Government bonds have proved to be the toxic financial products for the Greek banks and the only collapse that the country will undergo is political and social rather than economical. Greece will go bankrupt only if the euro area fiscal system goes bankrupt. This is the opinion of the economic analyst Elias Karavolias who talked about the geopolitics of debt at the Institute of Diplomacy and International Development.
The message "we are sinking" that the Greek government sent in the spring of 2010 before the signing of the Memorandum of financial support was correct strategic move according to the economic analyst. Through it the Finance Minister George Papakonstantinou managed to give a clear sign to his European counterparts that Greece needs help without having to declare the country's suspension of payments and provided state funding of much lower interest than the offered on the free market. "The purpose of a road show is to meet your partners face to face, considering the message you are sending - Papakonstantinou said we are sinking, thus forcing more rapid development of the rescue package," explained the economist. As for the measures imposed by the Memorandum, he said they are necessary and had to be implemented gradually over the past 20 years.
Elias Karavolias said that none of the analysts who support the idea for Greece to leave the euro area has a plan on how the country will cope with the budget deficit, external debt and self-rescuing the economy. Elias Karavolias clarified that Greece has no strong production to boost exports and to compete with Germany for eventual return to the drachma which will lead to currency devaluation. "The euro is a necessary evil," he said. An option that had to be applied early in the founding of the European single currency was to bind drachma to the euro based on a steady course without using the euro in the country (like Hungary, Bulgaria, etc.). This could give a larger freedom for choosing the measures for economic development. "All who say that Greece should leave the euro area do not know what they are talking about," he stated explicitly.
He said there are three scenarios for the development of the crisis in the eurozone. One is the euro to end its cycle and as result the dollar and gold will become extremely expensive and the consequences for European countries will be extremely serious. Notwithstanding the statement of this assumption, Karavolias stressed that he believed it could and would not happen in practice. The second option is the ideal case that Greece and Ireland will implement their obligations under the Memoranda and will restore their economic development within the specified terms, while Spain and Portugal will cope with their problems alone. Europe will stabilize its finances, but in this scenario, according to the economist, China's currency should fall slightly and USA should increase its domestic consumption.
"This of course raises the question – are the Chinese and Indians able to buy everything they produce?" - asked rhetorically Karavolias. The third option, which the economist presented, is somewhere in between. According to him, it is not excluded some of the eurozone countries to request rescheduling of foreign debt repayment but he strongly emphasized that this will not be Greece. Elias Karavolias left the impression in the audience that he knew far more than he said. He was adamant for the following statements:
"Greece will not go bankrupt. There won’t be additional measures beyond the extension of payments (under the Memorandum of financial support – author’s note.) but it will be difficult for the country to breathe during the next three years." He stressed that the crisis does not affect only Greece but many European countries too and the recovery of the euro is not only one country’s concern but a result of joint efforts. "Everybody in this country must understand that there is no plot against Greece and the purpose of the Memorandum is not to sell the Acropolis".
Elias Karavolias is financial analyst and advisor on strategic mergers and acquisitions. He graduated economics and law at the Aristotle University of Thessaloniki. He was Product Manager at Northstar Asset Management and currently is a member of the management boards of SF Global Found / Upgrade London / Mayfair Group.
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