Monday 16 May 2011

Media and the Greek Debt Crisis (ii)

Today brought about yet more examples of sloppy analysis from international media on the Greek debt crisis and its supposed impact.

Bloomberg led off with a rather absurd article entitled Euro Crisis may hit East European Recovery with the statement:

Eastern Europe’s economic recovery may be scuttled by any Greek debt restructuring, which would curb lending by western banks and undermine investor bets that have propelled the region’s stocks, bonds and currencies.

To suggest that the Greek debt restructuring is at fault for what is undeniably a difficult international credit environment is absurd, and I speak from enough personal experience in bank portfolio audits and due diligence studies in the region to confirm this personally.

In the Baltics, for instance, credit growth has resumed, but will remain restricted given the disastrous GDP growth conditions and the fact that most international banks, notably Scandinavian and German ones, have suffered major write-downs as a result of over-heated real estate investments. Greece has absolutely nothing to do with this: it’s an independent economic cycle.

In the Balkans and former Soviet Union, credit expansion remains limited for a wide range of factors, not least of which is the fact that Greek banks have a leading market share in the region. Despite this, Greek and other banks are lending, but in a very difficult market environment: rule of law is incredibly difficult to enforce and there are hundreds of thousands of corporate loans which are non-performing, but where assets cannot be seized. Inflation is rising again and while hard-currency loans are at a premium, fewer and fewer creditors have foreign-currency income to handle another potential currency devaluation.

In Central Europe, the economic record is mixed. Although economic growth is strong in Poland, the government itself is anxious to prevent unsustainable credit growth, and faces internal debates about its own public debt. In the Czech and Slovak Republics, the issue is less credit growth or availability as it is the fact that these two economies are too dependent on a few manufacturing sectors and in particular to the German market.

So let’s be clear: if the writers of this Bloomberg article think that Greece is to blame for the credit allocation decisions of western banks (or even multilaterals such as the EBRD or the IFC) in eastern Europe, they are wrong. Credit scoring and loan reviews have become more stringent everywhere as a result of the 2008 economic collapse and the real estate bubble. Greece is hardly a factor.

This is confirmed by the fact that according to most estimates, only EUR 70 bln in Greek government bonds remains in the hands of private banks world-wide: a miniscule amount compared to credit stock in eastern Europe. It’s also miniscule compared with international exposure to Irish private sector debt. But I don’t suppose this is a factor.

Another glaring error was heard this afternoon on France 24’s English edition. I was amazed to hear Dominique Strauss-Kahn referred to as the “saviour” of Greece. This was certainly news here: someone should call up those unionists and tell them to stop blaming the evil IMF and instead start strewing rose pedals at the feet of Poul Thomsen when he next visits George Papaconstantinou. They can play the Arcadian lyre while they’re at it, and maybe weave crowns of grape leaves and eat dried figs.

Silly buggers. I’m not sure who’s stupider: the unionists or the media that comes up with these ridiculous stories in the first place.

Why any number of reporters suddenly believe that because DSK was caught in flagrante delicto or worse with a New York city chamber maid, the Greek economy plummets is beyond me. Can we not accept a Greek economy where millions of rational, economic actors make voluntary transactions every day independently of the IMF Director’s sexual escapades?

If not, I’ll turn my office into a gamistrona and give DSK, Baroso, Trichet, Schauble, and all the other great financiers, including that clever fellow from Luxembourg, free access so they can get on with it, and thus Greece can survive. 

Once again: Greece’s credit policy is largely in place until early 2012. The best thing that could happen to Greece now is no new loans. Let the structural adjustment process take its course, keep the pressure on the government, and stick to what’s been agreed.  

And for those erstwhile journalists out there: it would be far more beneficial for all involved if you did some cursory analysis of the underlying situation rather than trade office gossip. It's not even that difficult, since all major banks have quarterly earnings statements, and you can clearly see what loan write-downs and what credit decisions have been made. 

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