Tuesday, 29 November 2011

Deck Chairs on the Titanic


Friends and business acquaintances keep asking me what the real situation in Greece is like. Here are some anecdotes:

My [late] grandmother’s apartment building in Pangrati is populated largely by retirees, usually single ones. Their pensions, already low, have been cut to the point where they have a simple choice: either buy heating fuel (a common expense which has to be done by the entire building) to warm their apartments, or buy food. They can’t do both. They opted for food, and now 70-year old widows are shivering in their unheated apartments.

Most Greek retirees have seen their pensions cut by 20-30%. These pensions were typically the result of IKA contributions, which total 44% of payroll between employee and employer. Most private sector employees have seen a substantial loss of their pre-tax income to IKA; average pensions for white collar workers were usually somewhere between EUR 1,000 – 1,300 per month. These have now been cut, usually to EUR 800- 1,000 per month, with a further loss of 1 monthly pension. And yet IKA is bankrupt, and is forced to borrow at short-term rates of 3-4% per quarter, usually from other pension funds, to keep benefits paid. And, of course, IKA is mandatory.

A friend went to a central hospital for a minor operation. After waiting in two lines, the doctor finally arrived to do the surgery. The doctor asked the nurse to bring the anaesthetic, to which the nurse replied that they haven’t had anaesthetic for months now. So the operation—sewing up a small, severed artery in a finger—was done without anaesthetic.

Another friend, recently divorced, and continues to live with her two daughters in the suburbs of Athens. While she formerly gave private language lessons, this market has now collapsed, and she makes do by giving haircuts (the real kind, not the financial kind) and living off whatever she grows in her garden.

An acquaintance works for the semi-governmental natural gas company of Greece. Their greatest debtor is in fact the state Public Power Company (DEH). Their second largest debtor, at about EUR 150 million, is a private company that recently released a quarterly “record earnings” statement, conveniently ignoring its debt.

Developers and real estate owners are selling off whatever they can. One friend, a developer, owns 28 apartments: most are empty. Of the five which are occupied, only one is paying rent on time and in full.

Most private sector salaries have been cut, legally or illegally. Young people are being employed on a 4 hour per day basis, and being paid EUR 30-40 per week, or EUR 160 per month. The staff at one large retailer was given a choice recently: be fired, and receive a termination payment, or voluntarily resign, and be re-hired at the minimum wage. All this is causing real pain and hardship, since most people are locked into mortgages and other financial commitments, and most costs are going up due to higher taxes. The enforcement of labour laws is non-existent. Greece finds itself in an inflationary depression.

Unemployment has reached an “official” 18%; if subsidies by OAED to maintain labour positions are removed, the true unemployment rate is probably around 22-24%. I estimate it will hit 20% by the end of 2011 and reach 24-25% in 2012, not taking into account OAED subsidies. Somehow, we are supposed to believe that the recession in 2012 will “only” be 2.8%, according to the latest budget planning basis.

The number of home invasions and burglaries is reaching epidemic proportions. One family living in Halandri spent their last savings installing steel shutters and an alarm system. In one weekend, two friends reported four burglaries in their respective neighbourhoods. Two of these occurred using sleep gas: the burglars pumped in the gas, then emptied the apartment while the family was knocked out. Our vacation home was burgled over the weekend: nothing was taken—the burglars were apparently looking for money.

The number of illegal immigrants crossing the border from Turkey reached record levels. These immigrants cannot be kept in prison, because there are simply too many of them, and they can’t be repatriated, because of legal and financial issues. Greece cannot let them travel onwards to their European destinations, also because  of legal issues. And Turkey, no slouch when it comes to respecting [some] international law, refuses to take them back. As a result, the SE Asian immigrants you see at nearly every traffic light in the Athens suburbs are not only growing in number, but they are getting hungrier and hungrier because no one has money to buy their meagre offerings or windshield washing anymore.  At least they will soon have a mosque in the centre of Athens, which will no doubt bring some of them spiritual relief, but very little temporal relief.

The only new professional service firms you see setting up are consultancies specialised in renewable energy. Why? Because they charge a fee for submitting an application to the state-run “green energy” scheme. Three such consultancies have set up along Kleisthenous Street near my house in the past year. The fact that the high feed-in tariff (55 cents/kwh for photovoltaic) and the apparently unlimited number of applications permitted means that most consumers will see a much higher electricity bill very soon, made higher by value-added tax, the property tax, the municipal tax, and other taxes. Every other type of store has been closing: the number of “for rent” signs is high. The crash in renewable energy is not far from occurring, as it’s clear that neither the Public Power Company nor various other authorities (nor the citizens) will be able to pay the higher cost.

As a parenthesis: you can always spot a distorted market sector in Greece by the number of consultancies working in it.

In yet more evidence of market distortion, the retail price of olive oil has now fallen below EUR 2/litre in many supermarket chains, albeit for “special offers.”The off-channel price has been below EUR 2/litre for over a year now. Yet more evidence of a dramatic oversupply of oil, in no small part due to EU subsidies. For all consumers in London or Paris: whenever you go to a Tesco’s or a Carrefour, ask yourselves why the Greek oil on the shelf starts at EUR 7/750 ml bottle, and often reaches EUR 12 or 13/bottle.

The only thing that is occurring in Greece today is something similar to the re-arrangement of deck chairs on the Titanic after the iceberg was struck. The Greek political class and the Troika are as removed from reality as a polar bear in the Sahara desert. Greek parties and Europe can trumpet their commitment to social democracy and welfare, but the reality is very different.


(c) Philip Ammerman, 2011
Navigator Consulting Group

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