Friday 12 October 2012

Tilting at the Greek Rumour Mill

These past few months, both the serious press and its yellow equivalent in Greece have launched or transmitted one rumour after another as to the outrageous demands or developments made by the Troika or the panacea to the Greek debt crisis. Here are some of them, in reverse chronological order:

The Troika demanded the emptying of all Greek islands with a population under 150 people

This rumour apparently originated in the office of Minister of Interior Evripides Stylianides yesterday*. It is not clear what benefit a depopulation is supposed to have achieved, unless of course this was a preliminary step to selling off the islands. This afternoon, Minister Stylianides retracted this claim, and further on stated that there had never been such a claim to begin with. 

It should be obvious for numerous reasons why this cannot possibly be true:

a.  The Greek government is already trying to lease a number of uninhabited islands, and has gotten precisely nowhere. It makes little sense to evacuate inhabited islands (which is illegal and expensive) when there are so many islands which cannot be sold.

b.  There is obviously no conditionality relating to the first or second bail-outs requiring the depopulation of Greek islands. The complete conditionality in the second bail-out (which is what is being negotiated right now) can be seen here.

I make it a rule to be extremely careful every time a Greek politician—or anyone connected to a Greek politician—speaks about the Troika. Given the absolutely abysmal failures of Greek public policy and the political class since 2010, I can’t imagine any serious observer of Greek politics does not do the same. Ask yourself the simple question: “Would I buy a Greek government bond used car from this man?”

The Greek-American NGO called “END” has accumulated $ 650 billion to bailout Greece and Cyprus.

This rumour originated in cyberspace among some extremely marginal blogs. The idea is that a Greek-American NGO called “END” (End National Debt) accumulated $ 650 billion in a bank account, which would be used to pay off Greece’s debt ($ 600 billion) and Cypriot debt ($ 50 billion). The only condition that END attached was for a comprehensive forensic audit on what the existing debt of the two countries had been used for.

This is so obviously a fraud, that it’s painful to have to explain it:

a.  Greek sovereign debt is EUR 320 billion; Cypriot sovereign debt is EUR 12 billion. Converting this to US Dollars at a rate of 1.25 gives you $ 415 billion. What’s the remaining $ 235 billion for? Souvlakia in Monastiraki?

b.  Greece’s problem is not paying down the full debt of EUR 320 billion, but servicing this bet. If someone did have $ 650 billion, all they need to do is invest it at a net 4%, earning EUR 21 billion, and use this to pay down Greece’s annual interest costs (roughly EUR 15 billion) and some capital. This would be the surest way to actually press for some kind of sanity in the Greek public sector while not wasting your capital. Oh, I forgot—that’s what the Troika is trying to do.

c.  Greek Americans do not have liquid assets of $ 650 billion. It’s probably a major achievement if their total asset base, including [illiquid] real estate, exceeds $ 50 billion. And I don’t see many Greek-Americans selling their diners to pay down Greek government debt.

d.  Total US banking deposits in the US banking system was $ 8.939 trillion on September 26th, according to the most recent Federal Reserve Bulletin. An END deposit of $ 650 billion would represent 7.3% of total US deposits.  In 2011, the largest bank by deposits in the US was JP Morgan Chase, with $ 1.093 trillion. Deposits of $ 650 billion in this bank would represent 59.5% of total deposits, which is obviously impossible.

Greece is “floating on a sea of gas”, enough to pay down the national debt: this is the reason for the Troika conspiracy against Greece.

This is an extremely popular rumour, with numerous articles quoting a reserve estimate by a company named Flow Energy to the extent that state earnings valued $ 599 billion are possible over 25 years.

While there are definitely hydrocarbons out there, there are a number of factors which cast some doubt over the facility with which this conspiracy theory is being bandied about:

a.  There has been no real hydrocarbon exploration in Greece since the 1970s: any estimates are usually made using extrapolation from the Leviathan Field off Israel. Even assuming the Exclusive Economic Zone can be legally established (which is NOT a foregone conclusion) much of gas is deepwater, making recovery difficult, expensive and time-consuming. With global gas production at record highs, there are also no guarantees that historical prices will be maintained. Any future valuation is therefore suspect, particularly since we don’t know the costs of extraction or the terms of a production sharing agreement with the government.  

b.  If the Troika thought there were gas reserves available, you can be sure that they would have included this as a loan conditionality, similar to the EUR 50 billion privatisation programme.   

c.  If the international oil and gas industry thought reserves were available, it is almost certain that they would quite simply “buy” the Greek government, as so many other Greek and international businesses already have, and extract at their leisure. This is, after all, what the Tsochatzopoulos scandal, the Bank of Crete scandal, the structured bond scandal, the current state of the oil refining and distribution sector, and so many other scandals in Greece teach us.

Indeed, the only mystery regarding Greek hydrocarbons is why the Greek government hasn’t done anything about them in the first place. But I can imagine two home-grown reasons why, and if you think about it a little, so can you.

Banque d’Orient Shares worth EUR 670 billion will end the Greek debt.

This rumour also originated on various blogs, and was championed by Zougla. According to this, Mr. Artemi Sorras owns a certain number of shares in the now defunct “Banque d’Orient” (BdO), which was originally founded by the National Bank of Greece (NBG), which are in turn guaranteed by the Banque de France (BdF) using gold-denominated guarantees. Although the Banque d’Orient failed and was re-absorbed by NBG in 1932, the liquidation “never took place”. It is claimed that NBG, under Mr. Provoloulos, recently offered EUR 1.5 billion to buy back 10 shares of the BdO. Mr. Sorras has kindly offered to contribute these shares to Greece in order to pay back its debt. The wider idea, of course, is for Greece to claim back the guarantees from the Banque de France and Deutsche Bank, which took over NBG during the Nazi occupation. The claimants have gone so far as to register a “Banque d’Orient” website.

Assuming the facts are as Zougla presents them, then this idea is so absurd it is difficult to understand how anyone takes it seriously:

a.  Assuming an “absorption” did take place in 1932, then every shareholder would have automatically been offered shares in NBG at an established rate via a share exchange. If the shareholders did not accept, then they would have had a certain time frame to make a legal case. Anything else exceeds the statute of limitations.

b.  Assuming the liquidation of BdO did not take place, as maintained by Zougla (which is confusing, since Zougla also states that BdO was absorbed by NBG: you can’t have both scenarios in parallel), then the guarantor of BdO is NBG. NBGs total assets were EUR 111.5 billion in Q1 2012. Any claim from shareholders of BdO would have to be settled by NBG, which, if upheld in court, would effectively bankrupt both NBG and Greece. Good luck with that. 

c.   Assuming that for some reason legal responsibility is indeed that of Deutsche Bank (which theoretically administered NBG during the Nazi occupation), then a legal case has to be made that the failure to liquidate BdO during the occupation was that of Deutsche Bank. The plaintiffs will be forced to prove a double negative: (a) that Deutsche Bank was in charge, not NBG (or the Nazi authorities); and (b) that the BdO was not liquidated. This will be extremely difficult, given that the Nazi Occupation occurred from 1941 to 1944, but that according to Zougla, BdO was “absorbed” by NBG in 1932, which Greece was independent.

d.  The Banque de France (BdF) is mentioned as being a “guarantor” of “gold-denominated” shares in BdO. Yet this is plainly impossible, because then the BdF would have been a co-owner of the bank, and its responsibility would have ended once BdO was re-absorbed by NBG in 1932.

This is elementary practise in corporate law. To suggest otherwise is to build a non-existent case out of thin air, which would have to be proven in courts. Why Mr. Triantafyllopoulos and so many others have invested so much in this case is beyond me, except of course to improve their fading television ratings.  

These are a few of the more popular cases: there are hundreds of others out there.

It is continually a surprise to me how educated, experienced people who have lived and worked all over the world believe these rumours. Some of my Facebook friends, God bless them, distribute these ideas faster than the Greek government issues debt.

Caveat lector.

© Philip Ammerman, 2012

* Correction on October 13th: The rumour apparently started by ND Minister of Mercantile Marine & Aegean Kostas Mousourlis, who stated at an event last week. This was subsequently denied by the Troika. 

“Truth is beautiful, without doubt; but so are lies.”
Ralph Waldo Emerson


  1. While I agree as to the ridiculousness of the rumors I think it's a stark illustration of how beleaguered the average Greek feels and should be taken seriously rather than belittled as the usual conspiracy thinking of the Greeks. The island rumor is an obvious threat of expropriation and forced migration phantasy, which in fact is not so far fetched for part of the population. There are people who have lost their homes because of the tax campaign against the middle-while leaving the top untouched-and because of the predictable killing of the economy through mindless austerity (minus useful reforms). And there are thousands who are in the process of experiencing migration in a way that is less than freely chosen. Some of the reforms envisioned at EU level (see Annual Growth Surveys since 2011), if applied, would result in lost homes for lots of Greeks who have traditionally inherited their houses. Eg:. "To
    enhance labour mobility and the efficient allocation of the housing stock, rebalancing
    housing taxation away from transaction towards recurrent taxes might be warranted"
    Guess what happens to people who because of increasing unemployment cannot pay recurrent property taxes on the apartment they inherited...
    I think Greeks have good reason to feel beleaguered (not necessarily only by the Troika but by the main authors of this disaster who are now pointing fingers instead of being investigated and prosecuted). If the grammar in which they express it is silly, so be it. But one would miss the big picture if one failed to notice what these rumors signal.

  2. Your comment would permit "beleaguered citizens" everywhere to engage in the most fantastic conspiracy theories possible, while ignoring the very real issues which led to their state in the first place. How is this a solution?

    What is the responsibility of a citizen to be properly informed and exercise his or her critical judgement? Isn't this the goal of a national education system and any number of EU and national initiatives on active citizenship?

    What is the responsibility of the initiators or supporters of these rumours? Is this the only outlandish theory that Makis Triantafyllopoulos and his fellow journalists in Greece are peddling? Does "freedom of the press" mean that any journalist can make any statement, no matter how untrue?

    The Greek people have collectively known perfectly well who they were electing these past thirty years. Their is both collective and individual responsibility for the choices on makes in life--at least there is when Other People's Money runs out. This is what Greece (and many other countries) are experiencing right now. The same familiar lies and political mythologies, however, continue.

  3. I don't disagree about the responsibility of the rumor peddlers and that was not my point, since I did not write this comment to analyze the causes or propose solutions. What I am saying is that if you miss what the fact that this rumor can catch fire stands for-Greek society reaching its badly educated, fanatic limits regardless of who is to blame, including average Gr citizens-you are missing part of the big picture. I am also suggesting that even though peddling the "forcing islanders to move" rumor is an irresponsible thing to do, it is also not recommendable for observers to ignore the fact that an increasing number of the population is-rightly or wrongly it doesn't matter- experiencing the troika/government interventions AS expropriation hence the strength of the rumor with the public. Finally, I am also suggesting that some of the EU plans as to property taxes will likely result in de facto expropriation of the newly poor, hence not all fear of expropriation by the government as directed by EU economic policy coordination is unwarranted, or a rumor, but is based on reasonable calculations about likely effects of policy.

    Finally, I think that collapsing the distinction between collective and individual responsibility is a dangerous thing to do generally and especially in Greece right now. Right now collective responsibility is mostly touted by those whose individual responsibility would probably send them to prison, except that this will not happen because they are the ones in charge of investigating their own past and sending themselves to prison. I would argue that even with the economic depression the country is currently in, the political instability would not have been such had the political elite been serious about individual responsibility, including penal sanctions and expropriation of assets acquired because of illegal activities, including tax evasion. Collective punishment is already showered on the Greeks-you can disagree about deserts but you can’t fail to notice it-but so far individual responsibility has been evaded by major architects of this disaster. Not only that, political personalities who thrived by constructing the clientelist pyramids contributing to the disaster are the ones shouting "collective responsibility." In this political context, avoiding discussion of individual responsibility based on the idea that there is also collective responsibility sounds like “we ate it together” and is likely to send even more badly educated Greeks to the embrace of GD.

  4. "What I am saying is that if you miss what the fact that this rumor can catch fire stands for-Greek society reaching its badly educated, fanatic limits regardless of who is to blame, including average Gr citizens-you are missing part of the big picture."

    But that's exactly what this blog post is about.