The game has not changed

When I first started this blog initially on FB, Greece and the Eurozone’s troubles were the dominant theme that I was forced to confront on a daily basis. It would seem the game has not changed much just the players.

A couple of years on and we are once again being barraged with daily headlines (often sensationalist in nature and borderline clickbait) regarding the situation in Greece and how they are on the brink of economic collapse and holding a gun to the Eurozone’s head all the while being firmly squeezed by the indomitable Germans force feeding austerity to the patient.

A few things to note here, there are so many column inches and talking heads devoting time to this subject (obviously I include myself in this) that one cannot be sure exactly what is going on. But from a brief simplistic overview for the man on the street it looks a little like this:

Greece has got a rather large debt burden that has been racked up through years of mis management by previous regimes, governments, tax evaders and downright mis-management of a country’s system. It seems that this mis-management was so widespread that it occurred at every level of society (not everybody, just at every level).

When the previous regime could no longer continue paying its bills it rightly or wrongly assumed a large bailout from a variety of players namely the EU, IMF and other creditor nations. These lenders then sent in the troika to make drastic cuts to Greek expenditure and try and force change upon a society.

The main talking point is that Greece’s debt to GDP ratio is circa 175%, I.E for every euro they earn as a country they owe EU1.75. Which is clearly not sustainable for anyone ( why banks think then that lending anywhere between 5-10 times a persons salary in order to buy a house is OK is beyond me but that is the system we live in), in the long run. In order to address this debt to GDP issue then you have two methods of attack. You attack the debt or you attack to the GDP.

Attacking the GDP is basically saying restructure and come up with an economic plan to earn more income therefore reducing the ratio to a more healthy level.

Attacking the debt means restructuring the debt the owed to creditors so that your outgoings come down to a more healthy level and hopefully even below your income level.

This is amazingly simple a concept but seemingly amazingly difficult a practise.

To attack the GDP side is difficult as it requires investment, long term strategic plans, cohesive structures in place across the entire economy but most of all it takes time. It takes years to build a successful economy and is certainly hindered by going through periods of austerity where drastic cutbacks in investment has a devastating effect across the board for a host of reasons but mostly to the spirit of young people.

To attack the debt you must make all those who lent you money agree to a restructuring of the loan terms, forgiveness or a combination of the two, exactly the same way you would go to a bank if you were in difficulty and needed a little bit of pressure eased of you with say your mortgage and look to refinance. If all these lenders do not agree to restructuring, you are left with another choice, default.

This is the same place we were about two years ago as we are today, Greece is left with the decision to either negotiate a restructuring of their debt or walk away altogether. The difference however is in the approach it would seem. This time Greece is being led in negotiations by mainly the Greek finance minister Yannis Varoukafis and Alex Tspiras the new Prime Minister who was recently voted in .

Both men seem very intelligent and display a deep passion for helping Greece succeed and what they have in passion and intellect they lack in respect for institutions and politics which is a very dangerous combination in the highly bureaucratic Eurozone.

Both men have played a very weak hand well. Greece are in trouble, lots of it, but they have forced negotiations and draw a lot of awareness and support around for their plight, they have successfully managed to paint the Germans as the taskmasters and themselves as the victims (from where i am sitting anyway, many would disagree). Also they have realized that when you owe so much money to someone and you cant pay, it becomes the lenders problem not yours, i.e. if I borrow $100k from a bank and cant pay back it is I who will suffer, if I borrow $1bln then it is the bank who will suffer if I cant pay back.

If the Eurozone was a game of cards, then Greece would no doubt be the short stack in the tournament, so in trouble that they are resigned to an all-in or bust strategy. Either way they turn they are in a bad situation. If austerity continues in their country they feel they will be doomed to a life of debt slavery and if they leave they will at least be debt free but very much on their own in a brutal world.

As it stands, my takeaway is that despite his deep distrust and dislike for the European union as a concept Yannis Varoufakis understands the mess he is in and proposes new solutions to problems that continuously get the same treatment. In public he will state he does not want to leave the EU but rather exist inside a different looking EU and I believe he has done a good job of promoting that agenda around the world.

He has managed to buy himself a few days or a few months time to continue to put forward these ideas while also making radical changes in the Greek economy, four months is not a lot of time and I assume we will go through this all again in June.

In the meantime while all the news and noise is directed towards Greece I would not take my eyes off what happens in Spain, Podemos a new political party similar in style to Syriza and the infamous Bepe Grillo movement is gaining very strong traction with voters. My belief is that Germany is cracking the whip extra hard on Greece to send a message to Spain that this anti-austerity and akin to anti -EU behavior will not be tolerated, because if you think we have a problem with Greece and their debt burden then Spain or Italy threatening similar behavior really would be a serious issue.

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