Lack of Leaders or Why I Understand Abstention

As a fellow blogger noted, in 2013 elections are approaching in Cyprus, Italy, Malta, Bulgaria, Germany and Austria (in that order). Although their outcome is highly controversial, their importance cannot be overstated as they will affect developments in the aforementioned countries as well as in the EU for the next 4-5 years. Electoral campaigns have been raging in Italy and Cyprus and although German elections are scheduled in September, speculation began about a year earlier.

Yet, even though most politicians spend millions of euros trying to promote themselves and/or their parties people's appetite for voting seems to have reached satiety. Young people specifically are not very eager to listen to the same political agendas that candidates have been preaching over the last 20 years. What is worse for politicians is that even those who have been participating in elections and are now middle-aged, appear to be fed up with the situation.

Once you start listening to people, you find out that what they really want is someone they can trust. And they cannot find that in 99% of politicians. People want credibility and reliability; no candidate appears to have it. So it boils down to either voting for the one who appears to be somewhat better than the competition or not vote at all. Which option is the best? Let's have a look at them

Option 1: Vote for the best of the worst.

The essence of this choice is that in the land of the blind, the one-eyed man is king. It is inevitable that one of the candidates (if we are talking about a presidential election which we will assume for simplicity) will be elected regardless on whether we vote or not. There are some people who will vote whether we want it or not, (those being the hard-headed political cronies or fanatics) so the only thing we can do in order for their candidate not to be elected (if it is indeed the worst option) is to vote for someone who is even slightly better than him/her. Yet, if we use this option and the candidate we have voted ends up being the same as all politicians have ever been, or even worse, it is no-one's fault but ours. Worse, we may even know from before what the final outcome may be. The most important consequence of this option is that we are forced to compromise every single time, keeping our needs and ideals hidden, adhering to principles which do not express us and, what is worst, allowing politicians to be the same as ever. It is the same as a pilot not having the map of the airport he is landing and trying to make it up with having the map of another. You wouldn't feel so good being on that plane would you?

Option 2: Do not vote at all
This is an interesting choice which has two possible explanations: either we do not like politics and abstain from them completely or we do not have have any preference on the candidate elections which means we have no motive to vote. Yet, on closer look both explanations seem to converge into one: we do not like the politicians of our country. Thus, we prefer to pass on our right to vote. The problem is that we essentially have given others the right to decide who is going to run our affairs for the next years and we have had no opinion on the subject. We allow our disappointment for the affairs of our nation and the current unfortunate realities to take the best of us and make us give power to someone else. The candidate elected may have been the worst of the lot. Yet, as we did not cast our vote we have not done our best to prevent it from happening. It is the same as saying "I do not care what happens to my relationship" while in fact you do, and feel just disappointed and sad when things get ugly. What is enough for bad things to happen is for good people to do nothing.

Joseph de Maistre has stated: Every country has the government it deserves. Is he right though? What is the lesser of two evils as presented in options 1 and 2? You may have guessed it. None. Neither of the above is a valid option. Why? Because people everywhere deserve much better than this. We need someone we can trust, who will (for once) keep the promises made, and make some changes. I think I am saying this on behalf of most Europeans: we have had enough. We do not want politicians fighting on issues and do nothing, we want them to shut up and start working. The world has never changed in words and neither will it ever do. 

Mohandas Gandhi and Nelson Mandela. Probably the most influential politicians of the 20th century

Is this too much to ask? Yet we have not even asked the future generation of politicians to stand on its own. We are tired of hearing the same over and over again. What is the point of being young if you have the same ideas of a 50-year-old? It is what Alex Ghita has dubbed Democratic Masochism. Democratic Masochists are people who belong to option 1; and those who belong in option 2 allow them and their country to remain that way for ever. 

Think about it for a second. When was the last time that some politician inspired you? For me it hasn't been this way almost since I was born. We are currently living in a century whose main characteristic is the lack of great people; people who can inspire confidence and trust. The only bright examples of the current period were the actions of Mario Monti and Antonis Samaras. If Greece, with a series of rotten politicians dating almost since its inception can have a good man running it why not every other country as well? I am not claiming that Monti or Samaras are perfect or error-free. They have done their share of errata. Yet, they are honest, hard-working and do not engage in unnecessary discussions or promise things they do not deliver. In fact, most of the times they did not even promise anything. We should not expect politicians to be perfect. Yet we should expect them to give their best for their country and be held responsible for their actions.

Hope is not to be lost. Better men and women will get into politics and we should be able to move forward with them. Yet, we should not lay idle and not do anything while rotten people are running our country for us. Take action, any way that you can. If people do not start saying what they believe and what they expect no-one will ever give it to them.

Greek debt revisited

Over the last days, new publication concerning the state of Greek debt have been published by the rating agencies. Specifically, both Moody's and Fitch expect this year's recession to reach 7%, next year's about 3% and 2014's will be practically zero. Public debt is expected to reach 180% in 2014 as well, with unemployment rates soaring to 22.8% by the end of the year. Alas, it seems like troubles will never end for this country!

In addition, a German magazine, stating anonymous source within the Eurozone, has stated that another Greek haircut is being considered. (for details, click here). According to the same source, at the same time, the IMF proposes a plan which promotes debt restructuring for the public lenders, which hold about 2/3 of the now €330 billion Greek debt. So, by simple math, if debt is 164.9% of GDP now, Greek GDP has to be around €200 billion. This would mean that if the new plan proposes restructuring the debt until it reaches about 120% of current GDP, no less than €90 billion euros will disappear into thin air!

Need I ask which of the now ailing governments would be willing to take such losses? Obviously none. Very few nations in the EU have the resources to handle this. Even more, extending the Greek debt by 2 years will have an additional €20 billion cost for Greece's lenders. 

Some of the regular readers (hmm I may be flattering myself!) of this blog may recall, I have already proposed that the Greek austerity and reforms program should be extended by 1 year and not by 2. Why is that? Simply because a two-year horizon would allow the Greeks to be more lax, than a 1-year one. While benefits of an extension are obvious, the truth is that over-extending the austerity program is bound to some incentive problems. Although I believe that Samaras is the best politician the Greeks have had for many years, his popularity has started to fall, given the perpetuation of the Troika talks concerning the €11.9 billion austerity measures, as well as the measures themselves.

Thus, what other alternative is there? What the IMF proposes, although a nice idea, would be difficult to implement especially given the current circumstances. What needs to be done is shift focus from austerity to growth. The reason why the Greek debt is growing as a percentage of GDP is because the latter is diminishing at a fast pace. Debt can be haircutted a million times and still not be sustainable if GDP keeps becoming lesser and lesser. The solution lies not in reducing the debt, but in increasing the GDP.

The European Investment Bank has recently agreed to facilitate Greece with a package of €750 million over the next few months, aiming at energy, transport, education and SME's. This money should be distributed to Greece as soon as possible and put to good use. This kind of stimulus package should be able to promote some growth in the country's economy during this and the following year. In addition, measures promoting growth should exist on the 2013 fiscal budget; measures which would actually promote growth not merely social benefits and other transfers. 

Once focus is shifted from austerity to growth and GDP moves from decreasing to increasing, more austerity meausres should be promoted to keep costs down. In the opposite case, 1 or even 2 extra haircuts may be needed in the not-so-distant future.

A re-build of Greek credibility

Over the weekend we all heard the news of the Greek Prime Minister, Antonis Samaras, meeting with Merkel and Hollande. The overall outcome of their meetings was positive and Samaras is now determined to re-build Greece's lost credibility.

I do not know if someone in Berlin or Athens has read what I wrote on compromise and press releases, but from what I can read in today's press the Greek Prime Minister has ordered his Finance minister to accelerate the procedures for the new 11.5 billion euro austerity measures package. Another request was that a draft of the 2013 fiscal budget should be prepared before the next Eurogroup meeting in Nicosia, Cyprus, in September 14th.

All of the above are targeted to convince Troika, which will visit Greece again in the next few weeks, and the EU of their good intentions, in order to gain a two-year debt extension. Although as I have argued before, a two-year extension might be too much to ask, a one-year one might not be too bad, especially since the Greeks will have announced the new austerity measures by then. If the new budget is also significantly improved than last year's, I would see no reason for the EU officials not to congratulate Greece with a one-year extension period. (Some political leaders in Berlin have stated in a Der Spiegel article that they might discuss a one-year extension of the Greek austerity program)

It would seem that Samaras is doing more to assist his nation than any of Greece's former leaders. Trying to re-build a long lost credibility, promote structural changes and reforms, balance a troubled budget, and restore the Greeks' belief in both their government as well as the EU. The task has been, and will be, difficult, however, I trust that will little assistance from Brussels they will be able to cope with it just fine.

A week to know about Greek Bankruptcy

Greek Prime Minister Antonis Samaras has a planned visit to Germany next week, during which he will meet with Angela Merkel to discuss a two-year extension to his country's austerity measures. 

On one hand Samaras's plea makes sense: The austerity measures taken so far have paralyzed the country and made it go through one of the worst recessions in history. Next year is expected to be better for the Greeks as a recent IMF forecast expects GDP to be stable for the whole of 2013. (more on Greece's Progress here). It is more than reasonable to assume that both his popularity and his country's GDP will face a sharp drop if any more austerity measures are rapidly implemented. Even now, due to lack of money, Greece has to resolve to creative emergency loans in order to avoid default.

On the other hand Merkel's hard opposition makes sense as well: If the leader of one of the strongest economies in the EU accepts Samaras's terms then what would stop the Greek Prime Minister from asking for longer and longer time frames at the end of the two-year period? Let us not forget that the Greeks are to blame for their mishaps, although they may be suffering more than enough for them. €4 billion in savings from austerity measures are still missing, a prerequisite for the additional €31.5 billion the IMF and EU will disburse under the second bail-out package.

It seems like the two have reached an impasse: None of them is willing to fully accept what the other has to propose. The situation might look like a Gordian knot, however, like Alexander the Great (or Solomon if you prefer) I would suggest something simple: Compromise at a one-year extension of austerity measures, in order for the Greeks to have a smoother adjustment to them. In essence this would ease the consequences of hard austerity measures as their effect would be smoothed out over a year. 

Nevertheless, for the Germans and other Greek creditors to be sure that the reforms will take place, and their hard-earned money are safe, Samaras will have to formally present the reforms to be undertaken on a given date. On that date, (maybe in late 2012 or early 2013) the reforms would be presented to the public in a press conference, and the exact date of their implementation will then be set. 

In a compromise like the one described above, Greece's creditors would have an easy way of checking whether the Greeks have kept their word, while at the same time allowing the country to ease the pressure of rapid austerity measures. This would allow markets to believe that the odds of a Grexit scenario are declining. 

However, even if they disagree on everything, the Greeks should still receive the €31.5 billion package. Failure to do that would bring the EU down until the end of the year.

Undelivered Promises

The Cypriot government has announced that its fiscal deficit has reached 3% for the first 6 months of 2012. Not long ago, they were stating that the deficit would be 3.5% for the fiscal year of 2012. Now, I am no expert in numbers but anyone in their right mind would understand that having a mere 0.5% rise in deficit over the next 6 months is a Midsummer night's dream (Unless of course very drastic measures are taken, a far-fetched scenario however). The Cypriot government has moved along the same lines as the ECB. It usually states "we will not have a deficit of more than 3.5%" or "austerity measures will be taken", however, nothing of the like ever takes place. The credibility of the government is long lost in international markets and regaining it would be hard (if not impossible).

Credibility issues have been a problem in the Eurozone ever since the sovereign debt crisis has emerged. You may remember Draghi's statements of doing what it takes. Of the crisis-ridden economies only Mario Monti has held to his credibility, and to my surprise the Greek Prime Minister Antonis Samaras is trying to regain it for his nation. Who would expect a Greek to deliver what he had promised? Certainly not the Germans, and certainly not most Europeans. In an interview in Bild (found here in English), Samaras states that what they are asking is for more time not more money. In his words: "Let me be very explicit: we demand no additional money. We stand by our commitments and by fulfilling all our requirements. All we want is a bit of 'air to breathe' to get the economy running and to increase state income. More time does not automatically mean more money."

What Antonis is asking is what I have proposed here, here and here. Specifically that he is given a larger time-frame to push through the additional reforms. I was stating yesterday that if the crisis ends now, Greece will be the only country in the South to benefit from it. To back me up on that, Samaras stated: "We will soon have a smaller, healthier and significantly more efficient public service.We are making progress, we are reducing the overall number of public servants and I have decided to hire only one person for every 10 retired civil servants."

Large public sectors and low productivity have always been an issue in the South. I can confirm that as well, based on personal experience. What now seems to change is mentality and the political will to promote reforms. I honestly hope that this is not just an outcome of EU pressure on the country. It would be too bad if it was. The Greeks now have a genuine opportunity to live in a better country. It would be a shame to blow it like they did in the past. Credibility... It haunts people and nations for so long...