13 July 2015

This Greek deal is a bad joke


In the final hours of a summit, or a crisis meeting, a deal can often come quite quickly. The negotiators are tired. The ground shifts. Everyone wants to go home, the watching journalists included, and when the outline is announced at dawn there is usually considerable relief.

These smoke and mirrors moments always make me think that for all our sophistication we are not really that different from our ancestors. The elders have returned from their talks! There is a deal! We can get on with the harvest and our village won’t be pillaged, hopefully.

After all, it is human nature to want seemingly intractable problems to be solved in order that life might get back to normal. This time the Greeks need their banks to reopen and the rest of us could do without‎ July and August turning into a full-blown meltdown of the European economy. Those saying there would have been little contagion from immediate Grexit were focussed purely on balance sheets, ignoring that once you get into an emergency it is about pure politics with plenty of scope for leaders and businesses to make mistakes or panic.

So something has been patched together by the Eurozone and Greece, aimed at preventing disaster. What they have come up with has already infuriated those who want Greece out of the Euro and the terms are being described as amounting to a coup, which is an understandable but ridiculous assertion. The Greek Parliament is free to reject the deal this week, although it seems highly unlikely, despite Greeks having voted overwhelmingly against a similar deal just a week ago.

But that is not the only reason this deal is a bad joke, put together, it seems, more in hope than expectation in defiance of market realities and common sense. The arrangements are ridiculous.

In exchange, for a further bailout and support of Greek banks, Greece will get some debt relief (with debt maturities being extended) once the Parliament has approved the package of tax rises and proposed privatisations.

As security, 50 billion Euros of Greek government assets will be ring fenced, with some sold off and some “reinvested”.

But are there really 50 billion Euros of proper state-owned assets in Greece, in any meaningful sense? And even if there are, who are the buyers for this stuff going to be when it comes to privatisation?

Today Alexis Tsipras, the bleary-eyed Greek leader, has declared that the measures and tax rises will be recessionary but that is ok, he now says, because foreign investment will flood back in as confidence soars. Put yourself in the mind of an investor and ask what your appetite is for buying anything from Mr Tsipras and his associates.

Of course, there is almost always someone risk hungry prepared to buy, even in an emergency. That is capitalism. The seller with limited options and a poor record is not in a strong position, however, because anyone buying anything from the Greek government will only take the punt if the risk is minimised, which means them getting it very cheap. Again, that is how markets work. The smart person taking the risk seeks to insulate themselves by getting a fire sale price in the hope that their financial and management skills can unlock value, making them a profit eventually.

You don’t need to be a Marxist to work out where that leads politically in the case of the Greeks, after everything that has happened so far. It probably leads to populist anger in Greece about the country being flogged off cheap in a German-run auction. How popular is that going to be? And how easy will the other reforms be to implement against that backdrop, especially with a government dominated by the hard left, with some of its members out to smash the market system? Not easy, one suspects.

What a disaster this crisis, and the Euro more broadly, has been for the Greek people from the start. There has been poor leadership by Angela Merkel and the Euro elite desperate to save their project, even if it means Greek pensioners weeping outside banks. Meanwhile, hysterical Europhiles have been so dedicated to the rackety EU that they are happy to let Greece “go” (one wonders where they want them to go?) while talking pompously about supposed solidarity. And then the Greeks were driven into the arms of the Marxist Syriza, its rise facilitated by the behaviour of the Euro elite. Now this bunch are together, going to resume a privatisation programme. Good luck. It’ll be a miracle if this deal holds more than a few months.

Iain Martin is Editor of CapX