Even though the struggle over Greece’s bailout has receded from the news, with many countries carrying large debt burdens, the need to restructure sovereign debts is not going away. But as Greece illustrates, the recent pattern has been to try to get blood from stones, and to be indifferent to the very real risk of turning fragile economies with weak governments into failed states (it must also be pointed out that Greece actually has gotten a lot of debt relief, but in the form of lowering of interest rates and extensions of maturities, but is being held to such unrealistic government budget and labor market “reform” targets as to virtually that the debt to GSP ratio will continue to worsen).
Some UAE and Gulf travellers are drawing up plans for short visits to Greece this summer, to pick up choice real estate assets on the cheap. Valuations on Greek realty are down to “10 cents to the dollar” from their 2007 peaks. Gulf investors can tick any number of reasons for picking up a Greek real estate deal now, and they need not be high risk-addicts to head that way. There are some choice valuations being offered up for prime assets as cash-strapped Greek developers/investors seek exits. Hospitality related properties figure prominently, as uncertainty shrouds its tourism industry. Barring a few exceptions, asset prices inevitably recover, although the time taken to recover may vary widely.
Is it fair to compare Greece with Lehman Brothers? May be not, but in fact many would want to figure out, what would happen if sometime later, e.g. in summer Greece would default. Will it be like Lehman? Wouldn't a country's default be more serious than a bank's?
Thus the question is how to compare the size of a country with a size of an investment bank? Surely not exactly but some figures are indeed interesting:
The economy of Greece has a national income of USD 242 billion (nominal gross domestic product) according to World Bank statistics for the year 2013. And the GDP to Debt ratio is said to be around 174%.
Lehman Brothers back in the 2007 annual report showed a net income of USD 4 bn. With long term borrowing of Lehman stood at USD 123 bn this would look much worse in terms of income and debt level than Greece. A better comparison for debt sustainability would need to take into account the assets of a country and a corporate of course. Lehman had reported USD 691 bn. What are the national assets of a country???
Greece’s new Syriza government has two major economic challenges to address: a Resolution of Greece’s unsustainable debt burden followed by a Transition to a long term sustainable economy. Greek finance minister Yanis Varoufakis' proposal is for a conversion of the existing dated ‘debt’ liabilities into a modern form of the undated credit instruments (‘stock’). Firstly, Greece would dedicate an agreed proportion of tax income to long term funding. Greece then issues stock at a discount, each of which is returnable in payment of Greece’s taxes. This new issuance would then be allocated between the different creditors in a way reflecting the repayment date and interest rate of Greek liabilities. From then on Greece would use part of its tax income to buy back this stock for cancellation.
Greece has a substantial impact on the ever nervous markets these days.
Interestingly, the help offered to the country is based on interest-bearing loans, which likely will go along with cost cuttings to service the debts causing all kinds of social hardships. This is the standard recipe.
How help would need to look according to Islamic law and morals?
1. Interest-bearing loans are a clear no go. Interest-free loans could be an option, even for the whole European Union for mutual support situations.
2. Fostering investments based on profit-/loss sharing. Greece could undertake a capital raise for state owned companies and infrastructure - the other EU countries could become investors rather than creditors.