The World Is Squared – Episode 3: The Greek Calends

My travelogue continues … By the way, check out friend-o-the-blog Sam Bikinoraion‘s blog – he is also going round the world this year, and seems to be visiting a load of my favourite places, which I didn’t fancy taking the kids to. This episode takes me through Greece, and is posted a bit in arrears, as I headed off to the desert after the events described herein …

1.Pomegranates by the roadside

It is one of the strangest things, to a Northern European at least, to see a pomegranate just growing there on a tree. I thought they were apples for a while, but there they were – all red and exotic and just hanging there, as if this was a perfectly normal thing to have in your front garden. And of course it is – and lemons, and quinces and figs too. The urge to just reach up and pick one, then continue to walk along the road eating it, was almost irresistible. But I presumed that would be bad manners and I really didn’t want to give a bad impression of myself.

2.The politest man in the world

I’ve met the politest man in the world, and he was Greek, from Thessaloniki. It was a few years ago and we were going to the wedding of another friend, in FYR Macedonia. We’d made some complicated arrangements to stay in his apartment on the way up to Skopje, and when we were arrived we found a bottle of wine, some cakes and a heartfelt note of apology that he wasn’t there himself to greet us; this had never been the arrangement, he just apparently felt a bit bad about letting us stay in his apartment without also looking after us in a dozen other ways. We met the next day at the wedding and … well, it’s hard to describe, if you haven’t experienced something like it. It is an extraordinary sensation, to be caught in a focused beam of high-intensity good manners. The rest of us try to go about our day without giving needless offence, and perhaps occasionally doing someone a good turn if we can, but for some people, politeness is a positive presence rather than an absence of uncouth. It’s worth seeking out, I can tell you. He’s a professor of Byzantine philosophy these days, at the university in Crete, I think.

The other thing I remember about that trip (apart from the wedding itself, and the horrific mouth ulcer I had at the time, and many other details of limited relevance to this piece) is that it took place in 2004, at exactly the time when Greece was playing in the European Championship finals for the first time in decades. For the first week of the championships, the Greek guys were all at pains to tell the British, Germans and other members of the party that the football was really not that big a deal and that basketball was a much more popular sport in Greece. This made sense; the Greek national team was a collection of journeymen from the lower halves of the top tier of European football, and not expected by anybody to go anywhere. But then they started winning.

Of course, this meant that for the second week of the trip, the relative popularity of basketball and association football took a sudden and pretty emphatic reversal, and the entire country went football mad. So we watched every game, planning travel around the need to be in a bar by kickoff time. And the Greeks kept winning. There never seemed to be any star turns or particular pieces of skill and beauty, but they passed the ball, defended doggedly and went on rolling over much more prestigious teams. And then they only went and won the whole thing! It was a great day for the Greeks. And to think, this came in the same year as the Athens Olympics, another massive success that they had pulled off in the face of the whole world telling them they weren’t good enough. Can you blame them, however badly things went in retrospect, for going into the formative period of the European credit bubble with something of a feeling that the wind was in their sails?

3.The proverbial taxi drivers

I never got ripped off once while I was in Greece. In fact, technically I got ripped off a negative amount, as a railway clerk told me that my son looked like he was only just twelve, and sold us an under-twelves ticket for him. On more than a couple of occasions, though, I was warned in graphic terms about the dishonesty of taxi drivers, and in one case told straight up that I had been charged double the rate for a short ride. Which interested me, because I had been paying attention to the meter and this simply wasn’t true; I’d been charged exactly the correct amount, but the person I was talking to had forgotten about the (clearly displayed) extra charge for the vast amount of luggage I was shifting about the place.

This is my Thomas Friedman moment of epiphany, and like the great New York Times pundit, it of course involved taxi drivers. Greece isn’t a place where people act out of dishonesty, but it’s a place where people’s perception of the venality and untrustworthiness of their compatriots is a weird source of national pride. Greeks love Greece, but they’re not too keen on the Greeks.

I found myself, as I often do, using the north-west of England, and specifically Merseyside, as my benchmark for indicators of a low trust society and I didn’t see them. The booze in the supermarkets was mostly on open shelves in the tourist towns – in Athens, there were locked cabinets for imported rum and Scotch whisky, but the beer, wine and ouzo were all within hand’s grasp. Try finding an off-licence in Liverpool which doesn’t keep its stock under lock and key. I walked past two or three filling stations which had clearly stopped trading a while ago – the windows were intact, and you could see cigarettes behind the counter. Whatever is structurally wrong with the Greek economy, and despite a few quite indicative behavioural economics experiments which pupport to show it’s the lowest trust society in Europe, I don’t think it’s quite that. There’s something more complicated going on. After all, if Greece is characterised by low levels of trust, how come they do so well in shipping, an industry in which there is absolutely legendary levels of reliance on gentlemens’ agreements and binding handshake deals?

4.The columns of Corinth are topped with rusting steel

The signature architectural detail of Greece, Turkey, some parts of southern Italy and more or less the whole Middle East is visible wherever you drive – four sticks of rusting iron rebar sticking out of the top of every concrete column. In the good old days of 2000-2005, we used to tell each other that this was a fantastic sign of growth potential – when you see a building that’s in use, but has rebar sticking out of the top, what you’re looking at is a building that’s being put up one storey at a time, as the owner manages to save up enough money to put up another level. And therefore, that this denotes an under-served financial service market, where in the long term it will be possible for people to borrow money up front and build the whole thing, more efficiently, in one job. I don’t know whether the theory had anything to it or not, but photos of hotel developments of this kind were a staple of bullish presentations back in the go-go years. It doesn’t carry quite the same connotation now, of course.

5.Alexander the Great

Someone more desperate for a subject than me in writing about Greece can always create a moment of taxi-driver epiphany by finding anyone of Greek descent and engaging them on the subject of either a) the correct nomenclature of the Former Yugoslav Republic of Macedonia or b) whether Alexander the Great was a Greek or a Macedonian. You only need to pick one of the two, as any conversation on one will invariably tend to shade into a disquisition on the other and back again.

6.Alphabets

I can work out Greek words phonetically, as long as they stick to using letters that are also the names of important physical constants or option pricing parameters. And once you’ve worked out the transliteration, most of the stuff that’s on billboards or menus is going to sound like either the English word or the French one or the Italian one. I could occasionally puzzle out some of the graffiti too; I have to say that the usual slogans about Israel aren’t any less unattractive when there’s a sigma as the second letter rather than a Roman S. There were a lot of these on the walls, as far as I can see; wherever you go in the world among dispossessed or economically disadvantaged people, the one constant thing you can expect is that they know which side of the Israel/Palestine conflict they’re on.

7.Floating down the Adriatic

The ANEK Lines ferry goes from Venice to Igoumenitsa, and then on to Corfu. It departs from the freight terminal at Fusina rather than the cruise terminal in the city, which means it is kind of a drag to get to – the way we did it was to take a water taxi to the port, then draw up so close to the ship that we could practically touch it, then get shouted at excitedly by a group of Italian stevedores that we were attempting a definitely illegal and possibly suicidal maneuver in climbing up a ladder that wasn’t meant to be there. Then we went to the waterbus stop and schlepped two kilometres to get back to the ferry port and queued up.

It didn’t used to be like this; when we booked the tickets, the ANEK boats departed from the cruise terminal downtown in Venice. But when we booked the tickets, the boats were more like cruise ships; they had swimming pools on them. Those boats are gone, unfortunately (although they remain on the ANEK website as of time of writing); sold as the company tries to keep its finances from taking on too much water. They’ve been replaced by roll-on/roll-off lorry carriers, which is why they go from Fusina.

There are still some passengers, walking round the cabins and sitting in deckchairs up on the helipad on the top deck, but it’s mainly lorry drivers from Greece, Turkey and the Balkans, taking it easy for 24 hours on their way to and from the big roads of Europe, delivering agricultural produce. They do their best to live up to every possible comic stereotype, wandering round with cups of strong coffee in hand, constantly smoking cigarettes and sitting round tables for endless and noisy games of backgammon. I left them to it, climbing up to the top deck to watch my children run endless circles round the helipad. Even on what is basically a jumped-up container lorry ferry, you can kind of see the appeal of ocean cruises – sitting doing nothing and watching the sea is a perfectly pleasant way to let the time pass by, and if I get to the age where I can’t do anything, I’d just as willingly do nothing on a boat as anywhere else. ANEK Lines also boast in their onboard restaurant that they have their own olive oil, an example of vertical integration that I am not sure will be entering any business school textbooks.

Igouminetsa rather depressed me. It’s a port town, with all that implies, and I am not quite so innocent as to be able to look at a building with a pink frontage sign saying “Cafe Amour” with a picture of a cocktail glass and a female silhouette, and mistake it for a cafe. I wonder at the level of optimism and self-delusion that makes a brothel-owner bother with these attempts at glamour and sophistication; I doubt that his clientele of matelots and lorry drivers are really all that familiar with the bright lights of Montmartre, and even if they were, I think that would make them less likely to seek similar pleasures in a sauna two streets back from the docks, not more. I didn’t stay there for long – just long enough to amble down to the bus station, realise that I had been caught out once again by the one hour time difference between Greece and CET, then amble back to the ferry terminal and pile my family into a taxi.

8.Venice

This is mainly about Greece, but the last episode finished in the Italian lakes, and it really would be remiss of me to fail to mention that Venice, like the Aiguille du Midi cable car, has to go into the category of “terrible tourist traps that are really, really worth it”. Because I worked for a French bank, I’ve never really been able to get my mind round the idea of Paris as a city of romance; I navigate my way around it with reference points that are the offices of fund management firms, banks and government departments. But Venice is perfect; tourism is the industry there, and the city has more or less made its peace with that, although there is a hell of a lot of manufacturing that goes on in the suburbs. It’s quite perfect, and it grows on you really quickly – after three days staying there, my children were shouting “Our Campo Is The Best Campo Of Them All”, unintentionally rediscovering the literal concept of campanilismo.

9.What happened here?

You can’t write about Greece, at least not at the present time, without making some kind of stab at the question of “What the hell happened here?”. I guess my theory, which is heavily shaped by “Greece’s ‘Odious’ Debt by Jason Manolopoulos , is just as simple as “same thing that happened everywhere else, but Greece was in worse shape to bear it”. Everyone, Europe, USA, everywhere, went a bit debt crazy between about 2000 and 2007. The German consumer didn’t, much, but their banking system did it on their behalf.

Does this mean it wasn’t Greece’s fault? Yes and no. Should we instead blame the irresponsible banks who lent them the money? Also yes and no. But all the yesses and noes are really covering up the underlying correct answer to that sort of question which is that “questions of praise and blame don’t really match up well to the thing we’re trying to analyse here, because it’s at its heart an engineering and control system, not a system of ethics”. I think I am going to have to go to a digression here …

10. A disquisition on the nature of debt

What is debt? It’s a promise to pay back a specific amount of money at a specific time. Why is it so popular – why do people always seem to end up getting into it? Why, for example, don’t people make more equity investments, buying a share of someone else’s profits and sharing their risks in the way in which Islamic banking is meant to operate?

Basically, because debt has one big advantage, and it’s the same advantage that market economies have over command economics – it’s really really efficient in terms of the amount of information that people need to gather about each other. If you’re lending money under a debt contract, all you need to think about is Do I think this guy is good for the money?, and all the borrower needs to think about is Can I pay this back?. If you’re trying to make an investment and share the risks, all sorts of other questions come into play: How much could this be worth in a really good outcome? What further projects might grow out of this one? What effect will the sharing of the upside and downside have on the way the thing is managed? Am I selling my shares too cheap?.

If you’ve ever watched “Dragons’ Den” (the format was broadcast as “Shark Tank” in the USA), you’ll note that the real human drama in the series is not really when the entrepreneur is pitching his or her new invention. What people come to watch that show for is the bit where one of the investors makes an offer. The guy has said he wants £200,000 for 10% of his company, and Duncan Bannatyne or equivalent says he’ll give the money, but he wants 40%. And the entrepreneur sweats on the spot. This, in microcosm, is the stuff that gets cut out of the process when you’re dealing with debt rather than equity. David Graeber wrote a whole gigantic book, one of the messages of which was that from an anthropological view, debt contracts denatured exchange relationships and took them out of their context of cultural human interactions, but in my review, I noted that Graeber didn’t seem to appreciate the extent to which this is a collossal time saver. Having a debt relationship with someone means that they don’t really care all that much about your project as long as you pay them back, but that’s a good thing; it makes investing much less intensive in time and effort.

And this even extends into credit analysis. I once calculated, to win a bet with a client, that given the volume of banking transactions, if banks were to carry out a full credit assessment on all of their counterparties, every time they incurred a new exposure, then this would take up all of the time of every Chartered Financial Analyst ever to have got the qualification, doing nothing other than these credit checks. It’s literally impossible for the system to work without a degree of blind faith that most credits are money-good.

The conclusion of this sketch of the nature of lending is that it really is that there’s a limit to the amount of work which it was ever sensible to ask people to do in terms of imagining the kind of outcome that actually occurred. From both the banks’ and Greece’s point of view, these weren’t bad loans – they were good loans which went bad. And to be honest, even if banks and the Greek government had decided to be super cautious and ask themselves if it was really sustainable for a country to have a normal European-scale welfare state on the back of a normal US-style tax take, they would still not necessarily have got it right. Because everyone believed that when push came to shove, Greece’s debts were backed by the EU as a whole, which means they were backed by Germany.

Why did people believe this? Because the permanent government and the political system of the EU very much wanted them to. Even while promises were being made for rich-country political consumption that there was no “transfer union” in the euro, and no mutual guarantee, the financial markets were being given the fair old nod and wink that yes there was. Well into 2011, the official line from the Eurogroup was that it was “inconceivable” that any euro member state would be allowed to default, and two or three Big Schemes of varying degrees of legal and institutional ropeyness were cobbled together to try and prevent it happening. People were fooled because a lot of effort went into fooling them. Even the notorious Goldman Sachs transactions which had the effect of moving Greek obligations off balance sheet – well, people did notice them at the time. Eurostat cried bloody murder about them, and got told to shut up, in almost so many words, because they were making it more difficult to achieve Economic and Monetary Union. The real fault for the state the Greek economy is in has to be laid at the door of all those European politicians who decided, for the sake of their places in the history books, to launch a single currency well ahead of any real democratic support for doing so, and to paper over the obvious economic problems – like the lack of a lender of last resort, or the lack of a mechanism to balance the internal current account – by a combination of ignoring them, and claiming that the Stability & Growth Pact would have effects that would be literally miraculous.

11. Back to “what happened here?”

All of which isn’t to say that the banks deserved to get paid back, quite the opposite. Just to say that the 70% writedowns that they took should probably be regarded as them having done their stir and received just punishment for the extent to which they were culpable. The fact is that, as I say, everyone went a little bit batty in the aftermath of the end of the Cold War and the passing of the Millennium. Finland, a country which really has no obvious reason to be in the euro at all, joined it out of sheer relief about not having to worry about being invaded by Russia any more, and more or less admits the fact today.

Everyone made decisions just as bad as the Greeks, but as I say, Greece was less able to deal with the consequences. We’re talking here about a society that was torn in two by the Second World War, further damaged by the massive ethnic cleansing that created the modern boundaries of Greece and Turkey and further damaged by the years of military rule. It’s easy to start reaching for the phrase “low trust society” to describe Greece, but that isn’t quite the flavour of it – I’ve travelled in genuinely low trust societies and they’re different. Greece is a society of tight, small networks of trust, and one in which lots of groups of Greeks seem to regard each other as enemies, for reasons that reach back fifty years and which outsiders can’t hope to understand, or even identify the groups.

What’s happened here is that if England hasn’t managed to get past the Second World War culturally yet (and, my god, we haven’t), how do you expect Greece to? France dealt with Occupation at the level of the national psyche largely by repressing and never talking about it. Germany dealt with its role basically by doing nothing but talking about it. Other European countries coped in their own ways, but you shouldn’t be surprised to see that one or two of them didn’t cope. That’s what happens with big traumas; some patients get better quickly and some don’t get better at all. Georgia has recovered from the American Civil War, but Alabama hasn’t, and that was a hundred and fifty years ago. The problems in Greek society which led to its deeply dysfunctional economic model are very deep seated and aren’t going to be solved easily, and if it hadn’t been this crisis which brought them to a head it would have been something else.

And the biggest emnity within Greek society is between the population and the state, as far as I can see. That’s why I don’t see much of a future for SYRIZA in the long term, although I might be wrong in this prediction, and if I am it will be because of the personal abilities of Alexis Tsipras, who is a genuinely gifted politician. The SYRIZA coalition draws its support from public sector workers, and from the young. In other words, from people without jobs, and the people who are keeping them out of the jobs. As long as there is Germany to blame, it’s a viable coalition, but that won’t last forever..

12.Alpha, Piraeus, NBG

A good mate of mine – one of my best clients and best friends in the industry, with whom I’ve sadly lost touch – began to wax philosophical on the occasion of his giving up the active management of money. He had an excellent track record for beating the market, during a period when that wasn’t an easy thing to do. He told me, over a glass of wine, something that’s stuck with me, and which will certainly go into my commonplace book of market proverbs, when I write one.

“Danny”, he said, “I’ve looked back over my performance, and I got three things really right, as far as I can see. I was a believer in the French banks in 1998, when everyone thought that they were broke. I believed in Fred Goodwin and the Natwest acquisition. And I was early in spotting the Greek banks. More or less everything else I’ve done, I’ve destroyed value”

And to reiterate, this was someone with a really good track record. This is what it’s all about – getting the important things right, not sweating basis points on marginal quarterly returns. Careful observers will notice that out of the three big successes, two of them turned out to have been built on sand, but that’s another important one for the book of market knowledge – stock market reality is true for a time, not true for all time. So are a lot of other things.

The Greek banks struggle on, although any shareholders’ money put into them before the bailout is long since gone. The ATMs of the Alpha Bank network advertise that you can use your Alpha Bank card to pay your debts to the government in nine easy payments at 0% APR. It says something about where we are in the cycle that this is a selling point.

13. Swimming in the rain

The island of Levkada has two sides to it – an Ionian coast, where there are big waves and steep beaches, and an inland side (I forget the name of the straits) where the water is shallow and utterly still. There’s nothing quite so heavenly as swimming in a still ocean during a rainstorm. The droplets bounce up with every splash, so it looks like you’re moving through a field of dewdrop pearls, and the air you breath is filled with salty mist. I must have stayed out there for an hour before the lifeguard came to tell me to go in, because of an alleged danger of lightning. There was no lightning of course. As far as I can tell, he had come back from a lunch break and realised that if there was one idiot out there swimming, he would have to sit out on his high chair in the rain. Fair enough to the guy, I walked back in.

14.Oligarchs new and old

We were staying in a place with a view over a short stretch of sea to the archipelago which contained Skorpios, which was once upon a time the island retreat of Aristotle Onassis. I never met any Onassises when I was a Swiss banker, or any Latsises either, but I did meet a couple of representatives of investment companies which, apparently, at some point way up into their ownership structure, blended imperceptibly into one or other of the big Greek shipping fortunes. I also once had occasion to point out to a few people that the corporate structure of the Latsis fortune (basically the way in which they controlled EFG Eurobank) was distorting the entire BIS lending statistics and making it look like the Swiss banking system was hopelessly in over its head to Greece; shortly after this call, the Swiss supervisor stopped panicking and the Latsis family obligingly transferred ownership of EFG to something which didn’t show up in the statistics. The island is apparently now owned by some Russians, although you would not guess this from the mainland town which services it.

Later, we moved into another villa, in a nice little artists’ community in the mountains. The Greek islands have lots of mountains that have probably never been climbed at all – they’re not particularly difficult as works of Alpinism, it’s just that given that they’re hot, inaccessible and surprisingly dangerous because of the friable dry rock, they’re high enough or spectacular enough to be worth the trouble.

15.Into the land of the chucked cheek

I haven’t mentioned my family much in these pieces so far (apart from my wife occasionally), but I have three children. Seeing their reaction to the new places in the world is always a joy, but it’s also occasionally incredibly amusing to see the world’s reaction to them. I should possibly post a picture here, otherwise it’s quite difficult to understand what I mean, but the thing is, two of my children look like their mother, and the youngest one looks like me. So my twelve-year old boy, Joe, is perfectly fine-featured and handsome, with a developing adolescent chest and shoulders, looking alarmingly like one of the illustrations in that Germaine Greer book that caused a stir a few years ago. My ten-year old daughter, Poppy (who was clever enough to use her full name, Penelope, while we were in Greece, a decision which was much appreciated by the locals) is just a raving beauty – all green eyes and freckles and broad smiles and long hair which turns a lighter shade of brown every week. But then we have this utter little poppet called Rosie.

Rosie is five years old, and she is blue-eyed, strawberry blond haired, chubby-cheeked and generally the very idea of a storybook illustration. Because her elder sister is addicted to the “Hairstyles For Girls” YouTube channel, Rosie tends to favour either Shirley Temple curls or elaborate French-plaited pigtails, which tends to add to the effect. And the overall effect is catnip to old ladies, even back in England. Once you get outside Northern Europe, and the blue eye/blonde hair combination is exotic enough to be noticeable, she can barely walk down the street for having her cheeks pinched, asked her age, asked if she wants to stay and join a new family, and so on. God alone knows what it is going to be like in Asia; when I went to Vietnam ten years ago there were enough people wanting to rub my head for luck then, and I’m six feet tall.

This is the very definition of “white privilege”, by the way – my little girl is going to be chucked and tickled by the old ladies of multiple continents, because she’s so exotic, but I’m in a position where I can regard this as cute and amusing, because my ethnic identity is not one that tends to cause you trouble, quite the reverse. I suspect that we’ve already been getting a certain amount of special treatment on this trip, as my height and colouring marks me out pretty clearly as someone who might cause a hell of a fuss if asked for bribe, and someone who people will notice and listen to if he starts to complain. Society really has to break down very badly indeed in a developing world country before it reaches the point at which people will hassle big white foreigners with loud voices, and we’re not visiting any of those kinds of countries. It does mean that you have to get used to paying full tourist rates everywhere, but I can live with that.

So anyway, I hadn’t been expecting much in Switzerland (although my other two children tend very much to draw wistful glances from grandparent-age Germans and other low birthrate countries), and we were in some pretty rural places in Switzerland. But in Greece, the cheek-chucking and general fussing over Rosie has begun. I think it will be non-stop until we reach New Zealand.

16.Overheard conversations

A snatch of conversation, overheard as I was walking back from the shops to our house with some food. A starry-eyed young lady was talking to a blond, tanned, long-haired type of roughly her own age, with a full complement of surfwear logos on various items of his clothing. They’d clearly been talking a while, as he balanced on his moped and she cast occasional glances toward her parents at the beach bar.

“But what about money?”, she asked.

“I don’t worry too much about money. If I need some, I earn some”.

Clearly braggadocio of some kind or other, and I don’t believe it for a second; maybe he gets a regular stipend from mum & dad back home or maybe he spends half his life hustling to keep body and soul together. But it’s an attractive fantasy while it lasts, and it seemed to be doing him some good with the girls. In many ways I hope that me-laddo ends up in pinstripes or Dockers, taking the train in from Penge to the City and paying monthly into a Standard Life pension plan; the alternative is to gradually mature into the decidedly less romantic creature which is the aging beach bum. For the meantime, though, good luck to him. If you need some, earn some. To be honest, it’s a more sensible strategy for financial management than ninety per cent of banks and treasury ministries have been operating on for the last ten years.