Note from Athens: Feeling on the Ground Has Palpably Changed

I travel to Athens about once every six months and speak with as many contacts as I can, including top policymakers, bankers, journalists, economists and academics. On my most recent trip in mid-February, the feeling on the ground had palpably changed in a number of ways that have supported my view that Greece will eventually default and exit the eurozone, but probably not before late 2013.

Sorrow and bitterness
There has been a pronounced shift on the ground in Athens in terms of the sorrow and bitterness that Greeks express. Without exception each of the Greeks with whom I spoke—whether government officials or simply engaged citizens—expressed significant concern about the generations above and below them. Every person has a story either about a pensioner who is forced to pay ever higher property taxes while his pensions are rapidly shrinking and prices continue to rise, or of a younger friend or sibling with multiple master’s degrees who has had to work in call centres or café’s because there are no job openings commensurate with his experience. Greece has a very strong family structure, with parents typically subsidizing their children and with siblings helping to support one another financially. With pensions suffering a death by a thousand cuts and youth unemployment above 40%, families are having an extremely tough time making ends meet. Increasingly, those Greeks who are able to move abroad are considering doing so.

Many of the Greeks with whom I spoke also expressed a visceral bitterness towards the troika. This underlies the epic breakdown in trust between the troika and Greece, which has recently been reflected in the discourse between the two sides as they have negotiated a second bailout. Troika representatives have clearly noted the antagonism with which they are met in Athens, as they have quadrupled the number of bodyguards in their entourages over the past year.

According to most Greeks, the troika stands solely for a reduction in wages and pensions. Responsibility for this image of the troika lies with both the Greek government and the troika itself. When the troika established targets in the memorandum of understanding for the Greek government, it did not specify exactly how the government should reach them. The adjustment Greece was asked to make was sharp and unrealistic, and the Greek government took the most expedient route to try to achieve it—cutting wages and pensions—while using the troika as a scapegoat to shoulder the blame for the measures.

The public perception of the troika as harbingers of austerity has only made it more insulting when the troika has criticized the Greek government for a lack of progress in implementing the bailout programme. It is not true that the Greek government has done nothing overall. There has been a significant fiscal adjustment, with the burden falling primarily on the public. However, insufficient progress has been made in terms of structural reforms, which are far more important in terms of returning Greece to economic growth.

Desperation to be tethered to Eurozone
Despite the clear sense of despair and anger in Greece, politicians and members of the public continue to think that the alternative—default and EZ exit—would be even worse. A top official from New Democracy, the most popular party according to recent opinion polls and the party likely to lead a coalition government following upcoming elections in April, waxed at length about how much trouble Greece would be in if it exited the EZ. He highlighted that Greece has few export industries it could rely on to grow its way out of the crisis even if it devalued its currency. He conceded there is tourism, but argued that any profits from shipping are kept out of the country and green energy is still but a mere pipe dream as an export industry for Greece. Given that Greece is not self-sustaining in agriculture, he suggested that a devaluation accompanied by hyperinflation would result in a starving population, and that the resulting civil unrest would destabilize the entire Balkan region. These arguments were reiterated by Pasok politicians I met, as well as by representatives from prime minister Papademos’ office.

Among the increasingly popular fringe left- and right-wing parties, the only party actually advocating a EZ exit is the communist party, or KKE. The KKE will have just over 10% of the vote in the election in April according to most estimates and refuses to cooperate with any other parties in a coalition. For now, the rest of the political establishment advocates doing whatever it takes to remain in the EZ.

The violent protests in Syntagma Square two weeks ago indicate that there is growing resentment among the Greek public towards the conditions demanded by the troika. Overwhelmingly, however, most Greeks express desperation to stay in the EZ. This is reflected in recent opinion polls: according to a poll conducted in February for Skai TV and Kathimerini, 70% of respondents said a EZ exit and return to the drachma would make Greece’s situation worse and 61% said they viewed the euro favourably.

In addition to concerns about what would happen to their savings and what sort of social unrest would be stoked if Greece exited the EZ, most Greeks are cynical about how a new, independent central bank would operate. They recall that the central bank in Greece before EMU regularly printed money to line politicians’ pockets and encourage favors. If Greece exits the EZ, they expect that kind of cronyism and corruption would flourish once again.

Many Greeks also cited geopolitical concerns as a reason for Greece to avoid leaving the EZ. Greece has not been independent for centuries, and so Greeks feel a EZ exit would bring with it a new power to rule the country.

Doing Business in Greece: An Uphill Battle
While the political elite and public in Greece remain dedicated—for now—to the common currency, it is difficult to see how Greece will manage to restructure its economy and return to growth before either the troika or the Greeks themselves run out of patience. A number of contacts described their experiences trying to open a business or buy property, which involved high fees, several trips to different tax offices and months of navigating bureaucracy. This gets at the very heart of how Greece landed up in its current condition and why rapid change is unlikely. Entire professions such as notaries, lawyers, tax men, architects and inspectors have for years had automatic income in that they have formed the layers of bureaucracy involved in doing business in Greece. At least half of the MPs in Greek parliament hail from these industries, and consequently are incentivized to perpetuate the bureaucracy that impedes opening up, running or finding investment for businesses.

This is best encapsulated in an anecdote from my visit to Athens. A friend and I met up at a new bookstore and café in the centre of town, which has only been open for a month. The establishment is in the center of an area filled with bars, and the owner decided the neighborhood could use a place for people to convene and talk without having to drink alcohol and listen to loud music. After we sat down, we asked the waitress for a coffee. She thanked us for our order and immediately turned and walked out the front door. My friend explained that the owner of the bookstore/café couldn’t get a license to provide coffee. She had tried to just buy a coffee machine and give the coffee away for free, thinking that lingering patrons would boost book sales.  However, giving away coffee was illegal as well. Instead, the owner had to strike a deal with a bar across the street, whereby they make the coffee and the waitress spends all day shuttling between the bar and the bookstore/café. My friend also explained to me that books could not be purchased at the bookstore, as it was after 18h and it is illegal to sell books in Greece beyond that hour. I was in a bookstore/café that could neither sell books nor make coffee.

Legislation in Greece has been set up on an ad hoc basis, with laws just layered over—and often contradicting—one another. No one has taken a holistic view of the system and consolidated it. Furthermore, if an investor were to need to turn to Greek courts, the case would not be heard for years. If the investor were foreign, the chances of a ruling in their favor would be extremely slim. It is hard to see how investment will return to Greece unless these issues are addressed, but the government is incentivized to obstruct progress in doing so. There is a lot of discussion among analysts of a Marshall Plan for Greece, but it is difficult to see German companies tolerating such an operating environment.

For a more in depth account of what I learned in Athens, please see RGE’s On Life Support, For Now: A Greek Trip Report.

This post originally appeared at Economist Meg.

30 Responses to "Note from Athens: Feeling on the Ground Has Palpably Changed"

  1. donna   February 27, 2012 at 4:18 pm

    i see you know good the situation in GR.. but the problem structural GV ..constutition..needed retransformation ..all the system politic first needed change..and i think the mentality here is (not eccept)very eazy.. my question is why not CBE give the money ..but GE.? so why creat Euz from the begening..(wrong start or make money).. and ..i hop WB ..with new President will see much better GR …..THANK YOU VERY MUCH.// ha..i don't live in center of Athens….i don't read or see tv in GR ..and do'nt make magic .exsperiment to see in glass sphere ..what happen here.

  2. Emmanuel Theoman   February 27, 2012 at 4:47 pm

    Dear Megan

    Thank you for your quite descriptive and mostly accurate "note from Athens". Just one question to a logical, sensible and educated person like yourself: In your opinion, what was the logic supporting the armies of foreign investors who led the Athens Stock Exchange to a tenfold rally between the mid 90's and 2007 and the logic behind the armies of bankers/investors who picked Greece as their favorite borrower between 2000-2007 (judging from the nearly nonexistent spread between Gr Gov Bonds and Bunds during that period)? In your opinion all these (educated, logical and sensible) investors/bankers/analysts/policymakers where unable to see/realise/understand (during their field trips to Greece, at least) all these decades-old structural problems of the Greek society and economy, which are so immediately apparent and obvious to you? Thanking you again for your reply.

    • KirkB   February 28, 2012 at 2:21 am

      Yes I hope that Megan will address Mr. Theoman's concern. Is he right about the rise in the stock market and the small spread. And if he is right about those two points, then why did they not see it coming at the time if the problems have persisted for so long. Perhaps someone else besides Megan will address these points.

    • rodeneugen   February 28, 2012 at 11:02 am

      You should know by now that all those "bankers, analysts, financial advisers", who just a year ago had no problem to think that the Greek government bonds are worth more than zero, are nothing more than opportunistic oligarchs, who happened to be in right place in the right time, meaning in the banks or financial institutions, owned by millions of anonymous owners, or by financial trusts, in where the same millions of ordinary people entrusted their money, in sake to live decent life after their retirement. Since the owners have no say in these institutions, these oligarch have done with other peoples money as they wished. I don't see much has changed since then.

  3. DiranM   February 28, 2012 at 8:37 am

    Greece is effectively a colony of Germany. This is the price of entering what is a greater Deutschemark zone. Of course as in colonies, local production is wiped out and there is substantial import dependence from the colonizer.

    The curious thing is the Greek Political elite and middle class who supports them. They have collectively sadomasochistic mentality, deriving a perverse joy in the victimization and pain from the humiliation and economic carnage: 25% of private companies in bankruptcy, 50% youth unemployment, GDP compression 14% (larger than UK GDP drop in Great Depression) and accelerating. There is no national pride or vision, just an atavistic, myopic desire for more Ponzi loans and transfer money to remain in what is an economic prison. This mental state is what is otherwise called the Stockholm Syndrome.

    Greece is a zombie country. The people no longer have any national pride or identity. The Eurozone is proving so far to be much more successful than the Soviet system in collective brainwashing and creation of satellite countries.

    • Dr Al   March 1, 2012 at 8:05 pm

      VERY TRUE. This is the goal of the "one world government". The destruction of nations and the dislocation of people.

      Destroy a nation's history, culture and language, then you can meld them into one state controlled by the banking families.

      The late great Henry Kissinger said this better than me.

      Greece today and then Portugal tomorrow, followed by Spain and Italy. Perfect plan

  4. DiranM   February 28, 2012 at 8:41 am

    As Mark Weisbrot points out, the Greeks are sold on a false narrative that supports the creditor interests and are being foolishly wiped out economically. Their political class does not have a clue how to negotiate with creditors much less any sense of what their national interests really are in this case. Greece with its German creditors makes one recall how the Jews accepted to go to Auschwitz rather than resist.

    • yana   February 28, 2012 at 12:58 pm

      I am sorry to say that i totally agree with you .Will u believe me if i say that sometimes i have the crazy suspicion that the reason that default hasnt been the table is because our incompetent politicians dont have a clue what it involves and how to do it ? no one can imagine the despair that some of us feel .I beg of everybody to remember that this that u have been watching for the last 2 years is not the real greece .Lots of decent people have been hijacked in this madness that took place the last 20-30 years and destroyed our country , the same way lots of decent germans saw their country draged into madness by the nazis .

  5. DiranM   February 28, 2012 at 8:45 am

    Kudos to Megan, who gives a reasonably accurate snap shot of the situation in Greece as a foreigner outsider without really understanding in depth of the pathology of the Greek political elite and the Greek middle class. The intellectual bankruptcy in Greece precedes and is a major reason for the economic mess. No serious national vision, total dependency on EU credit enhancement and transfer money, declining productive base for well over 30 years, 3rd world university system, etc.

  6. Aegean1972   February 28, 2012 at 11:18 am

    Haha…

    Dear Megan

    Theres no "law" in Greece prohibiting the sale of books (!!) after 18:00pm. Only on Wednesdays certain shops are closed in the afternoon. In many euro-countries the shops arent open 1-2 days of the week in the afternoons. So if this guy had a bookstore business, prolly he couldnt officially sell anything on a wednesday afternoon since his shop was supposed to be closed and not open.

    And since the guy had a licence for a book-store (and not a cafe), he couldnt be selling coffee because he doesnt have a permit from the health Dept. In any organised country if you sell drinks or food you need a permit from the health dept and regular inspections. They are strict on that and right they are.

    • Dan Allen   February 28, 2012 at 5:09 pm

      The question though is, why not coffee in a bookstore? You're saying he didn't get a license out of laziness? Do you think that's likely? Or is it likelier that getting a license is a giant PITA that would make anyone think twice?

      • Aegean1972   February 29, 2012 at 9:45 am

        Coffee in a bookstore is a great idea (imo). I have no idea why the guy didnt have a licence for it. Getting a licence can be a PITA, but the right accountant has the knowledge to take care of all those permits for you for a small fee. Thats what i did with the opening of my business. I dont think i had the patience to deal with such bureucracy.

      • ppp   March 1, 2012 at 6:37 am

        There are really many bookstores in Greece that sell both books and coffee, even alcohol. Maybe your friend didn't want to pay for a suitable premise to have both activities. Or, maybe he first choose the premise and then discovered he could not get both licenses for the specific premise. Greek business owners are great whinners, don't always believe their stories. They first ignore the rules when planning business and then they complain or bribe to get licenses they are not entitled to get. So they pose unfair competition to those who do otherwise.

        • Aegean1972   March 1, 2012 at 10:31 am

          ^^exactly

    • Dr Al   March 1, 2012 at 8:18 pm

      IF you let greedy businessmen do what they want, then Athens would be covered with price gouging bood stores and coffee shops. We need to control them and restrict them.

      Just how many book stores do they need? This is why we have city planning and urban planners. This is why you need a license and permits to sell coffee. Are we to allow just anybody to sell coffee and kill women and children? A book store everywhere ripping off the people?

      This is why we have leaders. This is why we have professionals. They stop the greedy businessmen from turning Athens into one big smelly coffee shop or ugly book-store. Next thing you know greedy businessmen will be turning the Acropolis into a coffee shop run over by big fat German tourists.

      • Aegean1972   March 2, 2012 at 12:05 pm

        i can see the starbucks and McDonalds being built right outside of the Acropolis….

  7. Kim Staking   February 28, 2012 at 10:52 pm

    The real problems was that the "bailout" is designed to protect the European banks as the trust fund will be used exclusively to repay debt. There are no measures that will proactively promote growth. The two years of uncertainly that have gone by in negotiations have killed the Greek economy. Typical IMF focus on fiscal discipline without supporting a competitive infrastructure. And therefore bound to fail as growth will stagnate and another round of negotiations will occur in 1-2 years. All of this is at the detriment of the Greek people.

    Let the bankers and the governments that lent to Greece knowing (or should have known) that Greece would be unable to repay given the high debt to GDP ratios, etc. suffer the losses. This is how capitalize works. If you make a bad loan you lose money. If the shareholders are wiped out, the bondholders take over ownership responsibilities and might choose to hire a more prudent management team. Thinking that the Eurozone would bail them out is not a sufficient risk management practice.

  8. Melanie   February 28, 2012 at 11:12 pm

    Megan, even in North American shops you can't just plunk down a coffee maker anywhere you like. You have to put it close to running water, i.e. you need plumbing and a sink. So your bookstore owner in Athens would most likely have to spend a bundle on renovations just to try to make a few extra bucks.

    • Richard Gordon   March 1, 2012 at 10:05 am

      Melanie, Megan is describing the thoroughly dysfunctional state of the Greek economy, I am right now in Spain and have talked to locals about the Spanish situation. What they describe is pretty much the same thing that Megan describes in Greece. Ridiculous rules and regulations that stifle the economy. The southern economies of Greece, Italy, Portugal and Spain need to eliminate the unnecessary red tape if they are to get their economies moving properly. Its like an engine seized up with sand. It can't possibly work with all this junk in the way.

  9. DR01D   February 29, 2012 at 1:38 am

    Greek companies might want to consider developing products and selling them. The profits that this activity generates could be used to support the Greek population.

    Just a thought.

  10. Enoch   February 29, 2012 at 5:26 am

    Greece needs to follow Iceland's example. The people there had to rise up and stop their government from making terrible agreements with creditors, England and Netherlands. Going back the the Drach is really the only hope for Greece. There is no easy way out for sure, but a slow death via the troika will be worse than the quick break from the EZ and rebuilding independently. Too bad you've already agreed to surrender your gold. Greece should keep it to help back the new Drach.

    • Aegean1972   February 29, 2012 at 9:55 am

      If greece had half-descent politicians i would also be supportive of the return to the drachma, along with a dynamic "marshall-plan" for growth. But Greece's politicians are such incapable bureucrat/elitists that i wouldnt trust them to run a 7/11. They would prolly have a 3 month argument on what Slurpies they were going to sell.

      So with the above in mind, imagine how catastrophic it would be for the people, if such "leaders" were to manage the return to the drachma and the "cutting" of the umbillical cord with Europe… It would be a complete disaster. they would mess it up in every possible way!

      so the only alternative would be for Europe to slowly transform them into an organised state. Its a shame that a country with such unique touristic potential, to be governed by elitist bureucrats.

      • Enoch   February 29, 2012 at 2:30 pm

        Yes, that situation was mentioned earlier so I can see why it isn't quite the same as Iceland, though Iceland's political leaders were mostly in favor of caving to creditors.

        Maybe this was the idea all along that the lenders knew that Greece had enough underlying assets to strip if they didn't repay so creditors could take it to the max and get away with it. Maybe that is an answer to the question posed earlier about how it could have gotten this to this point.

  11. Econundertow   February 29, 2012 at 8:41 pm

    Multiple public opinion polls suggest that Greeks wish to remain in the EU and continue using the euro. Buyers' remorse? Who knows! As for 'better or worse' the Greeks have no leverage within the EU now, outside they can find strategic partners who are less rapacious than German and Wall Street banks.

    Meanwhile there is the real issue taking place in the Eurozone: all those unhappy Greeks drive their cars to and fro … leaving out the taxi drivers and deliverymen there is no return on the billions of euros sent overseas. The cars are simply waste, critical examination would show that Greece and the rest of Europe is being bankrupted by its cars..

    It is more likely the food for the pet cars that is the sticking point for Greeks as no energy supplier will take worthless drachmas in exchange for valuable fuel.

    Value: missing from this discussion! Fuel is becoming expensive, those who can afford to buy fuel appreciate its value. Valuable fuel can no more be burned for nothing.

    What is underway in Greece and elsewhere is the end of the automobile age, energy conservation by other means. Get over it.

  12. Richard Gordon   March 1, 2012 at 9:57 am

    Really excellent article about Greece. One cannot help but feel empathy for the Greek people, particularly pensioners and those who have no options open to them. And it is easy for the Greeks to blame the Germans or French (I don't know who the other member of the troika is) for their problems. But Megan Greene does a good job of describing a balanced view, that it is indeed the Greeks that have put themselves in this situation with a thoroughly dysfunctional economy. The term "creative destruction" comes to mind when I think of the Greek situation. Its agony to go through but without it Greece will go extinct.

  13. tricky rick   March 1, 2012 at 7:08 pm

    Kind of off track (but not really), I am a salesman out and about everyday. For the last 6 months or so I've done an informal survey of folks I meet. From college students to police to whomever I meet up with. 90% of all the people don't have a clue: 1) not interested in the problems of greece (but a nice place to vacation – I hear all the time!) 2) US debt problem doesn't really affect them 3) the govnment will take care of any problems. 4) Gold and Silver… kook's toys. …too many years of institutionalizing and brainwashing. Sad… the Greece mindset is universal…

  14. Syrin23   March 1, 2012 at 7:29 pm

    It's hard to feel sorry for the voters of Greece. For years they have elected politicians who produced a progressive paradise: high wages, extended vacations, a shorter workweek, early retirement, and lavish public benefits. Think of a carnival of cash for clunkers — where "clunkers" are the citizens of Greece.

    Read more: http://www.americanthinker.com/2012/03/socialism_

  15. Dr Al   March 1, 2012 at 8:01 pm

    Greece should just become a colony of Germany. This article explains perfectly why Greece can not stand as a nation within or without the Euro. It is a failed nation. They can't feed themselves? Then they will always need handouts.

    They have no export industry? Why not? Then they will always be a 3rd world nation relying on the White North as do all 3rd world nations.

    Greece should join Germany and be the waiters and waitresses for the Germans on vacation. It is either that or starve.

  16. don   March 2, 2012 at 3:28 pm

    This reads as the utterly false, calm the mob propaganda that it is. "I go to greece every six months" Megan probably doesn't even speak Greek and if you do so what this is just more fictional writing claiming to say that most everyone wants to stay in the Eurozone no matter what.

  17. mannfm11   March 6, 2012 at 6:27 am

    Why do you need a license to sell anything? We have a series of palm greasing in Greece that has killed the private economy. Things like this should be enough for Greeks to see that it is their own government that has destroyed their economy. At the same time, those that loaned Greece the money to get themselves in this mess should share in the blame. They call this leverage in the real world. Bankers think of it as free money and when it is lost, they ask their own governments to bail them out. The whole system around the world is about to reset. Printing unbacked paper will never make it money to buy anything across borders. The remaining world had better take care of their currencies or we will see them and the trade associated with them collapse one by one. This is a good article because it makes plain this very fact. The drachma will be toilet paper if they go back to it.