Greece Closes Its Eyes and Votes

As Greeks went to the polls yesterday in a crucial election, nobody really knew where the campaign stood – because pre-election polls have been forbidden, under Greek law, since June 1.

This struck me as an apt metaphor for how Greece got into its plight in the first place, and for why there is likely to be far more suffering to come before it gets out. Greece treats facts as dangerous instruments that must be managed, suppressed or, when all else fails, ignored.

Why would a democratic society cut itself off from information about its own election campaigns? The state of a country’s politics can certainly be deplorable – many nations, including our own, are well aware of this – but how does knowing the state of a campaign hurt the society? With less information, do people make better decisions? Are citizens not entitled to share views and information with other citizens?

In Athens, apparently not. When the country’s finances failed to meet the standards required to join the euro, it fudged some numbers (shamefully with the help of some Western investment banks) and lied about others. When its ongoing budget deficits exploded past the currency zone’s limits, it hid the deficits. That is how the country amassed a national debt that far exceeds its annual economic output and its capacity to pay, even after a major default. The default was part of a bailout plan from just a few months ago that would have provided the Greek government with enough new cash to keep paying its bills in return for sharp budget cuts and privatizations intended to shrink Greece’s public sector to a size the country can realistically support.

But it all teeters on the brink of calamity. Greece’s national treasury is nearly empty as it awaits the next handout from the country’s European sponsors. But those sponsors, notably Germany, say they have no intention of throwing more money onto the pyre until the Greeks show concrete evidence that they are carrying out the strict financial reforms that the country needs. But those financial reforms are painful, and the Greeks are once again denying the unpleasant truth about their lot.

The most brazen practitioner of this denial is Syriza, the radical leftist coalition that finished a close second in the inconclusive May election that led to yesterday’s re-run. Syriza insists that Greece can renege on its austerity commitments, remain in the euro, keep its vast public payroll and still receive the financial aid it needs in order to pay its bills. The argument is that rather than acknowledge Greece’s failure, Germany and other European nations will choose to deny the reality of the situation and just keep paying.

That is what recent Greek governments would have done. However, it is not what German Chancellor Angela Merkel is likely to do, as she and many others have made clear. The Greeks would do well to look at German public opinion polling, which is not suppressed. Merkel’s hard line on European budget austerity is widely applauded by her countrymen.

Moreover, while the costs of a Greek exit from the euro will be great, those costs have already been largely discounted by almost everybody outside Greece. The widespread European perception going into Sunday’s vote was that Greece’s days in the euro are numbered, no matter how the election turned out.

The Greeks, in fact, largely share this perception, as evidenced by the fact that they have been rushing to withdraw money from their nation’s banks. Those who can do so have stashed their savings in banks in Germany, Switzerland and elsewhere.

The conservative New Democracy party campaigned to keep Greece’s commitments and keep the country in the eurozone. Before polling was suspended, New Democracy appeared to hold a slight lead over Syriza. The lead was seen as a big deal, because Greek law gives the top vote-getting party a large slice of extra seats in the national legislature.

I’m not convinced that it matters. Even if New Democracy wins, it may not be able to form a coalition or hold it together long enough to pass the reforms that the country’s lenders are demanding. More importantly, even if such reforms are enacted, it is doubtful whether they – like others enacted before them – will be implemented. Greece got through the first several years of its financial crisis because lenders were willing to disburse funds in return for legislation. Now those lenders are demanding action.

Greece has not yet shown that it is willing to act. Many Greeks rely on their government as a source of income, and few feel obliged to comply with tax laws to support it; even the prospect of economic disaster may not be enough to get the country to give up its life on the dole. The Greek welfare state may not end until simple lack of cash forces it to shut its doors.

The situation contrasts sharply with that of places like Portugal and Ireland, whose populations accepted deep cuts in government spending and social benefits in exchange for foreign financial support. While the spending cuts are depressing employment and output in the short term, those countries have much better long-term prospects than Greece.

Spain and Italy are sharing the headlines with Greece this week as the economic weaklings of Europe. Spain’s situation, however, is very different. The national budget is in much better shape, and despite some protests, the Spanish citizenry has supported many of the reforms Greece has resisted.

Italy, though vastly larger and more important economically than Greece, has some of the same characteristics of an ossified, inflexible, bureaucracy-heavy society. But on the other hand, the Italians also have world-leading brands and entrepreneurial pockets that Greece lacks, and they are much closer geographically and economically to eurozone powerhouses Germany and France. Though it is not pretty to watch, Italy usually finds a way to muddle through its crises.

I have few comforting words to offer about Greece. I hope I’m wrong – I think the citizenry is likely to suffer dreadfully for its nation’s failures – but I don’t think this latest round of balloting has prepared Greece to face the facts about its situation. It is, after all, a country that still thinks opinion polls need to be suppressed.

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About Larry M. Elkin 564 Articles

Affiliation: Palisades Hudson Financial Group

Larry M. Elkin, CPA, CFP®, has provided personal financial and tax counseling to a sophisticated client base since 1986. After six years with Arthur Andersen, where he was a senior manager for personal financial planning and family wealth planning, he founded his own firm in Hastings on Hudson, New York in 1992. That firm grew steadily and became the Palisades Hudson organization, which moved to Scarsdale, New York in 2002. The firm expanded to Fort Lauderdale, Florida, in 2005, and to Atlanta, Georgia, in 2008.

Larry received his B.A. in journalism from the University of Montana in 1978, and his M.B.A. in accounting from New York University in 1986. Larry was a reporter and editor for The Associated Press from 1978 to 1986. He covered government, business and legal affairs for the wire service, with assignments in Helena, Montana; Albany, New York; Washington, D.C.; and New York City’s federal courts in Brooklyn and Manhattan.

Larry established the organization’s investment advisory business, which now manages more than $800 million, in 1997. As president of Palisades Hudson, Larry maintains individual professional relationships with many of the firm’s clients, who reside in more than 25 states from Maine to California as well as in several foreign countries. He is the author of Financial Self-Defense for Unmarried Couples (Currency Doubleday, 1995), which was the first comprehensive financial planning guide for unmarried couples. He also is the editor and publisher of Sentinel, a quarterly newsletter on personal financial planning.

Larry has written many Sentinel articles, including several that anticipated future events. In “The Economic Case Against Tobacco Stocks” (February 1995), he forecast that litigation losses would eventually undermine cigarette manufacturers’ financial position. He concluded in “Is This the Beginning Of The End?” (May 1998) that there was a better-than-even chance that estate taxes would be repealed by 2010, three years before Congress enacted legislation to repeal the tax in 2010. In “IRS Takes A Shot At Split-Dollar Life” (June 1996), Larry predicted that the IRS would be able to treat split dollar arrangements as below-market loans, which came to pass with new rules issued by the Service in 2001 and 2002.

More recently, Larry has addressed the causes and consequences of the “Panic of 2008″ in his Sentinel articles. In “Have We Learned Our Lending Lesson At Last” (October 2007) and “Mortgage Lending Lessons Remain Unlearned” (October 2008), Larry questioned whether or not America has learned any lessons from the savings and loan crisis of the 1980s. In addition, he offered some practical changes that should have been made to amend the situation. In “Take Advantage Of The Panic Of 2008” (January 2009), Larry offered ways to capitalize on the wealth of opportunity that the panic presented.

Larry served as president of the Estate Planning Council of New York City, Inc., in 2005-2006. In 2009 the Council presented Larry with its first-ever Lifetime Achievement Award, citing his service to the organization and “his tireless efforts in promoting our industry by word and by personal example as a consummate estate planning professional.” He is regularly interviewed by national and regional publications, and has made nearly 100 radio and television appearances.

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