King Claus
11-24-2012, 10:25 PM
I have been ruminating recently on the key questions that divide Greek society over the economic crisis; the issues that raise controversy among political parties; the actual steps that need to be made for the country to finally move from here to there; from near disintegration, to a stable state where the common good will prevail over short-sighted party politics. What I have realized is that the core issues have not been addressed, in any comprehensive sense. Instead the debates are confined within sterile exchanges of competing slogans and other attention-getting devices, which lack content. Not a single party has ever presented a coherent strategy of the steps to be followed henceforth. I am not speaking of any particular orientation, pro-memorandum or anti-memorandum, pro-EU or anti-EU, neoliberal or socialist etc. I am referring to the complete absence of any viable proposals to the Greek people, of feasible alternatives.
For a better perspective let us for argument's sake put aside all the obstacles that were raised in the last elections and that a coalition of ND-PASOK and some other party forge a government to run the country. The president of ND, Mr Samaras, whose party has secured the most seats in the parliament, has long been delivering promises of renegotiating the memorandum with the troika - the memorandum that he and his party voted in favor of a few months ago to secure the second bailout agreement and the restructuring of the country's debt under the PSI programme. What can he really ask for? The position of the trio of official lenders is straightforward: meet the fiscal targets or else you will not receive any further financing. What are the strong negotiating points of Mr Samaras to present before the troika so as to entice them to accept his new proposal? What can he say to counter the hard line of the official lenders? In truth nothing, apart from the well-known pointed remarks on the failure of austerity policies, which will nonetheless fall on deaf ears.
The bargaining power of the domino effect
Had this discussion to better negotiate the conditions of the bailout programme been held two years ago, Greece would have been in a more advantageous bargaining position since a disorderly default back then would have inflicted immeasurable loses to all parties involved, both private and public (whether that would be good for the interior is another issue). If we are to strip away all the moral and political objections that could be raised, scrupulous Greek politicians could have asked for much more favorable conditions by presenting a possible default as a threat. For whatever reason they did not try anything like that, preferring instead to slavishly follow every single one of the dictates of the troika, with the ex-Minister of Finance Mr Papakonstantinou trying to convince us at the time that Greece would definitely regain access to the markets by 2012 (this will not happen earlier than 2020 or even later).
For two years the government(s) clung on to a futile programme that could never succeed, for it was chasing chimerical targets, under unrealistic assumptions, without considering the real impact on the economy and society. It is obvious that you cannot reform a country's economy without considering the microeconomic impact of the incrementalist austerity policies that put all the burden on the average entrepreneur and worker. An economy requires stability and this programme did everything possible to create constant instability and major uncertainty, by revising the regime every few weeks - grand failure (this holds true even if we accept that the policies themselves are indeed desirable, which is not the case).
Today with most private creditors secured or better capitalized and with everyone in the markets expecting a Greek default, perhaps accompanied by a disorderly exit from the eurozone, there really is no way for any Greek politician to play the "contagion threat". The risk of contagion coming from Greece has long now been significantly diminished, especially ever since the debt restructuring that transferred most of the debt burden from the shoulders of private creditors on to official creditors (though systemic risk has increased elsewhere in the eurozone). The plain fact is that a Greek default can and will be handled in one way or another, hence no magnificent pressure can be exerted towards that end, if negotiations were to reach such a point.
Note that many politicians still believe that this is a powerful tool in their hands. Especially SYRIZA, the left-wing party that came second in the recent elections, and the Independent Greeks, the moderate patriotic/nationalist party that finished fourth, are of the belief that they can declare the debt illegitimate, refuse to pay it back and thus be in a position to better negotiate with the troika. This view is in present time fallacious for three reasons: (1) it fails to recognize that the systemic risk in the eurozone has shifted from Greece, to Spain and deep in the horizon, France - yes France -, (2) it considers the troika as soulless automatons who will not react accordingly to the measures of the Greek politicians, (3) it underestimates the impact this will have on the legitimacy of Greece both towards its European partners and towards the capital markets for years to come.
The sole reality is that once the Greek politicians start behaving as if all Europeans and the markets are their foes, then the country will be subjected to a silent treatment and will be committed to a diplomatic purgatory, litanies to the contrary notwithstanding. This pseudo-nationalistic inwardness can only harm Greece, especially at this point in time where cooperation with as many forces as possible is the only prudent way of avoiding the chilling effects of economic depression combined with political isolation. Greece needs allies not enemies - and alliances are built through constructive proposals, through tangible, coherent, persuasive and compelling plans; not through absolutist oratory and "we against them" syndromes.
The two scenaria of the failure to renegotiate with the troika
If then a unilateral renegotiation, championed by Mr Samaras et al, is in fact nothing more than a fleeting dream, or the humbuggery of power hungry politicians, what could possibly be the final outcome? Two are the most plausible scenaria, even though in today's Greece, where populism seems to have obliterated reason, I would hardly be surprised by any other unexpected outcome.
The first scenario argues that the new government will more or less march along the path of its predecessors, implementing the memorandum so as to receive the periodic tranches of loans from the troika. Considering the anti-memordandum oratory however, and how many politicians portrayed their selves as the knights in shining armor who toil against "the markets, the bankers and the creditors", this would scarcely be accepted by the electorate. Either some like it or not, the fact is that the majority of Greek citizens clearly voted against the current regime of austerity measures and it will be extremely hard to persuade them for more of the same. As such the coalition supporting the troika programme could fall into disarray renewing the round of regime uncertainty that has covered the country over the last months (years), bringing forth the need for new national elections. Given the rigid time frame and the position at which Greece currently stands this could hardly be good news, as a negative reaction from the side of the EU or the IMF or indeed private investors who would otherwise like to invest in Greece, cannot be ruled out.
The second scenario cuts into the nub of the issue: the lack of feasible alternatives mentioned above. Assume that for whatever reason Greece fails to meet the conditions set forth by the troika and the ECB decides to cut funding to the Greek banking system, thus effectively forcing Greece to exit the euro and reconstitute its national currency, the drachma. Should that be the case, only a coherent and detailed plan to introduce the new currency as fast as possible could mitigate the immense shock. The key question therefore is whether any such plan exists? And is it anyhow comprehensive or is it similar to the empty statements we are accustomed to hear these days? To put it bluntly, I suspect that the Greek political system has no idea of what to do, if plan A falls into jeopardy. There is no plan to contain a potential negative outcome of the "renegotiation" of the memorandum, while there is no real strategy to bring about any kind of change to the current regime.
With that said, there is another worrisome sign: the absence of an in depth public debate on the key issues of the present situation. One would expect some kind of well-defined proposals on issues X, Y, Z. Some systematic efforts to identify and combat the root of the problem. In Greece we did not see that. What we saw instead was a competition over who will sound more "patriotic" or "social", without any interest whatsoever in the actual content of the political palaver. All we witnessed was the cheerleaders of populist political pontification parading before the TV screen, whose arguments cannot be based on any criterion other than myopia.
Thus in May 2012 Greece is once again in complete denial of its self; seemingly unaware of the perils ahead, with no prudent leadership and popular determination to shrewdly navigate through the Scylla and the Charybdis of our time. My final question is: Why didn't any political power try to establish bridges of communication with other forces in Europe to present a compelling system-wide strategy, which is the only means of actually combating the current approach to the Greek crisis in particular and the eurocrisis in general? To renegotiate you need to have real alternatives and real allies across the EU. Alas the Greek political system has none of the two.
Source: http://www.protesilaos.com/2012/05/greece-in-complete-denial-failure-of.html
For a better perspective let us for argument's sake put aside all the obstacles that were raised in the last elections and that a coalition of ND-PASOK and some other party forge a government to run the country. The president of ND, Mr Samaras, whose party has secured the most seats in the parliament, has long been delivering promises of renegotiating the memorandum with the troika - the memorandum that he and his party voted in favor of a few months ago to secure the second bailout agreement and the restructuring of the country's debt under the PSI programme. What can he really ask for? The position of the trio of official lenders is straightforward: meet the fiscal targets or else you will not receive any further financing. What are the strong negotiating points of Mr Samaras to present before the troika so as to entice them to accept his new proposal? What can he say to counter the hard line of the official lenders? In truth nothing, apart from the well-known pointed remarks on the failure of austerity policies, which will nonetheless fall on deaf ears.
The bargaining power of the domino effect
Had this discussion to better negotiate the conditions of the bailout programme been held two years ago, Greece would have been in a more advantageous bargaining position since a disorderly default back then would have inflicted immeasurable loses to all parties involved, both private and public (whether that would be good for the interior is another issue). If we are to strip away all the moral and political objections that could be raised, scrupulous Greek politicians could have asked for much more favorable conditions by presenting a possible default as a threat. For whatever reason they did not try anything like that, preferring instead to slavishly follow every single one of the dictates of the troika, with the ex-Minister of Finance Mr Papakonstantinou trying to convince us at the time that Greece would definitely regain access to the markets by 2012 (this will not happen earlier than 2020 or even later).
For two years the government(s) clung on to a futile programme that could never succeed, for it was chasing chimerical targets, under unrealistic assumptions, without considering the real impact on the economy and society. It is obvious that you cannot reform a country's economy without considering the microeconomic impact of the incrementalist austerity policies that put all the burden on the average entrepreneur and worker. An economy requires stability and this programme did everything possible to create constant instability and major uncertainty, by revising the regime every few weeks - grand failure (this holds true even if we accept that the policies themselves are indeed desirable, which is not the case).
Today with most private creditors secured or better capitalized and with everyone in the markets expecting a Greek default, perhaps accompanied by a disorderly exit from the eurozone, there really is no way for any Greek politician to play the "contagion threat". The risk of contagion coming from Greece has long now been significantly diminished, especially ever since the debt restructuring that transferred most of the debt burden from the shoulders of private creditors on to official creditors (though systemic risk has increased elsewhere in the eurozone). The plain fact is that a Greek default can and will be handled in one way or another, hence no magnificent pressure can be exerted towards that end, if negotiations were to reach such a point.
Note that many politicians still believe that this is a powerful tool in their hands. Especially SYRIZA, the left-wing party that came second in the recent elections, and the Independent Greeks, the moderate patriotic/nationalist party that finished fourth, are of the belief that they can declare the debt illegitimate, refuse to pay it back and thus be in a position to better negotiate with the troika. This view is in present time fallacious for three reasons: (1) it fails to recognize that the systemic risk in the eurozone has shifted from Greece, to Spain and deep in the horizon, France - yes France -, (2) it considers the troika as soulless automatons who will not react accordingly to the measures of the Greek politicians, (3) it underestimates the impact this will have on the legitimacy of Greece both towards its European partners and towards the capital markets for years to come.
The sole reality is that once the Greek politicians start behaving as if all Europeans and the markets are their foes, then the country will be subjected to a silent treatment and will be committed to a diplomatic purgatory, litanies to the contrary notwithstanding. This pseudo-nationalistic inwardness can only harm Greece, especially at this point in time where cooperation with as many forces as possible is the only prudent way of avoiding the chilling effects of economic depression combined with political isolation. Greece needs allies not enemies - and alliances are built through constructive proposals, through tangible, coherent, persuasive and compelling plans; not through absolutist oratory and "we against them" syndromes.
The two scenaria of the failure to renegotiate with the troika
If then a unilateral renegotiation, championed by Mr Samaras et al, is in fact nothing more than a fleeting dream, or the humbuggery of power hungry politicians, what could possibly be the final outcome? Two are the most plausible scenaria, even though in today's Greece, where populism seems to have obliterated reason, I would hardly be surprised by any other unexpected outcome.
The first scenario argues that the new government will more or less march along the path of its predecessors, implementing the memorandum so as to receive the periodic tranches of loans from the troika. Considering the anti-memordandum oratory however, and how many politicians portrayed their selves as the knights in shining armor who toil against "the markets, the bankers and the creditors", this would scarcely be accepted by the electorate. Either some like it or not, the fact is that the majority of Greek citizens clearly voted against the current regime of austerity measures and it will be extremely hard to persuade them for more of the same. As such the coalition supporting the troika programme could fall into disarray renewing the round of regime uncertainty that has covered the country over the last months (years), bringing forth the need for new national elections. Given the rigid time frame and the position at which Greece currently stands this could hardly be good news, as a negative reaction from the side of the EU or the IMF or indeed private investors who would otherwise like to invest in Greece, cannot be ruled out.
The second scenario cuts into the nub of the issue: the lack of feasible alternatives mentioned above. Assume that for whatever reason Greece fails to meet the conditions set forth by the troika and the ECB decides to cut funding to the Greek banking system, thus effectively forcing Greece to exit the euro and reconstitute its national currency, the drachma. Should that be the case, only a coherent and detailed plan to introduce the new currency as fast as possible could mitigate the immense shock. The key question therefore is whether any such plan exists? And is it anyhow comprehensive or is it similar to the empty statements we are accustomed to hear these days? To put it bluntly, I suspect that the Greek political system has no idea of what to do, if plan A falls into jeopardy. There is no plan to contain a potential negative outcome of the "renegotiation" of the memorandum, while there is no real strategy to bring about any kind of change to the current regime.
With that said, there is another worrisome sign: the absence of an in depth public debate on the key issues of the present situation. One would expect some kind of well-defined proposals on issues X, Y, Z. Some systematic efforts to identify and combat the root of the problem. In Greece we did not see that. What we saw instead was a competition over who will sound more "patriotic" or "social", without any interest whatsoever in the actual content of the political palaver. All we witnessed was the cheerleaders of populist political pontification parading before the TV screen, whose arguments cannot be based on any criterion other than myopia.
Thus in May 2012 Greece is once again in complete denial of its self; seemingly unaware of the perils ahead, with no prudent leadership and popular determination to shrewdly navigate through the Scylla and the Charybdis of our time. My final question is: Why didn't any political power try to establish bridges of communication with other forces in Europe to present a compelling system-wide strategy, which is the only means of actually combating the current approach to the Greek crisis in particular and the eurocrisis in general? To renegotiate you need to have real alternatives and real allies across the EU. Alas the Greek political system has none of the two.
Source: http://www.protesilaos.com/2012/05/greece-in-complete-denial-failure-of.html