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The real Greek problem, in a nutshell - By Kitty Miv, Editor

Kitty Miv, Editor
23 February, 2012

"Shall we have another bottle?" asked Leonidas, my host, rhetorically, despite fierce looks from his wife Androulla. We were halfway through a discussion on Greece's future, and obviously it had to be lubricated. Was a time that it would have been another bottle of Zivania, local Cypriot hooch, but Androulla would definitely have forbidden that, so we were being good boys and girls on red wine.

Leonidas and Androulla are Greek, but moved to Cyprus ten years ago when they retired. Unlike the other couple at Sunday lunch, Andreas and Maria, who have a flat in central Athens but have now come to look for a place to live in Larnaca.

Andreas has a small hotel on Skiathos. "Trade will be down this year, of course," he said, "but it'll recover. The problem is that everything is just too expensive, taxes are going through the roof, there are going to be worse and worse riots. We just don't want to be there any more."

"What about the bank?" asks Leonidas. We all know that Andreas bought the hotel with a bank loan when he retired.

"Oh!" says Andreas, shrugging his shoulders, "that's no problem. I hope they do go bust, then probably I can get a good deal with whoever buys them out. Especially if we're back in drachmas by then."

And there you have the real Greek problem, in a nutshell. It's not the feckless government, or the ruined banks, or the striking tax inspectors, it's the unconsidered, affronted people. You'd never know that from the newspapers or the telly or the Eurocrats' speeches, which are all about bondholders, the IMF, Mr Papademos and the ECB. But the reality is that the result of what the assembled great and good of Europe are doing will be to condemn the Greek people to decades of penury in the name of the sacred Euro, or to be perfectly blunt, to save the banks. Because Andreas is not a 'bondholder'. There was a time when everyone knew that bondholders were Belgian dentists, but that was ages ago, and now bondholders means other governments, the ECB and the commercial banks. Who else would be stupid enough to buy Greek sovereign debt?

Andreas can stand for millions of the Greek middle classes. What incentive do they have to stay in Greece and invest their savings or borrowed money into business ventures? All the ones that can, will leave, like Andreas. They will go to the UK to open restaurants in seaside resorts, they will go to Rotterdam to run shipping companies; and especially they will go to Cyprus where they can speak Greek and there is a business-friendly tax system. Later, halfway down the third bottle of red wine, we joked that it will be Enosis (union of Greece and Cyprus) by the back door.

It's not difficult to work out why the Finance Ministers who stayed up for 13 hours negotiating the fine print of a bail-out can't get it: they have their own countries to protect, their jobs and their reputations. Who wants to be the one who cast Greece adrift? And yet that's the only way. Write off all the debt, every last cent of it, and give Greece a new start. It doesn't matter really whether the default is orderly or not; the country is already irredeemably bankrupt, everyone has already lost all their money, and the only people who are going to come out of this with their skins intact are the lawyers. Plus perhaps a few hedge fund traders who have consistently shorted Greek assets.

But it isn't lawyers or hedge fund traders who are going to lay the foundations of Greece's renaissance. It's Andreas, and his son Marios who will run the hotel in his absence. But for now, rather than investing the thousands of euros paid in cash by German guests next summer in that extension they have put on hold, Marios will carry them to Cyprus instead and put them into a Russian bank account.

It's easy for grand functionaries to believe that they are important and even indispensable to the countries they rule and represent. 'L'Etat, c'est moi.' But they're wrong: it's hard-working, investing, bourgeouis people that matter to an economy, and any 'solution' to the Greek debt crisis or any other that fails to recognize this fact will itself fail.




About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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