Turning Greeks into Germans
On my ride into work this week, on Tuesday I think, I listened to the Planet Money program, In Greece, How Office Politics Could Take Down Europe. Its a very interesting podcast, and I recommend it to everyone.
Office politics and Europe have a lot in common. Office politics are mostly about power struggles between competing elements. They typically put forces of the status quo against forces of change. The winners tend not to be those with the best ideas, but those with the most clout. And in the end the losers of the battle have to either conform to the dicatates of the winners, or get out and find at new place to work.
Such is the case with Germany versus Greece and the rest of the periphery. Greece is getting closer to that bifurcation where they have to either conform or get out.
The podcast describes the travails of a lone Greek Technocrat, Andreas Georgiou, sent back to Greece by his employers in Brussels to go through the books. Of course, the books are cooked and the more our technocrat (hero?) delves into them, the more he finds out not only how cooked they are, but also how difficult it is to get the truth out. Eventually they try to put him in jail for his efforts.
It reminded me of one of those old “one good cops” stories, where it seems like everyone on the force is on the take and how can our hero ever persist?
Unfortunately, he probably can’t.
Debt Crisis Delayed, not Over
What I think the story illustrates is just how deeply rooted the problems in Greece are, and just how hard it is going to be to get those attitudes to change. With the focus centered around the default of Greece and whether there will be private sector involvement or ECB involvement and how much the haircut is going to be and whether the ISDA is going to call it a credit event or not, it seems like we’ve kind of gotten side-blinders on and are thinking that once Europe gets through the default its all good.
Of course its not. As the podcast pointed out, the basic premise of the EU strategy is that in the future when a country starts misbehaving, so when Greece starts running a big government deficit again or some other misdeed occurs, technocrats will swarm the country and force measures of austerity before it gets out of hand. Greece and the rest of the EU are essentially to give up their economic sovereignty.
Well, Georgiou is a bit of a canary to that coal mine, and he is facing jail time for his attempt.
It’s the Economy Dummkopf
This is all just another way of stating the basic argument that Michael Lewis made in his Germany piece in Vanity Fair. This article was a bit of an eye-opener to me; it was the point where I saw for the first time just how intractable the problems in Europe are. In the article Michael Lewis pointed out the dilemna that the periphery faces:
The Greeks (and probably, eventually, every non-German) must introduce “structural reform,” a euphemism for magically and radically transforming themselves into a people as efficient and productive as the Germans. The first solution is pleasant for Greeks but painful for Germans. The second solution is pleasant for Germans but painful, even suicidal, for Greeks.
For the solution to work (and by solution I do not mean the short term papering over that we are accomplishing with the LTRO, the next bailout tranche or the cohersion of the private sector to accept a 70% cut), the Greeks have to become Germans.
And that is just not going to happen.
As I pointed out in my now clearly ill-timed post about the ineffectiveness of the LTRO, eventually the interpretation of Europe is going to come back to the economy. When it does, and when the somber assessment that the Greeks are still not German sets in, well then the fact that we’ve shaved some debt off the top is going to matter a bit less.
These guys are done. And not just Greece. The whole EU. Its like a walking dead, being propped up by the printed money of the LTRO.
But that’s fine. I am in no rush to have the market turn over. I’m in stocks that I think for the most part will outperform the market significantly in an upcycle. I just have to not forget that the key to investing, at least right now in these debt-ridden times, is to accept the necessary short-termism, but always with a wary eye on the inevitable long term.