Monday, June 27, 2016

BREXIT and other challenges for Greek Shipping

Despite a successful Posidonia this year, our shipping cluster is facing many challenges.  Our competitors in Scandinavia (Norway, Denmark) and Far East (Singapore, Hong Kong) are not in the deep shackles of Eurozone creditors and their debtor in possession bailouts nor the scorched earth of a bankrupt local banking system from years of depression, double digit unemployment/ emigrating youth. 

These countries have their own issues, but no crushing legacy debt burden and also more promising growth prospects than the EU, whose share in world trade has been steadily shrinking over the years and suffers from serious structural problems with a political class in self-denial and complacency and dangerously disconnected from an increasingly desperate electorate on which they have been consistently exploiting by monetizing enormous financial losses from years of constant policy failures.
These points have become even more salient by the recent BREXIT vote in the UK, which is both a challenge and opportunity.   If the EU choses to punish the United Kingdom by repressive actions for the anti-EU popular vote, this will not only disrupt existing trade relations and cause a general recession in Europe but also further  inflame voter antipathy to the EU elite and more exit-type referendums. If the EU opens a dialogue to correct its existing dysfunctionalities and gives more devolution to its members, this may actually lead to better growth and more harmonious trade relations.
The Scottish issue is a microcosm of Greece.  The Scots live above their means with perks like a generous pension system, subsidized by British taxpayers.  The EU could encourage the Scots to seek direct EU membership to spite and pressure the withdrawing UK, but such actions would be detrimental to both the Scottish people and the EU with another weak new member needy of EU transfer funds and who cannot support a heavy currency like the Euro (more of the same EU failure pattern).  In a short time, Scottish unemployment would rise, more Scottish youth will emigrate and Scotland will be become a debt slave of Brussels.  An ‘emancipation’ that risks degenerating to Brussels colonialization and an additional EU vassal state that the Brussels would be ill supported to carry.
The better outcome would be that the UK is given an exit agreement similar to the present EU trade status of Norway.   This arrangement could become a benchmark for other suffering EU members, who want more sovereignty and breathing space from Brussels bureaucracy and escape the stranglehold of German debt deflation economics for better growth rates.  It might even facilitate a future GREXIT along with generous debt forgiveness to allow a new start to Greece as another Norway-like associate membership.  That would be more suitable for Greece as a sea power and on the EU Periphery.  
A customs zone for the EU Periphery would be the best outcome, where the core might still remain in the Eurozone and could support more integration in a controlled and workable context that is unworkable for the periphery countries.
Finally our maritime cluster has excessive exposure in dry bulk, where there are few entry barriers, low earnings margins, no control over pricing and tremendous over supply of ships. 
The Greek vessel provider business model is very heavy in relatively low yielding assets and weak on commercial, trading platform.  This setup works extremely well coupled with low cost bank leverage in times of high inflation, but it’s not effective in times of deflation, where the bank debt and interest expense burn up liquidity and eventually lead to negative equity and bankruptcy or zombification from pretend and extend lending practices of which the Germans are probably the world champions. 
Our maritime cluster needs to take more elements from Norway and Denmark, moving to a wider marine service economy with a bigger cargo operator element over the current vessel provider business model.  We also need to lighten up and consolidate on dry cargo exposure as well as continue expansion into more diverse marine sectors like industrial shipping where there is better pricing power, more of a trading element and less asset speculation.

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