Greek EU Crisis and Greek Shipping Industry: Where are we headed?

The case of Greek ship owners and their embrace of the Euro is but a microcosm of Greek society and the general mindset of many in the Greek middle class. 

Last Friday before the plebiscite, I received a plea originating from Mr. Dimitris Athanasopoulos Group Managing Director of Axia Ventures Group Ltd to vote ‘yes’.   I was amazed at how so many smart, financially literate business people could be so incredibly blind to the mess in Greece and the stark reality starring at them in their faces:

• They were totally tone deaf to the prevailing public mood in Greece.  
• I was amazed that these experienced business people would side with EU Creditors and their disastrous ‘pretend and extend’ fudges that have devastated the Greek economy.
• How could they be totally oblivious to the urgent need for substantial Greek public sector debt restructuring, as now officially attested by the IMF? 
• Finally, they seemed incredibly naïve that this plebiscite would solve any problems, Greek banks could be opened in a few days and things would quickly evolve back to normality given the complexity of the present impasse and depth of the crisis.

How could they be insisting on more of the same failed remedies of the last five years that have created social and economic chaos, led to the disintegration of the Greek political system, put into economic marginalization large swathes of Greek society and left Greece more insolvent and bankrupt than ever?  It seemed to me incredibly foolish and masochistic.

For years the European Union has expressed hostility to Greek Shipping.  The European Union has consistently taken positions at IMO that were against the interests of the shipping industry in new and costly regulations that are only held at bay by opposition from the United States and Japan with the support of their Flag States.  The EU has never seen favorable the offshore status under Law 89 of Greek shipping companies. Lately, Jean Claude Juncker, the EU Commissioner has made a personal campaign to abolish Law 89 and increase taxes on Greek Shipping companies

The ship owning community attempt to deal with this EU hostility by appeasement has failed again and again.  They agreed to equalize tonnage tax to all vessels managed in Greece to the same levels as Greek flag vessels.  Shortly thereafter they barely escaped an extraordinary tax levy on foreign exchange brought into the country that their maritime service industry brethren did not escape and had to pay.  The following year, they tried again appeasement with a new ‘voluntary’ agreement for increased tonnage tax for which the Greek government reneged and passed a law that made the tax increases obligatory and even larger than initially agreed.

Was the Euro needed for the Greek Shipping industry?  Clearly no!  To the contrary, the Euro was a mismatch to the US Dollar, which is the base currency in the shipping industry.  The Euro made office expenses and Greek crewing more expensive.  The shipping industry never had any real capital control restraints with ample reserves in US dollars that allowed unlimited travel abroad.  The Euro decimated their home ship repair industry in Perama.

Did the Eurozone participation ensure political and economic stability in Greece as an intangible benefit to offset the economic costs to the shipping industry?  Clearly no!  Greece has been in turmoil for five years now whereas it had enjoyed a long run of steady growth with the Drachma.  Participation in the Eurozone dramatically reduced these growth rates, decimated local production, caused asset bubbles in real estate and household indebtedness and made the country dangerously import dependent.

Today, Greece is more insolvent than ever with an even more crushing public debt for the size of its GDP.  The country has lost 25% of its GDP in the process and now suffers nearly 30% unemployment and made its youth a lost generation with over 50% unemployment, spurring substantial emigration, especially among younger, educated Greeks.  The same applies to highly-qualified young Greeks in the shipping industry with graduate education and professional certificates in shipping qualifications like chartering, operations, finance and marine insurance.  Foreign shipping operators are flooded with CV’s from young Greeks, sitting idle and unemployed in Greece.

Ship owners talk about moving abroad should Greece revert to a national currency.  First, this seems shamefully unpatriotic and total lack of any love of country.  Second, it would mean the end of any value-added content from Greece or any vestige of competitive advantage over foreign competitors for being Greek shipping.  Greek shipping was competitive and thrived because of the Greek maritime tradition, because of the close relation between the vessel and the office with Greek seaman and finally because of favorable off-shore tax treatment under Law 89.  The Greek business model was vessel provider with a high quality of service to charters. 

This also generated a thriving Greek maritime service industry that would be put in jeopardy with the departure of Greek ship owners.  Domestic Greek banks supported particularly small, medium Greek ship owners, specializing in the financing of older, bulk commodities vessels.  These were invariably US dollar loans on the Eurodollar market.  The Eurozone crisis led to the bankruptcy of the Greek banking system and undermined this access to credit, putting smaller Greek ship owners at risk deprived of credit to roll over and renew their fleets. 

Moving abroad might work for large Greek ship owners, but it will certainly be very difficult for smaller Greek ship owners, who were very reliant on the local Greek banks and service industry for their operation.

I sincerely believe that that best deal for Greece (Greek ship owners and the Greek people) would be GREXIT with very generous public debt restructuring and transition support for balance of payments and other related issues.  Greece to be allowed to remain in EU as regular member like UK and Nordics: Sweden, Denmark or if outside the EU, be given free-trade status that would be an even better and more flexible arrangement to revive and restructure the Greek economy.

The Drachma would facilitate needed structural reforms that will take time to implement and bear results.  It would allow whatever austerity to be offset with increased exports spurred initially by the devaluation: a classic IMF work out program as succeeded in Turkey and other countries.  Sweden achieved this by devaluation without any IMF program.  Sweden as opposed to Greece demurred on Eurozone participation.

The Drachma would be good for Greek shipping.  It would take off any EU pressure to modify Law 89 and offshore status of Greek shipping companies.  It would recreate lost competitive advantage operating in Greece with savings on office and Greek crewing expenses.  It would allow renaissance of Greek ship repair industry, etc.

The Drachma would not create any personal problems for people in the Greek Shipping community.  Credit cards and travel abroad would not face any difficulties with dollar shipping income and ample foreign exchange.

Drachma would mean more employment opportunities in Greece for Greeks.  It would allow surge in investment at properly valued prices as well as prepare ground for export boom.

Hopefully the Drachma will lead to a new revitalized Greek political class that is outward looking and export oriented and rid us of the present discredited political elite that drove the country into the ground by failed EU-bootstrapping built largely on debt and transfer money that funded unproductive, parasitic domestic crony capitalism.  Hopefully, the Drachma will allow important Constitutional revisions that create genuine institutional safeguards on debt levels, public spending and political accountability to ensure the development of a sound national productive base.

Hopefully GREXIT with suitable revitalized Greek political leadership will provide the foundation for Greece to follow the example of Singapore, keep and expand its presence and role as a global maritime centre.