Greece and Spain Protest : Who will follow ?

The grave mistakes of the leisure class have lead to a new underclass (Galbraith- Veblen), ie. Young and old (over forty as per most human resources departments) educated and out of work professional men and women.

Judging from the current demonstrations in Spain and Greece, and the probable domino effects in Ireland, Italy (which will eventually find their way to the more industrialized countries) the new underclass is composed of both labor and out of work professionals.

If the leisure class, ie. the industrialists, aren’t careful they may see an unprecedented backlash that will not only affect their profits, but their very existence.

Recall that May Day started in the US, and that the red flag was the result of a young woman dipping a dead worker’s shirt in a pool of blood.

“Κραυγή Λαού, Οργή Θεού”

The Essence of the Greek Debt Crisis

The Greek crisis, which is now quickly becoming a Eurozone crisis was triggered by the American financial crisis which itself was triggered by the subprime crisis and the availability of low interest money, stemming from many places including Chinese savings.

The Greek crisis reflects aside from the weak Greek economy, the anomalies of the Eurozone.

So the Greek crisis is in essence a European crisis which is in essence a crisis of a financial system that basis itself more on speculation rather than production; note that many corporations in the past preferred to invest their profits in Wall Street, rather than in actual production lines.

Focusing on Greece, the Greek crisis reflects an ecosystem built on political favoritism; the electorate voted politicians in and in return was granted government jobs which translate to work for life without having to do anything regardless of education or actual competence.

The result is a monstrous bureaucracy that is now being called upon to produce and as any ecosystem which is called upon to change, is reacting adversely to the individuals (the politicians) it was designed for to support in the first place. This bureaucracy includes the core public sector, the different government agencies and professional associations (which are headed and staffed by party cronies), the revenue service and so forth.

A student once asked President Nixon why he was unable to stop the Vietnam War: Since the President could not reply the student understood that the President couldn’t; the system was working (ie. the American military industry and related interests) autonomously and would react violently to any opposition.

The same situation applies to the current Greek government bureaucracies, institutions, professional associations and so forth.

Since the private and public sectors are intertwined, as Galbraith points out in his final book, it goes without saying that a malfunctioning public system leads to a malfunctioning private sector since innovation is stifled and contracts are landed through bribes.
Therefore aside from consuming huge costs, the public sector leads to an incapacitated private sector as well as poor university research thus putting Greece in a precarious situation insofar as growth is concerned.

The only salvation is careful dismantling or bypassing of the existing public system in favor of a new improved, efficient and healthy government organization. This will only guarantee long term growth and prosperity for the country.

Greek Real Estate Market Prices for 2011

For the first time in decades, the Greek Real Estate market may be undergoing price erosion.

From a macroeconomic perspective, the Greek Ministry of Finance reported that the overall Greek economy shrunk about 2% in 2009 and was expected to shrink a further 2% in 2010.

Deutsche Bank reported early in February that the Greek economy would retreat about 4% in 2010 (The Greek Ministry of Finance reports a retreat of 2.5% in the first quarter of 2010) and market forecasts speculate that the economy may shrink 5% by the end of 2010.

The Greek government’s austerity measures (which include those imposed by the International Monetary Fund and the European commission) require that debt is reduced by at least 3% of current GDP by 2012.

Real Estate Market Characteristics

The Greek real estate market has up to now demonstrated impressive price insensitivity when compared to foreign real estate markets. The reason for this price inflexibility even in times of economic crisis is due to the financial independence so far enjoyed by most real estate owners (Active Real Estate, Thessaloniki). A good segment of real estate owners consists of pensioners, construction companies and permanently employed civil servants.

The latest measures taken by the Greek government have chewed into pensions and civil servant salaries, and have generally introduced an element of uncertainty to traditional real estate owners, uncertainty that has lead to price flexibility. Buyers’ expectations have also become to a large extent unreasonable, mainly because of a two year continual media buyer conditioning of an eminent collapse in real estate prices.

Price Erosion Pressures Mounting

The year 2010 has been pivotal for Greece; the inclusion of the country under the auspices of the International Monetary Fund and European Support Mechanism; the new austerity measures, the crackdown on tax evasion, the continuing cutbacks in personal income which for the first time affect pensioners and the massive Greek civil service; the uncertain future of the civil service; the unavailability of loans and drop in the supply of money; the rapid decline of real estate transactions and ensuing collapse of the real estate and retail markets, the general negative buyer psychology and negative spending propensity has put enormous pressures on real estate prices, pressures that are now becoming evident.

In addition, the government’s plans (in 2011) to further increase the real estate objective or taxable value in stepwise fashion until the objective value is close or equal to the market price - and associated indirect increase in transaction overheads and indirect taxes - will put a further strain on the real estate market supply side, which may result in further price erosion pressures.

Expected Real Estate Prices for 2011

A recent study shows that the Greek real estate market will recover only when a significant price correction is experienced on the supply side and more reasonable demands per euro are eventually forged on the demand side.

For the first time in the last couple of years, sufficient information exists as to how much this expected price erosion will be, and which supply segment will experience it.