Tuesday, 30 June 2015

The Greek Crisis Has Some Dreaming Of Independence -- From Athens

The only funny thing about the sad situation in which Greece finds itself is reading essays about what the Greek people ‘must’ or ‘must not’ do from renowned economists and leading academics writing comfortably from their offices thousands of miles from the turmoil. They are not the ones lurching from crisis to crisis worrying about when the money runs out, when the pharmaceuticals run out, when their pensions run out, or even if the food runs out.

Even Nobel Prize-winning economists like Paul Krugman urge the Greek people to rejectthe latest proposal from the creditors and risk leaving the Euro and returningto the drachma. Surely, he opines, this would be better than submitting to the even greater ‘austerity’ required by the creditors. Greece would be free of the creditors’ shackles and resume growth quickly. Nothing demonstrates the dangers of long-range analysis better than this.

In a perfect world Krugman might be right. If, and it is an enormous ‘if’ Greece had a smoothly functioning bureaucracy, a government determined to institute sweeping reforms, a political class not wedded to corruption and cronyism, and no deeply entrenched groups from  protected business interests to pampered public service employees with a strong interest in preserving the dysfunctional status quo such a recipe might work. But, alas, we are dealing with the reality of modern Greece and not some theoretical classroom exercise. And that sad reality is that without those sweeping reforms what remains of the Greek economy, regardless of the currency in use, will most certainly contract further.

Syriza could have been an agent of change. It could have instituted long-overdue reforms and, in the process, generated the revenue to improve the welfare of the people. Instead, it has proven to be nothing more than an extension, a particularly incompetent extension, of the failed political system that has decimated Greece over the last several decades. And the sad thing is if it had committed to these reforms it could have minimized the hated ‘austerity’. And the really sad thing is that the price of this intransigence is being borne by the very people Syriza said it wanted to help – the poorest sectors of the Greek population.

It chose instead to implement its school-boy theories, which by the way have not worked anywhere in the world, and substitute revolutionary rhetoric for real achievement. In the process their hypocrisy and deceit have succeeded only in alienating just about everyone who was in position to help. It would have been interesting to see, for example, if the creditors would have taken a softer tone if the government had moved aggressively on revenue producing reforms like privatization or breaking the stranglehold of protected businesses. But all we heard were thunderous pronouncements against such steps. One could almost hear the Euro Group, the IMF and the IMF pleading with Syriza to ‘give us something to work with.’ But the only thing that emerged were half-baked demands for debt reduction. Fine, but in return for what – precisely? I can imagine Christine Lagarde, managing director of the IMF, asking the Greek government what it would do to help itself.

One can argue that the European institutions made a serious error a few years ago by bailing out the private banks that had recklessly loaned massive amounts to Greece. How often should tax payers be required to rescue private banks that should have known better? When do they these banks have to pay the price for their mistakes? Wouldn’t it have been much better to force those foolish banks to take the necessary hair-cut to reduce Greek debt to manageable levels? The problem was only compounded when public institutions assumed that debt. All this may be true. But, as The FinancialTimes Martin Wolf puts it, those are now ‘sunk costs’ and it is time to move on.

Meanwhile the drama is played out on the streets of Greece as most economic activity grinds to a halt pending the outcome of Sunday’s so-called referendum called by Prime Minister Alexis Tsipras. The 72-word question is a ridiculous summation of complicated financial discussions that very few people can possibly understand. The legal grounds for the referendum are not even clear, because currently there is NO deal on the table. What, exactly are people voting on? Whatever the stated question may be, most people seem to understand that the real issue in this referendum is Greece’s position not only in the Eurozone but in the European Union itself.

A friend on the island of Andros had an interesting solution to his anger at the government and the uncertainty of the current situation – independence. “We should immediately declare independence from the oppressive, idiotic regime in Athens! We could build a real economy here based on out maritime history, but including other centers of excellence such as financial and health care.” All it needs now is a Declaration of Independence. We are, after all, close to July 4th.

Sunday, 21 June 2015

"They've Succeeded In The Impossible. They've Made Jersey City, New Jersey Look Better Than Greece!"

There is, unfortunately, very little optimism about the critical meeting on Monday, June 22 with Greece and its creditors. There is very little reason to think that the institutions controlling much of Greece’s enormous debt are going to bend on their demands for economic/social reforms in Greece before releasing more cash. And there is even less reason to hope that the rigid ideologues that now run Greece have the slightest intention of implementing reforms that might help Greece but would weaken their political position.

            If the talks fail there is a very good chance that Greeks would rush to pull whatever funds they have left out of the banks, thereby creating the situation that would call for capital controls. Another logical consequence is that Greece would fail to make scheduled payments to the International Monetary Fund and would start on the slippery road to default and possible exit from the Euro.

            A reasonable person might think this is a scenario to be avoided at all costs. It could plunge Greece into the economic unknown and severely intensify the poverty and hardship already suffered by many in the country. But that same reasonable person would be making the same mistake that Greece’s European counterparts have been making for the past five months, i.e. believing that the ruling Syriza party has any interest in compromise or making a mutually beneficial agreement.

            All one had to do is listen closely to Prime Minister Alexis Tsipras’s comments at the opening of the new parliament or the comments of other Syriza MPs and ministers to understand the total commitment to a failed ideology. Various Syriza MPs have said over and over again that the government should never sign a deal and that returning to the drachma with the ensuing economic chaos would be a very good thing. The Minister of Education said a key policy of his ministry would be to eliminate the concept of excellence in education. Who knows? Perhaps in his mind such a thing as educational excellence smacks too much of the dreaded elitism. Maybe he really does think a generation of morons can compete with the Chinese and Indians who have no problem promoting excellence. In his opening speech Tsipras mentioned four times the Greek word roughly translated as equalization. Only now are people realizing that his version of social and economic equalization is to drag the top down, not bring the bottom up. In his brave new world everyone is the same – they’re all desperately poor with no hope for the future. Even today at the 11th hour Greece’s finance minister Yiannis Varoufakis is saying that he hopes the creditors will fulfil their responsibilities to save Greece and, by the strange extension of his unique logic, all of Europe. Needless to say he failed to say much about Greece’s own responsibility to come up with a realistic compromise.

            In the beginning many in the European Union thought Tsipras’s opening remarks last winter were just part of electioneering. Surely, they thought, he would become more rationale in time, and separate himself from the leftist ideologues in his own party. Wrong. A Greek journalist friend in Brussels made an interesting observation early in the negotiations. “Too many people here think there is a difference between the ‘good’ Tsipras and the ‘bad’ hard left element of the party. They’re wrong. There is no difference at all.

            Perhaps the most surprising element of all, however, is the inability of very smart people in Greece to mount any opposition to these destructive developments. Where is the broad-based communication program pointing out to ordinary Greeks just how much they will suffer under new drachma regime? Why leave the moral high ground to Syriza? Perhaps there is a fatalistic acceptance of what is considered inevitable.

            I remember a dinner party last fall in Athens when a group of lawyers and businessmen were discussing what would happen if Syriza won the election. Most were modestly hopeful that disaster could be avoided. One former bank executive had a very succinct response to the question. “Train wreck. Huge train wreck. That’s what will happen. Perhaps from the rubble we can build a good economy.” That certainly was a conversation stopper.

            Another businessman, one who pays all his taxes and obeys the country’s labyrinthine regulations was beside himself with anger. “These liars will ruin everything! They are going to turn us into the North Korea of the Aegean. They have no idea of the damage they are causing for generations. Any young person in Greece with an IQ of room temperature will leave.”

            But again, why are these sentiments restricted to private conversations? Where is the leadership of the opposition? It takes more than dry speeches in parliament to counter Syriza’s bombardment of mis-information.

            An exasperated Greek-American who recently moved back to Greece is re-thinking his decision. “These idiots in government are ruining what could be paradise! They have succeeded in something I thought was impossible. They have made Jersey City, New Jersey look better than Greece. That takes talent.”


Wednesday, 3 June 2015

Will Sunday's Elections Challenge Tayyip Erdoğan's Dominance Of Turkish Politics?

With just three days remaining before the critical Turkish elections the noise is reaching deafening crescendo levels, the streets are blanketed in party posters, and party leaders continue their furious pace around the country trying to convince voters that they and only they can put the country on the right course. And, above all else, speculation on the outcome and post-election scenarios has replaced football as the favourite national pastime.

As we all discovered in the British elections last month polls can be misleading. They can miss underlying trends by asking the wrong question or taking at face value what people tell the pollsters. Polls in Turkey are even more useless. And the media merely takes the side of whoever owns that particular outlet. If the media owner owes his fortune to the ruling Justice and Development Party (AKP) it’s a safe bet that his broadcast outlet or newspaper will claim that Turkey without President Tayyip Erdoğan will rapidly go down tubes. And if the owner is brave enough to oppose Erdoğan you can bet his TV station or newspaper will lay all of Turkey’s present and future problems at his doorstep.

Election posters cover all available space

Nonetheless, even with all these caveats, your fearless correspondent has asked a number of people from different walks of life about their predictions for these elections.

One expat who has been in Turkey for a number of years offered one of the more cynical opinions.

“The AKP will definitely get enough votes and deputies to change the constitution to give Erdoğan what he wants. Erdoğan and his henchmen will do whatever is necessary to keep the Kurdish party (HDP) just below the 10% threshold for entering parliament. This may be a cynical reaction, but I have learned never to underestimate Erdoğan’s ability to generate, one way or another, the outcome he wants. Too many people are confusing what they hope will happen with what will happen.”

The other extreme came from another friend who admittedly has no love for AKP, but has been observing Turkish politics for several decades.

“This time AKP will get only 35% - 38%. The main opposition Republican People’s Party (CHP) will get 28% - 32%, the nationalist party (MHP) will get 14% - 17%, and HDP will get 12% - 15%. With this scenario AKP will definitely fail to get enough deputies to form a single party government. Even worse for them is that a group of 50 – 60 AKP deputies could split off and form an independent group inside the parliament.”

A Turkish cab driver in New York was more succinct. “The country has finally woken up. Those b…… won’t even get 40%. They’re just frauds and phonies.”

A London-based young Turkish professional also believes the AKP vote will fall to the low 40% level and that HDP will succeed in entering parliament. But he warns not to forget the Gülenists, referring to followers of the Islamic scholar Fetullah Gülen who are accused by Erdoğan of running a parallel government within Turkish state institutions. “They hate Erdoğan and are running as independents in many districts. Some of them will enter parliament and cause problems for AKP. Watch the post-election manoeuvring. That will be fascinating.”

An Istanbul housewife who typically supports CHP says she will vote for the Kurdish party this time. “I have been trying to convince all my friends to vote for HDP. It’s critical that they cross the 10% threshold.  I think that AKP’s vote will fall to just above 40%, still the biggest party but not powerful enough to force a constitution change. CHP could get as much as 27%, MHP around 17% and HDP could get 11% - 12%.”

The all-important ballot box

Another long-term expat who accurately predicted the outcome of last summer’s presidential election agrees that AKP’s vote share will drop sharply this time.

“They will probably get somewhere around 43%, CHP 26%, MHP 17% and HDP between 10% - 11%. The actual HDP votes will have to be quite a bit higher than the final number because of potential election fraud. They could lose a lot of votes because some of Erdoğan’s more fervent followers will try anything to make sure HDP stays below 10%. AKP will be close to getting enough deputies to form a single-party government, but won’t have enough to change the constitution.”

One of the intriguing things about this election is the persistent rumours of sharp tensions within the AKP that could lead to post-election re-alignment of alliances. One rumour gaining some traction is that Prime Minister Ahmet Davutoğlu is tired of Erdoğan’s constant interference and wants to assert his own power. According to this scenario he would not be at all unhappy if Erdoğan failed to the constitutional change allowing for a strong president. He could then put Erdoğan back into his box and carry running the government in a rational fashion with his own people. Davutoğlu has gone out his way, for example, to state that his plans for economic reform and growth are far different from Erdoğan’s.

Tayyip Erdoğan has dominated Turkish politics for more than a decade, and desperately wants to consolidate his position by changing the constitution to create a strong executive presidency enabling him to rule with no checks or balances. Even though he is not running for anything this time, this election is in large measure a referendum on him. But Turkish society has changed a great deal since 2002. It remains to be seen if Erdoğan’s old father-knows-best approach will work with an increasingly assertive group of voters. One can only hope that massive fraud does not derail the results and plunge the country into chaos.