mercredi 22 juin 2011

Ne pas s'apitoyer sur le sort des Grecs

The Greek tragedy - shoot the chorus
June 17, 2011

If you've ever sat through one of the classic Greek tragedies in the original language, you might well have formed the opinion that it went on too long – way too long. Well the Greek debt farce is like that too.

It is bemusing that each dramatic announcement of non-action is still greeted with amplified concern by the chorus, helping to keep the sovereign debt headline machine rolling.

The joke is that the markets have long since taken for granted that Greece has to default, one way or another.

Like the Greek classics, we all know how it ends, who is murdered, who mistakenly gets which woman with what dire consequences. The actors just seem to like extending the agony.

It's not only with hindsight that one can say Greece should have been allowed to fail and then booted out of the Euro when the extent of its problems became obvious early last year.

Europe and Greece itself would have been better off. But then politics and face and arrogance intervened and a bigger problem has been created.

Greece itself remains an insignificant, hopelessly corrupt and inefficient economy that shows no sign of changing any time soon. Michael Lewis, author of Liar's Poker, The Big Short and Moneyball, among others, has written an enjoyable feature on the mess for Vanity Fair. A small example of his examples:

The average government job pays almost three times the average private-sector job. The national railroad has annual revenues of 100 million euros ($134 million) 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. Twenty years ago a successful businessman turned minister of finance named Stefanos Manos pointed out that it would be cheaper to put all Greece's rail passengers into taxicabs: it's still true. “We have a railroad company which is bankrupt beyond comprehension,” Manos put it to me. “And yet there isn't a single private company in Greece with that kind of average pay.” 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. Greeks who send their children to public schools simply assume that they will need to hire private tutors to make sure they actually learn something.

And there's more:

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.

Priced for default

Including its bloated, overly-generous pension liabilities, the Greek government owes US$1.2 trillion ($1.14 trillion) – more than a quarter of a million dollars for every working Greek. No, it's not sustainable, there has to be a default, or a euphemistic “restructuring”. The bond market is already priced for it.

So why is there so much market excitement about an ending that is already known? Maybe the excitement is only in the parts of the market that hadn't read the synopsis before the play started.

The big fear, a fear that feeds upon itself, is that there could be a contagion effect. If Greece goes, then who's next.

It's a nice line used by BT chief economist Chris Caton that if you add up the economies of Greece, Ireland and Portugal, you get Florida. It's hard to imagine the world being so concerned if one American state was facing bankruptcy, as they do from time to time.

The challenge for Europe is to face the reality instead of the political hubris they've built up.
The current size of the problem is managable, but the longer the farce is dragged out, the bigger it grows. The bottom line is that it's not Greece that needs saving, but the banks still holding Greek bonds that will have to have their hair cut managed.

Asian locomotive

Greece won't be the first or by any means the largest country to default. Some of the more hysterical media gives the impression that this would be an earth-shattering, never-happened-before event. Markets are quite good at dealing with such crises as long as all concerned are honest about.

Is it possible that Greece defaulting could trigger another global financial crisis, seize up the banking system? All things are possible, but it should be unlikely. It is, though, another reason why the collective European economy is going to remain subdued, just like the US.

And very luckily for us, that doesn't matter all that much as long as it doesn't freeze global finance. Our economy, the Asian economy, is continuing to grow strongly. Asian banks' exposure to Europe is slight.

Market sentiment certainly is being swayed by the noisy Greek chorus, but we know we get to walk out of the theatre when the show's over. That's a relief.

Michael Pascoe is a BusinessDay contributing editor.
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