Missed chance for the memorandum

Dear Mr Papachelas,

I have been following the Greek financial/economic crisis and events very closely these past 24 months.

Briefly, both Mr [Costas] Karamanlis and Mr [George] Papandreou lost several opportunities to negotiate with the lenders a better agreement than the current Memorandum and the new one, now under debate in Parliament.

There is still time to negotiate better terms. In my estimate there is a window of six to 12 months to do so.

They both lost the opportunity do go to the market and borrow 40+ billion euros to hedge the payments that were coming and thus strengthen their hand in negotiating the Memorandum. The market in the summer and fall of 2009 was very favorable to Greek bonds (interest payment-wise) if I recall correctly.

Currently the debt problems of Ireland, Portugal, Spain and Italy are interwoven with the Greek debt issue. I believe that the Europeans will work out a financial defense strategy and system to separate the Greek debt from impacting the debt of the others. If they do that it will weaken Greece?s position severely. Therefore, this is the time to negotiate better deals while the Europeans are afraid of a domino effect. Later they will not be.

Also, in my judgment and experience, when funds are borrowed, both the lender and the lendee have responsibilities.

The lender is responsible for conducting an in-depth due diligence on the lendee to determine the risk of the loan and of course the lendee has the responsibility to make the necessary plans and contingencies to be able to repay the debt and interest due as agreed. Again in my judgment based on experience, the responsibilities correspond to 30% for the lender and 70% for the lendee (borrower). This would correspond to a 30% haircut of the debt owed.

This kind of negotiation takes leadership, courage, determination, commitment and knowledge of the details in a spherical way that would include the details of all the other national debt that might be effected by the haircut, dates of maturities, installment payments etc. And, very critically, national support.

Furthermore, the government should have a public relations drive based on truth and should not scare the population that a haircut is catastrophic, unacceptable etc. Of course it is in the interest of the lender to squeeze as much as possible from the borrower and to put maximum political and financial pressure to achieve their goals.

Of course, Greece in parallel should establish a restructured economy that will be competitive, therefore belt-tightening is unavoidable. But belt-tightening should be imposed on all the citizens that generate income and not only the those that do pay their taxes, for example.

Businesses, unions, government and other functionaries must take their responsibilities for the betterment of the nation and not only concentrate on their narrow self-interests!

Dr John Psarouthakis

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