Where is the orderly exit option?
I closed Thursday’s column wondering how we might deal, not with unknown unknowns or with known unknowns, but with known knowns. Well, following yesterday’s meetings between Chancellor Merkel and President Hollande in preparation for their face-off with Greece’s Antonis Samaras today and tomorrow, it is becoming ever more evident that whatever line had previously been drawn in the sand will be wiped out and another one drawn in its stead, further from here and somewhere much closer to the horizon.
I do take Samaras’ point that if everybody is talking about the imminent exit of his country from the eurozone, that it is hard to stabilise the sinking ship but I would contend that if the ship is holed below the waterline, bringing bigger pumps on board might keep it afloat for longer but the damaged vessel remains just as unseaworthy. Over the past two and a half years, we have talked the Greek story to death and tossed about every variation of German response to the unsquarable circle. Nevertheless, much of the rhetoric remains as confused to me today as it was 28 months ago when we all realised for the first time quite what a mess the Hellenes had got themselves into.
On reflection, can anybody explain to me what a “disorderly exit from the single currency” exactly is? If there is a “disorderly exit”, then there must also be, quite logically, an “orderly exit” option. However, we have been led to believe – or the authorities have tried to lead us to believe – that there is a binary outcome which is either Greece remaining a member of the single currency union or it facing a disorderly exit. Have I missed something or has the third way, the orderly exit, never made it to the debating chamber?
If there is a “disorderly exit”, then there must also be, quite logically, an “orderly exit” option. However, we have been led to believe – or the authorities have tried to lead us to believe – that there is a binary outcome which is either Greece remaining a member of the single currency union or it facing a disorderly exit. Have I missed something or has the third way, the orderly exit, never made it to the debating chamber?
While in rant mode, what about the privatisations which were supposed to take place? Everywhere I turn, I hear the argument that these are impossible as equity investors would shy away from buying assets when they could not determine in which currency they would be quoted in the future. What nonsense. Had the Greek government abided by its commitment to privatise key state assets when it took the first bail-out package in 2010 and when that promise was a central condition of keeping his country in the union, then that question would not have arisen. I agree that there is not too much sense in closing the barn door after the horse has bolted but that does not excuse Samaras from explaining to us why it had not been firmly closed when it should have been and, far more to the point, it should also not give Greece an automatic right to receiving a gift horse in its place. I could go on.
Samaras is asking Merkel and Hollande to help him to find a way to manage a bursting bubble and, to be frank, I can’t blame him for doing so. Wouldn’t we all? The questions should not be will they or won’t they but can they or can’t they? Yes, they can commit to offer more cash to stop the country from defaulting here and now, but they can’t halt the implosion of an economy where most of the GDP was generated by borrowing money from others and using it to employ civil servants.
I have long argued that GDP is a fatuous measure as it doesn’t require any element of value added to have been infused into the economy. The enforced austerity must naturally lead to plunging GDP, given the high proportion of public sector paper pushers, but I would be interested to know what value added is still being generated. The collapse of domestic demand will naturally have a devastating effect on value added output too but where working people spit in their hands, there is hope.
However, no matter how hard these people work, they will always be in the shadow of the likes of France and Germany who have too many decades of a lead in terms of capital investment and technological advancement. Sure, there will be the odd pocket where educated and motivated Greeks can impact, but this will never be enough to put bread and feta on the table of the majority. For that I remain convinced that Greece needs to command its own monetary policy and the tools to make its economy competitive again.
A dear Australian friend of mine who has had a knee replacement operation described recovery as wondering for the first three months of abject pain why he had had it done, but after that three month period was asking himself why he not had it done before. Greeks, are you listening?
So, on Monday markets will probably all be celebrating that Germany has softened its stance and that Athens is to be given yet another last chance. Risk will rally further, everyone will be happy and there will be 314 economists and 172 strategists who will write: “They have again kicked the can down the road”. I promise that I will not.
Alas, it is that time of the week again and all that remains is for me to wish you and yours a happy and peaceful weekend and if you are UK based, a happy long bank holiday weekend. My thought for this particular Friday is: Two day rain forecast: a weekend; three day rain forecast: a bank holiday. Simples.