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 26^th, 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