Thursday, 29 January 2015

Greece turns Singaporean after divorcing EU for a Russian.

Greece could end up better off divorced from the EU if they play it along the time honoured lines employed in manipulative relationships through the ages. So here is one suggested path they could take.

As with all negotiations there is a need for the other party to know that they are not the only one in the game and it looks as though the carrot/stick of Russian patronage is already being flagged by Greece. In a relationship this is the "Well don't worry darling, I don’t need you anyway, there are plenty of fish in the sea" stage.

This threat of competition is used to negotiate the best possible deal with the EU, in return Greece promises the world, new love and commitment - the ‘Of course I love you darling, wouldn’t do it if I didn’t love you‘ stage. We do have to worry that the EU has heard all this before, but let's press on assuming that they are kind and trusting.

Part of this negotiation would be for more cash up front in return for those strengthened future commitments, as per current suggestions of zero coupon bonds issued at 50% of face. This is the ‘Can I borrow £100, I want to get you something special but haven’t got quite enough to pay for it’ stage.

Next, spend the up front cash importing the best German/EU infrastructure and capital goods possible. This will please the Germans no end and encourage them to extend further credit from the private sector which you take full advantage of and leverage up on that capital goods importation. The ‘Of course you can trust me, isn't it going well, let’s open a joint bank account together’ stage.

Then build like crazy on ports, roads, tech infrastructure to the point that all the budgetary measures that the EU were inflicting on you blow out. The ‘Where has all the money gone from the joint account, darling?’ stage.

THEN Greece defaults on all EU debt and walks away. The ‘I’m leaving you. You never understood me and were far too controlling, surely you saw it coming’ stage.

Then Greece walks into a new relationship with the bit on the side they had been cosseting all the way through and she may have a Russian accent. The ‘I cant believe he’s left me for some Russian tart who’s only got her own interests at heart. And after everything I did for him!’ stage.

Once divorced from the EU, Greece can be reshaped along the lines of Singapore. Tsipras is standing under a socialist flag and can substantiate within that social control similar  of Singapore. Greece already has twin surpluses and free from the shackles of EU debt, EU regulation and EU politics it could quite possibly become a magnet for investment, free enterprise and trade that is finding European practices more and more restrictive. The same goes for financial services and institutions under the social cosh and restrictive regulations who may well find the proposition of moving to the new Greece attractive. Even providing old fashioned Swiss style (very) private banking to the world's grey money may be worth the compromise of being shut off from European funding through regulation and anti-money laundering requirements. But where there’s a margin there’s a way. At the very least they’ll be able to import Chinese solar panels without that ridiculous EU tariff being applied. Handy for a country with that much sun.

Other EU countries with similar EU constraints may watch on with envy and could themselves be drawn into doing the same and joining a Nouveau-Euro zone. The risk that the core EU have is that debtors default en-masse leaving them holding all that defaulted paper.  Once this is perceived to be happening there would be a stampede to the door, with the debt getting compressed onto the remaining members of old-EU. Much as with banks, a good eurozone and bad eurozone would evolve. Only in this case it wouldn’t be voluntary. All the debt would be end up compressing into a smaller space, much like a blackhole, only in this case the singularity may have to be a sacrificial holder. How about Luxembourg?

With previous debt load wiped out and proven backing (financial and military) from new sources, the credit function of Greece would suddenly look rather attractive. The risk of course is that they could play the same game again and walk away, but as is seen with company restructurings memories are pretty short when it comes to new opportunities.

In summary, there are many different courses that Greece can take but if we are thinking of them snubbing Europe and going it alone then there are opportunities to set up a hugely competitive free-trade state right on restrictive Europe’s doorstep.


Leftback said...

Ooooh, that is an exciting tale. LB likes this one a lot, especially given the similarities - perennial home for hot money, dodgy banks and bankers, loads of microscopic tropical islands to start your private wealth fund or managed futures fund etc., shipping/smuggling interests - it might be a real winner. Especially after Mr Market was denied hand relief by Dame Janet this week.

Gloomsters that we are, however, we Just posted a sadly less delightful scenario on Greece at MM, that involves another well-known superpower that likes to strut around and put it about a bit:

So far we have enjoyed Tspiras of Syriza telling the EU where to stick its Russian policy, describing Kiev as a neo-Nazi puppet regime and halting the fire sale of Greek public assets to the private equity vultures. But of course it didn't do our minuscule Greek equity positions much good.

Of course as one wag pointed out, if he goes on like this the US State Department will engineer a Greek Spring (the Olive Revolution, perhaps), replace the brand new democratically elected government with a military junta or another neo-Nazi puppet regime that will continue to screw the Greek population and suck on any and all of the Brussels appendages and all the Social Democracy fun will be over.

Polemic said...

I also forgot to add - at the infrastructure spend part they spend billions on replacing the micron wide sewage pipes they currently use for trying to transport solids, with something first world and get rid of those foul bins by the pan.

Polemic said...

And thanks LB .. I'll take a look

Anonymous said...

Hi - Interesting stuff and you've been spot on for the last few days. Agree with your points on Greece but with one possibly major caveat. Russia is already cozying up to Turkey. As Leftback says in the comment above this may be causing some in the Greek military and nationalist fringes some concerns. For background these comments from Putins end of year press conference hint at some conflicts in Russias internal position.

"We have very good relations with Turkey. Accordingly, this in one way or another applies to Northern Cyprus. I am not mentioning Greece, because we have a special relationship with Greece, keeping in mind our religious affinity. It’s a specific and completely local issue, but it’s very important for people.

Russia and Turkey have very many – I’d like to stress this – coinciding regional interests. Moreover, a number of regional problems cannot be solved unless Turkey joins in to help address them. This is why we are highly interested in promoting our relations, and we will do just that ".

hipper said...

Very intriguing scenario Pol.

I'd guess that it would be a very rational path for Greece, but the likelihood of success comes down to whether the Greeks have the self-discipline and patience to implement such changes. Wondering what the fundamental differences between Greeks and Singaporeans are in this regard. Also in geographic terms I'd rate Singapore as a bit more important being an important choke-point a la "Gibraltar of the east", and the location on the geopolitical map provides natural benefits I'm unsure the Greeks would ever get. But it doesn't mean Greece still isn't important.

But if they would be willing to really make some reforms and take some chances, it wouldn't require very much effort to run circles around the EU in the aspect of regulations, banking, manufacturing etc. Like we are all probably aware, the EZ organization is too bloated, complacent and disconnected from the grass-root level to ever understand what's going on in their realm at the micro levels of economic reality and their relative competitiveness. That's a real achilles heel.

I wonder what Syriza's thinking right now. There seems to be a fair chance Podemos will follow their foot steps at the end of 2015, so probably a rational path to take would be to linger, jawbone and softly revise their initial aggressive negotiating style and generally say what Germans and other creditors want to hear. They are still a minority, but they may be expecting that to change dramatically shortly (within a year), which would suggest they might play ball until they get more support.

Ultimately a default would make sense for them, but only on the day it is clear that the credit line has been sucked dry for good and there is no more room for jaw-boning. But they have a lot of bargaining chips which might keep the EU on it's toes for long enough that one of these prerequisites for default, huge competitive reforms and parting comes to pass. The prospect of China or Russia with economic and military influence on the southern door step is probably a great inhibitor in itself, alongside that old banker saying you mentioned.

The Germans may say what they want, there's too much at stake through potential future political contagion or financially to let Greece leave easily without giving some consents first. Greece even has a chance to win in both scenarios, staying or leaving. If they stay it probably means they have been given enough concessions anyway.

On the wishy washy compromises, I fear (given the history of EU) that they will probably not negotiate anything solid or ultimate compromise on anything, but there will be continuous argument over something. But if the delay-tactic scenario is correct, this is going to suit Greeks just fine :)

Polemic said...

Thanks Hipper,

Yes, I agree that singapore and Greece have substantial differences but this post was more of low probability thought experiment mostly suggesting that the EU has many structural problems that a a new competitive economy could offer a competitive advantage over. But agree the rest.

As for what is happening in Spain with Podemos and potentially other countries following, I think that if they have any sense they will make sure they stay one step behind Greece playing the 'after you mate' game. they are sensing vicarious victory to their causes via the Syriza BUT they would be wise to wait and see what actually happens in Greeece before they commit fully. Greece could well turn out to be a typical Andy Murray (ref Australian open, tennis, sense victory and screw it up in the last moments) performance.

If Syriza end up broking a muted settlement in a face saving but not country changing way, or they do get change and the economy does even worse, then the hot air will start cooling in the Podemos balloon.

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