Tuesday 30 June 2015

The biggest question about Greece that nobody will ask or answer

Given how much I go on about Greece and have done for many yeas,  have been trying my best to leave it this week.

For Greece, there are only two choices; penury under European hegemony or an exit from the Euro, with chaos and confusion before eventual renewal. Neither of these are very palatable dishes.

However, the really interesting news this week is to watch the reaction of those who know...the 'CEO' of Europe, Jean-Claude Junker, is saying Greeks will commit suicide by leaving the Euro. He is a dangerous man in his own right and it was right for the UK to oppose his Presidency - with his one-eyedness that will lead to huge future problems for the EU as it pushes up against integration issues across all states.

Further more the biggest story of all is not being covered.

Where has all the money gone? Since 2000 when the Greece was admitted to the Euro over €300 billion has been borrowed and spent. So the key question is, who borrowed it and who spent it?

We all know the Olympics 'cost' more than the London Olympics ($15B versus $14B) and resulted in a loss of $14 billion. Property developers and building contractors made huge money out of this venture - all of it now likely residing in Switzerland.

Equally, we know that few people have paid tax in Greece for a long time - so their lifestyles have been above what they have been earning. But still I doubt this would cover the loss. German exports to Greece are now €4 billion a year, down from double that in 2008 -but still its net trade is a €3 billion positive in Germany's favour. It sends over tourists and BMW's and which don't really balance each other out.

Hence German businesses, as well as French, are keen to hold onto their Greek market. Of course, behind German thinking too is that a Grexit in the long-term will enhance the value of the Euro - anathema to a Country based on a mercantilist policy.

Also, Greece has not really repaid much of its debt, payments have been made until today at a steady €7 billion a quarter, but this barley covers interest in the main and thus the total stock of debt has kept exploding upwards. More debt has been issued to cover the increasing debt repayments to avoid default - so in effect more debt is being accrued to pay the European owners of the original debt. I can see this amounts to over 60% of the total money Greece has borrowed

But I don't really know where the other money went, but it is interesting that this is not a topic of discussion at all by either side - the Europeans are refusing to admit they are in effect bailing out their own banks and taxpayers by forcing Greece to endue austerity in extremis whilst paying themselves back. The Greeks are not up for admitting the huge corruption that must underlie the initial uptick in debt to pay for the Olympics and other such projects such as the Egnatia highway and railway upgrades which have been ( and still are) both expensive and often contracted out to European major corporates.


John in Cheshire said...

I'm sure I read sometime back that Germany sold the Greeks lots of military hardware, including submarines and such, that they probably didn't need but which the Germans insisted they buy. That might account for a significant portion of the money, or is that more accurately described as credit? If so, the situation is more like the loan shark who forces you to take a loan you both know you cannot afford and he then breaks your legs, when inevitably you miss payments, at usurious interest rates.

dearieme said...

"all of it now likely residing in Switzerland": oh come, surely at least a little bit is salted away in Luxembourg?

Budgie said...

I would like to see Greece exit the euro. It would help the Greek people escape from the terrible ratcheting of debt on debt. It would also help the UK's position because the EU/EZ would no longer be seen as quite so inevitable or infallible.

Whatever the causes - Greek corruption and over borrowing compounded by too low ECB rates to suit Germany, and some awful even vindictive decisions by the EU/EZ - there seems no way out for the Greeks. That is a recipe for desperation, which leads to bad decisions.

The British position since 2010 of "the euro will collapse imminently" is to my mind wishful thinking, but there is no doubt that with Greece it has been taken very close to the edge.

I still think that Greece will stay in the euro. In the end the EU/EZ elites cannot risk the unraveling of their power base. Thinking of them as warlords, gangster bosses or kings reveals how they work.

Blue Eyes said...

It is a good question CU. Watching all the wretched grannies queuing to get their €60 out of empty cashpoints prompted me to ask why anyone would have chosen to leave any money at all in Greek banks. Why has it taken so long for this to happen?

Timbo614 said...

As I understand it so far, most of the money (85%?) went to Greece and then did an abrupt U turn into German and French Banks. So the French and German banks were propped up like ours with the difference being we just loaded up the UK tax payers by "printing" the £s rather than needing a back door way of palming it off on the tax payers of Europe.

Since then 95% of the bailout money has gone to pay interest on the bank bailout money for France and Germany!!!

Financial capitalism at it worst.

Electro-Kevin said...

No Greek has to suffer puniary.

They need only rock up in Blighty. And they will. I wouldn't blame them one bit and there's nothing we can do about it if they do.

It is an unexpected joy to see a Tory majority government with no LibDems to blame. What a revelation it is.

Blue Eyes said...

Ek one of the things I can't work out is why youth unemployment is so high in Greece, Spain, etc. Why *aren't* more young educated southern Europeans flocking to get good jobs etc. here and in Germany and elsewhere? Lots are, probably, but it doesn't feel like a deluge.

Nick Drew said...

There really are a lot of Spanish here, BE

and French!

Laban Tall said...

Central London was full of young Spaniards two years back, and I'm now seeing and hearing them in rural Gloucestershire. Not many Greeks around though.

Steven_L said...

All the NHS dentists in Aberdeen seem to be Greek.

As for where the money 'went'? German etc savers lent it, via the banking system, to the Greek government, who gave it to Greek people who spent it. It went round and round in ever decreasing circles, and as capital flight set it, the bank deposits left Greece faster still.

On the other side of the coin, 'the money' - i.e. Greek government bonds - became junk as people lost confidence 'the money' would ever be paid back or the Greek economy would even ever grow/inflate enough or have the political will to service it.

It's very easy to point and poke fun at the Greeks, but we're only ever a global shift in opinion away from a similar fate. Folk could easily ask a lot of searching questions about the UK, our trade deficit, our money printing, our growing private debt, govrnment debt and unfunded promises. Our ageing population?

One day someone might question whether our scams of listing foreign commodities/holes in the ground on the FTSE/AIM and selling pokey flats in London to kleptocrats can work indefinitely.

Blue Eyes said...

The kleptocrats seem to want the new flats, and when they decide they don't want them any more, they will still be here.

The big difference between Greece and the UK (OK maybe the southeast UK) is that we did a lot of the free market reforms, we have a flexible workforce, privately-owned infrastructure, etc.

+++Am I really having to spell this out here on a supposed free market blog?+++

Which means that when the next shift of global opinion comes around we will adapt more quickly than the French, Greeks, et al..

People focus too much on the Greek numbers. What is much more telling is the Greek potential. I.e. none, with people like Syriza in charge. See Sturgeon, Miliband/Burnham for a local benchmark.

MyCounterName said...

In fairness, you could ask these questions of any country or any large govt contracts.

The UK govt has a fund for such nonsense overseas called Foreign Aid or somesuch.
You know, the one you Kippers are always moaning about....

Its a very British thing to call it corruption in one state and prudent government at home.

Bill quango mp said...

Greek crisis latest.
No one blinked first.

Steven_L said...

and when they decide they don't want them any more, they will still be here

But when they decide they don't want our pounds sterling anymore?

The UK economy will 'adapt' better than a eurozone nation because it has a floating currency. But any such 'adaptation' might not be much fun. A UK collapse might not be as deflationary as Greece.

Blue Eyes said...

Right. So what are you saying the UK should do to make the economy more fun?

Bill Quango MP said...

We devalued already.
We did it years and years ago now.

That's why those summer shorts you are hunting down are £14.99 instead of £9.99 like they were in 2007.

Laban Tall said...

@Steven_L "Our ageing population?"

That's already been solved. The index-linked pensions for civil servants retiring on 60K (that's a 40K pension for a 'lifer') and the hospitals and doctors of the future will be paid for by our vibrant new population, from the taxes levied on their minimum wage service industry jobs.

And from the taxes on all those highly-paid graduate jobs ... oops !


"Starting salaries for graduate jobs have fallen overall over the past five years, research suggests. Research for the Complete University Guide says graduate starting salaries in professional posts dropped 11%, to £21,702 in real terms, in 2007-12. The research, based on official statistics, shows that this decline is continuing and perhaps increasing. "