The Good, the Bad, and the Greek

02/08/2013 11:00 am EST


John Mauldin

Chairman, Mauldin Economics

Did you think Greece's troubles are over, or that the country has just faded quietly into the background? John Mauldin of Thoughts from the Frontline just got back, and he provides some fresh thoughts on the crisis there.

I recently visited Athens with my friend Christian Menegatti, who is head of research for Roubini Global Economics. A common theme in meetings with businessmen was a general agreement that the bureaucracy must become smaller and some frustration that it has not:

The Greek banking system has collapsed. Depending on what you read, or listen to, Europe has arranged up to €50 billion to help recapitalize the Greek banks. €27 billion has been injected to capitalize the four largest banks. All the smaller banks will be nationalized outright.

Taxes have gone up, and there are serious efforts to collect them. But there is still suspicion everywhere that others are not paying, with the worst offenders, doctors and lawyers—the upper-income earners.
But the problem is that there are no jobs. Unemployment is 27% (the government’s number); and the Chairman of the Council of Economic Advisors, Panos Tsakloglou, told us he was worried it could rise to 30% before it finally begins to turn around.

Unemployment among Greek youth is over 50%. That worries Tsakloglou, because young people are leaving the country.

There was general agreement on the need for foreign investment. There is no domestic savings to speak of, which limits deposit growth, which means banks will be tight-fisted, even with the new European money to help recapitalize them.
There is more austerity coming, and there is worry about political unrest this spring, which could cause some coalition members to withdraw support. It is the lack of certainty that is one of the biggest problems in Greece.

And to its credit, Greece may be that rarity in Europe, a government that actually hits its budget targets. They are close to a “primary surplus” (a surplus if you ignore debt service), which is the first step in recovering access to the bond market. With increased tax collections, major new austerity measures may be avoided.
While Europe has so far been willing to write checks in return for significant budget cuts, if there is “Greek fatigue” in some capitals of Europe that results in demands for even more austerity, it would be difficult to sell to the populace.

The good news on Greece is that I see little reason or even any serious movement on its part to leave the euro. The consensus in Europe is to do what is necessary. If that means austerity for some and taxes for others, then that is the price.
The challenge for Greece is not to become Germany or the Netherlands. The challenge is for Greece to become a better Greece. That means changing its systems and cleaning up its bureaucratic mess.
Greeks are renowned for their patriotism. It is time for them to move past being just Greek patriots and become Greek citizens, working together to build their future.

Read more Thoughts from the Frontline here...
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