Greece’s debt renegotiation talks seem to have been rumbling on forever. Today we have a “crisis” as talks break down. That is the nth time this year, and it is easy to pall.
I have not blogged about it much because it is an issue of such complexity that attempting to characterise it in a short article invariably involves trivialisation. It is also difficult to dive into a debate which has polarised into two distinct sides which are both horribly wrong.
I have witnessed IMF prescriptions in developing countries which have had abysmal results. Forcing African countries to break up their electricity utilities between producers and distributors in order to favour private electricity producers, has been an absolute disaster. It has simply meant that disproportionate percentages of electricity revenue – and effective tax subsidy of electricity prices for the majority population – has been diverted into the capacious pockets of international financiers and bankers. I have no doubt the result has been less electricity generated. I don’t even want to discuss the IMF’s immoral insistence that in Africa the very poor have to pay for clean drinking water.
The IMF’s attempt to insist that Greece privatises ports and railways is just plain wrong. It will not help the Greek economy, it is pure dogma and aimed at delivering Greece’s national assets into the hands of speculators and more financiers and bankers.
And yet we must not get starry-eyed about Greece. Greece should never have been admitted to the Euro in the first place. It very plainly met none of the convergence criteria, hidden by a number of risible accounting fixes. I do in fact have a great deal of common ground and agreement with the idealists who have driven forward the European project. But their idea that European momentum will eventually overcome all obstacles, and the detail is not important, has come back to bite them. We see it with Greece’s admission to the Euro. I predict we will see more problems in the next few years arising from the admission of Romania and Bulgaria to the EU itself when they very plainly did not meet the acquis communitaire. These examples relate to separate institutions – the Euro and the EU – but were indicative of the same “expansion at all costs” attitude.
We should not pretend that Greece is or was a socialist paradise. It has been a very corrupt country with elite tax impunity and a focus for money laundering for decades. Membership of the euro did indeed lead to lifestyle subsidy by the German taxpayer, there is no point pretending it didn’t. It also led to Greece being internationally uncompetitive.
My own view is that it would be much the best solution for Greece to default, exit the Euro and then negotiate a debt write-off of approximately 60% based on repudiation. It is a complete nonsense to pretend that after default Greece would never be able to function or indeed to borrow again. Bankers will always be on the lookout to make money, and the massive risk premium will last about two years, if that. There will quickly be those prepared to go against the market and argue that a Greece minus a mountain of repudiated debt is actually less of a risk.
Greece will be able to benefit from a realistic currency enhancing competitiveness. There will be pain but it will be their own pain, not enforced by gauleiters. They won’t have to sell their national assets, and the pensions they pay in their own currency will be their own business.
If a few irresponsible international banks go bust that will finally perhaps pound some sense into the international financial system about irresponsible lending. The most important thing is that never again is taxpayer money thrown at the bankers to maintain their corrupt lifestyle and socially irresponsible business practices.
The Euro will survive. In fact, I predict the value of the Euro will suffer very little negative effect, and the problems within the Euro from Greek exit will be isolated much more speedily and effectively than is generally believed. The demise of the Euro has been predicted for years, but it is in fact the strong currency of the world’s largest economy. It will still be so.