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Weekend reading: It’s all Greek to me

Weekend reading

Some good reads from around the web.

I am sure there are some ordinary Greeks who are being taken to the brink by the crisis, but you wouldn’t know it from most of the news reports.

Invariably the street scenes in Athens look as prosperous as you can imagine, all BMWs and gushing fountains – more Rodeo Drive than road to hell. Interview after interview is conducted in a shiny cafe stuffed with prosperous clientele.

I saw one on CNBC yesterday held on the sunny apartment balcony with a chap who’d lost his job, who lamented that they were struggling to get by on his wife’s 35,000 euros a year (plus whatever benefits he was receiving, which were not cited by the program).

“Sometimes we run out of money,” he said. Maybe when he had to buy new filters for the chrome coffee machine or the other consumer treasure we saw dotted about his home.

Pay day looms

These people undoubtedly feel miserable, relative to where they were. But where they were was in the economic fun house – the equivalent of a kept mistress in pied-à-terre on borrowed time.

As one Greek businessman writes on Bloomberg:

For 30 years, these two [main Greek] parties competed in an orgy of jobs and entitlements for votes. In the span of a generation, the composition and ethos of Greek society were transformed.

Where there had been a mostly self-reliant and hard-working body of citizens, we got an army of state-supported employees with guaranteed job security and early pensions.

As the UK state’s own largesse is gradually withdrawn (despite all the debate about cuts, public spending is still at record levels) we will surely face more trouble here, especially as the deleveraged animal spirits of the private sector seem about as likely to pick up the slack as my mate Graham to pick up a bar tab.

And that’s bad news, because it’s a breeding ground for crackpot extremists, as we’re seeing in Greece:

The troika insists on structural reforms, such as less job protection, limiting trade union privileges, and opening monopolies and closed professions in the service sector.

In short, Greece’s creditors are asking the country to dismantle what was built during the last few decades and led Greece to bankruptcy.

The intent is to make the economy competitive, but those affected don’t see it that way, and they are many.

Close to one in four of the working population depends on the state for his or her salary. Add to them the unemployed at 23 percent, double among the young, plus all those whose salaries and pensions were reduced by the troika’s austerity measures, and you get a large pool of very unhappy and insecure people.

The interview with the jobless chap ended with him saying he might have to rent out his property and take his family back to live with his parents for a while, which he found intolerable at 40-years old.

I agree it sounds miserable (not least on the parents!)

And I’ve heard personal stories from people close to Greece that paint a much darker picture than those the TV news reporters are able to unearth within 20-feet of the lobby of the Athens Hilton.

Yet I’ve heard no reports of Greeks calling for measures like the six-point plan of privatisations and restructuring that Germany is apparently working on to try to save Greece.

Instead, I see people marching for free money to pay for unsustainable pensions, benefits, and tax perks – all to be paid for by foreigners.

Even the IMF’s Christine Lagarde this week called for Greeks to pay their taxes:

“I think more of the little kids from a school in a little village in Niger who get teaching two hours a day, sharing one chair for three of them, and who are very keen to get an education. I have them in my mind all the time.

Because I think they need even more help than the people in Athens.”

While anyone with a heart would feel sorry for Greek children and others who can’t be blamed for the country’s predicament, I’m with Lagarde in tiring of the sob stories from Greece, and also here at home.

I have never been in debt. I didn’t lie to buy a property early on in the housing boom. I refused to pay 10-times average earnings by the time I didn’t need to. I didn’t shop til I dropped and make millionaire footballers or Sex in the City‘s heroines my financial role models. I’ve saved and reinvested a big chunk of my disposable income like most people pay their taxes. I’ve bought some nice things along the way, but I never thought I was entitled to everything.

I’m nearly 40, too, like the unhappy Greek on CNBC. And I rent my home.

So no, we weren’t “all at it” as the journalists keep saying, no doubt because they were all at it themselves.

Some of us avoided getting into debt, worked, saved, and invested. And being held ransom by the millions who didn’t in Greece and here at home (whether as a nation or as individuals) is starting to grate.

There was always another way. Most people ignored it.

Cradle to grave in debt

So as we go into yet another weekend wondering whether European leaders will surprise us on Sunday night with a radical plan D, I am wondering again how this will play out in the UK, too.

Previously I’ve been relatively optimistic. But faced with the political delusion apparent on the continent, I wonder if I’ve been too focused on the narrow economics?

We’re not in the same precarious financial position as Greece – we can print our money, intervene to bolster our banks, devalue our currency, and do a few things the world wants to pay us for – but the ludicrously carefree attitude most people had until recently towards debt, from the former Prime Minister to the average Brit in the high street – is not so far removed.

Few people seem to want to face up to the bill for the party, anymore than they do in Greece.

Shove it to the next generation is the order of the day, whether the choices be spending cuts for the undeserving, tax rises on the wealthier, or pensions curbed for everyone.

Years more of this (if we’re lucky)

For an investing perspective on the unfolding drama, you could do worse than read this interview with hedge fund manager Ray Dalio in Barron’s:

Deleveragings go on for about 15 years. The process of raising debt relative to incomes goes on for 30 or 40 years, typically. There’s a last big surge, which we had in the two years from 2005 to 2007 and from 1927 to 1929, and in Japan from 1988 to 1990, when the pace becomes manic. That’s the classic bubble.

And then it takes about 15 years to adjust.

Unlike the Athens we see on TV, there are many places in the UK where life is tough, shops are boarded up, and people have very low expectations – and that’s after over a decade of easy money from the State and banks alike. I dread to think how bad things could get if it continued for a decade.

Overall I’m still not too worried about the economic situation in the UK – I think it is manageable, as I’ve said many times before.

But I do wonder if I’ve underestimated the political risks?

On the other hand, the sun is out which always makes me feel glum at first, and I had dinner this week with by far my gloomiest friend – a man who reads Grant’s Interest Rate Observer to his kids before bedtime.

Fingers crossed for plan D, then.

From the money blogs

Book of the week: If you want to scare yourself as to how bad things could get, there’s always the classic When Money Dies, which dissects hyperinflation in 1920s Germany. I guarantee you’ll have more sympathy for Angela Merkel and the Bundesbank after reading it!

Mainstream media money

  • Why Facebook’s own underwriter was shorting it – Reuters & DealBreaker
  • The cult of the non-equity… – FT
  • … and why it’s not a contrarian signal – FT
  • Europe looks good value on CAPE basis, but risks abound – FT (Japan too)
  • Falling Euro weakens UK savers protection in European banks – FT
  • Lock into a longer term mortgage deal – FT
  • My first million: Levi “Reggae Reggae” Roots – FT
  • Average Briton pays 149 days salary to the taxman – Telegraph
  • Should investors switch from bonds to shares? – Telegraph
  • Banks are pulling long-term best buy savings deals – Telegraph
  • Free banking should end, Bank official says – Telegraph
  • £2,600 bill for data roaming on iPhone in Istanbul – Guardian

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{ 10 comments… add one and remember nothing here is personal advice }
  • 1 Rob May 26, 2012, 10:34 am

    “I have no doubt I shall, please Heaven, begin to be more beforehand with the world, and to live in a perfectly new manner, if -if, in short, anything turns up”

  • 2 Salis Grano May 26, 2012, 11:54 am

    While there’s no doubt that Greece has to undergo its economic correction one way or another, conditions for many Greeks are grimmer than you suggest. With tourism down 15% this year and one third of shops boarded up in greater Athens, feeding stations, rapidly rising crime, suicides and abandoned kids, the still comfortable life of the top 25% belies what is going on.

    However, misguided, the increasing support for Syriza is not so surprising. Most Greeks understand the corruptness of their public sector and do not want to give it, via taxes, any more than they have to. It’s a nasty downward spiral of debt and public mistrust. I’ve come to the conclusion than many would actually like the Germans to run their country. Hence their attachment to the Euro.

  • 3 ermine May 26, 2012, 12:01 pm

    I agree with the main thrust of this article. How did we get to the stage where many people don’t realise that the world in front of them doesn’t get nice all by itself. It takes energy, both human and physical, to make it that way and all those nice things need to get made by someone just like them.

    However I do think it’s a lot worse than indicated in parts of Greece. Even I have got some serious sympathy for these guys in Greece. I saw elsewhere on the TV that Medecins Sans Frontieres were in Athens working with the homeless.

    One of the things that Britain has going for it is a long history and a political system developed over a long time. Greece’s was created after the fall of the colonels in the 1970s, and some of the excesses may be because that process was imperfect. Some basic functions like tax collection and income assessment seem to be broken in Greece. In the UK we have been working out the balance between entitlements and tax over a long time and yes, it’s probably wrong, but we at least have a process for rowing back, inching our way slowly.

    London will start to look like the 1980s again. Brixton, Broadwater Farm, Southall… Music will get better, however.

  • 4 Alex May 26, 2012, 2:22 pm

    I don’t understand why here in the UK we’re currently expending so much effort to spread Greek contagion across our entire population – something about a ‘torch’?

  • 5 TheInvestor May 26, 2012, 4:42 pm

    @all — Yes, as I said above but perhaps not super emphatically I do appreciate some large constituency of Greeks are suffering. My point is how wide the definition of suffering seems to be. And that for our media, being forced to work beyond 55 in E40,000 per year job and pay taxes seems to count as real hardship, simply because it’s an unsustainable unrealistic lie you had been sold.

    And of course the parallels in certain quarters here.

    @alex — You’re on a roll… 😉

  • 6 Romford Dave May 26, 2012, 10:16 pm

    It does seem if Ms Lagarde has committed the cardinal sin of speaking what she was thinking, an unusual mistake for a seasoned politician such that she is, unless it was deliberate.

    She may well been censured such is the focus on being polically correct these days, rather than actually dealing with the real problem, which is as you described TI and nothing Christie Lagarde can say can change the fundamental flaw that is the Greek way, a way oft repeated elsewhere.

  • 7 Financial Samurai May 27, 2012, 4:02 am

    I really hope Greece, Italy, and Spain, and whoever else get their issues sorted.

    Just went big into the markets, albeit w/ a 100% principal protection structured note, and want to make some money!

  • 8 Moneyman May 27, 2012, 9:02 am

    “I’m nearly 40, too,…”. Kudos! And thanks for the link.

    My own proposal: Greece should ‘sell’ a couple of islands – like the UK did when it owed money to the US after the war.

    My guess is that Greece will pull back from the brink and do the right thing. Most Greeks have a good sense of history. Greece was brought into the EU to try to stabilise it after the rule of the Generals. (Greece was only kept out of Stalin’s sphere of influence by Churchill’s insistence. I’ve met exiled Greek communists in Kazakhstan.) No Euro, no EU – who would want to support Greece after it torpedoes the Euro. And I’m guessing for most Greeks that is too uncertain a future to think about.

  • 9 Dave May 28, 2012, 8:57 am

    I think the media representations are always going to be tricky. I mean it is hard to believe that Jeremy Paxman’s rubs shoulders with the many hospital cleaners and tramps, I guess a similiar dynamic holds for CNBC journalists. The initial narrative of our recession was one that was somehow going to hammer the middle classes rather than the working class as bankers, accountants and lawyers bore the brunt. I am not sure it ever happened this way.

    I agree with Ermine points on the social and political background. Spain, Greece and Portugal have broken political systems and their democracies have emerged from quite repressive regimes. Democracies have had to bribe their electorates.

    The other related factor is that few nations have made the move from Middle Income to Rich countries. According to a World Banks Report since 1960 the list consists of Equatorial Guinea; Greece; Hong Kong SAR, China; Ireland; Israel; Japan; Mauritius; Portugal; Puerto Rico; Republic of Korea; Singapore; Spain; and Taiwan, China. The list includes Spain, Greece, Ireland and Portugal.

  • 10 Neverland May 29, 2012, 8:41 am

    Greece is just an extreme example of Western Europe in general

    We are all struggling vainly to avoid the fact that we are simply maybe 25% poorer than we thought we were in 2006-7

    (The Americans have already got there to their credit)

    The annoying point for me that the prudent are basically being made to foot the bill to bail everyone out

    In the UK, with a midly inflationary climate, financial repression through QE and high taxes is used to transfer wealth from savers to borrowers

    In the Eurozone, with a deflationary climate, wealth will be transferred from North to South either via outright default, a massive state/bank bailout or just adopting the UK/US model of quantative easing to create inflation

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