Business World

Monday 18 December 2017

Thomas Molloy: What happens now in Greece will have serious consequences for the other bailed-out nations

Thomas Molloy

Thomas Molloy

THE black-clad riot police with their transparent shields were gathered just five doors down from the Greek Central Bank and the offices of Michael Massourakis yesterday afternoon as a large group of men protested at the prospect of more cuts to the public sector.

Massourakis, the chief economist at Athens-based Alpha Bank, wasn't in the mood for making many predictions as he pondered what would happen next in his homeland. But he had one prediction; that any default would be messy and hurt countries like Ireland as well. An orderly default isn't likely any more.

Hours after the Greek government made peace with the IMF and European Union inspectors in a bid to pave the way for a new tranche of lending, Massourakis offers little reason to be confident that the latest breakthrough will stem the problems in Greece in a manner that will keep Ireland and other bailout countries safe from contagion.

"The situation is so complex, so fast-moving," he says in his flawless English following a 12-year stint in banks in Washington and New York.

Like most Greeks who spoke to the Irish Independent this week, Massourakis appeared resigned to some sort of default and voiced criticisms of his own country as well as the IMF and the European Union organisations that have made so many mistakes in Greece over the past 18 months.

"We can write a book about the troika's contribution to the mess," the economist said. "What bothers me is that the troika have let things slip over the past year."

Massourakis says that "default is now more or less certain according to the markets" but believes that firmer action by inspectors and government shortly after the Greek bailout in May 2010 could have prevented the country's problems from snowballing.

Instead, Greece appears locked in a spiral of decline. The IMF revised forecasts downwards on Tuesday and said that it now expected the Greek economy to shrink again next year after a 5pc contraction this year.

Last year, Greece found itself in the position that Ireland finds itself in today. The government had made the relatively easy fiscal adjustments; cutting public sector salaries and the like (what Finance Minister Michael Noonan recently called the "low hanging fruit"), but Athens had yet to tackle the uncompetitive parts of the economy.

Those uncompetitive elements bear an uncanny resemblance to the problems isolated by the IMF and ECB in Ireland; doctors, lawyers, state-owned airports, quangos, a property tax.

Faced with these demands for change from the IMF and resistance from vested interests inside Greece, the Greek government chose the easy option and copped out.

As Mr Noonan prepares for the next Budget, he will almost certainly be considering the heavy price Greece is now paying for not tackling the vested interests.

"From what I hear, you have already cut to the bone," says Massourakis. "Whether Ireland will be able to do what Greece has failed to do remains to be seen."

Across town, in a dusty street a short walk from the Acropolis, stands the privately funded IOBE think tank, a mixture of our ESRI and IBEC. Aggelos Tsakanikas, who is the IOBE's head of research, says the latest problems in his country are the "cumulative result of years of wrong decisions and strategies", but he, too, singles out the recent failure to follow the IMF/ECB plan and implement what economist like to call structural reforms.

"It's true the results would have only been felt in the long-term to medium-term but they would have sent out a strong signal," he says. Privatisation, had it been introduced two years ago, would have raised far more money than it would today because of the state of the world economy and would have helped prevent any default. "Now, I don't know if it's feasible," he shrugs as he sips coffee in the institute's air-conditioned library.

Like Massourakis, he is critical of the IMF and ECB officials who take advice from the IOBE during their quarterly trips to Athens.

"The troika are very technocratic," he says. "They have a model. They ask us what our model produces. It is all a little bit disappointing."

Both men see clear differences with Ireland and Greece but for varying reasons. Tsakanikas points to the unity of belief within the Irish (and Portuguese) political systems where none of the mainstream parties offers a different cure for the malaise. It is very different in Greece, where the opposition is proposing tax cuts and the large Communist Party is simply urging voters not to pay any tax at all. The other key difference is, of course, exports. Greece has a relatively small industrial base and produces few products for foreign markets. A sign of this can be seen in the trade balance between Ireland and Greece which is more than 10 to one in Ireland's favour.

Tsakanikas, who also speaks flawless English like almost every member of the Greek governing elite, remains optimistic about the medium-term prospects for the economy. The recession has introduced important reforms of the labour market (where many young workers must now make do with a salary of €500 a month) and will undoubtedly tackle many more problems.

"There is still a lot of fat," he says and individuals still have large savings as well as a dense family network that can shield them from the worst effects of the crisis.

Both economists believe the main problem remains tax evasion and an antiquated system of collection that makes it expensive and inefficient to collect taxes of any kind. Neither seems hopeful that this problem can be solved anytime soon.

"The tax people go to lots of little companies and they get kick backs for looking the other way. I don't know how you are going to stop that," says Alpha's Massourakis.

Outside in the street, the protesters are still gathering in small crowds to show solidarity with a public transport strike which is due to bring all buses and trains to a halt today. While many shouted slogans energetically, there was still a sense that the game was over and their protests would be to no avail.

Some spoke of history repeating itself. Greece defaulted on its debt during the last great financial crisis in the 1930s, with mixed results. A century earlier two German kings, one from Bavaria and one from the distant north, ruled Greece on the orders of Britain, Russia and the United States. The parallels with today are not too difficult to see.

In a bar in the fun-loving Psyrri district, a tired waiter called Yiorgos Stournaras who is finishing a 15-hour shift gives his views on the country's economic crisis and what needs to be done.

"We need the drachma back and then we'll get our independence back," he said as he leaned over a zinc counter and surveyed the empty restaurant.

Men like Yiorgos are among those suffering worst from the recession. Earning around €30 a day, the father of two is struggling to make ends meet. A radio plays in the background and he waits for details on what was agreed between the government and the IMF and ECB.

Yiorgos believes this latest deal will force him to pay a one-off tax of €500 this month and a one-off property tax of €650 next month. Whether this happens remains to be seen but the thought of it fills him with despair and anger. "What the government is doing now is madness. First we need jobs with proper salaries and then they can tax us: the other way round is crazy."

While admitting that leaving the euro would make imports prohibitive for a generation, he said a cheap drachma would bring hordes of tourists to the country and restore competitiveness. "We Greeks live from tourism," he said. "The Germans, the Irish and the others all live from exports but we have only one real business. Devaluation would solve all our problems in a week."

Nobody, probably not even Yiorgos, really believes that it will be that simple, but the world may just be about to find out how complex it will be.

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