In conversation with Jeff Santos of AM 1510 Revolution Boston:
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Inside Greece 
I had to go over this interview a couple of times to find some quotes which are so unbelievable that I thought I had misheard the first time around. Let me comment respectfully.
“Governments (like the Greek government) are now being forced to stack austerity on top of recession because the European banks are undercapitalized” — I agree that fear on the part of EU/ECB-elites that something bad could happen to their banks prompted them to take some of the most incompetent policy decisions that were ever taken during sovereign debt crises. In the process, they transformed something which should have been the most natural thing in the world (an orderly rescheduling of Greece’s debt) into the risk of a financial Armageddon. For the mess which has been created in the last 2 years, the EU/ECB-elites are entirely responsible for.
But what does that have to do with austerity measures in Greece? On the contrary, Greece should be happy that the European banks were/are so weak! That way, Greece could turn her own problem into a European problem (with the active help from incompetent EU/ECB-elites). Suppose European banks had been strong as rocks. Strong banks would have said to Greece: “Look, we have already made more than enough loan loss provisions against your debt with us so we are indifferent which way you want to play it. We suggest that you get your act together and that we agree on an orderly debt rescheduling within 3 months. If you prefer to default, go ahead”.
Austerity measures became necessary for Greece because the government couldn’t pay its bills any longer because it no longer could get financing for that. Only weak banks (and weak EU/ECB elites) throw good money after bad in the hope that the problem will go away. Strong banks would have told Greece that they won’t offer new financing any longer; regardless!
To this date, the Greek government has not assumed ownership of its problems. By that, I mean coming up with their own proposals of how to get out of their mess. Instead, Greece has so far assumed the role of the willing executor of the will of foreign powers. As Bill Rhodes would tell you, the most important thing in a sovereign debt crisis is that the government of the debtor country needs to take charge (or at least leave the impression that it is taking charge). Otherwise, it will never get the support of the people behind them. Here is an interview with Bill Rhodes: http://klauskastner.blogspot.com/2011/07/bill-rhodes-on-europeans.html. What could/should the Greek government have done in order to keep the appearance of being in the driver’s seat?
First, the government should have said “we are not going to reduce overall government expenditures at this time because that would only be oil in the fire of a shrinking economy. However, we will restructure government expenditures because right now they are very unevenly and unfairly distributed. Why will we not reduce overall government expenditures? Because we really don’t have a problem with overall expenditures: they were 49,5% of (a shrinking) GDP in 2010 compared with 53,0% in Austria and 56,2% in France. So we are far from being out of whack.
Secondly, we will reduce the budget deficit by increasing our revenues because it is our revenues which are out of whack: 39,1% of GDP in 2010 compared with 48,3% in Austria and 49,2% in France. That reduction will only come as little as possible from the “usual suspects”, that is salaried employees and pensioners because they have always been carrying their fair share of contribution to society anyway. We will get those revenues primarily from “the others”. That we can’t do on our own because we lack the administrative apparatus and controls, which is why we will ask for the help of an EU Task Force. That EU Task Force will have our unequivocal support (and they will get the applause of the Greeks who are already paying taxes).
Thirdly, we will get more tax revenues from the economy because we have worked out an economic development plan based on investment, primarily foreign investments, which will quickly stimulate economic activity. (This is where this plan would have to be described except that, to this date, I have not seen the shadow of such a plan being in the workings). Here is the link to a plan which I would propose, but there are probably many better ideas: http://klauskastner.blogspot.com/2011/09/endspiel-um-griechenland.html.
Fourthly, we will request our present creditors to form a Steering Committee with which we can negotiate the rescheduling of our debt and we ask EU/ECB-elites to work “behind the scenes” that those creditors do that and negotiate in good faith. The following will be the principals underlying our negotiations:
1) We will honor our debt to the last Eurocent; no haircut!
2) We will agree to any rescheduling which is structured in such a way that cash interest paid by us does not exceed 10% of our total government expenditures for the next 10 years. Interest going above that cap must be capitalized.
3) We offer to prepay 50% of our debt with a new 30-year bond with interest payable on maturity.
4) We offer to prepay the other 50% of our debt with new bonds with maturities between 10-20 years and interest above the above mentioned cap capitalized.
5) We request Fresh Money for the financing of our budget deficit (and only for that purpose!) from the EU rescue packages (not from existing lenders).
6) We request the existing lenders to our banking system to hold their trade credit lines open at the present level. Should we need more trade credit lines, we will request the support of the EU rescue package.
So much for “fourthly”.
Fifthly, we request that funding under the Structural Fund and EIB-facilities (without the co-financing requirement) are rapidly made available for infra-structure projects which we submit. (At this point, there would be a listing of such projects; a new Formula-1 race track would not be among them!).
Finally, we request the formation of an EU Advisory Task Force which can assist us in each and every way to get our country’s public administration and economy in shape.
“Germany has held down the Euro so that she could export more” — Come again? The Euro has appreciated (not declined) against the USD roughly 40% since the UDSs peak in the mid-1990s. I grant you that the DM would have appreciated much more than the Euro has and German banks would have had less surplus to lend to Greece. But then the Greek consumption-driven and debt-financed standard of living since the Euro could also not have occurred.
Final comment
It gets a little tiresome for a non-Greek observer to see how Greeks use all their brainpower trying to solve a problem which is not theirs: the solution of the European debt crisis. Except for a Report of the Athens McKinsey office which recommended how 500.000 new jobs could be created over the next 10 years (and 50 billion EUR more in GDP), I have to date not seen a single initiative out of Greece how Greeks could handle their own problem. The link below details my position.
http://klauskastner.blogspot.com/2011/11/reality-checks-for-greece.html
Thanks for you comments Klaus. I hope you’ll understand that I don’t have time to give you a comprehensive response. But here are a few things to keep in mind: I have appeared on this particular radio show more than a dozen times and have frequently spoken about the problems that Greece has created and not tackled itself. Please feel free to go back and listen to previous interviews. Also, the questions I am asked are often wide-ranging and aimed at an audience that is not likely to be as familiar with the details of the situation in Greece and Europe, so I try to give responses that reflect broad themes and some of the opinions that people are expressing, which is sometimes difficult to do on live radio. Lastly, I am of the firm view that despite all of Greece’s faults (and there are many as you identify) the EU-IMF programme it has applied and the targets that were set are not suitable for an economy that was already in pretty deep recession when it started – some allowances should have been made and don’t forget that the EU task force you mentioned, which will help release funding for investment, has only begun work in the last few months. Perhaps we will have to agree to disagree on that one.
Nick, first: when I write/post, I don’t do it with the expectation to get responses from the authors but only to stimulate thought (and as a pensioner I have plenty of time to write…). Thanks anyway for responding (no need to respond to this, now). Secondly, I understand what you are saying about the interview. Finally, we have no disagreement at all about the mess which EU/ECB-elites made out of what started as a Greek problem. My blog is full of critical posts about that (above all the “J’accuse” post: http://klauskastner.blogspot.com/2011/11/jaccuse.html).
I think your post about “Rebranding Greece” (and what Peter Economides says) is one of the most important pieces I have read recently. Change management starts with perceptions and images and not with facts (at least half of the 11 different management positions in my career involved significant change management). Think of Kennedy/Johnson. As a politician, Kennedy was a non-event because he hardly got any significant new legislation passed. Johnson, on the other hand, was a hero as a politician because he got a tremendous amount of new (and important!) legislation passed. Still, Kennedy generated new perspectives for an entire generation (and more). And who remembers Johnson and for what?
I think a couple of talented PR-firms could put together a vision for a new Greece as the “Economic Tiger of the Eastern Mediterranean” of enormous impact. Personally I am convinced that such a vision could come true. Why? Because Greece has so much catch-up potential; because Greece never really made an effort to utilize her potential; because the flaws of the country are so obvious that they can quickly be identified and worked on; etc. etc.
Just like with an IPO, the “story” may attract a lot of capital but if not followed by facts, the share price will tank. But if Greece were to get her act together, why could the “story” not be followed by facts?
Some time ago, a Greek friend of mine wanted to bring me down from my dreams about Greece to Greek reality. He suggested that I should compare CNN-commercials of Greece and of the FYROM. The FYROM advertised what a great place they were for doing business (number 22, up from 24, on the World Bank/IFC “Doing Business 2012” report). Greece advertised that “the Gods could have chosen any place in the world but they chose Greece”. I simply loved that commercial but I wouldn’t invest a dime of my money in Greece just because of it (Greece ranks number 100 in the above report).
Another for-instance: I follow Yanis Varoufakis’ blog with great interest. There is a tremendous amount of intellectual brilliance in that blog (including debaters). But virtually all of it relates to solving other people’s problems (i. e. the solution of the Eurozone’s debt problem). Regardless how many good ideas Greek brainpower comes up with for the Eurozone’s problems, the EU-elites will continue to march to their own drummer. “The most expensive work for a company is work which is flawlessly performed but which is superfluous”, a seasoned American manager once told me. Virtually none of the brainpower in Yanis’ blog is applied to things which Greece could/should do on her own.
Earlier this year, I took a 1-month course at the Aristoteles University here in Thessaloniki. I was simply overwhelmed by the young Greek talent I could become acquainted with there. They invited me to give them a little talk about the “Greek problem”. They listened so attentively that I talked for almost 45 minutes (I put a text of it into my blog). In the discussion afterwards, the theme was as follows: “We know our country is in trouble; we all want to contribute something to our country but someone has to tell us how we can contribute”.
Well, here would be a start. Someone ought to show them how they could contribute!