Athens: the end or just the beginning?

I’m slightly biased writing this, as I sit in Athens at the Roof Garden Restaurant in the Hotel Grand Bretagne with the Acropolis on my right and Parliament down on the left - for the record, Athens is a very beautiful and classy city.

The Greek business people I have met are extremely realistic and know that things will get worse before they get better. Even the media is writing editorials pointing out that whoever wins the June 17th election, they still won’t receive a strong mandate for change (have they been reading Saxo research? Here is a link to our EU Crisis Map.)

The political establishment, in a classic state of denial, actually still thinks it is relevant and can determine the next steps for Greece. Maybe they can, but only if they offer a credible alternative to the current predicament. Several people I meet swear that they don’t care who wins, as long as they do what is right, but then they often hasten to add that none of the present party or coalition options will get the required mandate for real reform.

Two ideas jump out at me from the current state of affairs and from my discussions with contacts here:

1. Many Greeks seem to believe we are headed for an inevitable third and final election at the end of year, as it is still too early for Greece to achieve a real mandate for change. It fits my three-phase “crisis model” of denial, protest and then a mandate for change, with the latter only unfolding when the crisis is very intense, which it will be by Q4.

2. Some say that ultimately PASOK and Syriza may form a coalition. Apparently, in the early 1980s PASOK under the old Papandreou managed to turn a similar political environment into a coalition led by PASOK.

I do not know enough about Greek politics to judge the likelihood of the latter scenario, but from an economic policy perspective, I have a hard time reconciling this view. People here make the case that even a Syriza government can deliver what it promises to its voters and still keep the Troika happy:

They promise to nationalise the banks. The Troika is not going to object to this as they can’t be bailed out in any credible way.

They promise to tax the shipping industry to raise more funds for government – but this would only be a tax on ship owners’ income rather than a Germany-style tonnage tax. They are selling this idea to “the poor” as a tax on those who maintain five Ferraris, seven summerhouses, etc.,. In reality, it won’t raise more than petty cash.

They promise to abolish plans for government lay-offs. The Troika might agree to this, as extending and pretending in new shapes and forms for another 5-6 years with new always seems like a better idea to them than taking the pain up front. As well, Greece is getting close to a primary surplus

Finally, they promise a moratorium on the debt, and as 70 per cent of the debt now owned by the public sector, this would mean a restructuring of coupons and lengthening maturities.

Syriza is the working man’s choice for giving the elite “the finger”. This June 17th is as much about voting for and against the Troika austerity as it is about say 'No Thank You' to the elites who have so badly managed Greece in the last decade.
Further, it is worth mentioning that Syriza is seeing negative bias in the published poll results. There is general rule of thumb here that Syriza nationally is 5-7 per cent higher than the polls suggest.

But if Syriza wins, there might be the risk of real panic in the private sector, with business owners not wanting to pay VAT or salaries until they have a clear idea of Syriza’s true agenda as it has declared its hostility to private enterprise.
Still, plenty of good micro things are going on: I spoke at a conference yesterday hosted by Saxo's partner Prelium, which in the depth of this crisis is investing in technology for online trading and successfully so. I met several businessmen who are looking at restructuring deals, under water loans and real estate portfolios. For now, investors are still betting that there is a ECB lender of last resort escape route. They should be wary, however, of the Cyprus banks that bet there businesses on Greek bonds and lost everything.

Conclusion
Greece has a history of moving to the left in times of crisis. They will do so again on June 17th, but there is more than a 50 per cent chance that the real election will be the third one that comes after a lack of political consensus on what to do has played out before the end of the year.

This country will bounce back. They remain the dominant force in shipping and the micro economy is alive and kicking, we just need that final move to the low where Greece gets a new chance through default and clearing the slate. Don't forget that in the history of Spain, this has happened fourteen times.

Finally, remember the spectacular investment opportunities the last time Russia, Brazil, and Argentina went bankrupt. When the noise is the loudest, the investor needs to walk into the fire not run away from it.

Safe travels,
Steen