Walking on the esplanade of Loutraki I stopped to
gaze at the empty stores of the once vibrant city. Without local demand these
small businesses had to slowly die, like the flowers left without water for
days are dried to death. In the beginning they weaken, then their stems become
soft and unable to support the weight of their floral head. If watered they can
quickly revive, but if they are left dry they face a slow and painful death.
Once they die the water is not held anymore by their roots and the soil they
rest becomes their grave.
These stores were lifeless graves too. Even in the
unlikely event that Greece would exit the financial crisis, these stores would
remain empty, like the ghost towns of the U.S. Midwest reminding of the growth
during the gold and mining era. The human capital had already left for the
cities of the European north. It was no wonder why the property prices of
London and Stockholm were growing so rapidly after the crisis.
I was angry, not with the Swedish or the British,
but with our own incapable politicians, who surrendered our country to the Troika
unconditionally, in exchange for their pennies. They already had raised the
white flag, but the opponent wanted to have it all.
Looking to the front I noticed a hand waiving at
me in the background. It was John, or Sir John, as I called him sitting outside
enjoying his lunch on this cold sunny day. He was a retired businessman from
the U.K. who had bought an apartment in Loutraki to escape the grey winter of
his country and enjoy the tasteful food of Greece. Since I had lived in Britain
in the past, I was happy to meet him a year ago and he was happy to meet
someone, who was familiar with his culture.
- Manos my friend why don't you join me for a
drink? I just finished my lunch and I am about to order coffee. Would you like
one too?
Sir John was the only one customer sitting
outside, dressed in a short sleeve check shirt and a pair of elegant beige
trousers.
- Sir John, what a pleasure to meet you! I said
while zipping my jacket. I have plenty of time nowadays. When there is no
money, time is not an issue. I can sit here as long as I can keep myself warm.
- Come on Manos, the weather is lovely today! said
Sir John biting an ice cream he had ordered for desert. The sun is always
inviting and warm in this country!
- Well the maximum temperature was forecasted to
be eight degrees today and I bet they were right.
- But in the sun it's at least fifteen!
That was our usual starting conversation. In the
summer he was never here, he said thirty degrees was too hot, but for me it was
almost perfect. Ordering a hot chocolate drink I changed the topic:
- John, today I left my house determined to find
answers. Lately I only have questions like why I ended up unemployed or why my
country has come to its knees. I need to find answers.
- Oh Manos, in Greece every second shop is a
coffee shop or a restaurant. Do you still wonder why? These places are always
full of customers, even on working days!
- What do you mean John? Do you mean that we don't
work enough? Yesterday I was reading a study about the average working hours
per employee in Europe. Greeks are among the hardest working employees. In 2012
an average Greek worked 2034 hours while an average British 1654 hours. Even
Germans worked less at an average of 1397 hours[i].
- Manos, please don't take it personally. Maybe I
don't know this country as well as you do, but I also believe that people work
very hard and for long hours in this country. In Greece I have never been told
that the kitchen is closed in a restaurant. I was always served food, even if I
entered a restaurant at midnight. You know in the pubs of London they ring the
bell before 11pm. In Greece they never ring the bell. Opa!
- Exactly! It is not only waiters that work long
hours in Greece. Everybody works long hours here.
- Manos the question is not how much Greeks are
working, but rather how many Greeks are working. Let me check the Internet
quickly, said John taking out his smartphone from his pocket.
» In 2009 in Greece, just before the crisis, the
workforce was 5 million persons, representing 54% of the population. Out of
them 514 thousand were unemployed and 972 thousand were working either for the
public sector directly or the public interest companies. This means that only
38% of the population supported the rest, since public sector employees,
unemployed people and pensioners are supported by the taxes of the private
sector. In Germany half of the population supported the rest in 2012 with 41,6
million people working and 1,7 million in the public sector. This means that in
Germany one out of twenty employees work for the public sector, while in Greece
one out of five.
He was right. Our country's workforce distribution
was not sustainable. It al started in 1981, when the socialist government of
Andreas Papandreou, the father of George Papandreou, and his socialist party
Pasok came into force. He only stayed in force for eight years, but this was
enough for the public workforce to rise, the number of pensioners to increase
and the number of private companies to decrease drastically.
- Thus even though Germans work on average less
than Greeks, there are more of them working, earning and being taxed to support
production and their economy.
- John you know that I can't say anything against
this. Of course your opinion about the public sector employees is very harsh.
They are also productive, they also support; they are not only supported.
- Well my point of view is that of a businessman,
you know that. However you also know that the majority of the public companies
are partly financed by the taxes or government bonds. In other words the public
servants are overpaid since they are receiving more money than the taxpayers
can provide. Just this factor makes the economy less competitive in the global
arena and more vulnerable to imports.
- But what do you think will happen if the
government fires those employees to cut costs, as the Troika suggests? They
will only become unemployed, so they will be still supported by the government.
At the same time the quality of public service will not be the same with less
teachers or less doctors.
- Well, not all of them will be unemployed. Some
will find alternative jobs in the private sector, but I agree that the majority
would have to face to the same problems you are facing now. I am not in favor of
releasing public servants now; it won't bring anything positive. But my honest
opinion about the reasons that led to this situation is the size of the public
sector, the social benefits and the excessive government intervention. You know
I was a businessman, so my point of view is that of an entrepreneur.
- Well other countries in Europe are also offering
a handful of benefits. Look at France!
- Manos they are in no better position than Greece
and the IMF will be knocking their door soon. But you have to admit that early
retirement in Greece was unique. A working mother in the 1980s could get early
retirement, earning 40% of a full retirement package with just 15 years of
work. Starting to work at 18 it was theoretically possible for a woman to get
retired at the age of 33 and a man at the age of 43 with 25 years of work. What
a shame for the economy!
- You are right, but in other countries the system
is even worse. In Japan for example a woman who has never worked can get equal
pension with her husband when he retires.
- Yes, but only when she reaches the retirement
age, not at 40 or 45.
- Still you can't compare the lifetime of Japanese
with ours, I said half joking.
- Their pension system does not work either Manos.
Don't think that the Greek crisis will stay in Greece. Wait for some time and
you see more balloons bursting. You are young enough to live it and I might
even live it as well. The world economy is like a domino game: Once a brick
collapses, the other bricks are waiting in the queue. Do you think that our
E.U. governments were interested in saving you, because they sympathized your
people?
- Of course not! Most of Greek pre-crisis debts
were purchased by German and French banks.
- Let me use my smartphone again. It makes me feel
smarter!
Again he quickly typed something in his smartphone
and the answer came in less than two minutes. Sir John was a successful
businessman in his heyday and I could also understand why. His sons had now
taken over his family business and he could enjoy spending his pension in
Greece.
- So here we are: According to OECD[ii]
European banks were holding 130 million dollars of Greek debt before the
beginning of the crisis and all international banks were holding 180 million
dollars of Greek debt, which was about half of the entire sum.
- So basically the European Union funding was an
effort of European Governments to save their banks.
- Bingo! And by doing so they also used their
taxpayers’ money, my money as well. In other terms they used my money to save
the banks of my country, because these banks maintained an open credit
relationship with your government.
- Well they did not only finance the Greek
government. They financed other governments too.
- Manos remember what I will tell you: There is no
solvent government in the Euro area now. Not even in Germany. No government
will be able to repay its debt immediately if this is asked by the markets,
like in Greece. Don't feel guilty that you were not able to repay your debt.
But you should feel guilty that your government used up so much credit,
especially in the 1980s. And I should feel ashamed that the banks of my country
agreed to finance this debt. It takes two to tango. You enjoyed a heyday during
the 1980s, which was not backed up by an increase in production. It was a
bubble and this bubble burst. Your economy was not efficient enough to grow
without loans.
- Why do you say this?
- Well I will give you an example and through it
you will understand the burden of the Greek economy. I am very much interested
in renewable energy and my sons invested in wind power generators in various
countries. In all countries but Greece the investment was profitable. In Greece
you have too many burdens, too many regulations, and the authorities take too
much time to issue licenses. Greece was and still is not a country to invest.
Investments. This was the magic word of every
government, every president and prime minister. It was the instant solution to
all of our problems. If this country was to receive investments then its people
would be rich. Productivity would rise, output would grow, income would be
soaring and spending would be sustainable. But somehow investments were not
growing in Greece, just like grasses.
- I have lived enough time in Greece, I have also
tried to make my own business here, you know I am a businessman. However your
culture is too unreliable. When you say something, you don't really mean it.
You are talking with approximations, however a business decision is based on
certainties. Your law is not clear enough on what is permitted and what is not.
Your government changes its tax regulations almost every year. Contractors are
too unreliable. In England we work with promises. Here you work with guesses.
It was difficult to detest this statement. In 2013
the government decided to raise the tax of the shipping and cargo industry.
Usually this would happen with an advance notice, but not in Greece. The law
was put in power at the end of the year and it was effective for all the income
from the beginning of the year. As a natural consequence the budget forecasts
of all the businesses of the sector could be thrown to the trash.
- Manos your issue is cultural. Just as you are
not punctual in your appointments, you are not punctual in your promises as
well. And this bad habit of private life is transferred to the public life. The
bus does not come on time here and no one complains. In Japan if a train is
late for more than two minutes three times the driver is fired. It is thus no
coincidence that Japan is such a developed industrial country. Business needs
certainty more than high profits. Investors prefer a low guaranteed profit
rather than an uncertain high profit. At least the kind of investors you want
to have.
» Manos you need investments in your country. You
need exports. With your tourism you cannot finance your trade deficit. You are
consuming way too much from abroad for the olives you are exporting.
He was right. Just before the Olympics in 2004 we
were considered a fully developed country. We had just joined the monetary
union, we had access to low-cost credit, house prices were booming, individuals
were buying new imported cars and the government had even found 9 billion Euros
to fund the most expensive Olympic games ever organized by that time. Where did
we suddenly find all this money?
- Manos to understand what happened to your
country, you need to understand how capitalism works and how money is flowing
between individuals and countries. Let me explain this with a simple diagram to
you.
Sir John took his notebook out of his pocket and
began scribbling an illustration with figures, boxes and arrows. He was a
retired banker and it was obvious that his experience gave him an immense
knowledge of the way the economic system works. He was focused so much on his
sketch that he didn't even notice the waiter asking us if we wanted something
else to drink. I figured out that it was a waste for such a brain to be retired
from business.
- Voila! he said.
I took his notebook in my hands. On the first page
he sketched a simple diagram of a non-monetary economy, which means an economy
where goods are exchanged directly. On the second page he sketched a rather
complicated diagram of a monetary economy, where goods are exchanged through
currency.
- Manos look at the simple economy of the first
page. Our worker works 20 days per month in the factory and he receives 20
liters of milk as compensation. Out of this he exchanges 2 liters of milk for 2
kilos of rice with a worker of another economy that produces rice instead of
milk. He also has to pay 2 liters of milk tax to his government. This leaves
him with 16 liters of milk and 2 kilos of rice per month for the amount of work
he performed. Oh, excuse me for the crown, I am just used to Her Majesty!
» Now look at the economy of the second page. This
economy uses currency that is issued by a central bank. This central bank - for
example the Bank of England or the European Central Bank - lends the money to
the government and its member banks on interest. This is the way that initially
the money goes to the economy. The member banks lend this money to other banks
and to corporations with a higher interest. The more intermediary banks
intervene before the money of the central bank reaches its final receiver - the
companies or individuals - the higher the interest.
» Interest is paid by the government, the
corporations and individuals. Practically interest is paid by everybody who is
using the money. Since everybody using money has to pay interest every year,
everybody is losing some of the available money every year. In the economy I
sketched on the second page, every year 40 dollars are removed from circulation
inside the economy to pay for the interests. Therefore this economy will start
with 2000 dollars, but it will only have 1960 dollars available for trade next
year. In 10 years it will have 1600 dollars and in 25 years 1000 dollars. You
have to imagine the monetary economy as a balloon that has an unsealed opening.
This balloon will be contracting with time.
- Does this mean that in 50 years the economy will
have 0 dollars?
- Like a balloon the economy deflates as well.
This is indeed called deflation in economic terms. Fortunately in capitalism
the central bank is constantly inflating the balloon with more air than this
balloon is losing. Therefore it pumps money every year to the economy, which
pays for the interest and keeps the balloon size constant or even slightly
growing.
- And what happens to all this money that goes to
the banks?
- Investments. The banks are pumping money back to
the economy, but not necessarily to the economy that paid it. The banking
system is international and it pumps money to stronger economies, because it is
safer to do it there. Weaker economies have to pay more interest than the
stronger, thus money for weaker economies is more expensive. Capital is more
attractive for stronger economies, thus it is pumped constantly through the
banks from weaker economies to stronger ones. The same happens with weaker and
stronger companies and weaker and stronger individuals by the way.
» Capitalism is a system that transfers wealth
from the financially weaker to the financially stronger. Capital attracts
capital just like in physics mass attracts mass.
» Fortunately for the poor there are taxes. Taxes
have the sole purpose to transfer money back from the rich to the poor. Thus
taxes equal a systemic deficiency of capitalism and the economies can remain in
equilibrium.
That was interesting. I thought taxes were
collected for use in public investments.
- Manos, it is up to the government to decide
where and how it will give back the money to the economy. It can be through
public investments, pensions, salaries or other means. What is important is
that not all taxes are given back to the economy, since the government also
pays interest out of those taxes and this is why in my sketch the government
only gives back 150 dollars for the 200 dollars that it is receiving.
» Apart of interest, another leak of an open
economy is trade. Trade deficits are created if the value of imports exceeds
the value of exports, which can happen due to the relative price of goods, in
our case milk and rice. Thus in my example the economy is contracting every
year not only by 40 dollars, but by 80 dollars, since it maintains a trade
deficit of 40 dollars per year.
- This means that our economy will die even sooner
than in 50 years!
- Not exactly Manos. Capitalist economies use
currency for trade and currency fluctuates freely in the market. If one country
is importing more than exporting it will demand currencies of other countries,
so its own currency will drop. Therefore the price of import products will be
increasing and demand will be geared towards local products, which will also
become more attractive for exports. Also the relative price of goods will
change. Thus the trade balance and the prices will tend to come to equilibrium
by themselves. There is no trade balance that can be sustained in the long
term. Such a great system is capitalism!
- I am not sure about your last comment Sir John,
I protested. If capitalism was such a great system our economy would be working
and I would not be jobless.
- Well let's not forget that you don't have your
own currency anymore, unlike Britain of course. We are good bankers in my
country and we knew beforehand what was waiting for us around the corner if we
joined the monetary union. Since there is no currency fluctuation in Europe,
there is no way for you to close the financial hole of the trade imbalance that
I described. Thus if Greece was the economy I described in my diagram, it would
have a lifetime less than the 50 years. And there we come to my initial
statement that you import way more products than you are able to export. In the
last 40 years you have never had a single month of trade surplus!
- There are other countries with long-term
deficits! I detested. Look at the United States. In the last 40 years they
didn't have a single year of trade surplus either. And how about U.K.? Since
2000 you haven't managed to stop your continuously growing trade deficit.
- You are talking about countries with their own
currency my friend. If our kingdom had joined the monetary union we would be in
no better state than you.
» Remember again Manos: In capitalism, capital
attracts capital. The bigger country grows bigger and the smaller country
becomes smaller. The bigger company grows bigger and the smaller company
becomes smaller. The wealthy individual grows wealthier and the poor individual
becomes even poorer. You have giants in Europe and you are just a small spot in
the map, somewhere at the edge of Europe.
That was too much. He was talking about my
country. He didn't have the right to talk like that, just because he had money.
While we were inventing democracy, they were still sleeping in the caves. I
decided to remain silent, for the sake of our friendship.
- Manos in capitalism you always need a balancing
mechanism. Inside of a community this mechanism is taxation. Between
communities it is currency. Since Europe decided to become one community, it
needs a common taxation. Why do you think the United States have the federal
tax? If they didn't then Utah would have long been the home of homeless and
whoever was able to leave, would have fled to New York and California. In Europe
our politicians are inventing a new financial system, without having an idea of
finance. In Britain we know better my friend.
- Are you suggesting that Europe has no future
without a federal tax?
- Absolutely so. Capitalism is a ruthless beast.
You need to keep it under control. Remember the crisis of 1929. It triggered
the Second World War. Capitalism knows no boundaries. It can kill you and it
will.
The face of Sir John was serious. He meant every
single word he said and he was neither a fool nor an ignorant. But who would
convince German citizens for a federal tax? It was obvious that Germany was
richer than all other countries and taxation always falls on the shoulders of
the rich. But didn't they do the same after the unification of eastern and western
Germany? Why was the unification of Europe any different?
Sir John cut the two pages out of his notebook and
gave them to me.
- This is for you my friend. As for me, I will pay
the bill as promised and enjoy the rest of my day.
As he lifted from the table I watched this elegant
old man walking away with proud. I was just a wreck sitting alone on a table of
leftovers. I was sad and poor, my clothes were old and big, since I had lost a
lot of weight. I looked old, but I was younger than him. He was shining while
he was walking away. Was this the fate of our countries as well? Would they
also walk away proudly when the party is over, leaving us with the leftovers?
[i] Source: OECD iLibrary, Dataset Code: ANHRS
[ii] Source:OECD Journal: Financial Market Trends 2011 Issue 2
