact 3 Although Athens had complied with much of Brussels’ austerity and adjustment programs, Greece’s reforms did not convince! Greece’s unimaginable waste of tax payers money, through gross fund allocation inefficiencies, political favouritism, vote mongering, cronyism and corruption continued despite the Greek governments’ vows of the opposite towards its lenders. The social and humanitarian impact in Greece is enormous and beyond conception for a EUmember country. Youth unemployment is now almost 50%; about 40% of children live in poverty; infant mortality in unacceptably high, while salaries and pensions are slashed and taxes raised… Moreover, and amongst other, health and education budgets are more or less halved… Important, however, to note that the 2010 and 2012 bailouts especially protected the French, German and Greek banks (in this order) from debt write-offs. Only just above 11% of the EUR 240 billion bailout funds have gone toward financing Greek government “requirements”; the rest went to paying off Greece’s creditors; and in March 2012, the Eurozone governments bought out the remaining Greek debt on the banks’ books at a 53.4% discount… Fact 4 Austerity has failed. If the massive Greek debt is not restructured and partially written off, give the economy room to function and recover, and allow Greece to pay off a reduced

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Pytheas Market Focus ®

burden of debt over a longer period of time (always in conjunction with much needed but pragmatic reforms), the Eurozone and the EU will remain in the history books as an idea that was characterized by failure and retribution, where populism and bigotry prevailed. For the record and to put the Greek crisis in context, consider the debt relief and credit support given to post-World War II Germany by the Allies (Greece included), who wrote off 93% of the pre-Nazi debt incurred during World War I and the Weimar period well into the 21st century. What is mind-boggling, is the irony that Germany, of all nations, is today the main enforcer of the destruction of Greece, when despite the hundreds of thousands of Greeks vanishing by deliberate starvation alone (not to mention the other hundreds of thousands assassinated in mass executions and so forth or the properties that have been annihilated) during the World War II Nazi occupation, the forgiving Greece of then is now facing a brutal extermination by those it so willingly forgave in the name of humanity and progress… Note also that the postWorld War II Greece of then was more than probably in a worse financial situation than the victimiser itself. Fact 5 Mr. Tsipras (and his government) is gutless and his tactics are disgraceful, both towards the glorious legacy that Greece as a country and as an idea signifies, and his EU partners. Gutless, because instead of taking responsibility, he deliberately, Mr. Tsipras, drags his country into an unnecessary adventure, that can lead to no resolution whatsoever. Whether in a few days the polarised citizens of Greece will vote for “Yes” or “No”, nothing at all will change. Again Mr. Tsipras, the day after the referendum, will have to deal with his EU partners and find a solution to the exact same problems, only this time, his country will be a lot poorer and his “flog” a lot more confused. Disgraceful, because only a thief or a cheat borrows money, and then states with arrogance (and ignorance), through the voice of his Minister of Finance, in his very first meeting with the lender, that lasted a record few seconds, “We have no aim to cooperate”. If the Greek government believes that the terms and conditions imposed on the Country by its lenders and partners are “illegal” or inhumane or even unfair, there are other ways to address them and argue for them – with respect, dignity, and much wiser diplomacy! If these routes are exhausted, only then “extreme” measures are taken. When Greece was borrowing (or was “forced” to borrow) money, all was fine. When these loans were mismanaged or thrown into a money-pit dug by the Greeks themselves that was fine too… Wonder what ancient Sophocles who uttered, “Rather fail with honour than succeed with fraud”, would have thought about the actions of his antecessor, Mr. Tsipras… And what about the thousands of Mr. Tsipras’ misguided followers; victims of his populism and impossible to adhere to promises? What about them and their children? Isn’t it right for them children to believe that it is acceptable and ethical not to repay a debt? Last but not least, Mr. Tsipras and his government speak or bluff about a Grexit. Has this Government, Mr. Tsipras’ government, prepared for such possibility? And if they did, can they manage it? If Mr. Tsipras you have the guts and the intention and the possibility to do so, prepare for it, and do so openly, with self-respect and dignity, and let your EU-partners know that you are examining such possibility because with the terms and conditions that they are imposing on your country you are left with no other choice.

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Fact 6 With the Eurozone squeezing the life out of Greece in a deal that forces the country to surrender to all of its creditors’ demands, it has become clearer than ever that democracy has died in the negotiating rooms of the EU. The Germany-led “pack” goes beyond pure vindictiveness and complete destruction of financial sovereignty. Simply and bluntly and for those that are not yet aware, the Pack’s demands, both directly and indirectly, imply amongst other that Greece could no longer implement any future policies unless the Pack approves them first, and that significant Greek state-owned assets will be forced to go into a compulsory fire-sale privatization with only a fraction of the proceeds to be reinvested back into the Greek economy. This form of “new EU democracy” but also totalitarianism and suppression of individual liberty, was observed with horror early 2013 when the Eurogroup attempted to “save” the Cypriot financial system by destroying it… It is apparent, that Greece will be made an example that will show to the rest of the EU citizens and to those entities that do not “behave”, that they can elect if they dare governments with anti-austerity agendas, but the Pack will always dictate what those governments can do. The Pack will even dictate whether they can stay in power or not. It is evident that what they, the Pack, offer to Greece cannot be accepted; a grotesque betrayal of everything that the EU was supposed to stand for that is unquestionably not consistent with the European ideals of democracy and sovereignty! Fact 7 While it is a fact that, (a) a number of Eurozone nations were complicit in Greece’s fiscal irresponsibility; (b) the EU was inadequate and “deliberately” reluctant to take a decisive action and to establish a mechanism to effectively assist member countries with financing problems – whilst aware and acknowledged by the EU itself of the unique problem with the Eurozone, that countries in it share the same currency but not a unified fiscal, banking or political system, leaving countries especially the smaller ones with few tools at heir disposal during a downturn; (c) Billions of Euros of net wealth have been transferring from Athens to Berlin, and not only; German in particular, but also other European leaders’ “morality” politics, sermonise endlessly about how their frugal and thrifty taxpayers are being forced to endure the worse because of Greece’s only irresponsibility… Although Germany is the greatest beneficiary of the European Union and the Eurozone, the vast majority of Germans feel that Europe lives at their expense: As the largest economy in the EU, Germany makes the largest contribution to its budget, but the EU's budget is small, about 1% of the GDP of each member state. This expense pales into insignificance in comparison with advantages from which Germany benefits. To see further how far Germany's populist narrative inverts reality, you only have to remember that the fact that Greece has a trade deficit (for which Greece is guilty) works to the benefit of the other EU countries, and first of foremost to the benefit of Germany, which is the leading exporter to Greece. Salary costs in Greece (another Greek fault) have financed private consumption in Greece, which has financed German exports. The accession of Greece and the "weak" countries to the Eurozone generated a spiral of rising prices, which brought in train wage rises. One of the reasons is that exporters' prices, chiefly of German exporters, became uniform in the Euro block despite the gaps in purchasing power between the populations in the different countries.

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Pytheas Market Focus ® The “aid” to Greece will not cost the German taxpayer anything. Germany will lend to Greece at a higher interest rate while Germany itself raises money a lot more cheaply. Greek recovery will serve the interests of the EU and its member states beyond the common interest in preserving the stability of the Euro. Despite all these, Chancellor Merkel did not have the courage to tell the Germans the truth… Fact 8 More now than ever, the EU is in dire need of the political courage to implement structural reforms and an appropriate and just mechanism within the EU that could solve such problems at birth, enabling swift response and action. Equally if not more important, the inability of the EU policymakers, to enforce current regulations by imposing stricter more complex ones, create a more chaotic, slow-reacting, bureaucratic, multilevel regulation system which is at the expense of movement of capital and everything positive that comes out from it. The real problem that lies in this very framework, created by politicians and bureaucrats, prevents free markets to deal with excesses in the way the laissez-faire economic philosophy always does. It is also convenient for the use of coercion by the wealthiest EU-member nations to accomplish political, geopolitical and economic goals… Fact 9 Greeks are not the sybaritic, lazy and profligate “scam” that some politicians deliberately or with ignorance stigmatized them to be. According to the OECD, Greeks work more hours than most of the other EU citizens, five hours more than the European average and almost seven hours more than Germans weekly. Greeks also take fewer holidays than most other Europeans, fewer holidays than the European average and fewer holidays than Germans. Also spending per head in Greece for the past decade or so has been less than the EU average and much behind that of Germany… Fact 10 Cyprus was the beginning. Greece is next. And one question Why aren’t the negotiations televised?

See also other related publications by Pytheas on Greece: ► ► ► ► ► ► ► ►

The importance of the Southeastern Mediterranean hydrocarbons to the EU (September 2013) The failure of the Greek State engendered a disillusioned society (May 2012) Southeastern Mediterranean hydrocarbons – A new energy corridor for the EU? (April 2012) The importance of Eastern Mediterranean gas fields for Greece and the EU (January 2012) Could the Greek Financial Crisis be the end of the EU as we know it? (June 2011) The long overdue loan for Greece is announced. Is it enough? (April 2010) Greece must change or sink! (December 2009) Greece unlikely to escape its worst financial crisis of modern times! (July 2009)

Disclaimer The above notes have been compiled to assist you; however, actions taken as a result of this document are at the discretion of the reader and not PYTHEAS or Harris A. Samaras.

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