Everything is Getting Gummed up in Greece
Wolf Richter www.testosteronepit.com
Tourism, Greece’s second largest industry after the shipping industry, and already in a downdraft, is taking another hit as tour-bus drivers will go on strike next week; wage negotiations havedeadlocked. Owners demand that drivers take an additional 50% cut in pay and benefits on top of the 20% cut they’ve already suffered.
The National Organization for Healthcare Provision (EOPYY), Greece’s state-owned health insurer,hasn’t paid pharmacists for months and owes them €540 million. In turn, pharmacists are refusing to sell medications to insured patients, including cancer patients, unless they’re paid in cash—and even hospitals are reporting shortages.
Greece’s ship repair and shipbuilding industry, a highly competitive activity in a global market, hascollapsed. Over 90% of its union workers are jobless—though Greek shipping companies own 16% of the global merchant fleet, more than any other nation. They’re just not having their ships built and repaired in Greece anymore—whatever the reason, high cost of labor, lack of investment, changing shipping routes, strikes. A sign that there are fundamental problems related to competitiveness that a bailout, no matter how generous, won’t be able to solve.
And yet, President Barak Obama—whose reelection hinges on the US economy, which is wobbling, and on the jobs picture, which remains dismal—blamed European leaders, specifically German leaders, for refusing to bail out Greece and the rest of the tottering Eurozone at taxpayers’ expense, just so he could sail to four more years. Everything in the book, from the loss in US manufacturing jobs to cancelled IPOs, was “attributable to Europe and the cloud that’s coming over from the Atlantic,” he said at a fundraiser in Chicago.
German Chancellor Angela Merkel shrugged off the bullying and just said no to Eurobonds, again. Despised in Germany, they’re seen as an insidious transfer from bleeding German taxpayers to other countries. Instead, her government wants struggling Eurozone countries to overhaul their economies with utmost speed—and Germans are willing to dole out hundreds of billions of euros to make that possible—but it’s proving to be impossible, at least in Greece, and very painful everywhere, to unwind years of an economic gravy train fueled by cheap euro debt. Read…. Germany Walks Away From Greece.
And unpaid bills are now threatening Greece’s electricity supply. State-owned Electricity Market Operator (LAGIE), a clearing house for power transactions, hasn’t paid independent power producers for electricity it bought from them. They, in turn, haven’t paid their natural gas supplier, Public Gas Corporation (Depa), which now doesn’t have the money to pay its supplier. Payment is due on June 22. Alas, its supplier is Gazprom in Russia, and they insist on getting paid. If not, they will shut the valve, and Depa won’t get the gas to supply the independent producers, which will have to take their power plants off line, removing about a third of the country’s electricity production.
But Germany isn’t even worried about Greece’s return to the drachma anymore—a fait accompli. It’s worried about Spain and Italy. Greece simply is the model. The costs appear to be steep, but most of the actual costs have already been incurred. They’re hidden in Greece’s debt, now held largely by European institutions, such as the ECB, and in the infamous Target2 balances within the European System of Central Banks. Hundreds of billions of euros. They were spent on everything: social benefits, German frigates, inflated wages, now weedy and abandoned Olympic facilities, profits, bribes, votes. What remains aren’t productive assets to service this debt, but simmering unrest and the debt itself.
International companies have long been preparing for Greece’s return to the drachma, quietly and in secret, but occasionally word seeped out. According to the latest revelation, Heineken NV has moved excess cash out of Greece, doing what the Greeks themselves have been doing. And currency traders were surprised on Friday to see the new identifier for the drachma (XGD) on their Bloomberg terminals; a test, the company said, so that it would be ready for trading drachmas.
When Alexis Tsipras, leader of the Radical Left Coalition (Syriza)—in first place with 31.5% in the latest poll—laid out his program, he left no doubt: his first action if he won the June 17 elections would be to annul the bailout memorandum signed by the previous government. The memorandum spelled out the structural reforms Greece would have to implement in order to receive further bailout payments. He’d stop the privatization of state-owned companies, undo wage and pension cuts, lower the Value Added Tax, offer debt relief to households, raise the minimum wage back to the original €751, raise unemployment benefits…. His program had vote-buying promises for practically everyone. And yet, he wanted to keep the euro and expected taxpayers of other countries to fund his promises. Program of “dignity and hope” he called it.
Antonis Samaras, leader of the conservative New Democracy—in second place with 25.5%—also laid out his program. He’d renegotiate the bailout memorandum, though he stressed that Greece should stay in the euro—whose flood of cheap debt had made the Greek elite rich, and certainly he wouldn’t want to stop the gravy train. He promised to raise pensions, private-sector wages, child benefits … undoing much of the economic restructuring already agreed to. And he threw in some new goodies: unemployment benefits for the self-employed and compensation to Greek institutions for the haircut they’d suffered on their Greek government bonds. Every item on the long list was at the expense of restive taxpayers in other countries.
Greek politicians, even the new generation, are sticking to their time-worn strategy: vote-buying with ruinous promises that can only be fulfilled with an endless flow of borrowed money. Thus, they define themselves as leaders who need a central bank that can print however much is needed to fund these promises, with periodic devaluations or defaults to get a fresh start.