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Greece versus The Troika: A Modern Greek Tragedy

February 1st, 2015 · Greg Atkinson · 16 Comments

The recent election in Greece which resulted in the Syriza Party being swept into power has once again put the spotlight on the struggling Eurozone. In isolation, the election of a left wing anti-austerity party in Greece would appear to be no more than a nuisance for markets beyond Europe. But I believe that there is a lot more at stake than just simply a stand-off between the new Greek Prime Minister Alexis Tsipras and the ECB, IMF and EU which are collectively known as the Troika creditors.

Firstly let’s not pretend that Greece’s economic woes were were caused solely by the Germans or the Euro.  Corruption, low productivity, poorly managed state utilities (including the ports), a bloated public sector and a woefully inefficient tax system all played a significant part in getting the Greek economy to the point where it effectively collapsed.

Even Greeks who bitterly opposed the former government and austerity measures would admit after a few glasses of Tsipouro that most of the problems with the economy were home grown.

So for a variety of reasons the Greek government essentially ran out of money and needed help which came via billions of Euro’s in loans. In return for getting this money the Trokia creditors tied these loans to reforms such as improving the tax system and privatising state owned enterprises.  In addition the Greek government had to reign in spending and this included slashing the number of public sector employees and public sector pay cuts.

But it is wrong to suggest that the financial bailout conditions simply included austerity measures and without the economic reforms insisted upon by the Troika there was little chance the debt could be repaid.

As a result of the Greek economic crisis which was largely triggered by the global financial crisis  the Greek economy entered a period of painful adjustment which included a recession lasting from 2008 until later 2014.  Even now the unemployment rate in Greece is around 25% with youth employment around 50%.

Greece Unemployment Rate 2014


The impact of the recession is visible – most of the Olympic Games sites have fallen into disrepair, many shops are vacant and roads & public facilities are clearly not well maintained.  However there are glimpses of the days before 2008 in places like Glyfada – where at night you would hardly believe there had been a recession at all.

So perhaps the new Greek government is justified in arguing that the conditions attached to the loans from the Trokia were too severe and that some debt should be written-off and the loan terms re-negotiated?

But if the Trokia were to do this then other EU nations that received bailout funds (such as Spain & Portugal) would probably also ask for some debt relief which means in the end, some nation(s) or organisation(s) have to take a loss.  Because at the end of the day the money has to come from somewhere and not remembering that is precisely how various countries in the EU got into the trouble in the first place.

I doubt that the debate regarding the effectiveness of economic austerity measures/reforms will ever be settled although it’s pretty easy for economists who have no skin the game to casually suggest debt should be written off. But from an investors point of view the stand-off between the new Greek Government and the Troika is worrying.

Firstly it undermines foreign investor confidence in Greece which make no mistake, is bad for the Greek economy. Investor confidence has been further shaken by the halt in privatising public assets – although I can appreciate that a new government may want to review the conditions for the sale of these assets.  Having said that, public utilities in Greece have generally not been managed well and a good example of how badly the government managed assets in the past is the case of Olympic Airways.

Secondly it sets a precedent in regards to how EU nations deal with debt and their loan obligations. Why for example should other countries comply with their loan obligations towards the EU, ECB & IMF if Greece doesn’t? Why should smaller economies even worry too much about debt if their political leaders believe that in the event of a crisis they will get the financial assistance they require on terms that can be rejected later?

Thirdly the focus on the loan conditions has taken the focus off why the Greek economy got into trouble in the first place.  As I mentioned earlier, Greece itself is responsible for mismanaging the economy and burdening itself with debt it could not manage.

Blaming the Germans is a popular theme in much of southern Europe but the reality is that the German export machine is very efficient and churns out products that the world wants plus the government has managed the economy (and debt) fairly well.

Lastly and what seems to have been almost totally forgotten, is the the Greek economy returned to growth in late 2014 and exited 6 years of recession. In other words there was light at the end of the tunnel and foreign investors were lining up to take stakes in government owned utilities.

Yes the conditions attached to the financial assistance provide by the Troika caused much hardship but perhaps the reforms they insisted on were working? Perhaps this year could have seen the Greek economy enjoy a full year of economic growth? However I now fear that this will not be the case.

Worse still the Greek stand-off with the Troika could trigger major divisions within the EU which could derail the ECB’s efforts to stave off deflation.

The EU economic bloc is China’s biggest trade partner and if the Eurozone economy struggles then this will impact economic growth in China which will in turn, have a knock on impact on the Australian economy.

I have business interests in Greece and when I visit Athens I see a city which could be a major global business hub and a country which has so much potential. Greece has much to benefit from being part of the European Union and the European Union has much to gain from a member state located  close to markets located in the Middle East, North Africa as well as having a port (Piraeus) which could be a major centre for sea trade between Asia and Europe.

I sincerely hope wise-heads will prevail and that better times lay ahead for Greece, however at this stage I fear the Greeks have elected a government led by a political party that has made promises that it will not be able to keep.

I hope I am wrong, because it would indeed be a modern day Greek Tragedy if the significant progress made during six years of recession was to be squandered and the county slipped back into recession again.

This article was written by Greg Atkinson who is the Managing Director of Ohori Capital. Greg is from originally from Sydney but now works and resides in Japan. He can be followed on twitter via GregAtkinson_jp

16 responses so far ↓

  • 1 lachlan // Feb 9, 2015 at 5:41 am

    Have not had time to read it however here is Mr Greenspans latest, “Greece will leave the Eurozone. I don’t see that it helps Greece to be in the Euro, and I certainly don’t see that it helps the rest of the Eurozone. It’s just a matter of time before everyone recognizes that parting is the best strategy…. The problem is that there there is no way that I can conceive of the euro of continuing”
    Of course his caveat will be that a political union will save it. Alan seems to play this role, similarly he once said we could basically print any amount of money you like to fund gov ops just as long as your not too hung up on losing your shirt to inflation…or words to that effect.

  • 2 Greg Atkinson // Feb 9, 2015 at 8:59 am

    Lachlan Greece has benefited by joining the EU and what often is not mentioned is the amount of money Greece has received in grants etc. over the years. For example in 2012 EU spending in Greece was about €6.353 billion meanwhile Greece’s contribution to the EU was just €1.681 billion.

    As for Mr. Greenspan…well what can I say about a guy who won the Enron Prize for Distinguished Public Service?

  • 3 Greg Atkinson // Feb 11, 2015 at 10:01 am

    Here is an interesting passage from an article on the Spiegel Online website today:

    “To be sure, Greece suffered the most dramatic setbacks of any of the euro-zone crisis countries. The country’s economy shrank for 16 consecutive quarters, with output plunging by over 25 percent since 2008. Furthermore, unemployment rose to unheard of levels, with the jobless rate averaging 27.5 percent in 2013.

    But last summer, the economy returned to growth and the troika believes it will expand by 2.9 percent this year and 3.7 percent in 2016, though such projections assume a continuation of the reform path Greece currently finds itself on. Even joblessness has begun dropping, though only slowly.

    “Labor market reforms, such as a lower minimum wage and the reduction of incidental wage costs, have made it possible for Greece to almost completely recuperate lost competitiveness when it comes to unit labor costs,” reads an analysis undertaken by the German Finance Ministry. Exports have begun rising and tourism is booming. The current account deficit has noticeably decreased.”

    Source: Athens vs. Brussels: Greece Inches Closer to Renewal of Debt Crisis. Spiegel Online. 10th February.

    So perhaps the reforms & spending cuts that the Troika insisted on were working?

  • 4 Greg Atkinson // Mar 12, 2015 at 3:48 pm

    From the Wall Street Journal today:

    “It is three months since Mr. Tsipras forced a snap election and six weeks since he became prime minister. In that time, the Greek economy has nose-dived. A tentative recovery has been stopped in its tracks: Tax receipts fell more than €1 billion ($1.05 billion) below target in December and January, the banks have been emptied of more than €20 billion of deposits, loan defaults have risen and investment has been put on hold. Any day now, the government could run out of money.”

    Yes, all the new government in Greece has achieved since taking office is to derail a fragile recovery. From this point forward let’s hope they don’t do even more damage.

  • 5 lachlan // Jun 18, 2015 at 1:45 pm

    Alans bets are close to paying off now Greg, teddy bears picnic dead ahead.

  • 6 Biker // Jun 18, 2015 at 3:36 pm

    Brix: “Hey, Greecer…… leave the Eurozone!”

  • 7 Greg Atkinson // Jun 19, 2015 at 5:51 pm

    Yes it’s not looking good.

    Today from CNBC

    “Euro zone leaders will hold an emergency summit on Monday after a the region’s finance ministers failed to agree a reform-and-aid deal with Greece, making it more likely the near-bankrupt country will default on its debt at the at the end of the month.

    European political leaders and economists are now preparing for financial turmoil and potential capital controls in Greece on the back of a Reuters report that Greek savers had pulled about 2 billion euros out of banks over the past three days.”

    Mot good at all.

  • 8 Stillgotshoeson // Jun 19, 2015 at 7:58 pm

    Greece should have defaulted and left the Euro 3 or 4 years ago. The worst of that outcome would probably be over and they would most likely be doing better with a lower value Drachma to work with.

  • 9 Greg Atkinson // Jun 20, 2015 at 10:16 am

    Maybe, but what is often overlooked is that Greece benefited from a lot of EU subsidies over the years & other funds. One problem is where that money went and how it was spent.

  • 10 lachlan // Jun 20, 2015 at 1:58 pm

    Yes there are always choices that could be made which would save these places. Choices, having got this far, that nobody seems likely to make. At a point in time true believers on the streets of that indispensable nation will notice they are now Greece too.

  • 11 lachlan // Jul 15, 2015 at 7:23 am

    greece now fixed/fudged for three years, with an 80 something Billion loan that will later go default…. so market can rally now?…oh boy, the new normal eh

  • 12 Biker // Jul 16, 2015 at 7:16 am

    Touring England at present, Lachlan. We’re intrigued at the strength of the English pound. It certainly appears their decision to stay with Sterling has paid off… .

  • 13 lachlan // Jul 20, 2015 at 4:46 pm

    Yes it is intriguing BP and yet I am nowhere near as surprised as i would have been five years back.

  • 14 Biker // Jul 24, 2015 at 4:00 pm

    You may recall that during previous trips to the UK, we noted that the major financial institutions were actively pushing reverse mortgages, Lachlan. That ended in tears for many who used their homes as ATMs, to buy luxury cars, etc.

    We no longer see these bank ad billboards along the motorways.

    So imagine my surprise when we received this email this morning:

  • 15 lachlan // Jul 26, 2015 at 6:52 pm


    #3….free money until you die

    #6 can’t go underwater, they’re promising…

    #7…the kids get no debt (not sure about the house but I’d really love a 200K mob.home and an account fulla fun funny buckaroos to spend on the way around ya know!)

    Golly BP, what could go wrong with such a plan?

  • 16 Biker // Jul 29, 2015 at 3:48 pm

    You’re not wrong! Asking prices here make our capitals look cheap, Lachlan.

    In fact, almost everything (with the exception of supermarket prices*) is double what we pay in Oz, when converted to sterling… .

    Our little Vauxhall Corsa is lost in a phalanx of Audis, Mercs, and Jaguars on the motorways… and we’ve discovered what actually keeps England financially buoyant: parking fees!~

    * Around the same, despite seven main players here, instead of four.

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