Jim Chanos on Greece

Question: Given your Greek heritage, we’re especially curious about your observations about the situation in Greece?

Jim Chanos: It’s dire for Greece. Clearly the European Union has made an example out of the country. As has been said, the problem with the EU is that it’s a currency union without a fiscal union. The incentives are all skewed. People who say that Germany suffers from having to share the EU with these Southern countries like Greece are missing the point. Germany is very happy to have those Southern countries in the EU, because it keeps the currency
lower than otherwise.

If Germany had its own currency, it would go through the roof, and harm German exports, which are the big
driver of that economy. So in effect what’s happening is that German taxpayers are bailing out European banks, who’ve lent money to the Southern European countries, which are buying German products. The problem is that it’s a political issue and so many people just want to look at it as a financial and economic issue.

There’s an interesting alignment of interests where the taxpayers in the donor countries are upset, and
rightly so. In other words, the typical German taxpayer is saying, why should I pay for this? The other thing is the recipient countries are upset, too. It’s not as if the typical Greek citizen wants this money. They’re not seeing any positive results from the money – it just goes right to the European banks. It’s not financing any new growth initiatives.

I’m not going to apologize for Greeks who didn’t pay their taxes or retired at 42. The stories are out there and they’re all true. But be that as it may, there are an awful lot of law abiding Greeks who are being destroyed by what is going on in Greece now. The new twist in 2011 is that the donor countries installed their technocrats in Greece’s ministries to oversee tax collections and interior policy, and that has really hit a nerve. Now Germany is basically dominating Europe. You ignore that political calculus at your peril.

All of this connects to historical issues, such as how the Germans treated the Greeks in World War II. Greece lost one million people in World War II out of a population of eight million. The only country with a comparable (and higher) ratio was the Soviet Union. In the fall of 1941, after the Germans invaded Greece, they left the Greek government intact but they put Reich’s ministers in charge of all the ministries to oversee them.

One of the things they did was to loot the country of its harvest. Eight hundred thousand Greeks died in that famine of 1941. Almost every Greek family has someone who died in that famine. So this twist has opened up a 70 year old
wound. Keep an eye on Spain and Portugal because they’re next. The other issue that is coming about is cutting your way to growth.

Is austerity key to getting these countries back on track? So far the evidence is pretty poor that it is. We
may look back and say, wow, what a policy mistake.

Source - Graham and Doddville, An investment newsletter from the students of Columbia Business School, Spring 2012

What inspired me to post this is this story - A Greek-american friend of mine, who I attended junior high school, high school, and same college town with, shared the following story http://www.athensnews.gr/portal/9/55847

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