The situation in Greece

May 17th, 2012 at 12:00 pm by David Farrar

A old yet still must read article in Vanity Fear on Greece:

The long-term picture was far bleaker. In addition to its roughly $400 billion (and growing) of outstanding government debt, the Greek number crunchers had just figured out that their government owed another $800 billion or more in pensions. Add it all up and you got about $1.2 trillion, or more than a quarter-million dollars for every working Greek. Against $1.2 trillion in debts, a $145 billion bailout was clearly more of a gesture than a solution. And those were just the official numbers; the truth is surely worse. “Our people went in and couldn’t believe what they found,” a senior I.M.F. official told me, not long after he’d returned from the I.M.F.’s first Greek mission. “The way they were keeping track of their finances—they knew how much they had agreed to spend, but no one was keeping track of what he had actually spent. It wasn’t even what you would call an emerging economy. It was a Third World country.” As it turned out, what the Greeks wanted to do, once the lights went out and they were alone in the dark with a pile of borrowed money, was turn their government into a piñata stuffed with fantastic sums and give as many citizens as possible a whack at it.

Yep, for some politicians all they ever advocate is how to give money out.

In just the past decade the wage bill of the Greek public sector has doubled, in real terms—and that number doesn’t take into account the bribes collected by public officials. The average government job pays almost three times the average private-sector job. The national railroad has annual revenues of 100 million euros against an annual wage bill of 400 million, plus 300 million euros in other expenses. The average state railroad employee earns 65,000 euros a year.

Something we can only aspire to with the billions we have thrown into rail.

Twenty years ago a successful businessman turned minister of finance named Stefanos Manos pointed out that it would be cheaper to put all ’s rail passengers into taxicabs: it’s still true.

In New Zealand we had politicians advocate in Wellington a rail extension that would only remove 100 motorists a day from peak hour traffic, yet was going to cost tens of millions of dollars. It would have been cheaper to buy each of the 100 motorists a helicopter.

The Greek public-school system is the site of breathtaking inefficiency: one of the lowest-ranked systems in Europe, it nonetheless employs four times as many teachers per pupil as the highest-ranked, Finland’s.

Yet, some still advocate it is all about teacher to pupil ratios.

The retirement age for Greek jobs classified as “arduous” is as early as 55 for men and 50 for women. As this is also the moment when the state begins to shovel out generous pensions, more than 600 Greek professions somehow managed to get themselves classified as arduous: hairdressers, radio announcers, waiters, musicians, and on and on and on. 

And France has just elected a socialist who wants to lower the retirement age from 62 to 60!

Oddly enough, the financiers in Greece remain more or less beyond reproach. They never ceased to be anything but sleepy old commercial bankers. Virtually alone among Europe’s bankers, they did not buy U.S. subprime-backed bonds, or leverage themselves to the hilt, or pay themselves huge sums of money. The biggest problem the banks had was that they had lent roughly 30 billion euros to the Greek government—where it was stolen or squandered. In Greece the banks didn’t sink the country. The country sank the banks.

Sad, but true.

It is not just Greece. though. The US deficit is almost unpluggable. France and Italy have huge deficits also. The UK is striving to close its massive deficit, but the political price will be high. In New Zealand, it is vitalget back from deficit into surplus – and not by just raising taxes to fund the unsustainable spending.

21 Responses to “The situation in Greece”

  1. YesWeDid (1,085 comments) says:

    Vanity ‘Fear’? Was that a little unintentional irony creeping in?

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  2. Manolo (21,979 comments) says:

    In New Zealand, it is vital to get back from deficit into surplus – and not by just raising taxes to fund the unsustainable spending.

    More wishful thinking from DPF.

    What have English and Key done about it? The dreadful pair haven’t reformed the economy or the public service, are spending like drunken sailors and borrowing to cover.

    National, the party of fiscal responsibilty and prudence….yeah right.

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  3. tvb (5,510 comments) says:

    The bankers who lent a bankrupt country all this mobey richly deserve to lose their shirts. Greece will leave the euro and the central banks need to plan an orderly exit. To hear the Bank of England Governor say all is gloom without offering a way forward means he should be offering his resignation. That man is an alarmist fool.

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  4. Sam Hill (42 comments) says:

    Greece and New Zealand have very similar private debt. Our public debt is not the biggest problem, John Key has even admitted that. You’d think lifting wages so people wouldn’t have to live in debt would be the government’s priority here.

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  5. mavxp (504 comments) says:

    Greece desperately needs an untouchable “FBI” unit to combat corruption throughout the government, and legislation to overnight raise the pension to 65, halve the salaries of government employees, sell off the railways, cut the military budget, etc. etc.

    We should help by sending them Roger Douglas.

    (and offer free study placements in NZ for Greek women 😉

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  6. virtualmark (1,602 comments) says:

    I love Michael Lewis’ repeated line about the mid-2000’s being a time when each country was, so to speak, put in a dark room with a pile of cheap borrowed money and allowed to indulge their fantasies.

    The Icelanders wanted to be bankers, the Irish built a lot of new houses in the hope that lots of people would move to Ireland, the Greeks all retired and paid themselves exorbidant pensions etc.

    The Kiwis all ran out and paid crazy amounts for residential real estate.

    The real underlying problem in the 2008 financial crisis was that lenders dropped their lending disciplines in the mid-2000s, and loaned a bunch of money to people who should never have been offered debt. It took till 2008 to work out that a lot of that debt was going to default, and that the posted securities weren’t valuable enough to recover the debt. Who knew?

    Today we no longer have a financial crisis as such – the banks and monetary system are working again, albeit with a hangover.

    Today we have a political crisis – voters and politicians cannot wean themselves off living beyond their means, and assume they will always be able to access debt at cheap rates, and think they will never have to sacrifice anything to repay that debt. What we have today is a crisis of democracy, not a crisis of capitalism.

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  7. RRM (12,550 comments) says:

    Add it all up and you got about $1.2 trillion, or more than a quarter-million dollars for every working Greek.

    😮 Jesus Christ…

    Sounds like getting invaded by the Persians is probably the best thing that could happen to “Free Greece” now…?

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  8. lastmanstanding (1,724 comments) says:

    Sounds like the Greens if heaven help us they every got to occupy the Treasury benches. I mean the Socialist Party under Klark/Kullen were bad enough what with WFF and student loans. Same as the Greeks. Just keep piling on the goodies to a dumb arse unsuspecting economic bunch of pygmies that are the great unwashed Leftie voters and let someon other bastard deal with the carnage after they exit stage LEFT as Klark/Kullen did.

    Trouble is most households are like most Gumints. Spend above their income and hope against hope it all works out.

    At least we appear to have a Gumint that will try and stick within its means rather than just keep on promising what cant be delivered in the long term.

    In some ways I do have sympathy for the Greek citizens who are now gonna have the money tap switched off. I hear come mid June the Greek Gumint will stop paying pensions benefits and the civil service etc.

    Afterall all the Greek citizens did was vote for the wrong pollies for the last 30/40 years.

    Message to my fellow citizens Beware ALL pollies bearing gifts like the Greeks its your money they are promising you NOT theirs.

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  9. KevinH (1,751 comments) says:

    Greek left wing politician Alexis Tsipras offers his insight on the sovereign debt situation in Greece:

    “Tsipras has accused the EU and German Chancellor Angela Merkel of “playing poker with European people’s lives” by insisting on austerity measures.”

    “If the austerity policies continue then the eurozone will be destroyed”

    Council of State president and judge Panagiotis Pikrammenos has been sworn in as interim prime minister to head a government until the elections next month.

    Mr Pikrammenos has this to say on the Greek economy:

    “It is clear to all that our homeland is going through difficult times,”

    Mr Pikrammenos offered this consideration on the Greek economy:

    “We must safeguard its prestige and assure a smooth transition.”

    However the financial sector has more pressing concerns:

    “[Greek central bank chief George] Provopoulos told me there was no panic, but there was great fear that could develop into a panic,”
    At least 700m euros (£560m; $890m) was withdrawn from Greek banks in the week until Monday, the Greek president said.

    But there are no signs of a bank run.

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  10. KevinH (1,751 comments) says:

    Meanwhile German Chancellor Angelika Merkel is suffering a backlash at home:

    DUESSELDORF, Germany, May 13 (Reuters) – Chancellor Angela Merkel’s conservatives suffered a crushing defeat on Sunday in an election in Germany’s most populous state, a result which could embolden the left opposition to step up attacks on her European austerity policies.

    Merkel’s Christian Democrats (CDU) saw their support plunge to just 26.3 percent, down from nearly 35 percent in 2010, and the worst result in the state since World War Two.

    Meanwhile newly appointed French President Francios Hollande is attempting to complicate an already difficult situation:

    Mr Hollande sharply criticised Ms Merkel during his election campaign for insisting on tough austerity to bring down suffocating debt levels across the euro zone. She, in turn, had backed Mr Hollande’s rival, conservative incumbent Nicolas Sarkozy.

    Messr Hollande’ solution:

    “I said it during my election campaign and I say it again now as President that I want to renegotiate what has been agreed to include a growth dimension,”

    As an aside perhaps this incident was a warning on Messr Hollande’ intentions:

    The Socialist Mr Hollande jetted to Berlin only hours after being sworn in to meet Ms Merkel, a conservative, for the first time, arriving over an hour late after his plane was hit by lightning and he was forced to return briefly to Paris.

    Meanwhile British Prime Minister David Cameron has no illusions about facing up to Europe’s financial issue’s:

    Restating his economic case today Mr Cameron will insist: “Now is the time to stand firm. We are moving in the right direction – not rushing the task, but judging it carefully. And that is why we must resist voices calling on us to retreat.”

    In a tough message to eurozone countries, Mr Cameron will also declare: “The eurozone is at a crossroads. It either has to make-up or it is looking at a potential break-up… Either Europe has a committed, stable, successful eurozone with an effective firewall, well-capitalised and regulated banks and supportive monetary policy. Or we are in uncharted territory which carries huge risks for everybody.”

    The Prime Minister will warn that Britons are “living in perilous economic times,” having heard the Bank of England Governor, Sir Mervyn King, say yesterday that the eurozone is “tearing itself apart”. But Mr Cameron will rule out any departure from his Government’s tough deficit-reduction strategy. He will also reject the “something for nothing” economics of the Labour opposition, which will be seen as a criticism of François Hollande, the new Socialist President France elected on a “pro-growth” ticket.

    The Bank of England Governor listed the woes facing the country yesterday: “We have been through a big global financial crisis; the biggest downturn in world output since the 1930s; the biggest banking crisis in this country’s history; the biggest fiscal deficit in our peacetime history – and our biggest trading partner, the euro area, is tearing itself apart.

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  11. DJP6-25 (1,779 comments) says:

    virtualmark 12:41. You’re right.


    David Prosser

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  12. UpandComer (664 comments) says:

    Not sure where u r coming from Manolo. They have run zero budget after zero budget. They have greatly reduced the size of the public service. They have fought and are fighting big battles over education and welfare, and are winning. They have helped employers and employees by making the labour market more fluid. They have reformed the tax system and made it much tighter and fairer. Through all of this, service have been maintained or actually improved. That is a singular accomplishment that puts the lie to everything Labour says. With no new spending, services have got better, or maintained their levels. They are dealing with the borrowing problem through asset sales, and have kept interest free student loans and WFF because people really need them through these tough times. They have done a fantastic job. What exactly do you mean by ‘transform the economy’, borrow money to build some kind of widget?

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  13. smttc (826 comments) says:

    UpandComer, that’s not good enough for Manolo. The “taking the people with you” approach doesn’t cut any ice with him. The computer commando won’t be happy until Key slashes and burns the public service and government institutions, repeals WFF, puts interest back on student loans and repeals all other welfare and gets turfed from office in the process. Then Manolo will be happy when Labour/Greens/Mana get back in and shove it all right back up him again together with a tax hike. Can’t wait.

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  14. willb (10 comments) says:

    I think this is a wee bit alarmist. Clearly there are right ways and wrong ways to go about implementing government spending and left wing policies and obviously Greece is a great example of doing it the wrong way. And why can’t we raise taxes to get out of deficit, btw? Clearly the private sector still has not been prepared to step up since National took office, in spite of their supposed business friendly policy, and subsequently unemployment has increased. Growth has been pathetic, in spite of the utter crap that is the “growth in 10 of the last 11 quarters” line that Key, Joyce, English et al have been trotting out ad nauseum. Seems like a prime opportunity to wop on a capital gains tax and get some proper infrastructure spending going. Maybe that Keynes guy had a point hmm?

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  15. krazykiwi (8,228 comments) says:

    C’mon DPF… keep up with the play. I first posted this article in September 2010 😉

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  16. s.russell (2,072 comments) says:

    I liked this quote at the end of the article:
    Isocrates (436–338 BC): “Democracy destroys itself because it abuses its right to freedom and equality. Because it teaches its citizens to consider audacity as a right, lawlessness as a freedom, abrasive speech as equality, and anarchy as progress.”
    I fear there is too much truth in this.

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  17. tom hunter (7,677 comments) says:

    @ UpperandComer and smttc

    I can’t speak for others but the problem I have with the Key National government is that while it might be doing all this trimming and edging of government it’s failing to change the fundamentals in ways that cannot be reversed by a future Labour-Green government.

    It’s traditional “small-ball” conservative stuff and whatever gains might be made over two or three terms will simply be wound back by a left-wing government: tightened rules will be loosened, spending will be increased, eligibilities will be widened; we will hear the same howls as 1999 about how “public infrastructure” has been run ragged. And all of that public infrastructure will still be sitting there, just waiting to suck up money.

    I agree that a slash and burn approach would see Key and co. gone at the next election, and in any case that sort of revolutionary approach should only be taken when things are desperate (i.e. 1984), and we’re not Greece yet.

    But what we need is change driven from the bottom-up: give people the power to become independent of government. That can (and should) be done gradually because it takes a couple of terms to get bedded in. But only that approach will see permanent change made. We’ve seen some baby steps in this regard with things like the charter schools, but they’re awfully limited and there’s almost no argument placed behind them. As it is, the top-down approach simply buys into the framework that the Left have built, and it can all be unwound.

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  18. IHStewart (388 comments) says:

    ” Two year German bonds are yielding as little as six basis points and a fall below zero, as is already the case for some short-term Treasury bills, means investors would pay more to buy the debt than they would get back.”

    ” Germany holds a 78.8% debt ratio to economy, above the 60% limit standard set by EU for stability,..”

    Now when the Greeks default in a few weeks time….

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  19. adam2314 (363 comments) says:

    his plane was hit by lightning

    Would that be GREECE lightning ??

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  20. big bruv (15,559 comments) says:

    One solution might be for the French to resume nuclear testing.
    In Athens.

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  21. Paulus (3,565 comments) says:

    The Greek Government ran out of spending other people’s money years ago, and the other Euro dealers (France a major one) kept on lending to spend.
    Going to be very very tough for the Euro states.
    Lesson to be learned NZ Labour on spending other people’s money – but they will never listen or learn.

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