Greeks vs. Swedes

Published by marco on

Updated by marco on

From the article, Roubini on Greece by Felix Salmon (Reuters):

“Sweden’s Bo Lundgren was also on the panel, and he helped explain how the Swedish population has the crucial and decidedly un-Greek ability to unite behind unpopular yet necessary policies once their political leaders have set a certain course. Greece, which is already seeing riots at any hint of fiscal austerity, just isn’t the kind of nation which is likely to decide that five years of wage cuts in a painful and deflationary recession is a price worth paying to stay current on the national debt. (Emphasis added.)”

I’ve heard this argument once today already and that time it was also nestled softly in the implication that Greeks are basically unwilling to put up with any reduction of their otherwise cushy and carefree existence just to save their country.

This from the same people that were happily chirping just weeks ago about how the Greek government is composed only of corrupt idiots. This from the same people who sneered at Greece’s government over the last decade, who watched as Greece struggled to make ends meet, with yo-yoing inflation and unemployment all the while. Greece is largely considered a third-world European country by those living in the first-world ones. That’s why everybody wants to vacation there—it’s still cheaper than most other places in Europe.

And yet, when the Greek government decides that wages cuts are the very first austerity measure it will employ and the people take to the streets, the Greeks are a bunch of ungrateful crybabies. Perhaps they are unwilling to put up with further austerity, above and beyond that to which they have already been subjected recently and over the last couple of decades. Perhaps they are of the opinion that those crooked idiots in their government should go first when it comes to taking a financial haircut.

It’s all well and good to talk up how the stolid Swedes know how to get behind their government, but it really should be noted that the Swedes also have generally had the kind of governance that they can get behind. The Greeks, by all accounts, are still waiting on that experience.

The article is about Nouriel Roubini, and details his prognostications about Greece at a recent conference. As usual[1], he’s not bullish:

“Nouriel’s base case, then, is Argentina 2001: after all, Greece has a much higher debt-to-GDP ratio, much higher deficit-to-GDP ratio, and much higher current-account deficit than Argentina had back then. […] if Greece is worse than Argentina, he says, then Spain is worse than Greece. Its housing bubble and bust has left the banking sector much weaker than Greece’s; its unemployment situation, especially with the under-30 crowd, is much worse than Greece’s; and the cost of any Spain bailout would be so much more enormous than the cost of a Greek bailout as to be almost unthinkable. […] clearly no one [sees tough fiscal and structural reforms] happening, given Spain’s political history over the past 20 years.”

So Spain isn’t politically viable enough to save itself but, in its case, it’s because of its political history (which is quite right and follows the argumentation for Greece above). Greece is, for some mysterious reason, not treated as kindly by Salmon and instead chided for being unable to man up like the Swedes.

Roubini sees only the pragmatic solution; that is, “some kind of coercive yet orderly debt restructuring, which keeps the face value of the debt unchanged but which reduces coupons and pushes out maturities”. In other words, wait and see if Greece will be able to pay back their debt later. There’s a lot of unknown unknowns in this situation, though a recent example of a large entity—Lehman Brothers—defaulting on its debt offers clues to possible futures for Greece. However, looking at the two Euro-zone countries in the biggest trouble, it’s hard not to notice that “even though Greece’s debts are small in relation to Spain’s, they’re still large in relation to, say, those of Lehman Brothers”.

Salmon sums up the unknowability of the situation as follows:

“[…] the bear case is terrifying, the bull case is very hard to articulate, and everybody is talking about a possible default even when the country has an investment-grade credit rating from two agencies and is only one notch below investment grade at the third”

For the layman: If Greece goes tits-up, Europe probably will go with it; the upside is hard to articulate because there effectively is none; and ratings agencies still consider Greece a decent investment, which would be mysterious if anyone had any f*#$ing reason for believing a good god-damned thing a ratings agency had to say anymore. When they’re telling you that bagful of dogshit is really a sunshine-and-rainbow machine, make sure to hang on to your best suit and tie when you get cleaned out, so that you look good in your mournful interviews on the “idiot investor” media circuit later this year.


[1] Roubini’s nickname is “Dr. Doom”, but financial pessimists have much more often been right than wrong lately.