Sunday 24 January 2010

Development, Planning and Reality

We tend to think of development, in its wider sense, as being a straight line, a linear process. A group of decision-makers gets together and sets long-term strategic objectives. The present situation is assessed and compared to these objectives. A set of specific interventions or investments is defined to achieve these strategic objectives, together with budgets, timelines, performance indicators, etc.

The same process which applies to companies applies to a similar extent to governments. The notorious Soviet 10-year plans, or Mao’s “Great Leap Forward,” were examples of long-term plans. The UK’s Labour government has developed and published any number of 5-year Plans. The European Union’s Lisbon Agenda was an example of a 10-year plan.

Yet reality often presents major challenges to the realisation of such plans, particularly when we find ourselves in an era of disruptive political, economic, and technological change, as we find ourselves now. The bipolar system which characterised the Cold War and emerging end of the short-lived unipolar system, in which American provided an economic and security guarantee, are upon us.

Jacques Chirac’s multi-polar world, for which he was reviled by American neocons infuriated at France’s opposition to the invasion of Iraq, has arrived. This is an era in which military dominance will play a declining role (although conflict will continue), and one in which multi-spectrum economic competitiveness will prevail.

What is multi-spectrum competitiveness? This is the ability of government, economic and civil society actors to successfully and coherently implement a specific vision of development. The Chinese model of export-led technological development with political authoritarianism is one such example. The Russian model of state domination over energy and mineral resources is another.

If we take the American model of development, the election of Scott Brown in Massachusetts, the continuing failure of banking reform, or the recent Supreme Court ruling on campaign finance lead us to believe that its priority is a socio-political system where the benefits of development accrete to the wealthy, or to those who can afford to pay for them.

The disparate (though in some ways similar) examples of China, Russia and America provide us with several interesting examples of the failure of planning. When the GATT’s Multi-Fibre Agreement ended and Chinese exports received full access to WTO markets, the consequences of US and European textiles and garments manufacturers were disastrous. Chinese exports to Europe and the US sky-rocketed; US and European factories closed (or were subsidised to remain open, with disastrous longer-term effects); sectoral unemployment rose. It was clear both during and after the event that both companies and governments had failed to take this very simple and long-announced event into account.

So competition is clearly one element which affects long-term plans. If you are not able to predict and rapidly adjust to competition, yet you accept the rules of the competitive game, then clearly you risk failure. What are some others?

A second major disruptor is that of innovation and broader technological change. It’s clear that the traditional social relationships our parents’ society was based on are no longer very relevant to the world our children inhabit. With 24/7 high-speed internet connections, Facebook, multi-player role-playing games, Twitter and instant messaging have become the latest model of socio-cultural organisation for most of the population, at least in the developed world. Technology and its impacts on productivity and workforce organisation have been major factors addressed by corporate and political leaders as well.

A third major disruptor has been the demographic change, both in terms of incoming immigrant populations, as well as the ageing and eventual retirement of the baby-boomer generation. This disruption will affect everything, from the languages you hear in the workforce, to training curricula employed, to different sets of priorities and incentives, to compensation levels and social security contributions.

Here, we tend to recognise the symptoms of the problem, but we appear very unwilling to do anything about their root causes and longer-term consequences. Let’s take the simple definition of the nation-state, which in Europe is usually linked to a revolutionary moment, a nation-founding myth, and a subsequent accretion of decades of cultural and social assumptions of a single ethnic identity. How this issue will be “solved” (and I make no moral judgements or predictions here) is an issue which should concern us all.

There are myriad other sources of change, or disruption. These include environmental and energy change to changing consumer preferences. They include rapid, containerised transport and its impact on the supply chain. They include violent acts of religious or political protest one the one hand, or government failure on the other.

The point is that we live in an era where change is perhaps the one constant we should be planning our lives, companies and societies to accept and to integrate. But at the same time, in Greece at least we are making policies which are firmly rooted in the past, and which bear almost no real connection to the present or the future.

Policies—laws—are made dealing with symptoms of problems, not their root causes. The interpretation of laws usually favours a small well-connected elite, who are granted subsidies, lucrative public sector contracts, or tax incentives, at the expense of the government, and therefore the nation.

Policy-making is usually riven by fundamental conflict: the Minister of Finance is trying to reduce Greece’s deficit; the Minister of Economics is trying to give yet more subsidies, or to placate various special interests (such as striking dockworkers) by protecting their privileged status.

Greece’s foreign policy is a picture of failure, embedded in the past. It’s main political priorities are

a. The protection of its airspace and territory from Turkish incursion or immigrants crossing over from Turkey;

b. The reunification of Cyprus, a product of Greek and Turkish nationalism which has resulted in thousands of deaths on both sides;

c. The protection of its perceived history and heritage in face of a pathetic reinterpretation of history by a small Balkan state, the Former Yugoslav Republic of Macedonia (FYROM).

Regrettably, none of these priorities help Greece master the transition from its previous economic model, one driven by oligarchic, paternal private and state companies which monopolised their specific segments, and one in which the Greek economy is fundamentally open and unprepared for the onslaught of foreign-manufactured goods and services, and in which the Greek society, economy and workforce cannot compete.

I do not, of course blame Greece at all for insisting on its territorial integrity, on a peaceful solution for the reunification of Cyprus, or on historical truth. Far from it. What I object to is the fact that apart from these three topics, we are doing almost nothing else to prepare for the realities of today, of the next 10 years, or the next generation.

I see this failure repeated within the companies I advise on a regular basis. In most cases, the only necessity to develop a 5-year plan comes from a bank, which insists on a long-term forecast and risk analysis as a condition for releasing a loan. Most companies have barely adapted to the process of making next-year budget predictions, and these are usually a percentage increment up or down over the past year. Most companies appear unwilling or unable to envision major or minor disruptive change, and the impact this will have on their business. Some sectors which are mainstays of the Greek economy, such as travel agencies or hotels, are an unfortunate case in point.

So, it appears that we are confronted with a double paradox:

a. On the one hand, our government and companies are not able to develop coherent plans for the future, which model both a successful development track, but also the risks it might involve;

b. On the other hand, our government and companies are so locked into a single mindset, so that even when they receive a clear, unambiguous signal of a major competitive change or threat, they are unable to respond.

Over the past five years, we have received multiple such signals on the horizon: a rising and unsustainable debt; an incompetent and stagnant public sector; a deteriorating environment; a dangerous reliance on a few economic sectors; an unhealthy dependence on a subsidy culture; pervasive corruption; declining educational standards; declining public health, for instance child obesity and diabetes; and many others. And yet, it would appear we have done next to nothing about them.

If a government, a company, an economy or a society can no longer take sufficient active steps to prevent or mitigate current problems while preparing for the challenges of the future, then a fundamental question is raised: does this entity have the right to survive? Nature and human history is full of examples of organisms, populations, civilisations, or societies that have not adapted, and which have failed and disappeared. This need not be a catastrophe: the theory of natural selection is based on it.

Yet I can’t help wondering, as I watch the news every evening. Why do we expect that our pathologies will allow us to continue making the same mistakes indefinitely?

Wednesday 20 January 2010

It’s the Economy, Stupid!

In what may seem a surprising comparison, I’m going to briefly compare the track records of US President Barack Obama and Greek Prime Minister George Papandreou, and hypothesise why, in both practical and electoral terms, both are failing in terms of public policy. Bear with me before closing this blog in disbelief!

In the United States, headlines today start with Republican candidate Scott Brown’s upset victory in the special election to fill Ted Kennedy’s Massachussetts Senate seat. The final vote tally is a 52%-47% victory over Democratic candidate Martha Coakley. The New York Times (GOP Senate Victory Stuns Democrats) explains that this was due to a mix of factors, including unusually heavy turnout in the suburbs and among independent voters, which favoured Brown.

The immediate implication raised in most coverage is that health care reform is dead. Although the bill passed in the Senate, it has still not passed in the House, and most commentators are suggesting that either there has to be a very rapid passage if the bill has any chance to survive.

There is a striking quote in the NY Times article:

“I’m hoping that it gives a message to the country,” said Marlene Connolly, 73, of North Andover, a lifelong Democrat who said she cast her first vote for a Republican on Tuesday. “I think if Massachusetts puts Brown in, it’s a message of ‘that’s enough.’ Let’s stop the giveaways and let’s get jobs going.”

In Greece, headlines are dominated by its latest thrashing about in the Economics and Finance Council meeting in Brussels, where Minister of Finance George Papaconstantinou presented its Stability and Growth Plan to reduce the budget deficit. Greece is dying the death of a thousand cuts, as every day a new investment bank or ratings agency casts doubt on the government’s ability to implement its plan. George Papandreou’s strategy of leaving any serious measures until 2010 and inflating the deficit in 2009 (as well as his heart-wringing exposé of corruption in Greece and fake national statistics during the EU Council of Ministers) has seriously backfired.

Greece’s headlines are also dominated by events of a different sort. On Monday and Tuesday, the central council of Municipalities had its annual meeting, which was used by the government to reveal its “Kallikrates” plan for restructuring the public administration of municipalities, prefectures and regions. This forum was used by all parties to denounce a range of other policy initiatives, such as PASOK’s plan on citizenship reform. At the same time, farmers are blocking roads across Greece, preventing the passage of goods or people.

This post does not seek to equalise Barak Obama’s policy initiatives with those of George Papandreou’s. But I am struck by one simple fact: both political leaders give the appearance of ignoring or being totally insensitive to the core concerns of most voters today.

As I stated in my blog post on November 5th 2009 (Campaigning versus Governing),

We can take a quick look at the national stage and understand what this presages for the Democratic incumbents of the White House, Senate and House of Representatives:

• Far too much political energy is being focused on healthcare, climate change and a range of other initiatives which, though worthy, do not readily translate into a change in the daily life of most regular voters.

• Most regular voters continue to be affected by declining (or stable negative) economic conditions: unemployment; negative or nascent demand; employer cutbacks in compensation and working weeks; etc. There is precious little coming out of Washington dealing with these issues.

• Most politically-informed voters of the independent mindset (which includes as much as 40% of the voting public according to some polls), are upset by the fundamental inability or unwillingness of the Obama administration to address the mounting deficit. In addition to the deficit, the impact on the public debt of health care (where the final debt amount is still unknown, or challenged), as well as foreign wars, is deleterious.

• Finally, most voters are increasingly concerned about the wars in Afghanistan and Iraq. While we have accepted the “loss” and withdrawal of Iraq, it’s impact is mitigated by the fact that this commitment is over. On the other hand, there is mounting concern over the US direction in Afghanistan. Most voters see that we have been caught in Afghanistan for over 8 years with little to show in terms of results. The financial costs are rising; more casualties or fatalities are coming home, and the Afghans have just elected a corrupt president who apparently won the election on the strength of over 1 million tainted votes, while the US Secretary of State offered some inane platitudes.

All this adds up to one message: the Obama Administration has lost track. It is dealing with complex issues in domestic and foreign policy which have little to do with the everyday economic concerns of most American families.

Perhaps it is a political tactic, or perhaps politicians think they are payed by the number of laws they pass, but government policy in the United States and Greece appears to be dealing with everything except what counts right now. And that is, quite simply, the economy. Remember Bill Clinton’s zinger in the 1992 election? “It’s the economy, stupid.”

Voters are fed up. They are fed up with political elites taking months to pass what may be very necessary legislation, but which does nothing to solve the pressing issues of unemployment, public and personal debt, and the pervasive fear that the future will be worse. They are fed up with “caviar socialism” deputies packing public sector jobs or extending public subsidies to a few favoured supporters. And most of all, they are fed up with the hypocrisy and platitudes that politicians and the national news media pass off as wisdom.

I’ve given the examples of climate change, Iraq/Afghanistan, unemployment, and the deficit for the United States. Let’s look at a few examples in Greece:

• The country is being terrorised on a daily basis by the steady news of Greece’s impending bankruptcy and some vague foreign conspiracy to downgrade Greek debt. Unfortunately, the average voter here has no idea what this means, but he instinctively trusts his politicians to do the wrong thing. So, while a voter understands “higher taxes”, he cannot understand what this money will be spent on, or how the situation will improve, and he resents having to pay for the mistakes of the political elite.

• Greece’s official unemployment rate has nearly hit 10%, and underemployment probably brings that level to 17-20%. Most Greek employers are low-productivity, labour-intensive organisations with a significant share of employment compensation paid off the books. Unemployment among the young is astronomic, at rates of up to 25%. Women have among the lowest employment rates in the European Union: only 55% of all women of working age are classified as employable, i.e. of good health and interested in participating in the workforce.

• The employment and revenue-generating mainstays of the Greek economy—tourism, construction, catering and food processing—are in extended declines due to the shortfall of foreign demand (due to the economic crisis). By all indications, 2010 will be as bad as 2009 in this regard.

• Although the government has given a EUR 28 bln support package to banks, and although banks have benefited from ECB credit window loans of at least EUR 40 bln, it’s still impossible to get a personal bank loan at below 7%, and it’s usually 10%. So banks are getting capital at about 1%, and lending onward at 10%.

• Petty and serious crime is growing. A friend of mine had her nephew trapped in a Jumbo outlet (a childrens’ toy store) while two gunmen fired Kalashnikovs at a money transfer truck outside, killing one of the guards. News headlines are dominated by rapes, stabbings, shooting, drug use, etc. The climate of economic uncertainty increases and aggravates the feeling of personal insecurity.

• Terrorist attacks are increasing. In addition to the regular, accustomed bombings of foreign car dealerships and banks, the inanely-named “Cells of Fire” and other Che Guevara wannabes have bombed the monument of the tomb of the unknown soldier outside Parliament, the offices of Minister of Economics Louka Katseli, and a number of other targets.

In the midst of this very real crisis, it seems that our elected government is fiddling. It is inconceivable, for instance, how George Papandreou can launch the reform of public administration (Kallikrates), which is estimated to cost EUR 4.2 bln to implement, and which will not result in any reduction of public sector employment, in this time of economic crisis. It is rank foolishness to begin debating a law on citizenship (which can have only one conclusion in a Parliament where PASOK has 160 deputies), given the tremendous and visible increase in illegal immigration which we see at every traffic light in Greece.

We have a government which, rather than taking the obvious measures to combat the economic crisis—a real reduction in public expenditure and a real crack-down in tax evasion and illegal economic activity—is thrashing this way and that, spending its energy (and our money) on non-essential distractions.

What is doubly ironic is that the large majority of Greek citizens want to see the government crack down on tax evasion, and on the petty illegality which defines public life in this country. We are tired of paying EUR 50 for a 20-minute consultation with a doctor or orthodontist, who we know damned well isn’t paying a cent in taxes. We are tired of hearing about grand government initiatives, when at every traffic light there are usually three desperate people of SE Asian descent, offering to wash your windshield, sell you an pack of hankerchiefs, or begging for your money. We are tired of Nigerians selling fake Louis Vuitton bags on Ermou Street or in Kifissia. We are tired of grand infrastructure initiatives being blocked by rather stupid farmers with a vast sense of entitlement.

I’m going to conclude by repeating the words from my November 5th post:

If I have one message for the Obama administration, and politicians everywhere, it would be to prioritise on the economy and the economic issues which affect the majority of Americans. No one, not the hardest union worker, nor the most independent professional, nor the most well-paid CEO, is happy with either the state of the economy, or the state of public debt.

There have to be two types of measures:

a. Short-term measures to stimulate employment and raise real wages, and
b. Long-term measures to cut public debt.

Structural interventions, such as healthcare, education and renewable energy, should be addressed only once the economy has returned to a sustained growth track, and there is a clear understanding of how the debt will be reduced (and how policy in other domains will be funded).

Everything else should be prioritised against these two fundamental objectives. While our political classes may think we have the luxury of spending time and money as if there were no tomorrow, most taxpayers think otherwise.

Tuesday 19 January 2010

The Coming Crash of 2010

There is now a significant and growing threat of a second economic crash in 2010. Most major western countries are recording record budget deficits this year in an attempt to provide financial support to their economies. The US, for instance, is set for a $ 1.5 trillion deficit; the UK is heading for a 12% deficit, or perhaps UKP 180 bln. Unemployment is growing in most countries: public spending may have to rise further.

At the same time, most Central Banks having announced the end of Quantitative Easing (QE), the practice by which Central Banks buy mortgage-backed debt or government bonds, or provide low-cost loans to the banking sector. According to Morgan Stanley, the US Federal Reserve spent $ 1.6 trillion to buy US Treasuries least year, while the Financial Times reports that the Fed purchased an additional $ 1.25 trillion in mortgage-backed securities. The Fed has announced the end of QE in March.

The European Central Bank has engaged in much more limited QE in terms of bond purchases, but has opened over EUR 1 trillion in bank refinancing at the 1% (or less) window rate. It is now winding down this credit facility. The Bank of England has already bought UKP 200 bln of government bonds, but has announced the end of its QE programme in February.

Most economic growth recorded in QIII 2009 was due to government stimulus. Incentives such as the “cash for clunkers” vehicle scrappage schemes; various government bail-outs of banks or industrial firms; and higher rates of investment in public works dominated growth. In QIV 2009, in contrast, there was limited private sector growth as firms re-built inventories in anticipation of the Christmas sales season. Governments, of course, continued their stimulus packages.

Where does that leave us in QI 2010?

• Unemployment is growing;
• The US government continues to disburse its original $ 780 bln stimulus package, but requires $ 1.5 trillion in loans to cover its budget deficit;
• Growth in Europe is anemic or declining in the private sector;
• European government spending continues to grow: most deficits are expected to peak this year in Europe.

As net exporters, it’s clear that the Asian economies will not be able to generate sufficient demand to fuel economic growth in Europe. If anything, the chances of a crash in China are higher in 2010, as the $ 2 trillion loan binge ordered by their government comes to an end.

If Quantitative Easing ends as announced, there is no way most western governments will be able to finance their deficits using open markets. Sovereign wealth funds (such as China’s or Abu Dhabi’s) may be able to make up some of the shortfall, but I doubt this would be more than 30-40% of funding requirements. Given China’s own instability, I’m not sure how much more of its forex reserves it's willing to bet on US debt.

Conclusion: we will probably (55-65% probability) see a rapid contagion in sovereign debt markets by March or April 2010 if QE ends and governments are forced to rely on the open market for funding. Public sector debt will crowd out private sector issues, exacerbating the existing liquidity crisis and leading to a renewed “flight” to alternative asset classes (such as gold) or to “safe havens” as the panic spreads. For smaller, exposed markets such as Greece, Ireland or Spain, this contagion will constitute a major barrier to future debt issues. This will lead to the need for the ECB or larger European countries such as Germany to buy or guarantee this debt, changing for good the rules of the game.

Monday 18 January 2010

How to Unblock the National Roads

Monday morning dawned with reports that Greek farmers have blocked various points on the national road between Athens and Thessaloniki (starting from Kastro and going north), as well as the Egnatia Odos. Their demands are, as usual, a higher price for primary producers, because: (a) they are highly indebted, and (b) the middlemen take a higher margin.

It seems to me there are two sets of solutions to two different problems. The first problem is that of the road blocks on the national road. It is inconceivable in a modern society that a small group of marginalised individuals, usually with little education, who benefit from at least one billion Euros in European Union and public agricultural subsidies every year, are allowed to block the roads. The second problem is the agricultural model itself, which I will address in a different post. Let’s look at the first problem.

This anti-social behaviour of blocking the national roads permits one group to hold the transport grid of the entire country hostage. It prevents exports from crossing Greece to get to the ports; it prevents the internal transfer of goods and people. It’s a violation of eminent domain: If I were the Nea Odos public-private partnership commissioned by the government to expand, repair and run the highway from Athens to Lamia, I would simultaneously sue each farmer for illegally occupying my place of business, and the government, for allowing this to take place.

But the greatest indication that these tactics do not work comes from the farmers themselves. Although they have been occupying the highways for years, they are still essentially in the same situation as 20 years ago: heavily indebted, dependent on middlemen, facing declining financial margins. It’s clear that neither the massive subsidy system (nor the obscene environmental degredation this policy engenders) nor the system of continual public support (e.g. through higher OGA agricultural pensions) has fundamentally changed the terms of the agricultural profession in Greece.

My first solution is to the immediate issue is simple. Every European Union or public tender I’ve participated in has some variant of the following clauses:

I declare that, in accordance to Section 2.3.3 of the PRAG that the company Navigator Consulting Ltd. located in Athens, Greece:

(a) is not bankrupt or being wound up, has not its affairs administered by the courts, has not entered into an arrangement with creditors, has not suspended business activities, is not the subject of proceedings concerning those matters, or is not in any analogous situation arising from a similar procedure provided for in national legislation or regulations;

(b) has not been convicted of an offence concerning their professional conduct by a judgment which has the force of res judicata;

(c) has not been guilty of grave professional misconduct proven by any means which the Contracting Authority can justify;

(d) has fulfilled obligations relating to the payment of social security contributions or the payment of taxes in accordance with the legal provisions of the country in which it is established or with those of the country of the Contracting Authority or those of the country where the contract is to be performed;

(e) has not been the subject of a judgment which has the force of res judicata for fraud, corruption, involvement in a criminal organisation or any other illegal activity detrimental to the Communities' financial interests;

(f) following another procurement procedure or grant award procedure financed by the Community budget, has not been declared to be in serious breach of contract for failure to comply with their contractual obligations.

The solution is therefore simple:

1. Make the occupation and blockage of a highway (or the occupation of a government office, university, etc.) an illegal act (if it is not already illegal).

2. Specify in all public subsidy applications and contracts that anyone convicted of organising or committing such an act will be ineligible for further public subsidies.

3. Enforce the law.

After all, it should be relatively simple even for the Greek police to record the license plate numbers of the tractors blocking the highway. The farmers themselves are all out being interviewed on the morning, afternoon and evening TV shows.

Enough is enough. The roads are not theirs to block. Even when European and Greek taxpayers pour billions of Euros down their inexhaustible gullets, the rest of productive society gets no relief from their stupidity and incompetence. In fact, we will be paying for their pesticides and fertilisers polluting the environment and harming human health for generations. If they can’t organise their commercial affairs to break even, they should exit the business.

The same applies to the students who insist on destroying university or public property. It applies to unionists who enter and occupy government buildings. It applies to every plaintant who feels that they can interrupt public life and cause financial damage in exchange for yet more hand-outs. Why should society be penalised by the anti-social behaviour of its least productive members?

If the government is not willing to take its responsibilities and enforce the law, then I suggest a group of like-minded citizens bands together, hires a lawyer, and starts issuing legal notices. Enough is enough.

Sunday 17 January 2010

Latest Developments in the Greek Debt Forecast

I'll be updating my Greek debt forecast this week on the basis of the Stability and Growth Agreement, which the Ministry of Finance published last Thursday, and which I'm still going through.

My concerns are that nice rhetoric notwithstanding, PASOK does not have a plan to reduce the debt. I doubt the deficit targets can be reached. In particular, the deficit is supposed to be below 3% in 2012 or 2013, but we can expect an election in that year, so it’s highly doubtful that the deficit target will be met.

Don’t forget that in election years, the deficit increases because the party in power slacks off on tax collection and increases government hand-outs to favoured electoral groups like farmers or public sector employees. At the same time, the party vying for power makes extravagant promises, usually to the same electoral groups. That’s partly the reason Greece’s debt swelled from 6.7% of GDP before the October 2009 election to over 12% after the election: PASOK did push through many of its spending promises; ND slacked off on tax collection long before the election.

Yet even if the deficit is reduced, we should not forget that the total public debt remains. For those readers not versed in public sector economics:

• The annual deficit is the shortfall between public sector expenditure and revenue measured on an annual basis;

• The public debt is the total debt owed by the public sector to foreign or domestic creditors.

While deficits come or go, the debt stays with us, growing every year due to interest payments, until it is paid off.

Thus, if Greece has an annual deficit of 12% of GDP in 2009, or EUR 30 bln: this EUR 30 bln is added to the public debt. It should be clear to everyone that although reducing the annual deficit is a key priority (and a key indicator of success of public policy), the country needs measures to reduce the total debt. Interest, after all, is charged on the debt, not the deficit.

Add the demographic impact of the baby-boomer retirement, and the swelling (and unstated) IKA/OAEE debts, and the formula is toxic. We still do not know the total amount of government debt, because

(a) There are thousands of semi-government organisations which do not prepare budgets on time, do not prepare forecasts, and are incurring millions of Euros in losses every day.

(b) The “black hole” of government spending is social security. Last week, for instance, revealed that IKA owes over EUR 5 bln to OAED. We know that IKA owes billions to the hospitals and healthcare providers. And the demographic “bust”, as baby-boomers retire in Greece, will create major pressure on retirement spending. The OECD has estimated that Greece’s long-term, social security liabilities may be up to 200% of GDP, in other words, over EUR 500 bln.

If you think that Minister Loverdos’ negotiations of the social security issue, underway at the present time, will provide a sustainable, long-term answer, you are probably dreaming. There will be no sustainable solution without a major hike in social security contributions, particularly among the self-employed and independent professionals. By major hike, I mean doubling contributions at minimum. This will simply not happen: all announcements by the Ministry start out with the statement that “there will be no increase in costs or no loss of benefits to the insured.” Paparia.

But coming back to Greece’ debt: none of the measures announced by PASOK is a permanent measure. In their Stability and Growth Agreement, they are temporary measures. If we want to reduce the debt, we need the permanent reduction of public expenditure for at least 10 years, together with the long-term increase in revenues, to bring the debt down to manageable levels. (By manageable, I mean between 60-80% - the Maastricht criterion is 60%).

Otherwise, inflation and rising interest rates will very quickly eliminate whatever temporary benefit occurred. This is very simple arithmetic: anyone can do it.

If we add to this mix the fact that both major parties are essentially lying to the voters, or passing laws which make no sense whatsoever, then the situation does not fill me with much hope for the future. If Konstantinos Karamanlis did not make the right decisions with debt-to-GDP at 80%, a large majority, and the Olympic Games in 2004; and George Papandreou is not making the right decisions in 2010 with a debt-to-GDP forecast of 120% and being in the middle of an economic recession (with a larger majority); why would we expect the next administration, in 8 years, to do anything better?

We should instead plan for what is inevitable, rather than what we would like to happen: There will be a point in the next 3-5 years when Greece will not be able to pay its interest or loan instalments, and will default on debt, and demand a loan restructuring with its major creditors.

At this stage, the government will have to shut down operations. Salaries and pensions checks will be delayed; public sector workers will not be paid; there will be the inevitable major fall on the Athens Stock Exchange. And future borrowing will be all but impossible.

For a company like mine, which is based on providing due diligence and investment advisory services to foreign clients, the reputational impact will be disastrous. I'm already asked about Greek corruption and debt on every trip outside Greece. We have to bid against German and British companies for nearly all of our contracts. Up until now, we've had the benefit of the doubt: how long can this continue?

Our own corporate decision can no longer wait. I’ve said I would give PASOK the chance to publish it's 2010 budget and the Stability & Growth Agreement are before making a decision. Unfortunately, nothing in these documents gives me reason to believe things are going to improve.