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Sunday, 19 September 2010

WE NO CAN HAZ OPPOSITION

Readers will by now be familiar with my libertarian leanings, but will also not be surprised to find that, in the few instances in which I have voted in Greek elections, I have often voted Conservative. As with most libertarians who do so, I have been bitterly disappointed.

Greeks find libertarianism not just unpalatable but actually inconceivable; we don’t even have a word for it, so discussing it with friends feels like being part of a slightly nerdy cult. Moreover, in our highly confrontational politics it is impossible to frame any kind of libertarian argument except in opposition to the prevailing collectivist mindset. The result is that one has to often side with corporatists and rent-seekers rather than truly like-minded people. None of this exonerates me for helping vote in the recent incompetent Conservative Government back in 2004. I was very enthusiastic about their victory at the time. I was wrong and I apologise unreservedly for my lack of judgment.

I take the opportunity now say this because I have written many a sarcastic post mocking the Socialist Government's impotence, incompetence, confusion and general bullshit, but none so far to target the people I have in the past voted for.

No one better illustrates the deeply unpleasant opportunism of the Greek Right than Antonis Samaras, the leader of our main opposition party. The man is, in my estimation, a profoundly inadequate stop-gap, rescued from the political scrapheap by our last Prime Minister, Kostas “PlayStation” Karamanlis in a show of strength against pretenders to the party leadership. In another worrying sign of Greece thinking it is Hungary, Samaras has for some time made headlines for his outspoken opposition to the Greek bailout and the terms on which it was agreed, now summarily known as “The Memorandum”.

His argument for voting against the Memorandum is confusing and thoroughly flawed. It is also cynical and maddeningly patronising of Greek voters. While he has published an alternative to the Memorandum, it is a little bit scant on the costed detail – a major problem when one claims they can restore Greece to growth and a balanced budget within two years. (That’s two years starting in early 2010). The only halfway-solid number is to be found in the statement below:

“It is estimated that EUR50bn in total can be found over the next two years through commercial exploitation of a small part of the State’s real estate portfolio and the bold pursuit of a comprehensive programme of privatization. This would cover the borrowing requirements of the next years and achieve a net reduction of government debt by at least 10% (EUR30bn)”

This is, of course, factually incorrect unless the utterly vague “next years” is taken to mean the last three quarters of 2010. Even, so this would assume that Greece would run a paltry EUR4.2bn deficit (1.8% of GDP!!!) within the first year of adjustment (evidence here).

UPDATE: It now appears that Samaras meant he would be targetting the structural deficit rather than the overall figure. He calculates this at 6.7% but also slyly cites the obvious economist-for-hire, Joseph MUPPET Stiglitz, who calculates it at 4.5%. Later in the same speech he suggests that it is only the ability to tap the bond markets again that he had in mind for 2011, not a zero deficit figure. Perhaps we will soon learn that it is the structural primary deficit (ex interest) that he wanted to target all along. God knows. That in itself tells you that his idea of narrowing the "deficit" would consist at least in part of changing the way it is calculated. How realistic any of these projections are, you may want to consider in light of this. Mind you, I often wonder what business our Conservatives have quoting a "structural" deficit - a deeply Keynesian concept steeped in the voodoo of "potential output".

Blatant lies and idiocy aside, I find it amazing that anyone with the wherewithal to achieve this utterly unprecedented feat of fiscal adjustment would be slaving away in the Conservatives’ rubbish little policy outfits, instead of taking over the world.

UPDATE: Conservative MEP Theodoros Skylakakis has just been struck off the Conservative Party for making the exact same argument as I do above. He is currently refusing to hand over his seat at the EP. I hope he is a reader.

Below is a list of the Conservative views that I find particularly annoying. I will update it as I go along.

1. The present Government caused Greece’s funding crisis by inflating the 2009 deficit figures and spreading alarmist rhetoric.

I appreciate that some of our ministers, especially Andreas MUPPET Loverdos, have not helped matters with their statements from time to time. It is also clear that, in adjusting the deficit figures, the Socialists may have had an incentive to take a big bath and overstate the seriousness of our situation, just like the Conservatives did back in 2004. However, unlike that of the previous government, their timing was appalling as it linked the Greek fiscal situation with the Dubai default.

However, as Samaras himself admits, the crisis was coming regardless. Greece has a fundamental solvency problem and has been financing itself on a fairly short-term basis. Combine the two and a liquidity problem is only a matter of time. Of course, one might argue that, had the Government chosen to lay low for a while during late 2009, no one might have noticed what state we were in.

This is a misguided argument; to begin with, no government should wager its fiscal future on its continued ability to avoid proper scrutiny by its citizens and its creditors. Not that this would have worked in any case; Greece’s debt came up in the analysis of the Nov. 08 riots and bond yields spiked accordingly. The 2009 and 2010 riots had the same effect. So did news of the Dubai restructuring back in 2009.

[In fact, rioting probably has more to do with Greek bond yields than the fundamentals, because it is the fundamental in itself – at once a measure of the Government’s ability to levy taxes in the future (the ultimate government asset) and of the people’s appetite for default. And we have a schedule of riots almost as regular and reliable as national statistics releases, which Greece-watchers would do well to mark on their calendars.’

At any rate, we know for a fact that fundamentals (including the debt and deficit figures) accounted for almost identical changes in bond yields in the first three months of the new Government’s term as they did in the last three months of the Conservatives’ last term. It was global financial contagion which dealt us the fatal blow and somehow I doubt it was all down to one MUPPET putting his foot in it.

Finally, if the Government’s sole intention had been to inflate the deficit figures, surely Eurostat would not have been able to come up with another upward revision within a few months of our announcement of the ‘new’ deficit figures. Once you’ve decided to revise up to 12.6, you might as well go for 13.6%. Or even 14.1%, which is the upper end of the range of Eurostat estimates. At any rate I’ve failed to dig up any statements from our Conservatives endorsing the expert report on the reliability of government statistics. Surely a peep on switching to IFRS for the public sector or some other established methodology is not too much to ask for? Or is it the case that the Conservatives cynically realise that the Big Bath will come in very handy when it’s their turn to take the helm again?

2. Greece would not have defaulted in May had we refused to take the IMF's money.

This is a bizarre argument which I can only relate verbatim (Greek source here).

"We were asked where we would get the EUR110bn that [Greece] borrowed [under the terms of the Memorandum]. The answer is simple. First, [the IMF and the EU] did not lend us EUR110bn. To date, they have only lent us EUR30bn. This is money that the markets were offering earlier this year, and which we didn't take! We were being offered EUR43bn for bonds with maturities above one year - mostly 5 or 10 years - of which the government only took EUR14bn! That's back when spreads were still at 200 to 230 basis points. Not the 500 we saw in May or the 900 we see today. So they ask us to give them the money now that they themselves did not take from the markets, and which they subsequently had to sign the Memorandum to get!"

This is madness. Samaras' argument is that the Government borrowed EUR14bn earlier this year, in bond sales oversubscribed by a factor of roughly three to one. So far, so almost true. His argument is, however, that would could have taken all of the money offered at the same yields had we wanted to. Not true. Had Greece announced we were tapping the market for EUR43bn instead of EUR12bn, and pushed for long maturities, we would have got fantastically high yields. Selling bonds in superbulk (like apples or oranges) makes them cheaper to buy, not dearer.

What would have happened, in the face of an inverted yield curve, is that we would have been unable to borrow anything short-term and would have had to sell long-term bonds against an implied 75% probability of default. All of this before we even begin to contemplate the other EUR80bn, by the way. This man is an economist apparently. He should know better.

Even if one concedes all this MUPPETRY, it does not explain why the Conservatives voted against the terms of the memorandum in May. Maybe we could have done any number of things before the May riots but, at the time of the vote, we hadn't. So what was our other option? Default.

But astute readers will also notice an even darker aspect to Samaras' statement. Read the last bit again:

So they ask us [meaning the taxpayer] to give them [the Government] the money now that they themselves did not take from the markets, and which they subsequently had to sign the Memorandum to get!"

Noticed it yet? The money the Government is asking for is tax - equity in other words. The money Samaras said the Government could have got from the markets, and of course the Memorandum money, are both debt. The fact that the Conservatives have degenerated so much that, even now, they prefer to finance the state via debt rather than equity just makes me want to cry.

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