Monday, 14 December 2015

Economic Consequences from the Enforcement of Deflationary Policies in Greece and the Case of Greek Shipping

"La democracie c' est s’addresser a l’intelligence des citoyens plutot que d’exciter leur peurs."

Francois Hollande, October 2015

The underlying intention of this presentation has been to provide an answer to the apparent inconsistency between the declared objective of assisting the Greek economy go back to economic development and the means presently employed to achieve this. The ailing Greek economy has been obliged to undergo a severe austerity programme over a lengthy period at a time of world recession as a precondition for receiving economic facilitation to stay in the Eurozone and return to economic development.

The designers of this policy should firstly explain to the economic community how the aim of putting the country back on the road to economic development is served though austerity policies. So far none has bothered to explain and, alarmingly, none has asked for such an explanation. The cost of applying this fundamentally flawed approach on Greece has raised questions as the country’s economic magnitudes – and its population – have been paying a heavy cost:
  • Unemployment has risen twenty percentage points from six to twenty six percent,
  • the GDP has shrunk by twenty four percent in just six years,
  • the disposable income has plummeted by thirty one percent in five years, and
  • private bank deposits have been depleted by a quarter as citizens-many of them out of work- have been trying desperately to maintain their living standards.

Minimum wage provisions and pensions have been slashed, social security funds have been looted, public health barely exists and amid this horizontal destruction mania there are institutions such as IOBE suggesting this is the only way. It is evident something does not click. Instead of seeing a return to economic growth we see a consistent economic decline – as manifested by the receding GDP – and no reason why this is going to change. The opposite in fact is the case, the capital controls introduced last summer have further impacted negatively private spending and public revenues have presently a gaping hole as a consequence.

What we have seen so far is that economic facilitation to stay in the Eurozone through Eurogroup and Troika designed policies do not lead Greece back to economic growth, they do the exact opposite instead at the rate of an average 4% shrinkage every year. So there is an antithesis between declared intentions and actual outcome. As the outcome cannot be disputed, the Greek economy is still on the brink of collapse while debt is rising, it is the declared intentions where the problem lies. One wonders if there has been an error, an accident, or a lack of knowledge on the part of the designers of these policies.

Regrettably no such allegation can stand to serious scrutiny as we are talking about professionals of high caliber overseeing the effects of their policies over a long time period. The choice of austerity and deflation has therefore been deliberate and in knowledge of what it would cause. Why then a member of the Eurozone should be treated like this?

The answer to this tantalising  for many of us question is twofold and lies in the little advertised offer of Germany to the Greek government in mid-summer this year which promised it a bonus in case it would quit the Eurozone unilaterally. Greece has turned it down but it became clear to all what the true intentions at the time were. The Eurozone – despite numerous declarations to the contrary – would be happier to see Greece leaving it out of its own consent. Refusal of this offer meant that the situation in the zone continued to be precarious. The German government felt it had to protect the Euro as it has been really worried about the impact of a possible accident on its value and acceptability. The Euro is highly valued in Germany as it has been designed to suit its own requirements from the outset, unlike in other Eurozone members which have mixed feelings about its usefulness. Through the Euro and the European Central Bank, Germany indirectly controls all other EU members – and ultimately Europe’s economy - and the loss of such a tool would not be an option.

Secondly, Greece should continue to be publicly defamed and flogged as a bad example of a Eurozone member to pass the message on to other members to stick to the rules, or else they could receive similar treatment. Cyprus is not such a distant example while French and Italian pressures to devalue the Euro have been continuous. It is evident that if one of the major Eurozone economies failed, the Eurozone itself would fail something that would put the existence of the entire EU on question. Why would that be such a big problem for Germany? Because it would bring it back to its humble pre-unification status and negate its present wish to be a major player in world politics is one possibility, there may be other.

Let me recap. The austerity policies on Greece have nothing to do with economic theory, these are simply vehicles to political ends. As long as diverting interests exist within the Eurozone, Germany will always insist on punitive treatment of Greece and possibly others for the reasons just explained. Therefore, austerity will be endless for the Greeks. There are side benefits for other EU members as Greeks under the combined pressure from poverty and taxation are expected to start selling private and public property at ridiculously low prices. Homes, holiday houses, hotels, banks, infrastructure, oil deposits etc. will soon be up for grubs. In short, the Greek austerity saga is multiply useful to Germany and it also holds promises to others through acquisition opportunities. This is how the European dream of many of us fourty years ago has turned into a nightmare.

Now a few words on the minor question about the impact of capital controls on Greek shipping companies. After a few months of application most problems have in one way or another been addressed and the only major question that persists is the "country risk" factor.
  • Uncertainty about bail-ins and account confiscation.
  • Uncertainty about changes in fiscal treatment.
  • Uncertainty about future bank restrictions to payments abroad, and so on.

There are currently open offers from many places abroad inviting Greek shipping companies to relocate. Although such a move is technically easy to execute, in reality it is a much more complex decision to make and thus difficult to make predictions. The response of Greek ship owners to such invitations will possibly depend on careful day to day monitoring of the situation.

Alkis J. Corres, Executive Advisor on European Affairs to the Hellenic Shortsea Shipowners' Association 

No comments: