This morning my brother asked me to tell him what I thought about the news reporting of the Greek issue, he asked about what are the alternatives. The only alternative I see is default, but I wanted to share some background and my views.
Currently the Greeks have a massive public debt because of massive public spending beyond any reasonable amount. Over 60% of the Greek workers are employed by the state, so less than 40% of the population pays for over 60% plus those on state support (pensions etc). Greece imports the majority of its fuel and manufactures very little beyond food. Tourism accounts for a significant portion of income but not so much to balance the entire economy and it has some ups and downs which would add risk.

Greece has been borrowing money since the late 1800s, each time they get close to paying it off some other disaster befalls them and they need another loan. They borrowed heavily after WWII and defaulted (as well as defaulting to some degree a few times before as well), so when they asked for another loan they ended up paying about 120% interest, it was like the other countries were being loan sharks. They are still paying loans with massive overheads and poor terms.

If Greece defaults it is far worse for France and Germany than for Greece, France and Germany have the greatest exposure, the top five French banks would be crippled if Greece defaulted. The Greeks import almost no food and while fuel might get very expensive they are already thrifty (almost no one has more than a 1.6L car) and almost all water is heated with solar boilers. The biggest problem would be currency devaluation for a decade (because they would have to go back to the Drachma), but there is enough import of foreign currency through tourism to help offset it. They have to stop public building projects and lay off lots of public sector workers, but these people are just a stone round the neck of the rest of the people because many of them aren’t productive because they effectively have “Job For Life”.

They have already started getting serious about corruption, so that should help a great deal, but corruption is endemic!
Every Greek born has €31,000 of public debt.
Unemployment is 43% among 15-24 year olds.
Every Greek will evade an average of €3,000 in tax in their lifetime
Europe has demanded €50bn of public assets to be privatised or sold (20% of GDP).

In my opinion Greece should default, and the state should start operating just with New Drachma, don’t convert savings from Euro to Drachma but the government should only pay out in Drachma and should insist on taxes being paid in Drachma. State industries should only accept Drachma. They could sell their assets but it wouldn’t achieve anything. Most of the phone network is owned by the German telecoms company. The power company has an aging infrastructure and horrible regulation which no one would pay much for. Many of the major road developments are already PPP. They don’t have enough assets to sell at a good value! Tourism and natural circulation would restore the value of the Drachma in a decade or two, there could be inward investment and with restricted ability to import products there would be a boost to local industries/production!

In addition: after the push to get Greece into the Euro they fudged their economic data once in to show they were maintaining their financial performance, it was only later, after they were well embedded that it was realised.

My partner and I have often discussed that despite being declared the “home of democracy” the Greeks now have neglected their duty and forgotten about what it really means to be democratic. I believe also they are negligent because they don’t have independent checks and balances. Politicians have the right of asylum in parliament rather than the idea that they should fear even more because they are in the home of democracy! Greek higher education believes it is impure to mix business and academia, they don’t leverage their massive assets (even the waiters in the cafes in Greece have a Masters or higher!) and universities don’t even know what an “Enterprise Unit” is. The agricultural school sells their excess stocks because they have more than their canteen can handle, but that is a rare exception!

Hope that gives you an idea. Every one in Greece seems very subdued and depressed at the moment, but they are getting on and trying to live their lives with an average of 20% less money in their pockets.

We are currently house hunting and that is proving to be quite a painful experience because the market really has over-inflated the price of property in the UK. I look at some of the properties and I think, why would I pay that much?! But, I really want to build my first house, however the market for land is even more uncertain. The houses that I visit have proportions that are designed for a different generation and the market seems to be under the impression they can sell a property with some over inflated price based on the value if the property was renovated less some minimal cost to renovate*. One significant factor is that we are a couple that like to cook together and most kitchens are too small, thus you either compromise your lifestyle or factor in major structural changes. With land I find that people price it based on the potential, which isn’t fair because they haven’t actually put any effort into giving the land value. Land shouldn’t be worth some mythical value which doesn’t actually give you anything in return because at the end of the day it is a location plus dirt not a virtual house.

So, if someone reading this knows of some land to buy or has some land they want to sell then let me know! I will even pay 1% commission to anyone helping me secure the purchase of some suitable land. There is an incentive for you!

 

* In addition many people add in the expense of moving and selling the property plus the expense of buying their next property. More on the fairness of the property market in this article on economically sustainable housing.