Friday, December 24, 2010

Beware of Greeks Bearing Bonds

Today I read the "The Sidney Awards" article of The New York Times columnist David Brooks. In the article the author mentions some noteworthy essays of 2010:

"I try not to fall into a rut, but every December I give out Sidney Awards for the best magazine essays of the year, and every year it seems I give one to Michael Lewis...
This year it was a Vanity Fair piece called “Beware of Greeks Bearing Bonds.”...
His specific subject is Greece, a country that plundered its public institutions while spoiling and atomizing itself...
Lewis’s genius was to show how the moral breakdown spread into one of the most remote institutions on earth, a 1,000-year-old monastery cut off by water, culture and theology that, nonetheless, managed to put itself at the center of the great plundering."

I decided to read the essay published on October 1, 2010. It is definitely a very interesting one and I strongly recommend reading it to everybody! Apparently, the economic collapse of Greece was accompanied or preceded by moral collapse. The summary of this very nice essay is below:

Beware of Greeks Bearing Bonds*


After systematically looting their own treasury, in a breathtaking binge of tax evasion, bribery, and creative accounting spurred on by Goldman Sachs, Greeks are sure of one thing: they can’t trust their fellow Greeks.


In addition to its roughly $400 billion (and growing) of outstanding government debt, the Greek number crunchers had just figured out that their government owed another $800 billion or more in pensions. Add it all up and you got about $1.2 trillion, or more than a quarter-million dollars for every working Greek.


In just the past decade the wage bill of the Greek public sector has doubled, in real terms—and that number doesn’t take into account the bribes collected by public officials. The average government job pays almost three times the average private-sector job...The retirement age for Greek jobs classified as “arduous” is as early as 55 for men and 50 for women...In Greece the banks didn’t sink the country. The country sank the banks.

The scale of Greek tax cheating was at least as incredible as its scope: an estimated two-thirds of Greek doctors reported incomes under 12,000 euros a year—which meant, because incomes below that amount weren’t taxable, that even plastic surgeons making millions a year paid no tax at all. One reason no one is ever prosecuted...is that the Greek courts take up to 15 years to resolve tax cases. The Greek state was not just corrupt but also corrupting...the credit boom had pushed the country over the edge, into total moral collapse.

In 2001, Greece entered the European Monetary Union, swapped the drachma for the euro, and acquired for its debt an implicit European (read German) guarantee. Greeks could now borrow long-term funds at roughly the same rate as Germans—not 18 percent but 5 percent. To remain in the euro zone, they were meant, in theory, to maintain budget deficits below 3 percent of G.D.P.; in practice, all they had to do was cook the books to show that they were hitting the targets...Any future stream of income that could be identified was sold for cash up front, and spent.


...In late 2008, news broke that Vatopaidi [Monastery] [1] had somehow acquired a fairly worthless lake and swapped it for far more valuable government-owned land. How the monks did this was unclear—paid some enormous bribe to some government official, it was assumed. No bribe could be found, however. It didn’t matter: the furor that followed drove Greek politics for the next year. The Vatopaidi scandal registered in Greek public opinion like nothing in memory...“Without Vatopaidi, Karamanlis is still the prime minister, and everything is still going on as it was before.”


After the new party (the supposedly socialist Pasok) replaced the old party (the supposedly conservative New Democracy), it found so much less money in the government’s coffers than it had expected that it decided there was no choice but to come clean.The prime minister announced that Greece’s budget deficits had been badly understated—and that it was going to take some time to nail down the numbers.... In came the I.M.F. to examine the Greek books more closely; out went whatever tiny shred of credibility the Greeks had left. “How in the hell is it possible for a member of the euro area to say the deficit was 3 percent of G.D.P. when it was really 15 percent?” a senior I.M.F. official asks. “How could you possibly do something like that?”


Among the first moves made by the new minister of finance [
George Papaconstantinou] was to file a lawsuit against the Vatopaidi monastery, demanding the return of government property and damages. Among the first acts of the new Parliament was to open a second investigation of the Vatopaidi affair, to finally nail down exactly how the monks got their sweet deal. 

In a society that has endured something like total moral collapse, its monks had somehow become the single universally acceptable target of moral outrage. Every right-thinking Greek citizen is still furious with them and those who helped them, and yet no one knows exactly what they did, or why.


In the late 1980s, Vatopaidi was a complete ruin—a rubble of stones overrun with rats. The frescoes were black. The icons went uncared for. The place had a dozen monks roaming around its ancient stones, but they were autonomous and disorganized.


That changed in the early 1990s, when a group of energetic young Greek Cypriot monks...saw a rebuilding opportunity: a fantastic natural asset that had been terribly mismanaged. [Father] Ephraim set about raising the money to restore Vatopaidi to its former glory. He dunned the European Union for cultural funds. He mingled with rich Greek businessmen in need of forgiveness. He cultivated friendships with important Greek politicians. In all of this he exhibited incredible chutzpah. For instance, after a famous Spanish singer visited and took an interest in Vatopaidi, he parlayed the interest into an audience with government officials from Spain. They were told a horrible injustice had occurred: in the 14th century a band of Catalan mercenaries, upset with the Byzantine emperor, had sacked Vatopaidi and caused much damage. The monastery received $240,000 from the government officials


...Most famously, until scandal hit, Prince Charles had visited three summers in a row, and stayed for a week each visit.


From an ancient deed to a worthless lake the two monks had spun what the Greek newspapers were claiming, depending on the newspaper, to be a fortune of anywhere from tens of millions to many billions of dollars. But the truth was that no one knew the full extent of the monks’ financial holdings...And the business had started with nothing to sell but forgiveness.


The day before I left Greece the Greek Parliament debated and voted on a bill to raise the retirement age, reduce government pensions, and otherwise reduce the spoils of public-sector life...Thousands upon thousands of government employees take to the streets to protest the bill...Two months earlier, on May 5, during the first of these protest marches, the mob offered a glimpse of what it was capable of. Seeing people working at a branch of the Marfin Bank, young men hurled Molotov cocktails inside and tossed gasoline on top of the flames, barring the exit. Most of the Marfin Bank’s employees escaped from the roof, but the fire killed three workers, including a young woman four months pregnant...The events took place in full view of the Greek police, and yet the police made no arrests.


The question everyone wants an answer to is: Will Greece default?...It behaves as a collection of atomized particles, each of which has grown accustomed to pursuing its own interest at the expense of the common good. There’s no question that the government is resolved to at least try to re-create Greek civic life. The only question is: Can such a thing, once lost, ever be re-created?

http://www.vanityfair.com/business/features/2010/10/greeks-bearing-bonds-201010
[1] The Wikipedia article:Vatopedi Monastery.