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Sunday, September 16, 2012

What makes Greece different?

Wherever one looks in the media, Greece seems to be a special case in the arena of sovereign debt problems. Yes, Spain and Italy present much bigger problems but Greece is in the forefront. Yes, all Southern countries have low tax revenue bases relative to Northern countries but Greece is in the forefront for tax evasion. Yes, tax payers in Northern countries are not happy about sending money to the South but when it comes to Greece, all sorts of emotions are being unloaded (in comparison with Greece, the emotions unloaded about Italy, Spain and Portugal - let alone Ireland - are practically non-existent).

Why is that so?

Well, it certainly is not rooted in history. On the contrary, all Southern countries have been traditional targets for tourism from the North but when it came to Greece, people would get watered eyes: What a wonderful country! What a wonderful people! A positive cult surrounded Greece.

The financial crisis of Greece - as well as of the other Southern countries - is often described as a consequence of the financial crisis triggered by sub-prime (beginning in mid-2007 and culminating with Lehman in the fall of 2008). That is what the benefit of hindsight suggests. Reality was different.

Lehman went bankrupt on September 15, 2008. Between then and year-end 2008, the world-wide financial system seemed to be on the verge of meltdown. In Germany, the government had to state publicly that all savings were guaranteed by the state in order to protect against a possible bank run.

And in Greece?

We spent Christmas 2008 in Greece. Forebodings of a crisis? No way! When I returned to Munich where I was working at the time, I told my colleagues and customers that the word "crisis" was not in the dictionary of Greeks. Instead, life there was booming and bustling.

I remember reading an analysis about Greece in early 2009. It addressed the question how Greece might be affected by the financial crisis. In essence, the analysis suggested that Greece was pretty much in safe haven: the banks had no exposure to sub-prime; the private indebtedness of Greeks was not nearly as high as elsewhere; Greeks were home owners and not renters; etc. etc. That analysis (which, unfortunately, I did not keep) suggested that Greece would make it through the crisis more or less unharmed.

In fact, the entire South seemed to be removed from the crisis. It was Eastern Europe which was the center of all fears and where rescue programs had to be urgently put together. In early 2009, I attended a private gathering where Prof. Dr. Michael Hüther (Head of the German Institute for Economy) gave a talk. His subject was Eastern Europe and everyone was anxious to hear whether or not Eastern Europe would survive. Prof. Hüther predicted that, yes, Eastern Europe would survive but it needed a rescue umbrella.

And at the end of his talk, he said something which is still ringing in my ears. He said: "And make no mistake. When we are done with Eastern Europe, we will have to set up a rescue umbrella for the South". 

I don't think anyone in the room had any idea what Prof. Hüther was talking about. A rescue umbrella for the South? Those countries which had all done so well in the last decade? Which had tremendous growth rates? Whose creditworthiness was demonstrated by the fact that their interest rates had converged more or less with those of Germany?

My point is this: until about mid-2009, there was absolutely no public discussion about a potential financial hurricane developing in the South (with the possible exception of Spain where the real estate speculations were known but, still, they were deemed to be nothing compared with sub-prime).

Since there was no public discussion about problems in the South, certainly not about Greece, then there couldn't have been any prejudices or other aggressive emotions against Greece.

Whatever it is that caused today's aggressive emotions when the name 'Greece' comes up, it must have its origins in the time after the fall of 2009; after the new Papandreou government shocked the world with the admission that the public finances had not been properly reported.

I have no explanation as to what these origins are or might have been but I feel sure that all of this which ended up with the term "Greece-bashing" could have largely been avoided; at least reduced to a minimum.

Greece had no PR whatsoever! If anything, Greece had a negative PR as a result of the many public protests which flashed across TV-screens throughout the world.

One has to differentiate between PR for domestic audiences and PR for international audiences.

The domestic audiences want to be assured that they have a government which is in charge; a government which has cajones; a government which supports the interests of Greeks; a government which may have to implement tough measures but which is competent to explain to its people what the benefit of all of this is. With the benefit of hindsight, I think it is clear that the Papandreou government did everything in the book to make sure that Greeks would feel like the puppets of international interests.

The international audiences want to be assured that Greece acts according to well-established rules of the game in the world of finance. That is role-playing. A borrower in financial trouble should never go to its creditors with hat in hand and say: "We have big problems. You've got to help us!" Instead, the borrower should act like Napoleon did after his defeat in Russia. He should say: "We got ourselves into a deep mess but we know how to pull ourselves out of it. This is our plan and if you don't support it, you will hurt yourselves more than you will hurt us!"

A PR-agency would not have been the proper vehicle for that. Instead, the Greek negotiators should have surrounded themselves with people of international prominence. International consultants are the first ones who come to mind because they are not only consultants but, at the same time, they are lobbyists.

Suppose the Greek negotiators had surrounded themselves with their own Troika consisting of McKinsey, Boston Consulting and Roland Berger. These people are experts at the game of presenting 'stories' to justify further investments. Today's Troika continually second-guesses numbers and projections coming out of Greece. They continually suggest that Greeks cannot be trusted. If they were dealing with a "Greek Toika" as described above, they would have to adapt their style because their counterparts would tell them: "Remember that you are not only dealing with Greece here. You are also dealing with McKinsey, Boston Consulting and Roland Berger and we hope you don't intend to second-guess our judgement!"

Greece simply has failed so far to make a convincing case that tax payers' money sent to Greece is spent well!

What is a convincing case? A case which turns out to be 100% true? No way! No one ever knows at the beginning of a restructuring how it will eventually turn out. A convincing case is a case which the people who are expected to put up money are convinced by. 

If I think of all the beautiful PowerPoint presentations which the above consultants could have made about Greece's wonderful future, my mouth starts watering. For about 3 years now, we have seen literally every day articles, reports, etc. showing why Greece has no future at all. Just imagine if one had seen the opposite from the start!

International finance is, to an important degree, a game of illusions. The illusion must be created that the lender gets his money back when he wants it back. Once the lender believes that, he no longer wants his money back. In times long passed that 'illusion' was called 'confidence'.

It is literally a shame that Greece missed the opportunity to present itself well, both domestically and internationally. Could some improvement still be made? Of course, it could. Just take the phone book and look up the numbers of McKinsey, Boston Consulting and Roland Berger.

A final example. Just take Mr. Roland Berger. He is no longer involved with the management of the consulting company bearing his name but he is still someone who can walk through the doors of most German policy makers quite easily. Who could "sell" Greece's 'story' more credibly to the German government: Mr. Roland Berger or the Greek Finance Minister? (without trying to diminish the professional competence of the Greek Finance Minister!).

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