Default Is Not A Get Out Of Capitalism Free Card, But There’s Always The Sun
The first time I went to Greece was to a small island called Lefkas, back then the small village of Vasiliki was at the time (late 80’s) termed “the windsurfing capital of Europe”. It was a cheap holiday, the accommodation was basic, but hey, it still can be on certain Greek isles, it’s all part of the charm. A charm I can testify is still there..
The last time I visited Greece was in 2010 on the island of Kos with my family, although the prices were somewhat different from the previous time we’d visited, back in 2006. The kids had noticed something, everything was dearer and no one was shopping..
A lot of evenings were spent strolling through the ancient streets after a meal out and the kids would spot souvenirs, even they’d noticed the escalation in price of the homogenous souvenirs typically decorated with the words; Kos, Crete, Rhodes, Santorini, Kefalonia or Zante..(yes we have done a bit of a Greek Odyssey over the years). But the crucial aspect in 2010 is that it ‘felt’ as if something had changed, the ‘mood’ of the people had shifted.
This was beyond the normal feeling that they must get tired of tourists, trivia and small talk, having built their way of life and livelihood from tourism if it failed so did they. They appeared nervous, stressed. Small things; there was less meat on the kebabs, the starters had less salad, flat Coke (with too much ice) was being passed off far too often and the feta cheese portions were tiny and had a processed taste and texture.
Even the Giros kebabs were costing far more money for a lot less, the locals appeared to be scraping the barrels and had entered a downward spiral of having no alternative, inflation had been unleashed and had ravaged their economy..
A stand out moment for me (that something had gone very wrong) actually came the previous year, 2009, in Crete when I asked how much it was to hire a jet ski? For 15 mins the price was now €50 euros, in previous years on other islands (and Crete) it’d been €25-30 for half an hour. These jet skis lay unused for most of the time when we had a beach day.
A few days later I got into a conversation with a lady who collected the money from the sun beds, she was English, had married a local and had been there ten years. Whilst she chuckled at the lack of business ‘smarts’ of her friends, “why not lower the price and get more business?” she explained that in some ways they were stuck.
Fuel costs had doubled, insurance had gone up two hundred percent, their rental/permits costs had ballooned so they had to price where they perceived the break even point to be, what was the point in running at a loss potentially risking the equipment from damage and depreciation? No, they just had to sit, hope and wait for customers, using the lament of many a shop keeper, they had to wait for “things to ‘pick up’ “..
I mused on the fact that this was the sharp end of capitalism now shaping the economy of these islands; fuel costs, insurance costs, compliance costs, tourists feeling the pinch back home, inflation that had brought ‘good’ asset inflation, (Grannie’s old pile of bricks sold to a dumb doing up property tourist for €100,000 Euros) had latent and lingering unforeseen consequences.. It’s certainly moved on a long way in twenty years since the pound exchange rate gave you untold spending power on your holiday.
The resentment the locals displayed towards the tourists was palpable during our last two visits, many Greek youths like their smartphones, like their scooters, like the new Peugeots bought on credit, like having their own two bed, air con, new build on the edge of town..and they need the tourist pound, dollar and euro to pay for it, “we lay on this entertainment for you, the least you can do is empty your pockets..”
Despite the recent optimism that the fiscal compact, combined with the EMSF and a debt forgiveness by private bondholders in the new revised swap deal, will repair Greece the threat of a default cannot be ruled out. To revive the insular tourist dependent economies on, for example, the popular islands will take more than austerity. In fact ‘austerical’ measures will simply kill off any hope of growth or repair, which inevitably brings to the forefront the potential human cost a collapse of the Greek economy would have, over and above the phenomena as a ‘ledger entry’.
‘The sun will still rise the next day’ is the simplistic statement that’s often used in relation to the Greeks and a potential meltdown by way of default. “So what, go back to the Drachma”..If only it was that simple and sadly for Greece they never were in a position to ‘do an Iceland’…
In a disorderly default the entire Greek banking system would collapse. They’d have to put the army on the streets. There would be riots. In default Greece could be out of the EU, out of the EZ, out of the credit markets. A new drachma would be subject to hyperinflation and be worthless. How would Greece import the fuel, food and medicines it needs, how would it feed twelve million people?
Tourism currently stands at approx. 17% of GDP, but with social unrest and power cuts would they still keep coming? What could Greece sell to the world to make money? Agriculture has been run down (thanks to eu policies in some regards) and is now only circa 4% of GDP. Greece would need to increase production immediately, that’s a lot of olive oil to sell and feta cheese, even processed, isn’t to everyone’s taste..
There is little or no manufacturing in Greece and very little industry. Industry could be developed, but not without credit. Default is not a “get out of capitalism free card”. Greece is at serious risk of becoming a land full of peasant farmworkers, under a military dictatorship, with rampant poverty and inflation. But hey, the sun will still shine…