As if our life isn’t hard enough, a German newspaper writes an open letter to George Papandreou and declares more or less ‘You are an insolvent …hero’. Moreover, Gabor Steingart, Editor-in-Chief of business daily Handelsblatt triumphs that “There is a life after death” -as the article title assures. However as it has not been scientifically proven that there is a life, two lives, x lives or not at all lives after death I would be really cautious about such promises and thus by a guy who first rolls a slimy red carpet for the Greek politician (“You are a modern hero”) to step on and then he draws the black omen of “insolvency”.
So sad to see another example of the German media trying to make profit out of the Greek crisis – ops! not to forget to mention the Focus, Der Spiegel and our all-beloved Bild – typical German arrogance pours out of brain cells and pc board keys.
Letter to Georgios Papandreou, Prime Minister of Greece
by Gabor Steingart
Mr. Prime Minister,
Dear Mr. Papandreou,
With the greatest respect, the Western world is monitoring your efforts to master your country’s debt crisis. No other democratic country has ever managed anything like that in peacetime. You are shrinking the state apparatus; you are fighting corruption; you are teaching your fellow countrymen how to become honest tax-payers.
You are a modern hero. You are attempting the impossible. As the son of a persecuted and ostracized politician who was chased by the military junta you grew up close to danger. When the officers were looking for your father who was hiding in the attic, they threatened you by putting an unlocked pistol to your forehead and challenged you to betray your father. You denied your father’s presence until he, worried about his son’s life, left his hiding place.Later you fled with him to America where you spent your adolescence. You are alarger-than-life-character.
Preceding governments almost ruined your country. Debts amounting to 340 billion Euros are burdening the Greek state,equaling 155 times the profit of the 60 largest companies of your country and 1.5 times the amount of debts the Maastricht Treaty allows. A year ago, this newspaper, Germany’s biggest Business Daily, appealed to the public to buy Greek government bonds in order to give to the country what Greece needs just as urgently as money: confidence. We also wanted to assist in breaking through the negative spiral of growing doubt and increasing interest rates. Everyone who granted you guarantees and loans wanted it, the European Union, the International Monetary Fund, the heads of state and government.
Papandreou – Steingart, May 2010
But since then, the spiral has picked up in speed instead of slowing down. In May 2010 the interest rate at which your country was given money on a ten year basis was at eight per cent. Today, it is at 16 per cent. And in all probability, it will be going up further. The bitter truth to which you and all parties who wanted to help Greece have to admit is that the help doesn’t help. Your country is getting deeper and deeper into the mess. Debts are growing, the gross national product will decrease by at least three per cent in 2011. But it would have to grow by three per cent instead if you were to lower your debt to the allowedlimit until 2040. This is becoming more and more unrealistic. You can’t starve and build up your muscles at the same time.
The truth that Greece has to cut back and save has turned into an untruth. The right thing has turned into the wrong thing. You already cut pensions, lowered the salaries of civil servants by 30 per cent and raised the prices of gas by almost 50 per cent. You can’t restore the health of your country by saving. And the European Union can’t restore your country’s health by again and again injecting new loans.
Soon, the day will come when the tortured body will surrender. The Greek construction industry already shrank by 70 per cent. Sales of car dealers sank by half. A daily export volume of 50 million Euros Greece is achieving far too little. Soon the day will come which investors fear in their nightmares. Then the word “insolvency” will be on everyone’s lips.
But it is also the day when a new truth will be born: Don’t save but invest, they will tell you – so that the Greek economy will grow again. Do not service debt with debt, you then will be recommended, but spread out the debt service, cut it and maybe even completely suspend it for a while. It will be a day of impositions, especially for those who lendmoney to you and your people. Financial markets will grind to a halt in horror – and then they will turn to embrace the future. Because Argentina in 2001, Mexico at the beginning of the eighties and Germany after World War II taught us that there is a life after death – at least, in the case of highly indebted states.
Mr. Papandreou, so far, you attempted the impossible. Now youshould do the possible. Just as you deceived the officers as a boy and denied to know where your father was hiding you now must repudiate the pride of the Greeks – in order to save your country. Come to meet the new uncomfortable truth before it knocks at your door. It’s already on its way.
Read Full Article in German and in Greek – Thanks to KTG-Reader Gaby!
Actually, the letter isn’t that bad.
It is saying:
1. The economic policy being demanded by the ECB and the IMF is mad. It is a process of borrowing more money to pay off borrowed money and then trying to pay off this new loan by making savings, thereby shrinking the economy, reducing the national income and having less money than you started with before you made the cuts to save money. As a result you have to borrow more money to pay off the money you borrowed to pay off the money you borrowed to pay off your debts. Then you have to make more cuts, but that only reduces your income further and so you have to … etc, etc. The result of all this sacrifice will be a debt that continues to grow and an economy that continues to shrink. The economist David Blanchflower calls this a death spiral. It is a policy that the IMF pushed on developing countries in the 1980s under the name structural adjustment. It was a dismal failure.
2. The alternative approach is one that has been successful in the past and he gives the example of post-war Germany, Argentina and Mexico. That means restructuring the debt with a longer repayment period thus reducing the short-term costs of payments. This means that there will be some short-term hostility from the international markets. This is because they will take the loss (instead of making windfall profits out of others’ misery) rather than the Greek people. The money saved will then be used for investment, there will be no cuts and the economy will grow again, bringing back the favour of the markets.
3. The term ‘hero’ is being used as a form of irony. The Greeks invented it. 🙂
The policy being demanded at the moment – especially by Merkel – is indeed mad and it isn’t just the Greeks that are suffering. It has to change.