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Grexit or Gerxit? Ashoka Mody, visiting professor in international economic policy at Princeton—and previously of the IMF—writes in Bloomberg View that “Germany, not Greece, should exit the euro.” Those who read the NYRB will remember George Soros’s essay three years ago, “The tragedy of the European Union and how to resolve it,” in which he proposed precisely this solution: that either Germany assume its role as a benevolent hegemon and with the attendant responsibilities—here, to shore up Greece over the long run—or exit the euro.
At the risk of engaging in crass essentialism, Germany seems incapable of the former, as its only historical experience as a hegemon has been to militarily conquer countries and then brutalize them. So failing to be a benevolent hegemon, Germany should indeed consider quitting the euro (perhaps accompanied by fellow travelers Finland, Slovakia, and maybe the Baltic states) and reverting to its beloved Deutsch Mark, the immediate consequence of which would be a sharp increase in the value of the DM and with the euro plunging, but with the respective currencies, after a couple of years of chaos, finding their equilibrium.
Realistically speaking, though, Germany is not going to quit the euro. No one outside the pages of intello journals and webzines is proposing it. It is not on any agenda and is simply not going to happen. But as Germany is not going to act the benevolent hegemon as Soros suggests—and despite its “moral obligation to Greece,” as FP editor Daniel Altman puts it—the only alternative, in view of the manifest absurdity of the latest bailout agreement—a.k.a. the Agreekment, which no serious person thinks will be implemented, or can be—is Grexit. As Ambrose Evans-Pritchard put it on Thursday
What Greece is being asked to do is scientifically impossible. Almost everybody involved in the talks knows this. Yet the lie goes on because the dysfunctional nature of EMU politics and governance makes it impossible to come clean. The country is dishonestly kept in a permanent state of crisis.
Wolfgang Schauble is one of the very few figures who has behaved honourably in this latest chapter. As readers know, I have been highly critical of the hard-bitten finance minister for a long time, holding him directly responsible for the 1930s regime of debt-deflation and contraction imposed on much of Europe, and for refusing to accept that the eurozone’s North-South divide must be closed by both sides. Any policy that puts all the burden of adjustment on the South is destructive and doomed to failure.
But he is entirely right to argue that a velvet divorce and an orderly exit from the euro for five years would be a “better way” for Greece, as he did on German radio this morning [July 16th].
It would allow the country to regain competitiveness at a stroke without a disastrous over-shoot or the risk that events might spin out of control. It would clear the way for proper debt relief – or a standard IMF-style package. (…)
If accompanied by some sort of Marshall Plan or investment blitz – as Mr Schauble appears to favour – it would set the foundations for genuine recovery.
Huge sums of Greek money sitting on the sidelines would probably flood back into the country once the Grexit boil had been lanced. It is a pattern seen time and again in emerging markets across the world over the past 60 years. (…)
Perhaps. For Grexit to happen, there would have to be at least a ten or twenty year moratorium on interest payments on Greece’s debt, not to mention a scrapping of the impossible €50 billion privatization fund contained in the current agreement.
If one didn’t see it, AEP had a hard-hitting, must-read column on Wednesday on how “EMU brutality in Greece has destroyed the trust of Europe’s Left.” The lede: “The Left let itself become the enforcer of reactionary policies and mass unemployment because of the euro. Greece has broken the spell.” Ouch!
Here’s DSK, in an open letter “To my German friends” posted on Twitter, skewering the Agreekment.
The well-known French specialist of geopolitics, François Heisbourg, had an FT op-ed the other day on “The end of an affair for France and Germany.” His conclusion:
Unfortunately, by having avoided what they loathe — debt forgiveness — the Germans may now be hoist with their own petard. Adding billions to Greek debt, enforcing pro-cyclical pension cuts and tax increases in the middle of renewed recession, and positing as in 2011 a €50bn privatisation programme: this is as unlikely to work now as it was in the past. Now it has acquired the formal status of plan B, Grexit is likely to come back. France would then be faced with an impossible choice: to flow with the German-led tide of Grexit, clearly as a subordinate, or to fight a losing battle to prevent a country from being forced out of the European family.
Even Franco-German co-management may not be up to striking a workable compromise. The change behind the scenes is that the Paris-Berlin bond can no longer take strength from the shared project of European integration: France’s 2005 rejection of the proposed EU constitution was a turning point. The relationship has instead become utilitarian and as a result the EU’s days of ever closer union may be at an end.
For a reminder of the intimate involvement of outside actors in the Greek tragedy, see Robert Reich’s piece in The Nation on “How Goldman Sachs profited from the Greek debt crisis.” The lede: “The investment bank made millions by helping to hide the true extent of the debt, and in the process almost doubled it.”
And then there were the 2004 Olympics, which, in the words of freelance journalist Peter Berlin, “rotted Greece.” He poses “the obvious question: Should the International Olympic Committee shoulder some of the blame?” The answer too is obvious. But will the IOC ever shoulder any of the blame? Poser la question c’est y répondre.
Le Monde’s Alain Frachon, in a column dated July 9th, “Grèce, torts partagés,” had this
De Tokyo et avec le recul que confère la distance, le politologue franco-américain Robert Dujarric observe: «Tout le monde sait depuis le XIXe siècle que la Grèce est un Etat dysfonctionnel. Mais depuis son admission, l’UE n’a fait aucun effort pour la moderniser. L’abandonner maintenant serait comme un couple qui a adopté un enfant handicapé et décide de s’en séparer comme on jette une batterie usagée.»
«Au plan moral, les dégâts [du Grexit] pour l’Allemagne seraient incommensurables», dit le politologue Hans Stark, de l’IFRI, sur le site Boulevard extérieur qu’anime Daniel Vernet, grand familier des affaires hellènes. L’Allemagne se verrait reprocher de «n’avoir pas su prévenir un divorce entre peuples, opinions publiques et gouvernements du sud et du nord de l’Europe» ou, poursuit Stark, «de ne l’avoir pas voulu, par crainte de déplaire à une partie de son électorat et de sa classe politique».
Ben Bernanke, formerly chairman of the Fed, has a worthwhile post on his Brookings blog, “Greece and Europe: Is Europe holding up its end of the bargain?” His conclusion:
I’ll end with two concrete proposals. First, negotiations over Greece’s evidently unsustainable debt burden should be based on explicit assumptions about European growth. If European growth turns out to be weaker than projected, which in turn would make it tougher for Greece to grow, then Greece should be allowed greater leeway after the fact in meeting its fiscal targets.
Second, it’s time for the leaders of the euro zone to address the problem of large and sustained trade imbalances (either surpluses or deficits), which, in a fixed-exchange-rate system like the euro zone, impose significant costs and risks. For example, the Stability and Growth Pact, which imposes rules and penalties with the goal of limiting fiscal deficits, could be extended to reference trade imbalances as well. Simply recognizing officially that creditor as well as debtor countries have an obligation to adjust over time (through fiscal and structural measures, for example) would be an important step in the right direction.
Putting forth the libertarian perspective, Cato Institute Senior Fellow Alan Reynolds asserts in Politico that (surprise!) “Greece is being taxed to death.” The lede: “No debtor ever became more creditworthy by being forced to accept less income.” Sounds right to me.
Also writing in Politico, James K. Galbraith, the well-known UT-Austin econ prof and Yanis Varoufakis’s BFF, says (surprise!) that Greece faces a “death spiral ahead.” The lede: “How the latest ‘solution’ to the debt crisis locks Europe into a grim next chapter.” Yep.
In a similar vein, see the analysis by the très gauchiste New School for Social Research econ prof Sanjay Reddy, writing on his Reddytoread blog, “Greece and the Eurozone: The real stakes.”
On why Germany is being so tough on Greece, investigative journalist Dick Laabs, writing in The Guardian, says to “Look back 25 years: To understand Wolfgang Schäuble’s demands in the bailout talks, look at what he inflicted on his own country when it reunified.”
For an explanation of German views of Greece by a historian and specialist of Germany, see the interview in Libération with Johann Chapoutot, who teaches at the Université Sorbonne-Nouvelle, “‘Pour les Allemands, les Grecs d’aujourd’hui ne sont pas à la hauteur des Grecs anciens’.”
Looking at the other side of the equation, Pavlos Eleftheriadis, who is a barrister and Fellow of Mansfield College, Oxford—and an activist in the Greek center-left party To Potami—insists, in an op-ed in The Telegraph, that “Greece is a victim of its own cronyism and corruption.” The lede: “Postwar Greece never established welfare systems or open institutions—now it’s paying the price.”
Finally, see the essay in OpenDemocracy by Ronald G. Asch, professor of early modern history at the University of Freiburg: “The decline and fall of the European Union: is it time to rip it up and start again?” The lede: “There was no distinction in EU politics between friend and foe. Everything worked so nicely. But this was also the reason why nobody was greatly interested. This has definitely changed now.” I read Asch’s piece quickly, noting a number of interesting points. Now I have to go back and reread it carefully.
UPDATE: So how is the Agreekment playing in Greek public opinion? According to a poll, 70% are for, with only 24% for default and Grexit. And another poll shows Syriza’s popularity to be up. Stathis Kalyvas’s comment on this: “Greece shows that you can strike a heavy austerity bailout deal that goes against your stated principles and promises and gain in popularity.”
2nd UPDATE: Pierre Crétois, an agrégé in philosophy, has a philosophical meditation in Slate.fr, “Grèce: Et si on n’avait rien compris à la dette?” The lede: “Tout le monde part du principe que la Grèce, débitrice, est responsable du remboursement. Mais le créancier est lui aussi responsable de la dette. Petit rappel philosophique de ce qu’est une dette, de ses enjeux et de sa violence.” Haben Sie Französisch, Herr Schäuble lesen?
3rd UPDATE: Here are links to a few pertinent articles and tribunes in Le Monde from the past three weeks—and which are not too tender toward Greece:
Marie Charrel, “La Grèce a perdu toute la richesse gagnée depuis son passage à l’euro” (July 4th). The lede: “Athènes a utilisé les facilités de la monnaie unique pour accroître les salaires et les dépenses publiques, laissant gonfler les déficits.”
Annick Cojean et Adéa Guillot, “Le système politique grec miné par le clientélisme et la corruption” (July 5th). The lede: “Les réformes destinées à favoriser la méritocratie et la transparence n’ont pas été entreprises.”
In other words, an absolutely colossal, astronomical amount of European money has been wasted in Greece—gone up in smoke—since it joined the euro, as, entre autres, Greece utterly lacked the political and state institutions that should normally have been a precondition for membership in the Eurozone. So does Europe (Germany, France et al) bear at least some of the responsibility for this?
On Greece spending colossal European transfers to no productive end, see the tribune by Christian Saint-Etienne, who holds the chair in economics at the CNAM in Paris, “Athènes est responsable de ce que lui arrive” (July 15th). Money quote:
La Grèce s’est mise largement toute seule dans sa situation actuelle, car le pays a bénéficié de 200 milliards d’euros de fonds structurels depuis son entrée dans l’Union européenne et n’a pas su développer une économie compétitive. L’Etat est structurellement faible et l’évasion fiscale, considérable. Depuis la crise de 2009-2010, la Grèce a bénéficié d’une remise de dette de 105 milliards d’euros par les banques en 2012 et de réductions de sa charge d’intérêt qui porte l’aide accordée au pays à environ 175 milliards d’euros. Si on ajoute les 200 milliards de transferts structurels, la Grèce a déjà obtenu une aide de l’Union européenne de 375 milliards d’euros, supérieure au double de son PIB actuel !
Arrêtons de dire que le pays est écrasé par l’Europe alors que la Grèce ploie sous le poids de son régime oligarchique et du refus de payer l’impôt ! La dette actuelle du pays de 320 milliards d’euros serait de 495 milliards sans l’aide massive déjà obtenue. (…)
La Grèce brûle aujourd’hui du cash au rythme de 20 à 25 milliards d’euros par an. Les banques, qui avaient rétabli leur situation fin 2014, sont à nouveau virtuellement en faillite. Elles devront être recapitalisées à hauteur de 30 milliards d’euros. Même si on réduit sa dette, la Grèce reviendra continuellement tendre la main sans un programme crédible de réformes structurelles. (…)
Those are big numbers there.
4th UPDATE: Fernando Betancor, an American economist living in Madrid, has an essay in OpenDemocracy (July 17th), “Germany’s demographic challenge,” in which he argues strongly against a hypothetical return to the Deutsche Mark. The lede: “Germany is by no means an unstoppable juggernaut, and the re-erection of trade barriers across the continent and a return to a strong Deutschmark would ravage the economy.”
5th UPDATE: On Project Syndicate, Harvard Kennedy School economics prof Jeffrey Frankel asks “Is Tsipras the new Lula?” (July 17th) and Jeffrey Sachs weighs in on “Germany, Greece, and the future of Europe” (July 20th).
6th UPDATE: The New Yorker’s James Surowiecki has an interesting, worthwhile piece in the issue dated July 27th, “How can Greece take charge?” The lede: “If Europe won’t help, the only option is reshaping the economy.”
7th UPDATE: University of Pennsylvania poli sci prof Julia Gray has a post on WaPo’s Monkey Cage blog on “How Greece’s credit went south” (July 20th).
8th UPDATE: Professors Vassilis K. Fouskas and Constantine Dimoulas, respectively of the University of East London and Panteion University in Athens, have a sharp and worthy article—in which they make a number of good points—in OpenDemocracy, “Greece has two choices, and so do the creditors” (July 21st). The lede: “After 13 July 2015, Syriza’s Greece and, for that matter, the creditors have two choices. Modernise the Greek state; or let Greece default and risk disintegration not just of EMU/EU but also Nato.”
9th UPDATE: Kathleen McNamara, who teaches government and international affairs at Georgetown, has a smart, must-read post on WaPo’s Monkey Cage blog (July 21st), “This is what economists don’t understand about the euro crisis – or the U.S. dollar.”
10th UPDATE: Anatole Kaletsky, who, entre autres, chairs the governing board of the Institute for New Economic Thinking (co-founded by George Soros), has a commentary in Project Syndicate (July 22nd) on “Why the Greek deal will work.” This one merits reading.
11th UPDATE: Libération’s incontournable Jean Quatremer has, on his Coulisses de Bruxelles blog, a lengthy, unsparing critique (July 24th) of the current Greek prime minister and his action since taking office in January, “La déroute d’Alexis Tsipras.” Quatremer’s demolition of Tsipras and Syriza is a must-read, so please take the time to do so.
12th UPDATE: Joschka Fischer has a commentary in Project Syndicate (July 23rd) on “The Return of the Ugly German.” See also Zeit Magazin’s graphic novel “Game of Greece” (July 23rd; translated from the German). The lede: “The rise and fall of Greece explains a great deal about Europe, politics and power – in a way not unlike ‘Game of Thrones.’ An illustrated guide throughout the crisis.”
13th UPDATE: Now here is a totally excellent, absolutely must-read article, published on the website of the Harvard Business Review (July 27th), “Greece’s problem is more complicated than austerity,” by Michael G Jacobides, who is Associate Professor of Strategy and Entrepreneurship, plus Sir Donald Gordon Chair of Entrepreneurship and Innovation, at the London Business School. And he’s Greek. Please read it. Now.
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