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Tuesday, August 30, 2011

The Troika pushes on measures --- once again!

There has been a noticeable change of position on the part of Greece regarding the foreign debt. Perhaps it comes as a result of the change in Finance Ministers; perhaps the change in Finance Ministers was the reaction to the changed attitude of Greeks which had already occurred.

Before, the position was "we will do everything you want us to do as long as you help us". Now, the position seems to have become "ok; we'll handle our part the way we deem right; and, by the way, these are the things we would like you to do before we move forward".

It would principally be a welcome change if Greece took more of the initiative in solving her problems. However, that has to be a constructive initiative and not a destructive one.

Any policy which incorporates delaying tactics; which attempts to "divide and conquer"; which essentially continues to consider this process as one giant poker game - any such policy is destined for failure.

A constructive policy initiative would be to propose credible measures how the Greek economy can be turned around on a growth pattern; how the Greek population will finally believe that justice as regards tax evasion and corruption is on its way; how Greece can become a value-generating member of the EU.

We are presently witnessing a financial game unfolding which has similarities with the political games played before WW1. Everyone is getting kind of tired of the behavior of the others; there has been bickering on all sides for very long; nothing really moves forward; the temptation rises to say "let's get this over with"; perhaps a couple of shots will help to clear the air and then we can return to discussing solutions in a serious way. Well, we know where those couple of shots in the political game prior to WW1 led to.

We can have NO idea where such a couple of shots might lead to in the financial world of today!

Could someone please explain to me what is so terribly difficult about developing an industrial development plan which would get the Greek economy going again? If you don't know how to do it on your own, hire the likes of McKinsey, Boston Consulting, etc. and they will have beautiful PowerPoint slides for you within days.

These slides would be grouped into the following parts:

(1) Analysis of the factors which got Greece into the problem in the first place (misapplication of the cheap financing which had become available after the Euro in seemingly unlimited amounts; focus on consumption instead of investment; de-industrializing the domestic economy by buying cheap imports; allowing everyone to transfer the funds coming into the country to private foreign bank accounts; and, of course, unbelievable government spending).

(2) Proposal of measures to correct this situation (basically nothing other than reversing the factors which caused the problem in the first place, i. e.: substantially curtail imports; attract new investment for domestic production primarily for import substitution; control capital outflows; and, of course, reign in government spending).

(3) A waterfall-chart for the implementation of these new measures.

Just as simple as that (and it wouldn’t require all that many slides…).

The government so far has taken measures only as regards the reigning in of government expenditures (albeit it rather impressive measures). As regards the other points, the government has done nothing and why this is so is simply not understandable to me.

The sale of state assets, for example, is indeed a measure which would generate one-time cash. But Greece’s problems will not be solved be generating one-time cash. They can only be solved by making the Greek economy function again and a functioning economy means that it can on its own deliver as much of the products and services which its consumers desire. If it cannot deliver all of those products, then the economy needs to import but it should only import those products which definitely cannot be produced domestically. To finance imports, the economy needs to generate funds from abroad through exports. If exports do not suffice, then the remaining hole should be closed, in the case of Greece, through revenues from tourism. And only if there is still a hole left after that, foreign debt should used. But the greater priority should be to close that hole through foreign investment.

New domestic production requires new investment. Such new investment cannot take the form of debt because Greece is already leveraged to the tilt. Thus, new investment in the form of equity capital must be attracted. Equity capital moves without consideration for patriotism, national beauty or whatever. It moves when the security of an investment and the return on it meet the investors’ requirements.

The foreign financial assets of wealthy Greeks are just waiting to see that Greece will offer them the same security which Switzerland offers and much better returns than Switzerland presently offers.

Monday, August 22, 2011

Letter to Prime Minister George Papandreou

Dear Mr. Prime Minister,

if you (and your government) do not drop a „positive bombshell“ soon, and by „soon“ I mean the next few weeks, a disorderly Greek exit from Euroland is likely before the end of the year. I do not have to describe what the consequences of such a disorderly exit would be for Greece and Greeks. Absolutely terrible!

I say this because I have lived through a similar process in Argentina during the 1980s. During the next weeks, the troika will make its next compliance check and they will undoubtedly have to state that Greece is not in compliance. We will see a repeat of the last compliance check: Greeks will once again feel like they live at the mercy of foreign powers. Parallel to this, the second rescue plan will probably go out the window due to the “Finnish Arrangement”. Again, Greeks will feel like the fools of Europe. Then comes the population’s outcry “we have had it; no more of this!”. And then, I am afraid to say, even you and your government will find out that you have had it.

You will be very surprised how quickly things will get out of control once they start getting out of control. If you have never experienced that, let me describe: one day, TV stations will report that savers are losing confidence and starting to withdraw Euros from their bank accounts. The next day you will have to declare a bank holiday and freeze bank deposits. And that is when, as the Americans say, something hits the fan!

A “positive bombshell” could change that process. A positive bombshell would also bank on the sentiment “we have had it” but it would have to project positive change instead of destruction. And that is still possible. I have written to you before about this and I will repeat.

You have to play the “nationalistic card” to motivate your compatriots (even though your actions will hurt many of your compatriots). There is no other way to motivate the majority of Greeks at this point. Here are suggested bullet points of that nationalistic card:

“We will no longer stand by and watch how Greece becomes even more indebted when few Greeks, due to the EU freedom of free movement of capital, can use the proceeds of that debt to transfer their money to Switzerland, etc.!” – The consequential action is to introduce controls on capital outflows.

“We will no longer stand by and watch how Greece becomes even more de-industrialized because, due the EU freedom of movement of goods, everyone can export products to Greece which products we could produce in Greece just as well (and keep the jobs in the country instead of exporting them to other countries)!” – The consequential action is to introduce special taxes on imports.

“We will create new jobs and stimulate the economy by producing locally products which so far we have been importing!” – The consequential action is to introduce a new Investment Law assuring investors of the economic framework which allows them to produce at internationally competitive terms and conditions. Note: this Investment Law could not be applied to the whole country because that would trigger a revolution. It would have to be applied selectively to create new jobs instead of demolishing existing ones.

“We will ask the EU to guarantee compliance with that Investment Law so that investors can have full confidence in the promised economic framework!” – Should the EU not be willing to do that, then look for new friends in Asia.

And then come all those other measures which have been discussed over and over again (fight against tax evasion; liberalizing the economy; etc.). Those measures take time to show results. Greece does not have that time. As a result, Greece needs to revert to a “positive bombshell”.

The international community must get the feeling that now Greece is calling the shots, constructive shots that is. So far, Greece has preferred the position of the follower; preferring others to come up with solutions to the Greek problem. That might have worked if those “others” had been more competent than EU-elites have been in the last 3 years.

Please understand that, at this point, this whole crisis has become an issue of confidence. Greeks no longer have confidence in their own government; the EU does not have confidence in Greece and the world has little confidence in the EU. Someone has to break out of this vicious circle. The EU won’t, because they are far too complex an entity to all pull on the same string.

The conclusion is simple: Greece has to start calling the shots. But those have to be good shots! Good shots will generate confidence on the part of Greeks and motivate them (even if it means playing the nationalistic card a bit). And they might even generate positive surprise on the part of the EU that Greece is not lost, after all.

Again: a “positive bombshell” on the part of you and your government is urgently required. There is no way that further step-by-step and/or circumstantial measures have a chance to prevent the absolute chaos from happening before the end of this year!

Friday, August 19, 2011

Und Gott-sei-Dank, dass es Mohamed El-Erian (und Pimco) gibt!

"Der größte private Bondinvestor Pimco rät der Euro-Gruppe zum Rauswurf großer Schuldensünder wie Griechenland. Hellas habe 'zu viele Schulden und ist nicht wettbewerbsfähig genug', sagte der Chef der Allianz-Tochter, Mohamed El-Erian, der Nachrichtenagentur Bloomberg. 'Es ist schwer vorstellbar, dass Griechenland diese Probleme als Mitglied der Euro-Zone bewältigen kann.' (FTD)".

Wunderbare destruktive Aussage von Mohamed El-Erian! Und wo ist sein konstruktiver Vorschlag?

Mit der jetzigen Eurostruktur (u. a. vollkommene Freiheit von Güter- und Kapitalverkehr) kann ein Land wie Griechenland es natürlich nicht schaffen. Da müssten aus den Griechen schon Deutsche werden und das ist weder möglich noch erstrebenswert.

Die Produktivität der griechischen Wirtschaft ist Lichtjahre niedriger als jene von Deutschland, mit der jetzigen Euro-Struktur steht jedoch Griechenland voll im Mitbewerb mit Deutschland. Das kann nur dazu führen, dass Griechenland lieber (billige) deutsche Produkte importiert als sie selbst (teuer) herzustellen. Und das funktioniert auch hervorragend, solange man Griechenland das Geld gibt (schenkt), dies zu tun.

Ist es wirklich so, dass Griechenland mit dem Euro diese strukturelle Schwäche nicht überwinden kann? Wenn man an der Euro-Struktur nichts ändert, dann wird es so sein.

Man kann aber auch (vorübergehend) Sonderregelungen für ein Land wie Griechenland einführen, die es Griechenland ermöglichen, mit dem Euro eine Situation zu simulieren, als wäre es zur Drachme zurückgekehrt.

Wenn man Importe via Sonderabgaben insgesamt um 30-50% teurer macht, dann hat das den gleichen Effekt, als würde man zur Drachme zurückkehren und 30-50% abwerten.

Wenn man Kontrollen auf den legalen Abluss von Kapital (Kapitalflucht) einführt, dann hätte dies denselben Effekt wie eine Rückkehr zur Drachme: würde man zur Drachme zurückkehren, dann gäbe es keinen Zugang zu Devisen mehr, um diese Kapitalflucht zu ermöglichen (weil die Devisen nicht vorhanden wären).

Würde man Freihandelszonen einrichten, in denen Investoren losgelöst von den derzeitigen Rahmenbedingungen einfach so produzieren können, wie sie international wettbewerbsfähig sind (d. h. viel biller), dann hätte das einen ähnlichen Effekt wie die Rückkehr zur Drachme (weil dann Griechenland wieder billiger und wettbewerbsfähig wäre).

Das einzige Problem dabei: alle diese Massnahmen würden bestehendes EU-Recht verletzen. Aber wer sagt denn, dass man bestehendes EU-Recht nicht abändern kann, zumindest vorübergehend, wenn eine solche Abänderung dazu führen könnte, aus einer Problemwirtschaft eine wertschöpfende Wirtschaft zu machen?

Natürlich, wenn man glaubt, dass die “Nichtstuer aus dem Süden” genetisch faul sind und nie und nimmer bereit wären, hart zu arbeiten, dann hilft alles nichts. Dann wäre in der Tat der “Rausschmiss” aus Euroland die sinnvollste Alternative für Euroland (und auch für Griechenland!).

Die Fakten betätigen dieses Voruteil nicht. Man erinnere sich an griechische Gastarbeiter in Deutschland und Österreich. Vorbildliche, fleissige Arbeiter; vorbildliches Familienleben; und große Opferbereitschaft, damit es ihren Kindern einmal besser gehen würde.

George Soros's many ideas...

Mr Soros has assumed the habit of EU elites of not being able to keep his mouth shut. He seems to be spending his twilight years thinking that everyone in the world is interested in his opinions.

Well, there is one primary reason why the world knows who Mr Soros is. He once had the nerve to speculate against the venerable United Kingdom -- a Jewish emigre from Hungary against the Empire, so to speak -- and he won and made tons of profits.

This is not to say that Mr Soros's opinions should be disregarded. After all, he has acquired the status of an opinion leader and from that standpoint alone whatever he says is important.

But no one should make the mistake that something is right simply because Mr Soros has said it, and silly ideas (like the idea of Eurobonds) do not become less silly only because Mr Soros repeats them all the time.

Finally, a euro exit by Greece (or by other countries) is the last thing the present chaos in EU finance needs at the moment. If Mr Soros used his enormous intellectual capacity a bit more (apparently, he no longer feels that he needs to bother with that because everything he says off the cuff is taken like the word of genius), he would quickly discover that there are many ways to simulate a return to the drachma without having to exit the euro.

And last but not least, would you buy a used car from Mr Soros? If not, think about it before you buy into his ideas!

Ekathimerini - on German and European solidarity

Ekathimerini published this commentary on German and European solidarity in the present crisis. Below is a response.

What an extraordinary piece of literature confirming a trait of the present-day Greek mentality, which is: point the finger at others; put yourself in the position of the victim.

Yes, one can nowadays criticize the actions of the German government (and, above all, the reaction of the German people) with regard to the Greek problem. But criticize for what?

The most valid criticism of Germany would be that its government was unable to show professional leadership at the beginning of this crisis. Had they been able to do that, they would have said at the latest by 2009: ”Here is a Euroland country which has foreign payment problems. The country should sit down with its creditors to work out alternatives. If we can help at the end, we will do so within reason.” Losses would have had to be taken by those who entered risk and who collected profits on assuming that risk. That is how capitalism works.

Not to have done that is the reason why the Greek crisis has been blown out of proportion and has now become a crisis of Euroland. That, indeed, is not Greece’s fault. It is the fault of the EU elites, particularly Germany’s. They should have known better!

But for Greece to play the role of the helpless victim at the will of foreign powers; a nation which can no longer do anything on its own to determine its future? That, my dear Greek friends, is a joke!

I am Austrian; my wife is Greek; we have an apartment there. Whenever I am in Greece, I enjoy a standard of living as well as a cost of living (and I observe a luxurious standard of living of the well-to-do Greeks) which I cannot compare to my/our standard of living and cost of living in Austria. The amount of wealth which the upper class of Greeks displays in Greece alone (not to mention the wealth which they stash away offshore) is absolutely unimaginable in Central European countries.

At the same time, I see the standard of living of the not-so-well-to-do Greeks, which has become a horror. I see brilliant university graduates to whom society cannot offer employment. I see ”hard working and clean living” people who don’t have a perspective for their future.

So, please, if you want to blame someone, blame first your own compatriots. If you want to ask someone to understand your difficult situation, ask your wealthy compatriots.

It is absolutely ridiculous that a country whose upper class is among the richest in the entire world (and whose wealth does not necessarily come from ”hard work and clean living”) would emotionally blame other countries whose much more modest and more balanced wealth is the result of ”hard work and clean living.”

The New York Times published earlier this year a front-page article about a successful Greek-American entrepreneur who, in his advanced age, wanted to use part of his wealth to do some good for his home country. Read this article and be ashamed of yourselves before you criticize others!

How can you expect the citizens of other countries to share in your burden if you yourselves are not prepared to share in the burden of your own compatriots? You request greater EU solidarity; greater understanding that we are all one continent.

Please don’t do that before you have demanded of your own compatriots a greater commitment to solidarity amongst yourselves as well as an understanding that you are all one nation and that everyone has to make a contribution to one’s nation.

I say this as an admirer of Greece, Greeks and Greek culture for almost four decades. But just like I was often required as a parent to be ”hard” on my children so that they would not be spoiled but instead be prepared for the challenges of life, I think you should grow up and assume responsibility. You cannot think of yourselves as the vulnerable children of the strong Europe. You have to think of yourselves as the cradle of European civilization and you have to act accordingly.

Sometimes it helps a society to remember what their ancestors might have said about their progress. Your Greek ancestors would undoubtedly be embarrassed to see how you presently behave. Think of your ancestors. Consider what advice they would give you if they could give you advice today. But even as a non-Greek I am rather sure that they would advise you to change your behavior from one day to the next!

Jack Welch, the famous American entrepreneur, concluded one of his books with the admonition: ”Don’t ever allow yourself to feel like a victim!” Your ancestors were of much greater prominence than Jack Welch. Just think what they would say to you today.

I have lived in eight countries and I have never met a people as proud as Greeks are. Forget your pride about the past. The past was none of your own doing. It is the present and the future which is your own doing and make every effort to be proud of that!

Monday, August 15, 2011

"Nothing is as inevitable as a mistake whose time has come!"

EU-politicians are called upon to prove that the above Tussman’s Law (taken from Murphy’s Law) can be proven false for once!

It seems inevitable that EU-politicians are about to decide either on the issuance of Eurobonds or on a gigantic bond repurchase program on the part of the ECB. Both measures fall into the category of “kicking the can down the road”. The time, indeed, seems to have come for this mistake. It is up to EU-politicians to make it evitable.

Eurobonds would not only lower the interest expense for problem countries, they would also put the full faith and credit of every Euro-taxpayer behind their debt. As a result, a central authority would need to determine the amount of Eurobonds which an individual government can issue. What will EU-politicians do when an individual government needs more cash but the central authority does not permit the issuance of new Eurobonds? They would be in the same situation as they are now.

Repurchasing bonds of problem countries is not the same as the monetary easing on the part of the Fed. The Fed is just printing money when it buys Treasuries but it does not incur credit risk. The ECB is doing both (and it is the credit risk which will bankrupt the ECB and not the printing of money).

Common sense would suggest the following: when things get as bad as they are now in Euroland, one has to cut one's losses, turn the clock back to zero hours and start all over again, this time not making the same mistakes as the first time around. How could this work in practice?

Require the current investors (in whatever legal manner one can do that; in the extreme case allow default) to accept new 30-year bonds as prepayment for current bonds with interest on the new bonds payable at maturity. Then, make a secondary market for these bonds. This would economically be equivalent to a temporary 50% haircut (at least for the next 30 years). Those bonds would probably trade significantly below 50% for the next number of years. Whether they ever gain value again depends on whether the governments make the same mistakes the second time around, or not. To supervise that mistakes are not repeated would be the responsibility of EU-politicians.

Require the investors to mark these bonds to market. New legislation would have to allow the investors to make these write-downs of their bonds over several years (no dividend payment during this time). Investors who cannot absorb these write-downs even during a 10-year period should be liquidated in orderly fashion.

The world-wide financial system would break down in chaos? That should be doubted because all the financial system wants is transparency, and transparency it would get. The governments would quickly make the same mistakes again as they made in Round 1? Possibly, but not certainly. If they did not, these bonds would regain value again until their maturity. They would probably never return to 100% but if they returned to 60-75%, it would already be a master stroke.

Here is one irrefutable argument why one simply must discontinue the policies of the last 2 years: taking the example of Greece, 65 billion EUR have so far been disbursed under the Rescue Plan; allegedly 50 billion EUR (or more) have been invested in Greek bonds by the ECB; and the ECB has lent roughly 100 billion EUR to the Greek banking sector. That makes a total of roughly 215 billion EUR. Just imagine what would have happened if only half of that amount, say roughly 100 billion EUR, had been made available for private sector investments in Greece instead of bailing out the investors?

EU-politicians have to attack the problems at the source and not at the symptoms. If they want to bail out investors, they should do so directly: force them to take losses; replenish their equity if this is necessary and later sell this equity in the market, hopefully at a profit (example of Citigroup).

If they want to help the problem countries, they should use the money to stimulate their private sector economies.

But stop throwing good money after bad!

Saturday, August 13, 2011

No way out of the Greek recession?

A deep recession in Greece? So what else did one expect? A state reducing its (ridiculously high) expenditures and a private sector where capital flight substitutes for new investment? Perhaps it would be an idea to look up the notes which students of economics made during "Economics 101"?

The only way out of a recession is new investment in revenue-generating projects. Consensus seems to be that there are presently no revenue-generating projects in Greece? Who says so?

Revenue-generating projects do not announce themselves in newspaper ads. Potential new demand does not do that, either. Both have to be found and developed. If a government wants to play a role in this (which is normally a very questionable endeavour), then the government must abstain from any mandatory measures. No private "economic agent" will ever act the way a government tells him to act.
A government, however, has the most effective tools available. It can create a legislative environment which motivates investors and private capital to deploy their creative energies. This only works if the new legislative environment has the credibility of investors. As Friedrich von Hayek so convincingly argued, not only a state of law is required but, above all, a shared belief in the state of law by its economic agents.

Economic agents presently do not believe that any law in Greece is to be taken seriously. The Greeks themselves no longer trust government. 

The power of the stronger EU-states should not primarily be used to transfer money to a country where its people no longer trust the state of law. That power should be used to transfer to Greeks the confidence they should have in their state of law. How could that work?

The EU can not only guarantee national debt instruments (which, so far, it has done for lack of better knowledge). The EU should foremost guarantee compliance with certain national laws which are deemed of prime importance for economic agents. 

Potential domestic and foreign investors would invest their equity in Greece (like in any other place) if the economic environment were “right”. Thus, one should ask those potential investors what they consider as the “right” economic environment. Investors would likely answer in the following manner: (1) we need to know reliable rules of the game (an investment law); (2) we need to have assurance that those rules remain in place (a EU-guarantee of the investment law); (3) we need to have the freedom to establish an internationally competitive cost structure which allows us to operate profitably; and (4) we need to see market potential for the products of our new investments.

The government can any day implement a new Investment Law. Whether or not the EU is willing to guarantee it will be a matter of negotiation. If the EU refused to guarantee it (and prefer to send good money after bad), the EU would totally disqualify itself. One of the most critical aspects of the new Investment Law would be to incorporate control mechanisms which assure compliance with the law (“good corporate citizenship”). If the new investments fell victim to Greek habits of cronyism and tax evasion, the purpose of the new law would be undermined. Strict supervision by credible external auditors would be a condition precedent.

To impose an internationally competitive cost structure on the entire country would lead to revolution because it would mean that all Greeks would practically overnight have to accept a decline in income of 30-40% (or even more). The unions would never go along with that. Thus, the “internationally competitive cost structure” would have to be limited to new investments under the new Investment Law. Those Greeks who happily earn good income in the present situation would not have to make a sacrifice. The Greeks who suffer from the present situation (foremost the unemployed) would benefit from it. 

Finally, the market potential. The “Greek problem” began when the highly valued Euro made Greece expensive and when imports became cheaper than domestic production (resulting in a de-industrialization and a loss of manufacturing jobs). If the substitution of domestic manufacturings through imports started the problem, the solution is to substitute imports with domestic manufacturings. There are undoubtedly many products which simply cannot be produced competitively in Greece. However, there is undoubtedly a multitude of products which could be competitively produced in Greece if the economic conditions were “right”. That those economic conditions are “right” is the object of the new Investment Law. That the new Investment Law leads to the desired results is the responsibility of entrepreneurs. Entrepreneurs always live up to their responsibility if the equation of “risk/reward” is attractive for them. All the government has to do is to make this equation attractive.

“Greeks are lazy”; “Greek mentality prefers the easy-going way of life to the results-driven way of life of, say, Germans”; “Greeks are by nature crooks”; “Greeks cannot be trusted”; etc.

Well, such prejudices have indeed been ventilated by Germans and Austrians in the recent past. But they defy the experiences which Germans/Austrians have made with Greeks in the decades of “guest workers”. Anyone living in Germany or Austria remembers that of all the guest workers, the “Greeks” were the most respected ones. They worked hard and honestly; they raised wonderful families; their objective clearly was to take advantage of the working opportunities in other countries in order to improve the well-being of their families at home (and that at great personal sacrifice). After all, the Greek guest workers inspired Udo Juergens to compose his song “Griechischer Wein” which has maintained popularity to this very day (and which has become a sort of “hymn to the Greek guest worker”).

Thus, Greeks themselves must be the first ones who start to believe in themselves (again)! The government – with the support of the EU – must provide the framework which allows the Greeks to leverage up on their talents which have been proven over the last few millennia!!!

Tuesday, August 9, 2011

Greece's crisis forgotten?

Anyone who has spent a great deal of time over the last months making comments and/or offering possible solutions about/for the "Greek problem" could feel unemployed at the moment: Greece no longer appears to be the problem which she appeared to be only a few days ago; Italy has moved to the front pages of the media; the down-grading of the US has initiated a world-wide run on equities; and the run on equities has caused plunges on stock exchanges world-wide. So why even worry about a small economy like Greece's?

The contrary is true! Any chain is no stronger than its weakest link. Greece certainly is one of the weakest links in the chain of the world-wide sovereign debt crisis. The basis of confidence in the chain of the world-wide financial system depends on a confidence that the chain itself is getting strong again. At the moment, the prevailing perception is that the "can is being kicked down the road". Not only as regards Greece but, foremost, as regards the world-wide financial system.

Such a self-destructive process requires, above all, a "case-in-point" which signals that this process has reached bottom and that, from now on, things are moving into the right direction again. Right now, everybody seems to be waiting for the next half-hearted and futile measure which only proves that financial Armaggeddon is unavoidable.

The US economy cannot be that case-in-point because it is far to large and its political leadership is far to divided to provide hope for a near-term perspective that things are under control.

Italy is a prime example of the short-term thinking of capital markets (one could also consider Italy as a prime example of the behavior of capital markets: identify the next possible weak link and speculate against it in the hope that the speculation achieves the desired results).

One can criticize Italy and her politicians for many things but one cannot ignore the fact that Italy is the world's 7th-largest economy. In the last 12 months, Italy exported 361 billion EUR, 18% more than in the previous 12 months. Yes, imports exploded by 25% during this period and caused a huge increase in the trade deficit, but bear in mind that exports still covered 93% of imports. Thus, Italy's economy (the source of revenue for the state) is far from being a basket case. The state may be a basket case because of its expenses but the expenses of a state (as Greece has shown) can be much more easily corrected than the problems of an economy.

Greece, during the same period, exported a grand total of 21 billion EUR and that covered only 40% of her imports. This reflects the present hopelessness of the Greek economy (which pains so much more at a time when the state is actually taking draconic measures to cut expenses).

The Greek economy is small enough to quickly show positive results if the right measures are taken. If one of the weakest links in the world-wide chain of sovereign debt problems started showing that the crisis is manageable after all, the positive impact on the whole process cannot be underestimated.

As a result, more than ever Greece now has a chance to assume a lead role; to implement measures which inspire confidence that financial Armaggeddon can be avoided.

On the other hand, if Greece, now that the focus of attention has shifted elsewhere, leans back and thinks that somehow her problems will go away by themselves, then Greece will accelerate the chances of a financial Armaggeddon.

What should Greece do? In simple terms, Greece should shift focus from the public deficit and debt (without retreating from the cost-cutting measures already under way!) to possible ways to stimulate growth in the economy.

Economic growth requires investment. Investment requires money. And there is presently no money around which is eager to be invested in Greece (for all the well-known reasons). To bank on new cash from EU structural development funds is an illusion. First of all, one is talking about only 1 or 2 billion EUR out of those funds (equivalent to about 1/2 a month's capital flight!). And, secondly, the bulk of such funds are likely - under the present system - to find their way into private offshore accounts of Greeks instead of landing where they should land.

Greece must offer investment opportunities which are interesting enough so that private capital flows voluntarily. Private capital will only flow voluntarily if there is a safe legal framework and if there are internationally competitive business conditions. Neither of the two are presently being offered in Greece.

It is inconceivable that a corrupt and crony-driven economy can be converted into a legally secure and economically competitive economy within a short time frame. Any government which aims to accomplish that is doomed to failure.

Once can, however (and one must!), start with "pockets". Instead of changing the entire economy (which is impossible), one must start with selective new situations from scratch. One must establish "pockets" within the overall economy where "perfect conditions" are offered to start new businesses from scratch. If that works within the new pockets, it will eventually "rub off" on the rest of the economy.

This requires a new Investment Law. While it should not discriminate against domestic investments which are financed with equity, it should aim at foreign investments because foreign investments are equity per definition. The overriding objective is that the economy be jump-started with equity and not with debt. Domestic equity will be hard to come by these days. Thus, it is the foreign equity of Greeks (i. e. financial assets in foreign bank accounts) at which the new Investment Law must be directed.

The idea is to attract equity for investment. The investment must go into manufacturing in order to create jobs. The new manufacturing must initially focus in import substitution. The only reason why these products are being imported (instead of being produced domestically) is that imports are of better quality and/or cheaper in price. The new investment cannot aim at manufacturings where Greeks cannot procude the quality of imports. However, there is a multitude of products which Greeks could produce in the same quality as imports but which are presently not produced in Greece because of price.

For the manufacturing of such products, Greece must implement a new Investment Law of constitional rank. That law must guarantee the investor the security and competitive business conditions which the investor requires in order to manufacture these products profitably. The law must be specifically aimed at foreign investors because that is where the potential investment funds (the foreign financial assets of Greeks) are located. In order to give investors the necessary confidence into the new Investment Law, Greece should ask the EU to guarantee it.

The new Investment Law could not be applied to all of Greece because the "internationally competitive business conditions" which it must offer cannot be imposed on the entire economy without causing a revolution.  It would have to be applied to selected Free Trade Zones or investments under that law would have to be "marked" regardless where they are made.

The net result would be increased domestic manufacturing; increased domestic employment; inceased domestic value-generation with the respective tax generation; etc. - all of this at the expense of imports which drain the national cash. And if the new investments really turned out to be competitive, they might even increase exports.

There would have to be accompanying measures. Who would want to invest in new production when he sees that imports are so easy to come by? Which Greek would want to return his offshore financial assets to Greece when he sees that Greeks transfer their financial assets offshore?

Necessary temporary measures would be: special taxes on imports ranging from 100% on luxury goods to 0% on absolutely necessary goods; and capital controls to prevent continued capital flight. These measures would be in violation of EU-freedoms but EU-treaties can be temporarily amended (if the EU were not willing to temporarily amend them, then Greece might just as well say good-bye to the EU and the Euro).

If Greece embarked on a course suggested above (and if that course could be implemented successfully), it would be a tremendous signal to the rest of the world that sovereign debt problems are indeed manageable if the underlying economies become value-generating!