Friday, June 26, 2015

The dilemma with Greece and its debt

An interesting and annoying aspect of the negotiations between the current Greek government and the European Union is that Greek Prime Minister Tsipras and Finance Minister Varpoutakis seem to be enjoying all of this immensely.  Photos of the two and their comments are indicative of leaders enjoying their role and not giving the appearance of being as serious as the situation requires.  Of course, the German leaders are the complete opposite in their composure as to a large extent so are the French and the Brits.

As mentioned here previously, the Greek "ace in the hole" is that any break in the EU sets the stage for further breaks in the future when the inevitable crisis eventually happens, in the near term or in the distant future, in Spain, Italy, Portugal, Ireland, or elsewhere.  While Greece represents only 2% if the EU economy and exports almost nothing, this situation magnifies its clout considerably.  On the other hand, with most commercial and consumer debts denominated in Euros now(with the exception of some tourist credit card debt), a default and a return to what would likely be a seriously devalued drachma could be catastrophic to many individuals and companies, setting off simply another round of defaults in microcosm, a huge, widespread, costly, tedious, and economically destructive process in all likelihood.

This could lead to the ouster of Greece's currently upbeat leaders with their pride in gamesmanship. It could lead to much worse if the citizens break apart into volatile and highly partisan groups.

One could only hope that the posture of the Greek leaders is just that and behind the scenes they are completely serious.  On another note, why repatriation of the shipping oligarchs massive off shore wealth or criminal charges against them for tax evasion is never spoken about by either side is a mystery here.  They are no different from the rapacious Russian oligarchs despite their outward graceful manners and always wonderful hospitality.  This has been the behavior of wealthy Greeks forever it seems.

While virtually no one knows the details of the various offers that have been made,(could remind one of the Dodd Frank bill here, which beyond its consumer protection aspects, is a disaster for U.S. international trade influence, U.S. expatriates, and most importantly for global fixed income market liquidity),  it is clear that Greece is unwilling to enforce its tax rules against the wealthy and even the upper middle class, unwilling to adjust the pensions of state and municipal workers that receive up to 97% of their working pay in perpetuity after retirement, and therefore to leave all of the burden of any compromise to be carried by the already stressed small business private sector and individuals. Those groups, of course, are the voters that will oppose any compromise, not by accident but by what one could call political chicanery by the young manipulative and just a bit too obviously clever inexperienced leaders.

Unless global so called "vulture investors" or independent country bailouts(think Russia) come into the picture in the next few days in massive size this could be a disaster.  May some sanity prevail. What a beautiful country Greece is, one that is populated by many extraordinarily gracious ordinary citizens.


Postscript:  It was reported in the NYT that over the weekend their were long lines at the ATM's in the Greek Parliament building, with elected officials making withdrawals.




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