Bloomberg News

Greek Hedge Manager Says Drachma Is Back as Wages Plunge

June 12, 2012

The National Flag Of Greece Flies Above The Parliament

Greece faces a “restricted default” after the European Union crafted a 159 billion-euro ($229 billion) bailout for the nation, which includes getting bondholders to assume part of the cost, Fitch Ratings said. Photographer: Kostas Tsironis/Bloomberg

Jason Manolopoulos, the hedge-fund manager who wrote “Greece’s ‘Odious’ Debt,” has news for anyone wondering whether the country will exit the euro: The drachma has already returned.

In the run-up to national elections on June 17, New Democracy leader Antonis Samaras has painted a bleak picture of what will happen if Greece leaves: Incomes, bank deposits and property would lose at least half their value within days, he says; food prices would soar. Is that an accurate assessment?

“Greece is already going back to the drachma, partially,” Manolopoulos says. By his estimates for the private sector, “devaluation has happened to some extent. Wages are down approximately 35 percent and taxes are up. So disposable income is down 50 percent at least. Rents are down between 35 and 40 percent.”

Manolopoulos, who specializes in emerging markets at Dromeus Capital Group, argues in his book that Greece had no business joining the euro. He spoke by phone from his office overlooking green trees and a dilapidated villa in a northern suburb of Athens. What does he mean when he says the drachma is back?

Manolopoulos: The private sector is already operating in drachma territory. The government sector is not. If you look at their total spending, it’s still going up. What kind of austerity is it when your wage and pension bill is still going up?

Power Shortages

But things are going to get much worse, especially for people in the public sector, mainly civil servants and pensioners. You’re also going to see petrol shortages and electricity stoppages.

Pressley: What will the elections bring?

Manolopoulos: The pre-black-out polls suggest that Syriza will win by a comfortable margin. So there’s a chance of party leader Alexis Tsipras forming a government.

The card New Democracy and Pasok have been playing for two years is, “Vote for us, or face catastrophe.” But the Greeks are sick and tired of that card. They’re not buying it. Syriza - - which is deft at political campaigning but unproven in everything else -- says that the true issues of this election are jobs and austerity.

Pressley: Meanwhile, the economic picture keeps getting darker.

Manolopoulos: We have 25 percent unemployment here. Official figures say 22 percent, but it’s probably higher. Then you have the Greek system, which has not reformed and is not fair.

Life Catastrophe

So the unemployed are saying, “Why do some people have a much better standard of living and I’m here suffering and going through garbage cans?” I’m exaggerating, but you understand my point. They’re saying, “I might as well vote for something different because my life is already a catastrophe.”

Pressley: If Syriza forms a government, what happens next?

Manolopoulos: The next two months will be a cat-and-mouse game with the troika -- the European Commission, the European Central Bank and the International Monetary Fund.

The European Union will adopt a stance of, “let’s see if Tsipras really will keep his pre-election pledges,” which in my view he will not. He’s not a Che Guevara.

If he plays too much hardball, the EU will push for another coalition government. If all else fails, they’ll go for a negotiated exit of Greece in the first half of 2013. That’s the base case anyway. Both sides understand that this thing is not working.

Kleptocratic Greece

Pressley: Your book describes Greece as a kleptocracy. Do you see any signs of that changing?

Manolopoulos: I saw some signs of it changing. Lots of businessmen started being chased for not paying value-added tax. But it became a witch hunt, and people with fewer political connections or the wrong connections or celebrities were chased.

Unless you instill the principle of fairness, you cannot create a proper civil society. So the best thing you can do for yourself and your family is to play with the rules.

Let’s take an example. You and your cousin have two souvlaki shops side by side on an island. And you pay your VAT and social-security contributions but your cousin does not.

Because he has a 50 percent advantage, his chunks of meat are a bit bigger, his salads are a bit bigger, and his prices are 10 to 15 percent lower. One shop is packed with tourists, the other is empty. Over time, you will go bankrupt and he will thrive.

Euro Investors

Pressley: What can investors in euro countries do to protect themselves?

Manolopoulos: They have to be overweight cash. They also have to make their bets on how the euro will unwind. Germany could leave the euro, for example. Then buying bunds at zero percent could be a fantastic trade.

Pressley: What’s the best book you’ve read recently?

Manolopoulos: “The Power of Habit.”

Pressley: Charles Duhigg’s look at how humans form habits.

Manolopoulos: One problem with Greece is that we have acquired some bad habits. One is not taking responsibility for our actions and blaming other people.

“Greece’s ‘Odious’ Debt: The Looting of the Hellenic Republic by the Euro, the Political Elite and the Investment Community” is from Anthem Press (288 pages, $29.95, 16.99 pounds). To buy this book in North America, click here.

(James Pressley writes for Muse, the arts and leisure section of Bloomberg News. The opinions expressed are his own. This interview was adapted from a longer conversation.)

Muse highlights include: Scott Reyburn on the art market and Warwick Thompson on London theater.

To contact the writer on the story: James Pressley in Brussels at

To contact the editor responsible for this story: Manuela Hoelterhoff at

The Good Business Issue
blog comments powered by Disqus