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Drachma out of a crisis

Timeo Danaos mutua publica ferentes – I fear the Greeks bearing sovereign debt, as Virgil might have written had he been a financial hack today and had had to use my Latin dictionary to come up with a rough approximation of “sovereign debt”. Under the circumstances, I think “state loans” comes close enough.

What Virgil actually wrote was “Timeo Danaos et dona ferentes” – “I fear the Greeks even when they bear gifts” – and he gave the words to Laocoon, the only Trojan not entirely comfortable with a giant wooden horse materialising outside the gates of his home town one morning. Nobody listened to him, the horse was filled with Greek soldiers and the rest is history. Well, myth.

As you may be able to tell, I am wavering about this column because, deadlines being what they are, it will be published a week after I write it – and a week is occasionally a long time in the eurozone. Still, on the plus side, it does offer the opportunity to trot out a couple of debt-related acronyms you may or may not have seen.

First there is Pigs, which denotes some of the shakier corners of the eurozone, in Portugal, Ireland, Greece and Spain – or, if you wanted to add in Italy and risk sounding like the Mexican bandit in The Three Amigos, Piigs. Better still is the collective term for the paragons of financial prudence that are Spain, Turkey, the dear old UK, Portugal, Italy and Dubai – the Stupids.

Tee hee – but, as I said, a week is occasionally a long time in the eurozone and who knows what might have happened to Greece by the time you read this? Riots on the streets and a collapsed economy? Or a bailout from the European Central Bank, the European Union, the International Monetary Fund or all three?

Hey, maybe the country will be taken over by one of the big private equity firms – I mean, those boys know a good deal when they see one, right? No, you’re right, there has not been a huge amount of evidence of that in recent years.

Scrap the taking-Greece private plan. But those other scenarios are valid enough and that is one of the interesting aspects of this whole episode – how the two extremes of possible outcomes have been mirrored by the polarisation of views among bond fund managers.

Some have gone on record as saying they would not touch Greek bonds with a bargepole while others reckon it is worth a punt because, even if a default wiped out about a quarter of contractual payments, it would still yield an investment return approximately equivalent to German bunds at today’s yields.

Or, of course, you could just buy German bunds in the first place and give your blood pressure a break. Yes, I know the Greek debt crisis is more a matter of politics than investment and the bigger players in the eurozone are going to move mountains to ensure their little experiment in fraternal togetherness doesnot start to unwind.

But ignoring Greece has the financial standards of Portsmouth FC, ignoring the other eurozone members turned a blind eye to this in their eagerness to welcome fresh blood, ignoring the re-emergence of moral hazard on a national scale and ignoring that, as Axa’s Theo Zemek puts it, somebody is going to have to pay the piper – ignoring all that, is this the sort of risk-taking you want your sovereign debt managers to get involved with? Well, OK – just so long as you are comfortable.

Maybe the pro-Greek debt managers are so certain of their maths and the probability of a bailout they would argue one should not look a gift horse in the mouth. But then, if the Trojans had looked their gift horse in the mouth, they would have spotted the soldiers hiding inside and Virgil really would have needed another job.

Now, if I might end on a shameless plug, I shall shortly be chairing the Unique Boutiques roadshow that brings fund managers from Baillie Gifford, Cavendish Asset Management, Liontrust, Pictet and SVM to venues in Stirling, Harrogate, Knutsford, Birmingham, Bristol and London between March 2-10. To register or find out more, please call 0800 019 9110 or visit www.unique boutiques.co.uk.

Julian Marr is editorial director of marketinghub.co.uk

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. I believe that greek crisis is mostly an issue regarding the unflexible manner a sovereign economy can handle its fiscal affairs whilst being part of euro.
    Greek crisis demonstrate the need of a right of opt out from eurozone.
    No country, with the exception of UK and Denmark bears an opt out right from euro currency.
    This crisis revealed an important issue:that eurozone countries will not head forth and create a fiscal union with all benefits and obligations to be shared collectively by all participating members creating as a consequence the basis of a confederation.
    As such Greece and probably the rest of the PIGS must abandon the common currency to resolve their economy weaknesses.
    Southern countires need a dilluted currency in order to serve their debt and attract tourism that is the basis of their income.
    Equally non european investors could use Greece as an alternative to invest in expensive euro countries.
    As such Greece shouldn t look at all in a european help that will put a lot of social and financial pressure only to keep a currency that ultimately will create FX barriers to foreign investments.
    Greek governement MUST leave eurozone the soonest to smooth down pressure and cut off the speculators against the greek economy.
    Euro is a dead end without europe.
    Drachma is the best and most prudent choice.
    Hopefully the greek government will see it and bravely decide to move back to the more safe option of a weak but far more attractive drachma.

  2. I totally disagree with you John. By moving back to drachmas our deposits will be deleted brushed aside, while our currency will be underestimated and we will not able to pay our debts & loans. If our currency understimates, we MAY not be able to import primary goods as their prices will be increased for our drachmas. And now I would like to mention that. Many greeks want to move back to drachmas but it is sure that these problems haven’t come into their minds. This currency just have a sentimental value for them. And I am also sure that a lot of europeannes do not care about Greece. It’s not their country at all ! However, they should think twice if they really like Greece to return to the old currency because if Greece gets out of eurozone, euro is going to be understimated in relation to the dollar. WE CANNOT JUST THINK THAT MOVING BACK TO DRACHMA WILL HELP GREECE. Drachma may be attractive among the greeks but if everybody think it deeply, he is going to tell that moving back to drachmas will also move Greece years back and our country will not be able to recover from the crisis.

  3. Dear Guys first of all who is talking?for all this you know what we the (pigs) as you call say …. you say about Greece this Greece that,,,well we are not pigs,,,,
    When we had cholesterol you were in caves and eating vegetables,when we had democracy you had swords ,anyway…this belongs to the past.but our friends germans after the war left a destroyed country and we never got money for this as other nations,and the most of all they managed to inflate so much the drachma that lost all the value,in mid time,our friends germans are nice when we buy weapons from them so as the french so as the americans and they are so bad when we dotn want to spend our money for weapons,and they critisise us and they give us hard time,yes we have coruption yes we have no one in jail from those corrupted guys, but european community always knew about it,and the list i want to hear is an english guy to talk and call us pigs,if you english guy want to call us pigs read your history and ours, we leave in a place that you can only dream of,and yes we want the drachma back not the barbarian euro ,we are Greek and we want drachma,im sorry if i mentioned some truths here but is not my opinion,,,its the Greek people opinions,is the Greek tv opinion i just transfer you what i hear just you to know oour way of thinking mate

  4. Dear Guys first of all who is talking?for all this you know what we the (pigs) as you call say …. you say about Greece this Greece that,,,well we are not pigs,,,,
    When we had cholesterol you were in caves and eating vegetables,when we had democracy you had swords ,anyway…this belongs to the past.but our friends germans after the war left a destroyed country and we never got money for this as other nations,and the most of all they managed to inflate so much the drachma that lost all the value,in mid time,our friends germans are nice when we buy weapons from them so as the french so as the americans and they are so bad when we dotn want to spend our money for weapons,and they critisise us and they give us hard time,yes we have coruption yes we have no one in jail from those corrupted guys, but european community always knew about it,and the list i want to hear is an english guy to talk and call us pigs,if you english guy want to call us pigs read your history and ours, we leave in a place that you can only dream of,and yes we want the drachma back not the barbarian euro ,we are Greek and we want drachma,im sorry if i mentioned some truths here but is not my opinion,,,its the Greek people opinions,is the Greek tv opinion i just transfer you what i hear just you to know oour way of thinking mate

  5. I was thinking on the wavelength like most people if they bring the drachma back then it would be better cos they would have more tourists which would create a better economy.However i fully understand about the crisis and were going back to the drachma would make the economy even worse so i think staying with the euro is the better option cos of the massive debt that they are in.It would be good in theory but it wouldnt be practical for the greeks, cos that would leave them in even more trouble. Kind Regards Lesley x

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