First day and I was full of expectations and excitement. Just finding the offices was going to be an adventure as it was in a part of Brisbane I had never been — north of “the valley”.
I set the address in my iphone map at home were I had wifi to plot the course. Too cheap to pay the phone company for live updates I would have to have the map loaded before I left the home wifi zone. 4.7 km no worries.
I set off on my bike and followed the blue line on the gps stopping for a coffee after 15 minutes. Then continued on until the huge building emerged from the industrial area of Bowen Hills.
The Courier Mail has a long and proud history and the building looked like it from the outside. I locked up my bike and entered the reception to be greeted by a lovely smiling lady who was both professional and friendly.
A fellow intern from QUT was on the waiting room couch and a distraction. Amy. She had a nice smile and an infectious excitement.
Right on time Anne came and greeted us, handed out security tags before taking us into the building. The contrast with the outside could not have been greater. The inside had only 8 weeks ago undergone a total redesign and renovation. It was both modern and tasteful. There were acres of journalists in the main hall all in low walled cubicles. A further walk around and a maze of hall ways and many more rooms of people. Very big place.
After a short course on the internal computer system and some passwords I was dropped into a cubicle in the business area. I met Tony who is the resources reporter just across the cubicle. Nice guy. I was given an Australian Financial Review , Australian and the Courier mail and left to my own devices for a few hours. So I decided to write something about the Greek Debt Crisis. I knew they would not publish it ; so here it is —
The Golden Drain
The Greek bail out Mark Two is apparently going ahead after the German government made a momentary show of resistance — for domestic political reasons.
Details of the bail out are being negotiated and no doubt massaged to be more palatable for increasingly resistant German taxpayers. Only a year ago taxpayers poured in about 120 billion euros into the Greek golden drain which merely delayed the problem — and made it bigger for good measure.
To understand the scale of the amount of money wasted in the last 12 months think of it this way — you can buy over 120 of Australia’s major skyscrapers in our biggest cities with that money. That would buy all of Melbourne, Sydney and Brisbane’s best CBDs buildings. This European gesture of almost unimaginable treasure is enough to run a medium sized war. It is enough to fund the United States military adventure in Afghanistan for a year. It could also buy most of Athens as well as quite a few Greek Islands.
The transfer of another lazy 110 billion Euros this year is mostly portrayed as bailing out the “lazy” Greeks, but the reality is it is only being done to bail out the banks in Frankfurt, Berlin, Paris, New York and Amsterdam from bets they made that appear at once both gigantic and , well … foolish. Even crazy.
Cosimo Medici who basically pioneered the modern merchant bank concept over 500 years ago would not approve. He would have only lashed out the billions if he could lob his brother into the papacy or take over a trading rival’s whole city. I mean take over.
The Dutch bankers in the space ship building in Amsterdam on the hook for Greek government debt have a very successful Dutch banking history to try to live up to. After a year of convincing by US founding father John Adams they made a very good bet lending the then poor group of American colonies guilders to buy guns and supplies to hold out against the world superpower (at the time the British Empire at its height) — The USA would later become an economic superpower itself as we now know but at the time it was far from certain that the American colonies would even survive against the might of the most powerful and biggest superpower the world had ever known. Now that turned out to be a good bet.
The bet on the modern Greek government is definitely on the opposite end of the scale.
The problem for the German Chancellor and the French President is if those banks lose some or all of their money — as they probably deserve to — the resultant seizing up of capital flows in the European economy could be unsettling for the bankers all over the world. Banks would stop lending to each other worried that they might never get their money back.
Certainly bankers would be on the phone to the Presidential Palace in Paris and the Chancellory in Berlin every day trying to convince them of this. Good businesses creating real value and making profits may find it hard to get funding to continue operations causing mass unemployment. There are some reports of some British banks withdrawing from the mainland and denying funding requests to some European banks already. There are fears this “seize up” could grow and even spread globally.
This is a high stakes game of “financial chicken” as the politicians and bankers look at each other eyeball to eyeball, teetering on the edge of a cliff where the bottom cannot even be seen.
Greek government debt is now about 340 billion euros which has been growing just as their GDP has been shrinking. This is not a new trend. The debt has been growing fast as a percentage of Greek GDP for over five years.
The holdings of Greek debt the European Central Bank holds is estimated at 50 billion euros by Citigroup. Greek banks own about 60 billion euros of Greek debt, according to Goldman Sachs.
If the Greek government continues to default there will be a lot of red faces in Paris and Frankfurt bank executive bathrooms. Their only hope of not having to face the harsh realities of the market is if the politicians blink and socialize the losses. This is most likely.
Then the bankers can relax for another year of fat bonuses.
If governments continue to bail out banks who take massive losing bets the end game is not pretty. Eventually governments get to a point that they cannot lend any more and end up like Greece itself. Adam Smith would be turning in his grave.
The only country that can afford to bail them all out is China who has a lazy three trillion to spend. But the political resistance to pouring in yet another fortune into the “Greek drain” is growing in Germany, Finland and elsewhere . The problem will come back next year as unemployment in Greece is at third world levels even for well educated youth.
Is part of the problem that the Western world’s decision makers for the last few hundred years have been schooled in the great universities in “the classics”? The ruling classes in the west have been endlessly taught about the greatness of ancient Greek achievements, their contribution to Western civilization’s culture and the basis and structure of western democracy. Churchill sent British and Australian troops to fight the Germans in Greece when there was no real strategic value other than “to free the cradle of democracy.” It was a military disaster and even if successful would not made any difference to the war effort. Greece descended into political chaos after the war and has been ruled by military dictatorship for most of post war history.
Question : Does the west cut the modern Greeks too much slack in the 20th and 21st centuries? Is it time for the Greek state to stop making a living and its place in the world from resting on it’s ancient ancestor’s laurels? Culturally modern Greece is really a “Balkans” style state rather than a western European state. Modern Greece has more in common with Serbs and Russians than the French and Germans.
There is a train of thought that for the average Greek the least bitter pill is a total default and going back to a floating Drachma. Get back to a debt they can afford with their actual ability to raise taxes. In reality they are already in a technical default anyway. After a year of painful adjustment a separate floating currency will quickly create jobs in tourism, boost exports and bring in foreign private investment after the dust settles. Ask Argentina who are now growing from a real base.
Even after the annoucement by the EU to bail them out again, this is far from over. 110 billion is only enough to feed the bankers and buy some more time. A bit like giving a man with a part time job enough money to pay his 3.5 million dollar mortgage for the 12 months.
Though Greece is the focus at the moment it is relatively small beer in the European government debt stakes. Spain and Italy are much bigger problems that have not yet reached the cliff. Spain’s property bubble was one of the most irrational in Europe. Banks lent 500,000 euros for many 200,000 Euro apartments all over the country. There are huge empty housing towers sitting along the southern coast. Banks in Spain and the rest of Europe have not adjusted the true market values of this housing debt on their books yet. Spain is very exposed to Portugal’s debt which has reached the edge of the cliff. The EU can afford to keep bailing out Greece if it cares to continue the extravagance, but it could not afford to bail out Spain and Italy. They are simply too big.
Only the Chinese have the sheer financial power to do so and they will extract a price.