Anthony Peters, SwissInvest Strategist
I HAVE BEEN away for the last week exposing my old joints to a bit of winter sun and escaping the alphabet soup of EFSF, LTRO, CAC, PFI and the like. It is nice to be surrounded by people who have never even heard all these acronyms.
Nevertheless, one evening I found myself at dinner sitting next to Roger, a retired farmer from Dorset in the south of England, who simply asked: “What does this Greece thing mean for the rest of us?” A darned good question.
We have all spent the past two years musing on what the Greeks need to do; how they need to reform their tax system, practise austerity, work harder, practise more austerity, retire later, practise even more austerity, and then, if they are very frugal and very lucky, they might just find fiscal stability and growth by the middle of the century.
It is easy to lecture others on how they should be doing things and I can, to some extent, sympathise with the Greeks. To sit there contemplating how you have been led up the garden path by all manner of people – and not only by your own politicians – must be horrid.
I always think of Erich Kastner, who writes in his delightful children’s book “The Flying Classroom” that in the committal of a mischief, it is not just those who commit it who are to blame, but also those who fail to prevent it.
The proud Hellenes have been let down by more than just by their own leaders and to face the criticism and castigation of the northern Europeans, ably represented by Germany, must be incredibly painful. If I were German, I might be rather tempted to book my holidays in Turkey this year.
A RECENT ARTICLE in the Daily Telegraph (I’ve given up the FT for the holidays) said that 1% of the British population pays 30% of the income tax. That somewhat defeats the object of eating the rich, especially as that 1% is probably more mobile than the other 99%.
Most of us – the readers of this magazine, I mean – are probably to be found around that area. However, as our industry contracts further in terms of both revenues and employment and earnings continue to revert back towards the historical mean – which is still not an ugly number – so the fiscal contributions from the wealthy will be missing.
I am not one to complain about the undue tax burden for I am of that gilded generation that had free university tuition, got a grant on top and subsidised travel, thus effectively being paid to study at the tertiary level. The nation gave me the opportunity to be where I am today, so I can sympathise with future generations who leave university indebted up to the ying-yangs and who will not feel, as I do, that they owe a whole lot in return.
France and even the mighty Germany will have to take a few doses of Greek medicine as the sort of economic growth that supposedly could lift us from deficit back into primary surplus is an illusion written in the sky
The outcome is simple (and frightening): the sort of austerity that is being visited upon the Greeks awaits the rest of us.
Cutting deficits does no more than to reduce the speed at which the national debt rises. Taxation kills enterprise. In order to grow again, we will need to seriously – and I mean seriously – address government expenditure, and not only in the UK. France and even the mighty Germany will have to take a few doses of Greek medicine as the sort of economic growth that supposedly could lift us from deficit back into primary surplus is an illusion written in the sky – at night and with invisible ink.
I have often enough expressed the opinion that GDP is a poor benchmark as it fails to capture value-added but if it has to be used, then it is time that government expenditure as a percentage of GDP is more closely looked at.
Deficit/GDP and debt/GDP are fine but governments spend – they do not invest. They talk of investing in education, investing in the health services, investing in this and that, but these are semantic pirouettes; it’s expenditure. It’s not all bad, certainly, but it is expenditure. Investment comes from enterprise and that is now global.
THOSE AMONG US who have tasted management in an investment bank and who have had to face the bonus process from both ends know the meaning of “expectations management”.
I have since understood that disappointment as a whole is not an absolute but a relative value. European politicians will not be able to manage the austerity policies required until they can begin to bring citizen expectations back down to a sensible and sustainable level.
There was a time when “reform” in Germany was inevitably about an increase in benefits, a lowering of the working age and improved health and retirement cover. But in the post-reunion years, the Germans had to learn that reform could also mean clawing back some of the goodies.
Hence, in some respects they could have been ahead of the rest of us. But as their economy picked up under the single currency, so did the promises and despite all the growth they too have some eye-watering shortfalls in public finance.
Past periods of fiscal austerity have always been cyclical; we now need to face it as a permanent and axiomatic fact of life.
One day they will be burning Greek flags on the Kurfurstendamm. Not because of what they are paying the Greeks but because once again the realities that began in Greece and were followed by Rome will come home to afflict the Franks and the Goths.
How and when those cousins on the other side of the Atlantic wake up and smell the coffee is still open to debate. But is of no lesser significance.