Greece's 'Odious' Debt by Jason Manolopoulos

The first time we tried to get into the Kerameikos Museum in October 2010 we found this:


Greece was in the middle of a general strike, and just recently the country has been in the news again with their elections rejecting the previous government's austerity measures. I was interested in learning a little of the background to all this unrest, and so I of course resorted to a book, namely this one:


Greece's 'Odious' Debt by Jason Manolopoulos. Mr Manolopoulos is the co-founder of the emerging markets hedge fund, Dromeus Capital, so he knows a few things about economics. It is a well-written book, with just the right degree of well-chosen humour. It was written in simple enough terms for the layman to understand for most of the book, although I did feel I was out of my depth towards the end of the book in chapter 9 when the vocabulary defeated me, but I feel it didn't stop me learning a great deal from this book.

The book was published in 2011. In the preface Manolopoulos says that by that time Greece had been allowed to borrow in excess of $300 billion, despite 'an unreformed economy, overreliance on mid-tech industries, a chronically inefficient and corrupt public sector and an unreformed political infrastructure with immunity for politician guilty of financial crimes.'

An unreformed economy, I believe, is one that has not been fully opened up to market forces. Economic reform is the lifting of state monopolies and controls, the widespread privatisation of industries, and the support of entrepreneurs. China has reformed their economy since 1978 and this has led to increased wealth. In the reformed economy there are opportunities for the ruthless to become oligarchs and become fantastically wealthy; in the unreformed economy there are similar opportunities for politicians and civil servants - this time through the control of state funds.

The ‘Odious’ debt of the title comes from legal theory of the 1920s. It refers to national debt incurred by a government for purposes that do not serve the best interests of the nation; they are held to be personal debts of the representative regime that incurred them and not of the country’s population - and such debt should not be enforceable.

However Manolopoulos paints a picture of a society that is openly corrupt from the government downwards: there are even words for it fakelaki is a colloquial term for a bribe to speed up service, and miza is the term for an introduction fee for procurement. In chapter 5 ('The Looting of Greece') he starts by giving some shocking figures: there are 321 dead individuals aged over 100 receiving a pension; 30 full-time civil servants staff an office devoted to a lake that no longer exists; 324 householders admit to owning a swimming pool in northern Athens for tax purposes, although satellite photography reveals 16,974. Instead of wealth being created by industry, and some of this wealth being used to support political movements, the money flowed from the politicians to their favoured clients. There are closed shops, politicians come only from certain families, state employees have little to do and their jobs are safe, their salaries large and they retire early, there is widespread nepotism and cronyism...and the police uniforms cost more than Armani!

He gives historical reasons for this corruption: Greeks have a sense of entitlement, he says. They gave the world its culture, philosophy, science, democracy and education and so feel they are owed something back; during the second world war they lost the largest proportion of people of any occupied country and according to Churchill were instrumental in securing victory; and since that war they have had to endure a civil war and then a coup d'etat. But perhaps the greatest sense comes from the rule of the Ottoman empire which lasted over three centuries. During this time it became a point of honour to avoid paying taxes which would only benefit the alien overlords, and the habit seems to have stuck.

This corruption also infected the way Greece presented itself to the rest of the world, so that when Greece declared it had met criteria (budget deficit below 3% of GDP) in order to join the euro in 2001 it did so partly through by fudging figures and exploiting loopholes - this was an open secret and it served the European Community's purposes at the time not to go and check. The idea was that Greece's economy would gradually converge with the rest - and at that start things looked good.

The three main 'industries' of Greece are tourism, shipping and agriculture, and when Greece adopted the single European currency in 2001 these, by complete fluke, were about to experience a boom. The rise of al qaeda meant that Greece was favoured as a tourist destination over nearby Islamic countries, the demand for shipping increased due to China's economic boom, and agriculture benefitted from EU subsidies. People in Greece felt rich, there was a lot of money available to those with the right connections, but instead of investing in the future by building technical colleges, research institutes and schools (as India and China did) these newly wealthy civil servants and politicians invested it in their lifestyles. They bought houses, second homes, boats and expensive cars from Germany, and they also bought arms. Greece has the highest owner occupancy rate in all of Europe. In 2010 there were €8 billion outstanding car loans (3.5% of the GDP). But Greece was living beyond its means. Despite the apparent affluence, Greece was a country in debt, and this debt was becoming steadily worse.

Money continued to be available post boom. Because Greece had the euro it was considered to be rather more developed than it actually was and the politicians were consequently able to borrow more money on easy, low interest terms. There was, Manolopoulos says, a ‘kick the can down the road’ mentality; in which politicians buy enough favours for short term and gamble that the day of reckoning falls on someone else’s watch. This applied not just in Greece, of course, and, I would say applies not just to economics but to potentially more important things such as the future of the planet and long term health and social care.

The global recession of 2008 took time to hit, but by 2009 Greece was in crisis. In late 2009 the PASOK government announced that previous statistics had seriously understated public borrowing requirements. It doubled to 13% of GDP.

Membership of the euro had made Greece a relatively expensive tourist destination, and sufficient money hadn't been spent on upgrading the facilities during the boom; shipping was hit by the decreased demand and the was a reduction in agricultural subsidies from the EU as poorer Eastern European countries had joined.

The usual step in such circumstances would be to devalue the currency, but Greece would only be able to do this if it left the euro, so to prevent them doing this there have been a series of 'bail outs' from the rest of the EC on condition of the Greek government imposing austerity measures on the people. The reaction of the Greek population is to respond with strikes and other unrest - hence the reason the Kerameikos was closed that day in 2010. Manolopoulos contrasts this response with that of the Irish, who are undergoing similar hardships with little more than a murmur. The reason, he says, is that the Greek have had a coup d'etat within living memory which means that the police are not viewed with the same neutrality, and furthermore there is a general resentment of the well-known wealth and corruption of those in power - compared with the rest of society who are poor and being asked to give up even more.

Last Sunday, the politicians that had accepted the 'bail outs' and the accompanying austerity measures, were voted out, and so many other parties were voted in with an evenly distributed number of votes that there is no majority to run the country. The consensus seems to be that Greece will now leave the euro, and the great European experiment to build a nation equal to the United States of America will start to crumble.Manolopoulos would no doubt think this a shame. The euro, he said, was a good thing - it was just done badly.

It is a very good and thought-provoking book, but I suppose the main assertion of the book remains open. Is Greece's debt really 'odious'? In fact, how much is any country's debt 'odious'? If a country is a democracy then perhaps its debt can't be 'odious' because it has been procured by a government which represents the people. If that government is corrupt then is that corruption just as much a representation of the people? But maybe none of us truly live in a democracy - not in the Ancient Greek sense. For that we would all have the chance to vote on every issue, especially on something as important and fundamental as the European Community and the adoption of the euro. We would all have been herded up to our local pnyxs and given the chances to have our voices heard - on that and everything that mattered. Although, thinking about it, I think I would find that fairly odious too.

I bought the book (in Sterling- heh).