EFFECTIVENESS. Clear and Focused thinking.
Some time ago a top Greek Banker was in Romania. He had a meeting with the Romanian Prime Minister. To advise the Prime Minister there was only one person sitting near him, the Governor of the Bank of Romania. Later the Romanian Minister of Finance joined the meeting. The Prime Minister was hearing attentively and, when he wanted to take notes he used his iPad. The Greek Banker was appraised about Romania’s Privatization program and about the country’s Program for Economic Development Projects jointly financed by the Government and the Private sector. What is impressive is the rate of progress in Romania whose Economy will develop next year by 4%.
In Greece the Prime Minister has a large staff to do what? He also has advisors and consultants to do what? He has engaged the services of top echelon personalities to do what? He has even invited here a luminary like Professor Paul Krugman, a Nobel laureate to advise him, about what? The Greek Tax payers have, yet, to see what these expenditures have bought for the country. Is it therefore unreasonable to assume that if the Greeks had turned to the Romanians for advice (feeling desperate and in need of advice) saving the Greek Tax payers hundreds of thousands of Euros, the Romanians would, probably, have advised what is simple horse sense.
Since Greece is obliged to take severe austerity measures and also make its Economy competitive its Government should gain the support of the people for these measures. It should start by injecting calm in the minds of the Greeks who suffer without a road map to show them how they will pull out of their misery. The bets are that Greece will declare bankruptcy, or at best deliver a steep loss to its Bond holders by declaring that it will pay half their face value, or less. The Greek Government should therefore broadcast time and again, print and distribute nationally and internationally a declaration of independence from fear, which will clearly state that:
a) Greek Pension Funds hold Greek Bonds worth about 25 Billion Euros. A “haircut” of 50% would immediately reduce their value to about 12 Billion. The Government would have to step in and cover that loss, but how ? it has no reserves for such an eventuality; it would therefore have to borrow this sum, not from the markets who will ignore Greece for a good number of years. Assuming that somehow this sum is lent to Greece it would automatically increase the country’s liabilities by the amount it saved. Net gain ? Zero
b) Greek Banks also hold Billions of Greek debt. If its value is reduced by half it would be near catastrophy for them. They would be unable to do what they are meant to do … lend. This in turn will have a devastating effect on the Greek Economy.
c) German and French Banks hold large portfolios of Greek Bonds. A 50% “haircut” would result in big losses for them, something Greece wants to protect them from. They are its Euro zone allies.
d) In the light of the above help can come only from Greece’s Euro zone partners and the IMF who will, naturally demand that Greece takes all the appropriate measures to curb its debt and improve the shape of its Economy. If it does not there will be no help, which translates to:
I- Inability of the country to finance the cost of the public sector, the cost of Government.
II- Insufficient funds to import necessities, including foodstuffs and pharmaceuticals.
III- A likely exodus from the Euro, return to the Drachma which will be devalued by at least 50%, thus making the Greek economy competitive, but which will also double the cost of imports and the debt that the country will honor -to half its value- will be equal to the present, since the country will buy the Euros to pay it with the drachma devalued by 50%. Furthermore, with a devalued drachma and the cost of imported materials and goods double the economy will sink, taking with it wages and earnings, as well as the values of real estate and other properties. The Banks unable to collect from businesses and people in distress will sink. The Pension Funds will sink as their assets will sink in value and so the Greeks will be left destitute. The Government revenues will sink and the only hope to survive the spiraling devaluation of everything will be foreign investment which will come in and buy everything for a pittance, which will not lift the country from the pit. Who will gain ? the Greeks who have sent their Euros out of the country and want Greece back to the drachma, which will double the value of their money and enable them to buy at distress prices whatever they want and of course all those who look forward to this, as an opportunity to buy Greek assets at distress prices.
THE ABOVE FACTS CLEARLY VERIFY THAT AN EXODUS FROM THE EURO IS A SUICIDAL ACT.
The only way to cope with the debt is to increase Government Revenues and this is what the Greek Government will focus on. Specific plans for this will soon follow and the Greeks and the markets will be dully informed. Until then all talk about “haircuts” and the like are simply scare tactics of those who were foolish enough to buy insurance against a default that will not happen.
Such a declaration of independence from fear explaining why the holders of Greek debt will not suffer and stating the determination of the Government to increase its revenues will calm everybody, indeed if it is also accompanied by the assurance that Greek public assets will be used to lower the debt and that Greece is now declaring that its Exclusive Economic Zone borders that of Cyprus (according to INTERNATIONAL LAW) thus making Israel, Cyprus and Greece partners in the exploitation of the economic potential known to exist in their areas. Furthermore, the Greek Government will encourage in every possible way the exploitation of the economic benefits that can come from the mineral wealth of Greece.
Simple and clear thinking and behavior do not require elaborate plans and mechanisms, just clear and focused thinking.