Go Lean…Caribbean

Go Lean Commentary

Here a prediction for Greece: Things will get worse before they get worse!

This commentary has previously asserted that there are 3 kinds of people in the world:

1. Those who make things happen
2. Those who watch things happen
3. Those who wonder “What happened?”

Many people are now waking up to the harsh realities that a Failed-State – Greece – is emerging, right in front of their eyes. Unfortunately, this applies to people in the Caribbean as well.

On Sunday (July 5, 2015), a referendum was put to the Greek people to vote whether to accept further bail-out monies with harsh austerity measures from the international community … or go at it alone. They chose the latter!

Now they are waking up to the reality that the “cupboards are bare”; and many international trading partners will not trade with them. Many people are now wondering “What happened?”

See the news article here (and a related VIDEO from just before the referendum) conveying the harsh realities that many in Greece are now faced with:

Title: The economic consequences of Syriza
By: C.R. and S.N. | London And Athens

AFTER the party in Syntagma Square celebrating the landslide victory for the “no” campaign in Sunday’s referendum comes the hangover. They went wild “because we are tired of everything, from all the lies, from paying for the rich, and from years of austerity, especially for young”, as one partying Athenian told us. To be fair, with youth unemployment rates of over 50%, many have had little to celebrate for a long time. Young Greeks support the aggressive stance taken towards the country’s lenders by Syriza and its leader, the Greek prime minister Alexis Tspiras, whose position in domestic politics has been strengthened as a result of the referendum.

But two days after the close of the polls the fact remains that Greece’s real economy is in a mess. Capital controls imposed after Mr Tsipras called the referendum on June 26th have kept banks closed. Ordinary Greeks have been limited to cash withdrawals from ATMs of just €60 ($67) a day (which is now in effect down to €50 as smaller notes have disappeared from circulation). Many cash machines in Athens have run completely out of money.

Firms have also been hit particularly hard. Foreign bank transfers have been banned by the Greek government, with few exceptions. Greek credit is no longer accepted outside the country. That has hit firms that rely on foreign credit to import goods, as well as the Greek tourists who found themselves stranded when their credit cards stopped working. Supplies of food and some medicines are running short (see picture); a black market for cancer drugs has even emerged. As we reported on Sunday:

Greece relies almost entirely on foreign imports for its pharmaceutical supplies. But since capital controls imposed last Sunday brought the country’s banking system to a sudden halt, some suppliers have stopped delivering key medication because they cannot get paid…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?”

Unsurprisingly, as a result, Greek economic growth—which began to falter shortly after Syriza came to power in January—has collapsed. Consumption has slumped by 70% since capital controls were imposed, according to the National Confederation of Hellenic Commerce, a business group. Individuals and firms are hoarding cash at the same time that essential goods are becoming unavailable—a toxic mix for any economy. The decision taken yesterday by the European Central Bank—to keep in place the cap on emergency lending to Greek banks, and to increase the discount applied on Greek bonds accepted as collateral—will tighten the short-run financial crunch.

Greece is running short of time; in the next few days either a new deal will be done that allows the ECB to reopen the liquidity spigots or bank failures will lead to Grexit. In either case, the damage done by this period of uncertainty and financial drought will be severe.

Economic history suggests that economies can be surprisingly resilient when hit by shocks, such as the temporary imposition of capital controls or a reduction in the supply capacity of the economy. The Cypriot economy, for instance, started to grow again just one year after it imposed capital controls in 2013. And as Britain’s experience of general strikes indicates, temporary one- or two-week supply disruptions do not tend to have much impact on output after about a year. Leaving a single currency may also not be a complete disaster; countries such as Ireland (which left the British pound in 1928) have managed it before. And many countries ditching fixed-exchange rates—such as Britain in 1931 and 1992—exited long recessions almost immediately after they bit the bullet.

But there are three main reasons why economists think that the Greek economy will be wounded for far longer than other unfortunates. First, current uncertainty is probably damaging future demand as well as current demand; future tourist bookings have fallen by around a third since capital controls were imposed, for instance, which matters greatly given that the sector produces almost one-sixth of the country’s GDP. And with summer bookings so vital, the likely conclusion of the crisis in early July could not have been timed worse. Second, most countries that experience fast recoveries from supply-side shocks and fixed-exchange rate exits are able to count on a solvent and liquid banking system, which is needed in order to fund investment and growth through loans.

But Greece’s, which is about to collapse because of capital controls and deposit flight, is in a less comfortable position. The speedy introduction of new economic reforms post-Grexit, combined with capable macroeconomic management, could nonetheless cushion the Greek economy against the worst effects of exit and lead to a rapid bounceback. Yet few outside Greece reckon that the Syriza government has the inclination or competence to execute the transition smoothly and responsibly. Whatever Greece’s political fate, its economy is bound to get much worse before it gets better.
Source: The Economist Magazine – Online Edition – July 6, 2015
http://www.economist.com/blogs/freeexchange/2015/07/greeces-economy

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VIDEO – Yes or No? Greece Again on the Brink: Greek Debt Crisis – https://youtu.be/reU7wWgFmDU

Published on Jul 3, 2015 – For the past five years, Greece has been struggling with a financial crisis that has led the country to the brink of an exit from the euro and an economic collapse.

Add this word to your vocabulary: Grexit; meaning a Greek Exit from the European Union.

This experience in Greece is a cautionary tale for the Caribbean, as so many aspects of Greek life parallel those of the Caribbean:

• Tourism/Service based economy
• 95% importer of consumer goods
• Close proximity with richer countries, not suffering this fate
• Long legacy of bad community ethos regarding fiscal responsibilities
• Warm weather ideal for year-long leisure
• Cruise ship destinations
• High societal abandonment rate
• Large Diaspora abroad
• Archipelago of islands – Challenge of security
• Incompetent governance

The harsh reality of Greece is a reminder of another crisis, the Great Recession of 2008. The events this week – with the referendum – mirrors September 15, 2008 when the American Investment Bank Lehman Brothers filed for bankruptcy, thus bringing the US (and the world’s economy) to the brink of disaster. This 2008 consideration is part-and-parcel of the book Go Lean…Caribbean which serves as a roadmap for the introduction of the technocratic Caribbean Union Trade Federation (CU) to provide new oversight for the Caribbean region’s economic, security and governing engines. The book was conceived as a result of this 2008 crisis, by stakeholders intimate with the anatomy of the 2008 crisis – People who make things happen – and composed from a position of strength, while in the location of one of the most successful communities to endure the Great Recession crisis: Omaha, Nebraska.

The pretext of the Go Lean roadmap is simple, and applies equally to Greece and the Caribbean:

Only at the precipice do they change!

The lessons learned, and codified, in the pages of the Go Lean book can now be enhanced with the examination of the realities of Greece. This examination must consider the reality of the economic, security and governing aspects of Greek society.

This country now has new leadership – the political party Syriza was swept into office on 25 January 2015 – trying to forge change in a dysfunctional environment. Until recently, the Minister of Finance for this sovereign nation was Yanis Varoufakis. (He resigned on July 5^th, after the passage of the Referendum). To project transparency, Mr. Varoufakis presented the arguments in favor of their request for more compromise from the European Central Bank, the IMF, and other creditors demanding more austerity from Greece; he vocalized the following:

Our political mandate is to find an honourable, workable compromise. Is it so difficult to do so? We do not think so. A few days ago Olivier Blanchard, the IMF’s Chief Economist published a piece entitled ‘Greece: A Credible Deal Will Require Difficult Decisions by All Sides.’ He is right, the three operative words being ‘by all sides’. Dr Blanchard added that: “At the core of the negotiations is a simple question. How much of an adjustment has to be made by Greece, how much has to be made by its official creditors?”

That Greece needs to adjust there is no doubt. The question, however, is not how much adjustment Greece needs to make. It is, rather, what kind of adjustment. If by ‘adjustment’ we mean fiscal consolidation, wage and pension cuts, and tax rate increases, it is clear we [Greece] have done more of that than any other country in peacetime.

• The public sector’s structural, or cyclically adjusted, fiscal deficit turned into a surplus on the back of a ‘world record beating’ 20% adjustment
• Wages fell by 37%
• Pensions were reduced by up to 48%
• State employment diminished by 30%
• Consumer spending was curtailed by 33%
• Even the nation’s chronic current account deficit dropped by 16%.

No one can say that Greece has not adjusted to its new, post-2008, circumstances. But what we can say is that gigantic adjustment, whether necessary or not, has produced more problems than it solved:

• Aggregate real GDP fell by 27% while nominal GDP continued to fall quarter-in-quarter-out for 18 quarters non-stop to this day
• Unemployment skyrocketed to 27%
• Undeclared labour reached 34%
• Banks are labouring under non-performing loans that exceed 40% in value
• Public debt has exceeded 180% of GDP
• Young well-qualified people are abandoning Greece in droves
• Poverty, hunger and energy deprivation have registered increases usually associated with a state at war
• Investment in productive capacity has evaporated.

Source: http://www.businessinsider.com/full-greece-proposal-leaked-by-yanis-varoufakis-2015-6

Mr. Varoufakis’ appeal has been rejected. Greece is now at the precipice. They are willing to change and correct many inequities. But maybe, this is too little, too late? They want to work to build up their communities, not necessarily build up their neighboring countries. They are willing to accept the Grexit.

In this status quo is the primary lesson for the Caribbean. Are we now willing to change and correct the inequities in our society?

The Go Lean book declares: “A crisis is a terrible thing to waste” – quoting noted Economist Paul Romer. The opportunity exists now to forge change in the economic, security and governing engines of the Caribbean, as this cautionary guidance is gleaned from the Greek crisis.

The roadmap calls for a confederation of the 30 member-states of the Caribbean into a Single Market of 42 million people; thereby allow an adequate size to absorb economic shocks and downward trends. The Go Lean roadmap provides the details for the creation of 2.2 million new jobs and GDP growth to accumulate to $800 Billion. This vision is at the root of the Go Lean roadmap, embedded in the opening Declaration of Interdependence (Page 13):

xxiv. Whereas a free market economy can be induced and spurred for continuous progress, the Federation must install the controls to better manage aspects of the economy: jobs, inflation, savings rate, investments and other economic principles. Thereby attracting direct foreign investment because of the stability and vibrancy of our economy.

xxv.  Whereas the legacy of international democracies had been imperiled due to a global financial crisis, the structure of the Federation must allow for financial stability and assurance of the Federation’s institutions. To mandate the economic vibrancy of the region, monetary and fiscal controls and policies must be incorporated as proactive and reactive measures. These measures must address threats against the financial integrity of the Federation and of the member-states.

The following details from the book Go Lean … Caribbean are the community ethos, strategies, tactics, implementations and advocacies necessary to effect the turn-around of the Caribbean societal engines – to learn from Greece:

Greece will become a Failed-State before it is all said-and-done. We hope that this country, and their European neighbors, can secure their society to assure peace and the protection of human rights.

Greece will recover…eventually! Their disposition will go from bad to worse – see Appendix VIDEO – but then they can reboot, much like Cyprus did just recently, as detailed in the foregoing news article. Take their tourism for example:

Travel and tourism contributed a total of €28.3 billion ($31.3 billion) to the economy in 2013—or 16.3% of GDP. But after one to two years, after the country returns to local drachma currency and it stabilizes after devaluation, destinations in Greece will be cheaper than its competitors. This will eventually be an advantage. – http://www.economist.com/node/21657058

Greece will be a European Failed-State … and will “bounce-back” … eventually.

We also have Failed-States in the Caribbean: Think: Haiti, Dominican Republic and Cuba; plus a host of countries just slightly behind them. We have to foster our own turn-around strategies for our region.

The Go Lean roadmap declares that the responsibility for fixing the Caribbean though must fall first-and-foremost on the Caribbean, its people and institutions.

The Caribbean must also reboot and “bounce back”; to “step back from the precipice”. The effort is not easy; the Go Lean book describes it as heavy-lifting. But the returns will be worth the investment. This is true for Greece … and the Caribbean.

This is the goal of the Go Lean roadmap: not to wonder what happened, or watch things happen, but rather to make the things happen … that make the Caribbean a better place to live, work and play. 🙂

Download the book Go Lean … Caribbean – now!

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Appendix VIDEO – The Economic Collapse of Greece. Whiteboard Animation by Angelow – https://youtu.be/dt6w4eE_tg0

Published on Mar 17, 2013 – VIDEO on the previous need for Greek bail-outs. Greece is bankrupt!