Posts
Athens News
BBC Report
BBC Report 2
Reuters
Robert Peston (closer to the mark)
Gavin Hewitt
New York Times on the IMF Reports
An Australian friend sent me this extract from a fairly hostile article in The Australian:
http://www.theaustralian.com.au/news/features/making-a-killing/story-e6frg8h6-1226176176402
Register online to read it all.
The tsunami of cheap credit that rolled across the planet between 2002 and 2007 wasn't just money; it was temptation. It offered entire societies the chance to reveal aspects of their characters they could not normally afford to indulge. Entire countries were told: "The lights are out, you can do whatever you want to do and no one will ever know." What they wanted to do with money in the dark varied. Americans wanted to own homes far larger than they could afford. Icelanders wanted to stop fishing and become investment bankers. The Germans wanted to be even more German; the Irish wanted to stop being Irish. No response was as peculiar as the Greeks', however. For most of the 1980s and 1990s, Greek interest rates ran 10 per cent higher than Germany's, as Greeks were regarded as far less likely to repay a loan. There was no consumer credit in Greece: Greeks didn't have credit cards. They didn't usually have mortgages, either. Of course, they wanted to be treated by the financial markets like a properly functioning northern European country. In the late 1990s they saw their chance: get rid of their currency and adopt the euro. To do that, they needed to prove they were capable of good European citizenship - that they would not, in the end, run up debts that other countries in the euro area would be forced to repay. In particular they needed to show budget deficits under 3 per cent of their gross domestic product (GDP) and inflation running at roughly German levels. To hit the targets, the government moved all sorts of expenses (pensions, defence) off the books, froze prices for electricity, water and other state utilities and cut excise taxes on petrol, alcohol and tobacco. In 2001, Greece entered the European Monetary Union, swapped the drachma for the euro and acquired for its debt an implicit European (read: German) guarantee. Greeks could now borrow funds long-term at roughly the same rate as Germans. To remain in the eurozone, they were meant, in theory, to maintain budget deficits below 3 per cent of GDP; in practice, all they had to do was cook the books. Here entered Goldman Sachs, which engaged in a series of apparently legal but nonetheless repellent deals designed to hide the Greek government's true level of indebtedness. For these trades Goldman Sachs - which, in effect, handed Greece a $1 billion loan - carved out a reported $300 million in fees. The machine that enabled Greece to borrow and spend at will was analogous to the machine created to launder the credit of the American sub-prime borrower - and the role of US investment bankers in the machine was the same. The investment bankers also taught Greek officials how to securitise future receipts from the national lottery, highway tolls, airport landing fees and even funds from the EU. Any future stream of income that could be identified was sold for cash and spent. As anyone with a brain must have known, the Greeks would be able to disguise their true financial state for only as long as (a) lenders assumed that a loan to Greece was as good as guaranteed by the EU (read: Germany) and (b) no one outside Greece paid much attention. Inside Greece there was no whistleblowing, as basically everyone was in on the racket. As it turned out, what the Greeks wanted to do, once the lights went out and they were alone in the dark with a pile of borrowed money, was turn their government into a piñata stuffed with fantastic sums and give as many citizens as possible a whack at it. In the past 12 years the Greek public sector wage bill has doubled in real terms - and that doesn't take into account the bribes collected by public officials. The average government job pays almost three times the average private-sector job. The national railway has annual revenues of $137 million but an annual wage bill of $550 million and $400 million in other costs. On October 4, 2009, the Greek government fell. The new government found so much less money in the coffers than it had expected that it decided there was no choice but to come clean. The new prime minister, George Papandreou, announced that Greece's budget deficits had been badly understated - and that it was going to take some time to nail down the numbers. Pension funds and global bond funds and other sorts who buy Greek bonds, having seen several big American and British banks go belly-up, and knowing the fragile state of a lot of European banks, panicked. In came the International Monetary Fund to examine the Greek books more closely; out went whatever tiny shred of credibility the Greeks had left. "How in hell is it possible for a member of the euro area to say the deficit was 3 per cent of GDP when it was really 15 per cent?" a senior IMF official asks. That's more or less what I asked when I went to see the new Greek minister of finance, George Papaconstantinou, whose job it was to sort out this fantastic mess. Papaconstantinou attended New York University and the London School of Economics in the 1980s and then spent 10 years working in Paris for the OECD. Like many people at the top of the new Greek government, he came across less as Greek than as Anglo - indeed, almost American. "The second day on the job I had to call a meeting to look at the budget," he said. "I gathered everyone from the general accounting office, and we started, like, this discovery process." Each day they discovered some incredible omission. A pension debt of a billion dollars every year somehow remained off the government's books. Everyone pretended it did not exist, even though the government paid it. The hole in the pension plan for the self-employed was not the $400 million they had assumed but $1.5 billion; and so on. "At the end of each day I would say, 'OK, guys, is this all?' And they would say, 'Yeah.' The next morning there would be this little hand rising in the back of the room: 'Actually, minister, there's this other 100 million to 200 million euro [$137m-$274m] gap.'" By the final day of discovery, after the last little hand had gone up, a previously projected deficit of roughly $9.6 billion was actually more than $40 billion. The IMF's question - how is this possible? - is easily answered: until then, no one had bothered to add it all up. As he finished his story, he stressed that this wasn't a simple matter of the government lying. "This wasn't all due to misreporting. In 2009, tax collection disintegrated, because it was an election year." "What?" He smiled. "The first thing a government does in an election year is pull the tax collectors off the streets." "You're kidding." Now he was laughing at me. I'm clearly naive. The evening after I met the minister of finance, I went for coffee with a tax collector. He took it for granted I knew that the only Greeks who paid their taxes were those who could not avoid doing so: salaried employees of corporations, who had their taxes withheld from their pay. The vast army of self-employed workers - the biggest in Europe, from doctors to the guys who ran the newspaper kiosks - cheated. "It's become a cultural trait," he said. "The Greek people never learnt to pay their taxes. And they never did because no one is punished." Greece's tax-collecting system, it turned out, mimicked that of an advanced economy - and employed a huge number of tax collectors - but it was rigged to enable an entire society to cheat on its taxes. The Greek state was not just corrupt but also corrupting. Once you saw how it worked you could understand a phenomenon that otherwise made no sense at all: the difficulty Greek people have in saying a kind word about one another. Everyone is pretty sure everyone is cheating on his taxes, or bribing politicians, or taking bribes, or lying about the value of his property to avoid taxes. And this total absence of faith in one another is self-reinforcing. The epidemic of lying and cheating and stealing makes civic life impossible; and the collapse of civic life only encourages more lying, cheating and stealing. The structure of the Greek economy is collectivist, but the country, in spirit, is the opposite of a collective. Its real structure is: every man for himself. Into this system investors poured hundreds of billions of dollars. And the credit boom pushed the country over the edge into total moral collapse. Just now the global financial system is consumed by the question of whether the Greeks will default on their debts. At times it seems as if it is the only question that matters, for if Greece walks away from $400 billion in debt, then the European banks that lent the money will go down, and other countries flirting with bankruptcy might easily follow. But there's a second, more interesting, question: even if it is technically possible for these people to repay their debts, live within their means and return to good standing inside the EU, do they have the inner resource to do it? Or have they so lost their ability to feel connected to anything outside their small worlds that they would rather just shed the obligations? On the face of it, defaulting on their debts and walking away would seem a mad act: all Greek banks would instantly go bankrupt, the country would be unable to pay for the many necessities it imports (oil, for instance) and the government would be punished for many years with much higher interest rates, if and when it was allowed to borrow again. But, as I said, the place does not behave as a collective; it behaves as a collection of isolated particles, each of which has grown accustomed to pursuing its own interest at the expense of the common good. There's no question that the government is resolved at least to try to recreate Greek civic life. The only question is: can such a thing, once lost, ever be recreated? This northern summer, when I returned to Dallas to see Kyle Bass, Greek credit default swaps were up from the 11 basis points he had paid to 2300. Ireland and Portugal had required massive bailouts; and Spain and Italy had gone from being viewed as essentially riskless to nations on the brink of financial collapse. On top of it all, the Japanese ministry of finance was about to send a delegation to America to seek someone, anyone, willing to buy half a trillion dollars' worth of 10-year Japanese government bonds. "This is a scenario in which no one alive has ever invested before," Bass said. "Our biggest positions now are Japan and France. If and when the dominoes fall, the worst, by far, is France. I just hope the US doesn't collapse first. All my money is bet that it won't. That's my biggest fear - that I'm wrong about the chronology of events. But I'm convinced what the ultimate outcome is."
No comments:
Post a Comment