* Κάθαρσις is the final act of an ancient tragic drama; its greek for “purging”.
For years now, a drama is being staged in the birthplace of theatre. Since Greece joined the European Union, in 1981, a strange symbiosis has been taking place. This blog aims to shed some light to the Greek psyche -a major factor we believe in helping assess the outcome of the current situation- rather than overanalyse the numbers. The latter have been parading throughout analyst bulletins, research pieces and news for a good few weeks now; last year’s deficit was corrected by around 3%, to 7.7% and the estimate for this year’s deficit was corrected from 6% to 12.7% of GDP (in the process, the EU discovered that the Greek statistical service was under the control of the government); Greek public debt is around 113% of GDP (Euro area average is 79.5%, still Greece comes 3rd after Italy and Britain); S&P had reacted by giving Greece a negative outlook, and one day later Fitch substantially downgraded the country from A- to BBB+ (on a day of very limited market liquidity and not waiting for the still pending outcome of Greek-EU discussions-probably an analyst just working on a deadline); this brought forward speculation on the future eligibility of GGB’s as ECB (and also GC) collateral, as well as whether investors would support future Greek issuance and the repercussions of such events; Greek spreads have sky-rocketed and the curve has flattened, GGB’s have plummeted v Bunds and the questions regarding the ability of the country to service its debt are growing louder. What is going on in Greece then?
The country, geographically isolated from the rest of the Union, is indeed burdened by a structurally and perennially weak economy; plagued by high public and personal debt levels, rife tax-evasion, a rampant black-market and an underdeveloped, non-diversified and uncompetitive industry, Greece has long been one of the weakest links in the Union. Instead of making full use of the generous EU development funds, the state and the economy has been steadily growing poorer, while (a significant part of) its population has been fattening themselves. Inevitably, it has frequently been the subject of less-than-glowing articles and analyses. Recently Goldman Sachs immortalised it as the G in PIIGS (alongside Portugal, Ireland, Italy & Spain), the unattractive acronym given by the mighty GS to the laggards of Europe.
Politically, Greece has been dominated, since the end of the military junta in the mid ’70s, by 3 families; the Papandreou clan -whose patriarch George was PM in the mid-60s- founded the Socialist party and dominated during the early EU years, from 1981 to 1990 and again from 1993 to 1996 under Andreas Papandreou and are currently steering the country under the premiership of his son George; the Karamanlis family, founders of the Conservative party, held the PM office between 1974 and 1981 with Konstantinos, and between 2004 and 2009 with his nephew of the same name; the Mitsotakis family, the significant other of the conservatives, held the PM office between 1990 and 1993 with Konstantinos and his daughter Dora, who has just (unexpectedly) lost the battle to become the new leader of the party, remains a force to be reckoned with. Put differently, the 3rd Hellenic Republic (starting after the junta) has been defined by the Papandreou and Karamanlis families for 26 out of its 35 years. Arguably, the socialists were the ones who moulded the huge, labyrinthine and largely inefficient public sector and the complex system of benefits and social policies that have been draining the public coffers for decades, albeit without promoting growth. Should we be branded as anti-Papandreou, let’s make clear that the conservative governments were themselves lacklustre, uninspiring with policies mostly undifferentiated from those of their predecessors; they eventually managed to steal the limelight by effectively presenting heavily doctored budgets to the European Commission and tarnishing the reliability and respectability of the country along the way (whether Greece is the only member state fudging budget numbers is highly unlikely, but it is the only one caught red-handed).
Socially, Greece is intriguing. Greeks are quite a solitary people. A small nation, effectively an island in the EU, separated by geography, speaking an old but also insular language (‘it’s all greek to me’), believing in a different brand of Christianity (orthodox). Ethnos Anadelfon they sometimes call themselves, a nation with no brothers (which makes their recent Eurovision successes even more impressive, given the absence of alliances to count on -apart from Cyprus, but that’s a different and long story). Domestic news dominate bulletins – up until very recently Greeks insisted that the global crisis was someone else’s problem. Modern Greeks still feel as if they live in the centre of the world, a veritable Medi-terranean nation. They do not travel much and are notoriously difficult to please when they do. There is no place like home. Partly due to Greece’s rich history and partly due to their south-European temperament Greeks also attribute to themselves a certain edge over the westerners and they are characterised by a certain wit and mischief -which can be charming at times (epic conquests of Scandinavian tourists) but damaging at others (budget fudging). And just in case the Greek wit is confused with the British variety, Greeks do not do self-deprecating.
Mix decades of timid governments and socially-friendly laws with free (European) money, a good measure of Greek temperament and a dash of a global credit crisis and you get a fiscally explosive cocktail. PM Papandreou definitely got one thing right in today’s address to the nation (and its creditors): for Greece to survive this crisis much more than spending cuts and taxes are required. The issues have become interwoven with the Greek psyche itself. Serious change is imperative for the nation to have a chance. Change in civil servants’ mentality (‘we are untouchables and since we do not evade tax like the rest of you, don’t complain if we milk our perks‘), in private business (a badly paid, stagnant environment made possible since there is extremely limited job mobility and availability), in freelancers & professionals (where tax-evasion is rife and cash-under-the-table payments are common practise among craftsmen and doctors) and finally in public administration (where the path of least resistance and compliance with vested interests has provided the shady and dump environment for all other problems to mushroom in).
It is not going to be easy. PM Papandreou, in one of the most important moments of his career, made quite a few brave announcements tonight, very uncharacteristic of modern Greek politics. His speech was probably too long, had too much detail in some areas and too little in others. The first 15 minutes though were an audacious dissection of the current Greek socio-economic stalemate and he didn’t mince his words there. For the first time in many decades did a Greek politician attempt to rouse the nation by referring to dangers to their sovereignty. Far-fetched as it may seem, it may well be the only thing that Greeks will respond to. And their buying in Mr Papandreou’s call to detox the nation is imperative for Greece. The measures will be not be pleasant and the awakening will have to be a rude one.
Our bid/offer on the eventual outcome is pretty wide. Greeks might have been complacent for just too long. While we were listening to Papandreou’s speach on one of the biggest Athenian radio stations, 15 minutes in the broadcast was interrupted for a 5 minute commercial break.
As PM Papandreou put it tonight, the Greeks will ‘change or sink‘.
cw
The transcript of PM Papandreou’s speech (as reported by Bloomberg®):
BN 18:50 *GREECE PM ENDS SPEECH IN ATHENS
BN 18:49 *GREECE PM SAYS DECISIONS TAKEN WILL BE PUT INTO EFFECT BY FEB
BN 18:48 *GREECE PM SAYS IMPERATIVE TO TAKE DECISIONS, IMMEDIATELY
BN 18:44 *GREECE PM SAYS WILL PROCEED WITH STATE ASSET SALES
BN 18:41 *GREECE PM SEEKS BEGINNING OF TALKS FOR NEW, JUST TAX SYSTEM
BN 18:37 *GREECE PM TELLS MINISTERS TO REDUCE SPENDING ANNUALLY
BN 18:34 *GREECE PM SAYS PLANS DEFICIT UNDER 3% OF GDP BY 2013
BN 18:34 *GREECE PM SAYS DEFICIT WILL BE UNDER 5% IN 2012
BN 18:33 *GREECE PM SAYS 2010 BUDGET DEFICIT CUT IS NEAR 4 PCTAGE POINTS
BN 18:32 *GREECE PM SAYS 2010 BUDGET CUT IS MORE THAN EU8 BLN
BN 18:32 *GREECE PM SAYS 2010 BUDGET WAS FIRST STEP
BN 18:30 *GREECE PM SAYS TACKLING CORRUPTION IS KEY
BN 18:28 *GREECE PM SAYS TO CUT ADMINSTRATIVE LEVELS FROM 5 TO 3
BN 18:23 *GREECE PM SAYS IMMEDIATE NEED TO REFORM HOSPITAL SYSTEM
BN 18:23 *GREECE PM SAYS LEGALISING MIGRANTS WILL BOLSTER PENSION SYSTEM
BN 18:21 *GREECE PM PLANS LAWS FOR PENSION SYSTEM BY END-JUNE 2010
BN 18:21 *GREECE PM SAYS PENSION SYSTEM TALKS AIM AT VIABILITY OF SYSTEM
BN 18:20 *GREECE PM PLEDGES TALKS TO OPEN UP CLOSED PROFESSIONS
BN 18:15 *GREECE PM SAYS MAIN GOAL IS ECONOMIC GROWTH
BN 18:13 *GREECE PM SAYS EACH MUST CARRY BURDEN ACC TO THEIR ABILITY
BN 18:13 *GREECE PM SAYS WILL PROTECT MIDDLE-INCOMES, POORER GREEKS
BN 18:13 *GREECE PM SAYS MANY CHOICES WILL BE PAINFUL
BN 18:12 *GREECE PM SEEKS SUPPORT TO BEAT CORRUPTION, TAX EVASION
BN 18:11 *GREECE PM SAYS AT POINT WHERE DECISIONS WILL DETERMINE FUTURE
BN 18:10 *GREECE PM SAYS CONVINCED EU PARTNERS OF THE ISSUES, ROADMAP
BN 18:08 *GREECE PM SAYS MARKETS WANT ACTIONS, NOT WORDS
BN 18:08 *GREECE PM SAYS BIGGEST DEFICIT LACK OF CREDIBILITY
BN 18:03 *GREECE PM SAYS GOVERNMENT WILL CLASH WITH MENTALITIES OF PAST
BN 18:00 *GREECE PM SAYS CRISIS CAN BE AN OPPORTUNITY TO CHANGE GREECE
BN 18:00 *GREECE PM SAYS CHALLENGE IS FOR EVERY GREEK TO CHANGE
BN 17:59 *GREECE PM SAYS DEBT UNDERMINES GREEK FUTURE
BN 17:57 *GREECE PM SAYS DEBT CLOSE TO EU300 BLN
BN 17:56 *GREECE PM WILL TAKE DECISIONS THAT HAVEN’T BEEN TAKEN IN DECADE
BN 17:55 *GREECE PM SAYS WILL TAKE DECISIONS WITHIN NEXT 3 MONTHS
