Christmas In Athens: You're A Mean One, Mr. Grinch

by: Kyle Spencer

Raise your hand if you're visiting the Parthenon this Christmas.

No? You're not alone: BBC news reports that -

The Greek tourist board official was not in a friendly mood. A request for an interview with a senior figure from his organization was met with hostile incredulity.

Luckily, the piece goes on to say one of his female colleagues was more helpful and introduced the British reporter to Greece's Tourism Minister, Olga Kefalogianni, who went on to explain how Greece was hoping for a tourism-led recovery, as tourism accounts for 18% of Greek GDP and 20% of the country's employment.

But let's stop playing pretend with the now thoroughly discredited PASOK and New Democracy, and see Greece for what it truly is: a play-by-play depiction of a society undergoing slow-motion implosion, with visual aids included. The mutilation of Greece will be thoroughly dissected by generations of future economists as a lesson in what it means not to print your own currency, and by generations of future sociologists as a lesson in what it means for the social fabric to unravel.

Lesson #1: The Help Quits First

You can pay an employee of the state to make sure that all the pens and legal pads are in the right places when you sign away your nation's independence, because "nation" is an abstraction next to the reality of feeding your kids.

The Help will stick by you even when 100,000 people are outside chanting, "Fight! They're drinking our blood!" - because after all, protests are practically the Greek national sport these days. However, the moment the paychecks stop coming, the Help will quit on you.

Witness the chaos that erupted inside the Greek Assembly that was busy passing the Troika's demands: Parliamentary workers staged a walk out mid-debate, when they learned that their own salaries would be part of the package of cuts, which even Greece's Prime Minister Antonis Samaras, in an astonishing display of utter powerlessness before the Troika, acknowledged to be "unfair."

Given that the IMF has already admitted that the very real fiscal and social havoc that these cuts will wreak on an already battered Greece will far exceed any theoretical benefits, I'm inclined to agree with the Greek PM.

Samaras, by the way, is currently considering ordering the aides back to their posts by executive order. Hopefully, there is someone close to the Prime Minister with the presence of mind to warn him of what will happen to his legitimacy if he were to give an executive order only to have it thrown back in his face by his own aides-de-camp.

Lesson #2: Institutions Protect Themselves At The Cost Of Legitimacy

Meanwhile, on Wednesday, Greece's Supreme Court (Areios Pagos) moved to protect its own livelihood by declaring the 30% cuts to the salaries of Greek judges to be unconstitutional. I don't know enough about the Greek constitution to argue the merits of the High Court's decision, but I do know what credence I would give a Court that moved so swiftly to protect its own pocketbook while taking no action to protect the livelihood of the average Greek: None.

However, Greece's Supreme Court appears to be going further than that, throwing up roadblocks that challenge the legitimacy of the Troika diktat itself.

Moreover, the disturbing manner in which the legislation was passed itself undermines the bill's long-term viability: It was rammed down Parliament's throat before it could be debated, or indeed (see the walkout above) even read. When a new measure was appended abridging independent control of Parliamentary business, it caused such outrage that it was immediately withdrawn. This, too, is a crisis of legitimacy.

Lesson #3: Don't Throw Good Money After Bad

This is one of those little jokes of history that gets rehashed every few generations or so: the international community invests more and more in a national figurehead whose personal prestige and power is eroding by the hour. For every V.I. Lenin, who turned out to be a great investment for the Imperial German Army, there are three Manuel Azañas.

Chiang Kai-shek, whose nickname in Tokyo was "cash my check," was one such figure. Antonis Samaras is another.

Revolutions are a battle of appearances as much as they are a battle of ideas. When anarcho-syndicalist Greek hipsters are in the streets throwing Molotov cocktails at police, that's one thing. When the crowd howling for your blood outside looks less like Dennis Hopper in Free Rider and more like your friendly neighborhood dentist, it means you're losing the political center.

Lesson #4: The Real Problem Is Always Waiting In The Wings

Who speaks for Greece? Probably 38 year old Alexis Tsipras, the leader of the Coalition of the Radical Left, or Syriza. The Wall St. Journal recently crowed that:

Recent comments by Mr. Tsipras and others in his Syriza party that Greece would be better off defaulting on its international debts and devaluing its currency as Argentina did over a decade ago have spooked Greeks. Such alarming remarks are translating into more support for Mr. Samaras and his fragile coalition government, even as the coalition pushes forward with unpopular budget-cutting plans to satisfy creditors.

Get serious.

While I understand the notion as a banker's fantasy, the fact is that no one in debt gives a vote of thanks for their creditors. (That's why loaning money to family members is usually a mistake.)

If Mr. Market weren't so invested in taking down Syriza, they would see Tsipras's overreach for what it actually was: somewhere in the political Twilight Zone between a minor miscalculation and a trial balloon.

Did it cost Tsipras? Sure, but memories are short. Economic deprivation lasts a lot longer. As Ilias Nikolakopoulos, a professor of political science at the University of Athens, noted:

At this moment, the issue isn't the government versus Syriza, it is how much society will endure. At some point there will be an explosion. Syriza is waiting for the population to explode.

The truth is that Syriza wants the current government to remain in power for at least a year. It's in no rush to govern, it just can't say that openly. But if the government collapses, Syriza will win no matter what the polls show now.

Lesson #5: Soft Power vs. Hard Power

Friends don't dictate terms. When Angela Merkel flew into Greece earlier in October, she took great pains to stress that she came as a "friend" of Greece, who was "not here to preach...nor have I come as a teacher to give grades..." And she said it with a straight face, which is certainly commendable acting, if nothing else. The problem, as Spain's Finance Minister recently discovered in London, is that not everyone in the entourage is so adept.

The German reporters who had flown in from Berlin to cover the Merkel sneered openly at the suggestion that Angela was Greece's psychoanalyst "here to listen, and be informed."

"Saying that she is not here to preach is bullshit," said one journalist assigned to the Chancellor. "She is here to tell them exactly what to do."

That's the problem. You can't buy love from strangers with hard power. You have to use "soft power", like the French President Francois Hollande did when he flew into Athens to humbly present himself on the Greek Mega TV channel as "a friend of Greece." Greece was Hollande's first foreign stop on assuming power. Hollande's sympathetic intervention tipped the Greek election in Samaras' favor.

Angela Merkel has no such sympathy, even when she pretends to be an empathetic sponge ready to soak up Athens' complaints with a heavy heart: If you're Greek, you know that Angela's judging you harshly.

If you're a Greek tourist board official, you can see Angela's judgment everywhere, from the Acropolis to Delphi, from Thebes to Knossos, from Olympia to Mycenae and Corinth: Greece has fallen out of the top 5 tourist destinations in Europe and currently ranks 10th, according to the United Nations World Tourism Organization. Helen of Troy barely pays the bills in the Age of Angela, and the last person you want to see while you mull that one over is a reporter from the same newspaper that's been publishing pictures of Athens in flames all over Europe.

Lesson #6: Exodus

According to CNBC, the Exodus of the PIIGS' youngest and brightest has begun, and with them Southern Europe's future.

...young Spaniards are leaving for Latin America and Miami in the U.S., where the Spanish speaking community outnumbers English speakers; Portuguese are heading to Brazil, Angola and East Timor; and young Irish and Greeks are opting for Australia, which has large diaspora communities from these two countries.

The statistics are shocking: Ireland's 20-29 year old population is -8.8% Y-o-Y, marking the largest Irish migration since the potato famine. Most of them are headed to Australia, hand in hand with the Greeks. Portugal's Prime Minister is actively encouraging the nation's young to flee the country, though Southern Europe's historically low birth rates will make them impossible to replace.

He suggested they to go to "Angola, and not just Angola," and highlighted the great teaching void in Brazil.


Five more years.

That's the timetable that Angela Merkel gave at the recent gathering of her CDU party in the northeastern German town of Sternberg.

"We need austerity to convince the world that it's worth investing in Europe," she said. The time has come, the German Chancellor continued, for a "bit of strictness," otherwise, Europe couldn't attract international investment.

This Lady is not turning. Heartening news indeed, if you believe that sharp budget cuts have proven effective, but truly horrifying if you question the basic premise, as the IMF now does.

The International Monetary Fund has warned that austerity programs in Europe's most troubled economies could have political limits, as resistance grows in Greece and Portugal over their bailout terms.

"Another risk is that austerity may become politically and socially untenable in periphery countries, as structural and fiscal reforms will still take years to complete," the IMF report said.

Let's take a quick inventory, then, of the tragedy currently unfolding in Greece: We have a coalition establishment whose support base is quickly eroding due to foreign demands, with the federal, legislative and judicial branches of government which are at each other's throats.

We have a youthful and charismatic opposition leader in place, who has no intention of honoring the country's debts and will assume authority by default the moment the establishment falls.

We have a country that is overly reliant upon its deteriorating tourism industry, which, along with the rest of Europe, is shipping its youth to other shores - a decision which is itself demographically lethal, considering the region's low birth rates and aging population.

Finally, we have a Germany whose public sympathy for the plight of the financially profligate Greeks could hardly be lower, and whose political establishment has more to lose than to gain by relaxing terms for Athens.

In short, we have a huge write-down for the ECB and its member banks in the making and €360 billion losses which are currently unrealized or being papered over, a figure representing 180 back-to-back 18-wheeler Mack Trucks stacked with €100 bills stacked approximately 2 meters high. It's highly unlikely that any of this money will ever be repaid by the Greeks with a debt-to-GDP ratio of 189% and climbing, and certainly not by a Syriza government.

(Source: Wall St. Journal)

Nor can the creditor government and banks afford to offer real debt relief to Athens: a 30% haircut across the board would blow a hole in the balance sheets of European banks, such as BNP Paribas and Societe Generale, with a total cost to U.S. financial institutions of $43.1 billion, with the most exposed banks including JPMorgan Chase (NYSE:JPM) and Bank of America (NYSE:BAC).

When we widen the picture to include the similarly distressed countries in Southern Europe, such as Spain and Portugal, the number of banks with significant balance sheet exposure rises to include Barclays (NYSE:BCS) and Deutsche Bank (NYSE:DB), Morgan Stanley (NYSE:MS), Goldman Sachs (NYSE:GS) and Citigroup (NYSE:C), to name but a few.

Nor are banks the only ones at risk. In fact, many investors are directly exposed to Europe via Investment Grade Corporate Bond ETFs and mutual funds, including iShares iBoxx $ Investment Grade Corporate Bond (NYSEARCA:LQD), the Vanguard Intermediate-Term Corporate Bond Index (NASDAQ:VCIT) and the iShares Barclays Intermediate Credit Bond (NYSEARCA:CIU). These are directly exposed to financials (34.75% allocation) in general; with 6.34% of that in European financials such as Barclays, UBS (NYSE:UBS), RBS (NYSE:RBS) and Deutsche Bank, all of which are heavily invested in PIIGS debt.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.