Sunday, July 17, 2016

Chinese whispers in Athens, Greek drama in Beijing

This dated piece has been reproduced on the request of many of my overseas friends. To others, I profusely apologize for the stale dish.


Sudhir Raikar, India Infoline News Service | Mumbai | July 11, 2015 10:10 IST

Not surprisingly, opinions outnumber observations when it comes to analyzing two disparate catastrophes of recent times - the Greek debt crisis and the Chinese market chaos. Financial news site Zero hedge aptly summed the Greek-China story in a single tweet, “China has lost 15 Greeces in market cap in three weeks.” Subjective predictions of course can’t ever fit into Twitter’s 140 character scheme of things.

No wonder, varied conjectures on the likely outcomes on the US economy (customarily ahead of all other economies of course) have taken center stage. Majority of experts warn the US policy makers of dire consequences emanating from the long-term consequences of the Chinese crash, not the Greek insolvency which they see as an insignificant threat, thanks to America’s limited trading ties with and low debt exposure to the latter. On the other hand, China’s golem-like growth in an abnormally short span, it is largely believed, has manufactured a dangerous supply-side overabundance while the artificial boost to commodity, real estate and stock markets has scripted a meltdown which would now put tremendous pressure on China’s banking sector, ask existential questions of its autocratic governance and more importantly will hurt global economy in a big way. Then there are contrarians who sense a unique market opportunity for the US in capitalizing on the Chinese debacle which, they feel, could open new windows for US trade ties with Japan and South Korea. Other experts don’t think much of the globally detached and largely regional Shanghai Composite which they don’t link with any impending economic collapse in China. On the Greek fallout, opinion is divided on the possible Eurozone fate – some see it as a trigger for a dream union of centralized taxing and spending for the zone as a whole while others point to the exact opposite – a disintegration led by inherent parochial differences.

Predictions as they are, there’s no limit to them. And they are as elusive as the actual impact which becomes crystal clear only in hindsight. The direct blow of China’s great fall on Tata Motor’s JLR fortunes is a case in point or even the possible liquidity repercussions of the Greek meltdown on the global bond market in the event of a massive sell off and the cascading effect on treasuries.

Perhaps in his first genuine wisecrack after his government assumed power, our Finance Minister Arun Jaitley aptly remarked at a book launch, “The more I hear economists speak on which way oil prices are headed, the more I realize why astrology is gaining credibility.” When asked about the Greek fate, he was quick to retort tongue in cheek, ‘Ask the astrologers.”

Ahead of staging debates and discussions on potential scenarios and notwithstanding Prime Minster Tsipras’s U-turn asking for a $ 59 billion help to cover Greek debts until 2018, (thereby accepting previously rejected austerity measures) we should be concerned about the root cause of the current situation in both countries, in the form of a few essential questions…

First about a weird commonality between Greece and China rooted in Western perception. For long, the West held the word ‘Chinese’ synonymous with confusion, if not chaos. Hence the fast circulation of the phrase "Chinese whispers". In the case of Greece, the idiom “It's all Greek to me!” essentially stemmed from the perceived incomprehensibility of the language. The high and mighty Western bias notwithstanding, whatever’s happening to Greece and China, one must say, is indeed perplexing, with some commonality, one must say. After all, both economies have been largely government controlled, less prominent of course in the case of Greece. Control in both countries has only meant bureaucratic interference – whether in heavy industries or the consumer space, whether in the local plane or at the national level, whether for bankers or corporates. Market forces – and their fallibility and efficiency – have never been allowed a free play. No wonder, government presence in every nook and corner of the market and on both sides of the transaction could not enforce a culture of fiscal discipline, more so in Greece.

For Greece, the tragedy has defied all structural conventions of prologue, parados and exodus to become a mishmash of conflicting narratives. Who’s to blame for the Greek turmoil? There’s no single answer to this elementary question…

Should we find fault with the Greeks for their grave indecision and gross inequality of the pre-Euro era, cocooned by the dismal political leadership that protected the vested interests across spheres at the cost of ruining the common man’s life?

Or should we blame its creditors who first let Greece into the Euro Zone and then habituated it into a culture of rampant borrowing purely for market motives, leaving the Greek revival to wishful thinking, thereby overlooking its systemic ills of corruption and red tape?

Or should we hold both parties accountable for simply letting matters go from bad to worse, never really viewing the aliment as a Eurozone problem, dampening the morale of other members like Spain, Ireland, Portugal and even Bulgaria who have gone through the grind of austerity and reform with noteworthy dignity? The Greek bankruptcy can inadvertently establish a culture of distrust and default in Europe that will necessarily affect the rest of the world. Hope one’s not forced to recall American poet and author Richard Armour’s humorous book “It all started with Europa” in a ghastly context.

And as debonair economist Thomas Picketty righty points out, a possible solution is a restructuring of all of Europe’s debts, not just Greece. Eurozone, he rightly says, shouldn’t turn a blind eye to the history of national debt: Britain, Germany, and France were all once in similar debt traps and Germans can’t claim a high moral ground being a country that has never repaid its debts.

Ancient Greek philosophy is unanimously hailed as the mother of all incisive thought and radical reasoning. The European renaissance owes a lot to the Hellenic republic for the knowledge repository in diverse areas including polity, philosophy, ethics, metaphysics, ontology, logic, biology, rhetoric, and aesthetics. Ironically, Greece today stands on the brink of disaster, a tragedy that poignantly fulfils most of the defining features mentioned in Aristotle's Poetics:

“Tragedy is the imitation of an action that is serious and also having magnitude, complete in itself; in a dramatic, not in a narrative form; with incidents arousing pity and fear, wherewith to accomplish its catharsis of such emotions”

The Greek debt crisis indeed presents a reversal of fortune: serious, complete, of high magnitude, exuding pity and fear in equal measure. What now remains is the catharsis of emotions that, unfortunately, is being overshadowed by ripe speculation on the likely fate of the beleaguered nation that was once better known as a fascinating tourist haven.

In China’s case, the undoing is largely home spun. So, the only question is of acknowledging the need for obvious answers. China has adamantly refused to accept the virtues of civil liberty despite paying a heavy price all along. Worse, this insular approach and predatory attitude has needlessly diluted the country’s unique value prop – its rock-solid support programs and ingenuity in steering market-led innovation. The brash manner in which it has tried to steer its stock markets only reflects a self-defeating mindset based on unmindful and intrusive intervention – of extending bizarre liquidity measures to fuel bourses, imposing lock-ins on stock sales, rampantly penalizing short-sellers, freezing primary markets – in short scripting a horrendous crash in the making. You first help create a stock bubble and then firefight a sudden slump that's wiped 30 percent of equity in a matter of three weeks.

At the receiving end of this tyranny are largely retail investors - who comprise 80 per cent of the stock market – many of whom have seen their precious savings wipe out within no time. If the government tries to mend every market slump with military action, equity for Chinese commoners could prove less attractive than a term insurance plan in the long run.

It’s pertinent to refer to Aristotle’s Poetics in the context of both Greece and China, especially his description of the root cause of a tragedy. He remarks, “The tragic flaw is hubris, an excessive pride that causes the hero to ignore a divine warning or to break a moral law”. In the context of financial tragedies, hubris could well be the collective complacency and conceit that breed inertia and indecision.

Today, the tragedy for both nations, as Aristotle would have readily validated, has certainly become greater than its offense. Both should go back to the timeless thoughts of their ancient spiritual leaders. The Socratic Method - that stimulates critical thinking to illuminate ideas - and the Confucian ethical code - stressing on a government based on morality rather than coercion - can promise a more stable life in both countries – Grexit or no Grexit, China crash or no China crash.

Of course, India has much to learn from both tragedies. The list of our own inherent systemic flaws is pretty long. In fact, the Greek debt crisis is a premonition of a similar catastrophe that could engulf any nation that seeks to live beyond its means, has little control on its public spending and suffers a long history of rampant corruption, irresponsible populace and idle cynicism. Such a nation invariably nurtures an unbridled disorder that could turn malignant with meltdown or negative growth.

Agreed, India’s domestic economy is far more robust. Our resources – human in particular – are far more inventive and our industry (tourism included) continues to hold worldwide attention. Our ethical fabric, however, is downright tattered, a cesspool of corruption across ladders. And it's not just a matter of political will as the media points out with unfailing regularity, it's equally about the social and cultural will to exercise fiscal discipline and prudence – by regulating public spending, reporting and eliminating corruption and fulfilling our national obligations including prompt payment of taxes.