by Martin Wolf

Maximum austerity and minimum reform have been the outcome of the Greek crisis so far. The fiscal and external adjustments have been painful. But the changes to a polity and economy riddled with clientelism and corruption have been modest. This is the worst of both worlds. The Greek people have suffered, but in vain. They are poorer than they thought they were. But a more productive Greece has failed to emerge. Now, after the election of the Syriza government, a forced Greek exit from the eurozone seems more likely than a productive new deal. But it is not too late. Everybody needs to take a deep breath.
The beginning of the new government has been predictably bumpy. Many of its domestic announcements indicate backsliding on reforms, notably over labour market reform and public-sector employment. Alexis Tsipras, the prime minister, and Yanis Varoufakis, the finance minister, have ruffled feathers in the way they have made their case for a new approach. Telling their partners that they would no longer deal with the “troika” — the group representing the European Commission, the European Central Bank and International Monetary Fund — caused offence. It is also puzzling that the finance minister thought it wise to announce ideas for debt restructuring in London, the capital of a nation of bystanders.
More significant, however, is whether Greece will run out of money soon. Most observers believe that Greece could find the €1.4bn it needs to pay the IMF next month even if the current programme were to lapse at the end of February. A more plausible danger is that Greek banks, vulnerable to runs by nervous depositors, would be deprived of access to funds from the European Central Bank. If that were to happen, the country would have to choose between constraining depositors’ access to their money and creating a new currency.
As Karl Whelan, Irish economist, notes, the ECB is not obliged to cut off the Greek banks. It has vast discretion over whether and how to offer support. The fundamental issue, he adds, is not whether Greek government securities are judged in default, since Greek banks do not rely heavily upon them.
Far more important are bonds the banks themselves issue, which are guaranteed by the Greek government. The ECB has stated it will no longer accept such bonds after the end of February, the date of expiry of the EU programme. If the ECB were to stick to this, it would put pressure on the Greek government to sign a new deal. But this government might well refuse. In that case the ECB might cut off the Greek banks.
This game of chicken could drive the eurozone into an unnecessary crisis and Greece into meltdown before serious consideration of the alternatives. The government deserves the time to present its ideas for what it calls a new “contract” with its partners. Its partners surely despise and fear what Mr Tsipras stands for. But the EU is supposed to be a union of democracies, not an empire. The eurozone should negotiate in good faith.
Moreover, the ideas presented on the debt are worth considering. Mr Varoufakis recognises that partner countries will not write down the face value of the debt owed to them, however absurd the pretence may be. So he proposes swaps, instead.
A growth-linked bond (more precisely, one linked to nominal gross domestic product) would replace loans from the eurozone, while a perpetual loan would replace the ECB’s holdings of Greek bonds. One assumes the ECB would not accept the latter. But it might accept still longer-term bonds instead. GDP-linked bonds are an excellent idea, because they offer risk-sharing. A currency union that lacks a fiscal transfer mechanism needs a risk-sharing financial system. GDP-linked bonds would be a good step in that direction.
Many governments would oppose anything that looks like a sellout to extremists. The Spanish government is strongly opposed to legitimising the campaign of its new opposition party, Podemos, against austerity. Nevertheless, Greece and Spain are very different. Spain is not on a programme and owes much of its debt to its own people. It can justify much of its policy mix in its own terms, without having to oppose a new agreement for Greece.
Two crucial issues remain. The first is the size of the primary fiscal surplus, now supposed to be 4.5 per cent of GDP. The government proposes 1.0 to 1.5 per cent, instead. Given the depressed state of the Greek economy, this makes sense. But it also means Greece would pay trivial amounts of interest in the near term.
The second issue is structural reform. The IMF notes that the past government failed to deliver on 13 of the 14 reforms to which it was supposedly committed. Yet the need for radical reform of the state and private sector no doubt exists.
One indication of the abiding economic inefficiency is the failure of exports to grow in real terms, despite the depression.
Indeed, Greece faces far more than a challenge to reform. It has to achieve law-governed modernity. It is on these issues that negotiations must focus.
So this must be the deal: deep and radical reform in return for an escape from debt-bondage.
This new deal does not need to be reached this month. The Greeks are right to ask for time. But, in the end, they need to convince their partners they are serious about reforms.
What if it becomes obvious that they cannot or will not do so? The currency union is a partnership of states, not a federal union. Such a partnership can only work if it is a community of values. If Greece wants to be something quite different, that is its right. But it should leave. Yes, the damage would be considerable and the result undesirable. But an open sore would be worse.
So calm down and talk. Let us all then see whether the talk can become action.

by Martin Wolf

Sometimes the right thing to do is the wise thing. That is the case now for Greece. Done correctly, debt reduction would benefit Greece and the rest of the eurozone. It would create difficulties. But these would be smaller than those created by throwing Greece to the wolves. Unfortunately, reaching such an agreement may be impossible. That is why the belief that the eurozone crisis is over is mistaken.
Nobody can be surprised by the victory of Greece’s leftwing Syriza party. In the midst of a “recovery”, unemployment is reported at 26 per cent of the labour force and youth unemployment at over 50 per cent. Gross domestic product is also 26 per cent below its pre-crisis peak. But GDP is a particularly inappropriate measure of the fall in economic welfare in this case. The current account balance was minus 15 per cent of GDP in the third quarter of 2008, but has been in surplus since the second half of 2013. So spending by Greeks on goods and services has in fact fallen by at least 40 per cent.

Given this catastrophe, it is hardly surprising that the voters have rejected the previous government and the policies that, at the behest of the creditors, it — somewhat halfheartedly — pursued. As Alexis Tsipras, the new prime minister, has said, Europe is founded on the principle of democracy. The people of Greece have spoken. At the very least, the powers that be need to listen. Yet everything one hears suggests that demands for a new deal on debt and austerity will be rejected more or less out of hand. Fuelling that response is a large amount of self-righteous nonsense. Two moralistic propositions in particular get in the way of a reasonable reply to Greek demands.
The first proposition is that the Greeks borrowed the money and so are duty bound to pay it back, how ever much it costs them. This was very much the attitude that sustained debtors’ prisons.
The truth, however, is that creditors have a moral responsibility to lend wisely. If they fail to do due diligence on their borrowers, they deserve what is going to happen. In the case of Greece, the scale of the external deficits, in particular, were obvious. So, too, was the way the Greek state was run.

The second proposition is that, since the crisis hit, the rest of the eurozone has been extraordinarily generous to Greece. This, too, is false. True, the loans supplied by the eurozone and the International Monetary Fund amount to the huge sum of €226.7bn (about 125 per cent of GDP), which is roughly two-thirds of total public debt of 175 per cent of GDP.
But this went overwhelmingly not to benefiting Greeks but to avoiding the writedown of bad loans to the Greek government and Greek banks. Just 11 per cent of the loans directly financed government activities. Another 16 per cent went on interest payments. The rest went on capital operations of various kinds: the money came in and then flowed out again. A more honest policy would have been to bail lenders out directly. But this would have been too embarrassing.

As the Greeks point out, debt relief is normal. Germany, a serial defaulter on its domestic and external debt in the 20th century, has been a beneficiary. What cannot be paid will not be paid. The idea that the Greeks will run large fiscal surpluses for a generation, to pay back money creditor governments used to rescue private lenders from their folly is a delusion.
So what should be done? The choice is between the right, the convenient and the dangerous.
As Reza Moghadam, former head of the International Monetary Fund’s European department, argues: “Europe should offer substantial debt relief — halving Greece’s debt and halving the required fiscal balance — in exchange for reform.” This, he adds, would be consistent with debt substantially below 110 per cent of GDP, which eurozone ministers agreed to in 2012. But such reductions should not be done unconditionally.
The best approach was set out in the “heavily indebted poor countries” initiative of the IMF and the World Bank, which began in 1996. Under this, debt relief is granted only after the country meets precise criteria for reform. Such a programme would be of benefit to Greece, which needs political and economic modernisation.

The politically convenient approach is to continue to “extend and pretend”. Undoubtedly, there are ways of pushing off the day of reckoning still further. There are also ways of lowering the present value of interest and repayments without lowering the face value.
All this would allow the eurozone to avoid confronting the moral case for debt relief for other crisis-hit countries, notably Ireland. Yet such an approach cannot deliver the honest and transparent outcome that is sorely needed.
The dangerous approach is to push Greece towards default. This is likely to create a situation in which the European Central Bank would no longer feel able to operate as Greece’s central bank. That then would force an exit. The result for Greece would certainly be catastrophic in the short term.

My guess is that it would also reverse any move towards modernity for a generation. But the damage would not just be to Greece. It would show that monetary union in the eurozone is not irreversible but merely a hard exchange-rate peg.
That would be the worst of both worlds: the rigidity of pegs, without the credibility of a monetary union. In every future crisis, the question would be whether this was the “exit moment”. Chronic instability would be the result.
Creating the eurozone is the second-worst monetary idea its members are ever likely to have. Breaking it up is the worst. Yet that is where pushing Greece into exit might lead. The right course is to recognise the case for debt relief, conditional on achievement of verifiable reforms. Politicians will reject the idea. Statesmen will seize upon it. We will soon know which of the two they are.

by Martin Wolf

Yet again, the EU is about to hold a summit to deal with the crisis in the eurozone. Yet again, it is likely to fall far short of a convincing solution. A heavy weight rests on the shoulders of weary and disillusioned leaders. The question is whether there is hope for success.
What is needed, as I have argued before, is a solution that is both politically feasible and economically workable. The former means an ability not only to achieve agreement among governments responsible to national electorates, but also to obtain at least toleration of that agreement among those voters, something that greatly worries Angela Merkel, the eurozone’s most significant politician. Economic workability means offering electorates enough hope for the future to persuade them to elect leaders prepared to stick with membership of the eurozone.

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di Martin Wolf

L’euro sopravviverà? I leader di Francia e Germania ora si pongono questa domanda per quanto riguarda la Grecia. Se i governanti vent’anni fa avessero saputo quello che sanno adesso, non si sarebbero lanciati nell’avventura della moneta unica. Ormai solo la paura delle conseguenze di una spaccatura li tiene insieme. Il dubbio è se sarà sufficiente. Sospetto di no.
Gli sforzi per riportare la crisi sotto controllo finora sono falliti. La leadership dell’Eurozona è riuscita a rimuovere dal tavolo gli effetti dirompenti del desiderio di legittimazione democratica di Papandreou. Ma Italia e Spagna sono in seri guai finanziari. Con un tasso di interesse reale del 4,5% circa e una crescita economica dell’1,5% (media dal 2000 al 2007), l’avanzo primario dell’Italia (prima dei tassi di interesse) dovrà essere costantemente intorno al 4% del Pil. Ma il rapporto debito/Pil è troppo alto e questo significa che l’avanzo primario dovrà essere molto maggiore, oppure il tasso di crescita dovrà essere molto più alto, oppure il tasso di interesse dovrà essere molto più basso. Con Berlusconi al potere, nessuno dei cambiamenti necessari potrà avvenire. Un altro leader potrebbe risolvere la faccenda? Ne dubito.

Il problema fondamentale è stata l’incapacità di comprendere la natura della crisi. Nouriel Roubini, professore alla Stern School of Business dell’Università di New York, enumera i punti rilevanti in un recente studio. Distingue fra stock e flussi. I secondi sono più importanti, e sono fondamentali per ripristinare la competitività con l’estero e la crescita economica. Come osserva Thomas Mayer, della Deutsche Bank, «la crisi della zona euro superficialmente è una crisi del debito pubblico e del settore bancario, ma alla base c’è una crisi della bilancia dei pagamenti causata da un disallineamento dei tassi di cambio interni reali». La crisi finirà se, e solo se, i Paesi più deboli recupereranno competitività. Al momento, i loro disavanzi strutturali esterni sono troppo ingenti per poter essere finanziati spontaneamente.

Roubini illustra quattro scenari possibili per affrontare i problemi di stock e di flusso: primo, ripristinare la crescita e la competitività con politiche monetarie di espansione quantitativa aggressive, un euro più debole e misure di stimolo nei Paesi del nocciolo duro, mentre i Paesi della periferia si sottopongono a misure di austerità e riforme; secondo, un aggiustamento deflazionistico nei Paesi della periferia, abbinato a riforme strutturali, per spingere in basso i salari nominali; terzo, finanziamento permanente di una periferia non competitiva da parte dei Paesi del nocciolo duro; quarto, una ristrutturazione del debito su ampia scala e parziale frattura dell’euro. Il primo scenario potrebbe raggiungere l’obiettivo dell’aggiustamento limitando al minimo il default. Il secondo non riuscirebbe ad arrivare in tempo all’aggiustamento di flusso e probabilmente si trasformerebbe nel quarto. Il terzo eviterebbe un aggiustamento, di stock e di flusso, nei Paesi della periferia, ma rischierebbe di trascinare all’insolvenza i Paesi del nocciolo duro. Il quarto sarebbe la fine.

Purtroppo esistono ostacoli di rilievo a questi scenari. Il primo è quello che ha maggiori probabilità di funzionare da un punto di vista economico, ma è inaccettabile per la Germania. Il secondo è politicamente accettabile per la Germania (anche se avrebbe effetti negativi sulla sua economia), ma finirebbe per essere inaccettabile per i Paesi della periferia. Il terzo è politicamente inaccettabile per la Germania e potrebbe rivelarsi inaccettabile perfino per i Paesi della periferia. Il quarto è inaccettabile per tutti, almeno per ora.
Quello che sta succedendo è un miscuglio poco felice della seconda e della terza opzione: austerità unilaterale più un finanziamento a denti stretti da parte del nocciolo duro. Mayer sostiene che potrebbe finire per tramutarsi nel primo scenario. La sua tesi è che l’attività di prestatore di ultima istanza svolta dal sistema europeo delle Banche centrali in favore delle banche che non sono in grado di finanziarsi sul mercato sta finanziando i passivi della bilancia dei pagamenti. La conseguenza è che le Banche centrali dei Paesi in surplus stanno accumulando grossi crediti nei confronti della Banca centrale europea, mentre quelle dei Paesi in deficit stanno accumulando debiti. Questa è un’unione dei trasferimenti. Sul lungo periodo, suggerisce Mayer, il finanziamento monetario dei saldi passivi della bilancia dei pagamenti produrrà inflazione e si trasformerà nel primo degli scenari prospettati da Roubini. Non sono sicuro che il pericolo di inflazione sia reale. Ma i tedeschi sicuramente temono che lo sia.

Sul lungo periodo, il primo e il secondo degli scenari di Roubini sembrano più probabili: o tutta l’Eurozona procede all’aggiustamento, o va in frantumi. La Germania dovrebbe accettare i rischi della prima via. Lo so che è tormentata dall’incubo dell’iperinflazione del 1923, ma fu la brutale austerity del 1930-1932 che portò al potere Adolf Hitler.
L’interrogativo è se sia possibile uscire dall’euro senza far saltare per aria il mondo intero. Partiamo dalla decisione di un’uscita cooperativa, considerando i gravissimi problemi di competitività di un Paese come la Grecia. La Grecia introdurrebbe una valuta, la “nuova dracma”. I nuovi contratti in base alla legge greca e le tasse e le spese del Paese ellenico sarebbero in questa valuta. I contratti esistenti rimarrebbero in euro. Le banche avrebbero conti correnti in euro e nuovi conti correnti in dracme. Il tasso di cambio della nuova valuta rispetto all’euro verrebbe stabilito dal mercato. La nuova dracma si deprezzerebbe rapidamente, ma di questo c’è un disperato bisogno.

di Martin Wolf

It is nearly three years since the world became aware of the coming financial tremors. Since then we have experienced a financial sector earthquake, a collapse in economic activity and an unprecedented monetary and fiscal response. The world economy has now recovered. But this crisis is far from over.

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Un doppio danno subisce il tossicodipendente: oltre a quello che provoca a se stesso con l’assunzione, c’è quello che noi gli infligiamo, colpendolo col nostro stigma, sospingendolo verso l’emarginazione, facendolo vivere a contatto con le terminazioni di una organizzazione criminale che con le nostre leggi continuiamo ad arricchire.
Questo secondo danno ha conseguenze assai più gravi del primo: chi, sentendo il peso di questa responsabilità, sostiene la legalizzazione di tutte le droghe, lo fa dunque sulla base di ragioni morali non meno forti di quelle dei proibizionisti. E, a differenza dei proibizionisti, può poggiare il proprio argomento su solidi fondamenti empirici ed economici. Efficacemente esposti da Martin Wolf in tre lunghi articoli comparsi quest’estate sul «Financial Times», vengono qui ripresi come contributo al dibattito innescato dalle dichiarazioni di Galli Fonseca.

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