As a Greek child growing up in Zimbabwe, I spent a fair amount of time going to Greek National Day celebrations. We waved flags, read out Greek poems, wore the national dress and re-enacted scenes of Greek defiance for crowds of patriotic grandparents and the Greek ambassador. On the more religious public holidays, we’d be bussed to the cathedral to stand as an honour guard on the nave during the liturgy; and then later, we’d have to stand outside in front of the War Memorial monument, while the Community President, the Archbishop and other local Greek heavyweights took turns to lay wreathes and make speeches. It was very tedious – and standing under the African sun for that period of time did result in some fainting. Which was about the only real moment of excitement.
Here’s an idea of what it used to look like (just google “Greek children in national dress” – there is a lot of this kind of facial expression):
But the two national days that attracted the greatest amount of attention and preparation, with all the poems and dramatisations, were:
- Independence Day on March 25, marking the start of the liberation struggle of Greece from the Ottoman Empire; and
- “OXI” Day on October 28, commemorating the day that the Greek Dictator, Ioannis Metaxas, rejected the Mussolini ultimatum to allow Italian troupes onto Greek soil, initiating Greece’s entry into the second World War, her subsequent occupation by Germany, and the two heavy bouts of hyperinflation that followed it.
Given the results of the referendum yesterday, it seems that future generations of Greek schoolchildren might have to stand in the sun for two OXI days a year.
I am unhappily eating humble pie – because I have been firmly saying that the Greeks would vote “yes” after a week of tasting what life would be like cut-off from the Eurozone. Admittedly, that was mostly before the IMF debt sustainability report came out late on Thursday last week, and before Friday’s conciliatory remarks from Mr Schäuble.
But if I’m honest, I think that those things were mostly irrelevant. My feeling is that I completely overlooked one key factor: if there is anything that the Greeks hate more than their own government telling them how to vote, it’s a foreign power telling them how to vote. Because who is this junk Juncker to tell the Greek people what to do? And especially when he’s forcing them into a corner…
Either way, the referendum is now over, and the Greeks have had their defiant moment. The finance world is awaiting a market sell-off come opening bell, and a torturously volatile week ahead as the repercussions start to unfurl themselves in the halls of Brussels.
Looking Forward For Greece
Dark times ahead.
No Formal Financial Sector For The Time Being
Despite the assertion from Mr Varoufakis that Greek banks would open tomorrow, they almost certainly won’t. The ECB still needs to decide what it’s doing with the Emergency Liquidity Assistance (ELA) that it has been providing to the Greek banks. And from what I’ve read: the ECB won’t do anything until the Eurozone politicians have decided where to from here. So no banks for the moment.
In fact, as I’m writing this, I see that Varoufakis has now resigned. We can only hope that this assists in making the new negotiations less fraught, as indicated in his blog post “Minister No More“. I’m sure it has nothing to do with all those promises that were made that can’t be met.
That said, I suppose the Greek government could technically open the bank doors tomorrow but not allow the banks to transact. Which doesn’t really help.
The Humanitarian Crisis
Greece is running out of insulin and other key medications. I was worrying about this last week (see here). Even Tsipras is referring to it as “the humanitarian side of the crisis“. Have a read of this article from the Economist: When banks die.
Some extracts:
On the insulin shortages…
Mariana doesn’t really care who wins today’s referendum. The young pharmacist, working in a relatively poor part of Athens, has more pressing problems: she has been running out of medication fast this week. Greece relies almost entirely on foreign imports for its pharmaceutical supplies. … As things stand, she has another week’s worth of insulin in stock for diabetics but will then have to start turning her patients away. “Do you know what that means?” she asks, trying to keep a proud face, “Do you know what insulin does?”
On hospital supplies…
“It was already bad, but it has become much worse this past week and the time ahead really frightens me,” says one Athenian doctor. He explains that his hospital’s inability to import specialised supplies, such as stents used in emergency heart surgery and life-saving medicines, such as cancer drugs, means patients’ lives will soon be at stake.
On food shortages…
Food shortages are a looming threat too, and not simply on supermarket shelves. The Greek Association of Fodder Industries has warned there could be animal feed shortages within days because farmers (like many Greek businesses) rely on imports from abroad. If animals don’t get fed, this would have a knock-on on the production of basic agricultural products such as eggs, cheese, meat and fish within weeks. And it’s not just raw materials that are at risk. Greece also imports over half of its food but the current banking limits means that such supply chains are cut off.
The Printing Of IOUs and the New Currency
There was lots of talk last week from the “No” camp saying that there was no mechanism for a Euro exit, and that any such thing would be “illegal”, and therefore, this referendum could not result in a Grexit.
It’s very difficult to counter that kind of statement without getting technical – but I’d start by saying “Lots of illegal things happen every day – because ‘illegal’ does not mean ‘impossible’.”
At this risk of repeating some earlier posts (and this is the main one to read: Grexit, the costs and impossibilities), exiting the euro doesn’t need a European vote or a new treaty. If it happens, it’ll most likely be the result of a de facto exit, followed by a formal acknowledgement of what has already happened.
How this could play out:
- If there is no deal in the coming weeks, the Greek government will still have to pay civil servant salaries and pensions and so on.
- Without euro-liquidity in the Greek banks, it’s going to be under significant pressure to pay those debts with IOU notes. Just something, anything, that the recipients can use to transact with.
- Once you put IOU notes into circulation (the general term for them is “scrip”), the market will immediately establish some kind of exchange rate between Greek Government scrip and Euro notes.
- In some ways, the Greek people have already pre-empted this process – because there is already an obvious discrepancy between European Euros (being the Euro cash notes that you can take across borders) and Greek euros (being the Greek bank deposits that are only accessible in limited amounts). It’s why we’re hearing about all these discounts for cash (see here). The question is: how long before that formalises into a black market exchange rate of bank-transfers for cash-notes?
- Once you have scrip in circulation, then Greece is simply one late-night parliamentary vote away from adopting the scrip as legal currency, re-denominating the banking sector and seceding from the Euro.
- And the crying shame: this could even happen at the request of the Greek people themselves. The Greeks might even demand it. Perhaps tomorrow, when the banks don’t open. Or toward the end of the week, when the pharmacies run out of medication.
Regardless, I hope that I’m wrong again. I hope that there is a compromise deal that arrives by the end of tomorrow – with some concessions to restructure the debt when the Tsipras’ government meets certain reform targets.
My concern: that might be the less-risky option for Europe, but a “yes” vote was the less-risky option for Greece.
And to date, neither side seems to have headed in the direction of less-risk.
Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha.
