We thought we might struggle even to devote our normal opening paragraph to the ongoing train wreck in the eurozone, but have been bailed out by some weekend news from Athens. It appears that the Troika ( consisting of the EU, the ECB and the IMF, in case you have somehow lost track ) has been interviewing leading figures in Athens and has concluded, contrary to all previous public statements, that great progress is indeed being made on the path to virtuous austerity.
With all Greek parties, in and out of the ruling coalition, committed to renegotiating the ruinous terms of the required plan with a bias towards leniency, this sounds odd. Furthermore, it is in clear contradiction of all the current estimates of collectible tax revenues ( disappointing ) and outgoings to entrenched government interests ( still robust ). Nonetheless, the ECB has given the green light for the Greek Central Bank to issue €4bn of loans, backed by notes from its Frankfurt paymasters which, one must assume, will be quietly torn up. The Troika has apparently promised to look at Greece’s finances again until September, allowing everyone a worry free summer holiday and, in particular, avoiding any unpleasantness when the next financing crunch comes along two weeks from now.
Recently, such encouraging noises towards the bankrupt nations of Southern Europe have been quickly followed by explanations that they did not mean precisely what they said, or indeed anything resembling that, but in this case there are reasons to suspect that the deal, short term as it is, may stick. The sums of money being discussed in Greece are not huge by international standards, whereas the Eastern Mediterranean is arguably the world’s most critical and unstable region. When global leaders consider the future of the countries in that area, they have far more important matters in mind than the wellbeing of their populations.
Enough of Europe, the most important events of the week quite clearly took place in Great Britain, at the 2012 Olympics. The full count isn’t in, but it looks as though the home nation will claim more gold medals that anywhere else except the acknowledged superpowers of China and the US – crucially, far more than perennial rivals France. The latter are taking this very badly, and making thinly disguised allegations of cheating which, possibly aside from a bit of sharp practice in the cycling, are entirely unfounded. Of course, these are serving only to fire up the local population to even greater levels of fervour, and causing them to overlook the ruinous cost and the general level of incompetence surrounding the whole operation.
Regarding the latter point, it comes as no surprise that there have ( touch wood ) been no major security issues. The British Army has the ideal set of skills for this task and we never doubted that that once the private company handpicked by their friends in Government – sorry, by the event’s organisers – had admitted that after three years of planning they had completely failed to meet their targets, the military would be able to take over with a lead time of a few weeks. The question which has been causing most irritation among the local populations is why, despite great efforts to cover up the fact, so many of the highly expensive seats, inaccessible to local residents, have been embarrassingly empty.
Part of the answer is the usual one, which us that they have been given to the Very Important People for whom such events are primarily run, and who do not necessarily have any interest in attending. However, there is another reason, which offers a valuable lesson to anyone embarking on an elementary course in economics and is rooted in supply and demand.
Tickets were available to members of the public by a ballot system, which ensured that even those who were fortunate enough to find themselves with seats were not necessarily going to view events in which they had much interest, particularly given the problems associated with getting to the venue. Hence the dedicated minority with a penchant for handball might have been allocated places at the gymnastics, while the handball tickets went to their compatriots who had never heard of the sport and felt in no way disadvantaged by that fact. In the world of envisaged by Paul Samuelson’s great undergraduate treatise, this would be easily solved by the market, as those with tickets upon which they put little value sold them to others who desired them more. However, the authorities were appalled by the prospect of non-VIP spectators being permitted to watch events in which they actually had some interest, and made any such transfers heavily punishable.
Who knows how many tickets were thrown away as a result of this misguided policy? It is to be hoped that some lessons have been learned, but Londoners will probably have to wait until 2088 to see the benefit of this educational process. At least by then it may be hoped that the debt incurred to host today’s event will have been paid off.
Category: Market Commentary