29/12/14

the important problems of the greek economy are not the ones mentioned in the newspapers.The exemple of the level of greek sovereign debt


Today, i will try exceptionnally a post in english.I don't use to do it, not only because i prefer to write in my own language, but also, because, even if i understand and can read easily en english, i don't use this language in order to speak or write on a daily basis.Also i never lived in an english speaking country.So, i consider that my english is very poor.
But today is an exception that i will not repeat (i promess ) , because i want mainly my foreign friends to understand may be better my opinion on the greek sovereign debt.Through this exemple i will try to express my opinion on the most important problems of the greek economy which are not always the ones stated in the newspapers.
My main studies are in Law.Later i continued my studies in financial engineering.I worked for 28 years in various organizations and sectors in the private sector of the economy.I lived in various countries for more than 20 years.As i was living in France from the age of 10 until the end of my studies, i have mainly a french education.This is my profile or my background.Curiously, even if i always was aware that i had the chance to have a very good education,i was always considering Law and Finance as important tools in my life, but they were never my main intellectual interests.I had the same interest for Architecture, Philosophy, sociology,History, Economy,Strategy, international relations...in fact for all aspects of human creation and human behavior.So i can say that in my life i mainly observed and tried to understand until now the human behaviour within History.
In this context, i was observing and tried to understand what happened in the greek economy and society mainly from 2006.During the last months of 2007 and the first months of 2008, i observed that the difference between the german sovereign bond rate from one side and the italian and greek sovereign bond rates from the other side, started to be significant and continued to increase. I understood then that the euro crisis was not very far.I tried to describe the consequences for greece in a post in this blog in Nov, 2008.Unfortunately for my country,Greece started to live from the end of 2009, all that i described in this post of November 2008.
From 2010, i followed closely the greek economic collapse,and of course the various opinions worldwide on what had to be done for the eurozone and/or for the greek economy.
As always, when humans face such a complicated reality,they can not deal with it.Thousands of articles worldwide described the situation and the possible solutions, but only a few articles and opinions tried to find the problems.But in fact, we know that when we find the problem and fix it,we do not need any more to look for solutions.
Even today, five years after the crisis, i am sure that if i adressed the following question to the politicians, economists, journalists,... : "what are the problems to be faced concerning the eurozone and Greece ?", they would reply, stating mainly proposed solutions.
It would be interesting for historians in the future to try to list the problems found and fixed from 2010 until 2014 concerning the eurozone and greece.It would be also interesting to list the solutions proposed for the same period, how much of them have been applied, and their results.
Today, in order to simplify the situation, i would like to focus only on Greek Economy, and ask : what are the 3 main problems that the Greek economy faces, which should be fixed?
This question may be considered very simple to be replied, but in fact this question is not simple.If we try to reply based on what is written every day in the newspapers or in the official declarations, i am sure that that the first problem listed would be the huge level of the greek sovereign debt.
So let's consider that.Since the beginning of the euro crisis, i was convinced that the problems to be faced could not be found and fixed with the traditional economic or political tools.We were facing an extremely complicated situation and we had to find/discover non traditional, non conventional tools.In this context,i was surprised some months ago to read that a fund has bought probably in 2012 and 2013 some billions of greek sovereign bonds.Why Japonica Partners did this investment? I wanted to understand, and even discover (why not) a non traditional tool.Finally i discovered some days ago the following presentation that i presented in my blog
I started to see again and again this presentation.At the same time, i have sent this presentation to some friends and also to some bloggers that i respect for their views.I wanted to see their reactions.
My first reaction was that this presentation was interesting, but the greek debt after this presentation remained the same : 320 billions euros (180% of the greek gdp).And this was a problem which needed to be fixed. But some days later, i started to be convinced that this presentation could prove that the level of the greek sovereign debt is not anymore (since 2012) a problem for the greek economy, or at least it is not one of three actual main problems of the greek economy.
I have sent this presentation also to klaus Kastner and asked for his opinion.
His first reaction was the following : "@kleingut my best wishes for christmas and the new year.i would like to have your opinion for http://logikiellada.blogspot.gr/2014/12/greece-secret-huge-competitive.html … thanks" and the reply : "@interna87113035 point is: "debt relief" can be haircut OR stretching maturities at below-market rates. Everything else is illusionary."
He reacted as i have initially reacted.But i knew that he would think again about that and would come back.And he did it today in his blog with the title
Paul B. Kazarian: "Greece Has Practically No Debt!"
http://klauskastner.blogspot.gr/2014/12/paul-b-kazarian-greece-has-practically.html?spref=tw
It is important to focus on his conclusion : " My analysis of Karzanian's analysis Some points are well taken. Clearly, Greece has received very substantial debt relief so far, be it the PSI and/or the highly subsidized terms of the official loans representing about 80% of Greece's debt. And, yes, Greece's interest expense (in terms of a percentage of government revenues) is really not very high at all and certainly a lot lower than one would expect of an 'overindebted country': Gross interest expense of less than 10% of government revenues is more reminiscent of countries like Germany or Austria and far from the percentage of countries with debt problems and austerity challenges due to the debt. Greece itself had debt problems during the 19th century and, during those days, interest expense amounted to 30% (or even more) of government revenues.
But that's about the extent of what is credible in Kazarian's analysis. To assume that foreign capital will start chasing investment opportunities in Greece the moment it discovers Kazarian's logic is a bit of an illusion. Kazarian should ponder a hypothetical situation where all of Greece's debt would be forgiven. Would Greece's problems be solved? Short-term, yes, because Greece would have a renewed borrowing capacity. Long-term, Greece's problems would only be solved if that new borrowing capacity could/would be used for revenue-generating investments instead of domestic redistribution and/or imports."
It seems to me that in the first paragraph of his conclusion he admits that the greek sovereign debt is not anymore the main problem for Greece.In the second paragraph of his conclusion he says that even if the total amount of the actual greek debt would be forgiven, the problem of the greek economy would not be solved.So he admits again that the greek debt is not the main problem of the greek economy.
This is a very normal reaction.If somebody follows carefully the presentation of Paul Kazarian, he would understand that the level of greek debt is not anymore the most important problem of the greek economy.There is no need to be a financial engineer to understand that.
Despite this very simple and logical exemple based on the analysis of Kazarian, we all know that in the newspapers, in the public discussion,in greece or in any country of the eurozone, the level of the greek debt continues to be considered as the most important problem of the greek economy
-SYRIZA for exemple asks for a debt relief
-the actual greek government wanted to finalize the discussion with the troika in order to obtain a haircut or stretching maturities at below-market rates as promessed by the eurozone in 2012.
-on a daily basis we can read in the newspapers that Greece has an incredible level of sovereign debt which creates problems with the markets (luck of trust, risk of default, etc...)
-the refinancing of greek banks by ECB based on greek sovereign bonds collateral is done with a 40% penalty.
So through this post i wanted mainly, taking the exemple of the greek sovereign debt, to remark that
1/after 5 years of crisis, it is unclear to the majority of the decision makers what are the main problems of the greek economy.
2/all of us take for granted very easily what is considered by the vast majority as a problem, without thinking about it.Some times we perceive a problem (like the greek sovereign debt in 2010, 2011 and 2012)but we can not undestand or we dont do the effort to understand what has changed in 2012, so we continue to perceive an old problem as an existing one.
3/but the most important thing to notice and have in mind, is that, what is important in the real life is not the reality perceived by us but the reality as it is perceived by the vast majority.If the vast majority considers that the main problem of the greek economy is the level of the debt,we have to deal with this "false" reality until the majority changes its mind.
So what is my conclusion?
The real problems concerning the greek economy are not the ones mentioned by the officials or the newspapers.
For an intellectual, it is important to analyze the situation in order to find them, to know them.But an intellectual can not fix the problems.It is to the policy makers to fix the problems when they can find the problems through their daily experience.Finally, analyzing the situation in order to find the problems is immediately useful only for journalists who can use their influence in an intelligent way in order to inform the public opinion.Then if the public opinion can be convinced for the existence of a real problem, the policy makers will have to fix it.It will be then only a question of time.

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