Has Davos Man sold out Greece?
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George Papandreou is Davos Man, literally: he’s been there for the past couple of years, and even if he steps down now I suspect we might see him up the alp in 2012, too. Matt Yglesias reckons this is bad for the Greeks:
At the end of the day, had Greece played chicken and insisted on a better deal, I think the Germans would ultimately have paid up…
That it’s playing out this way is, I think, an example of a benign consequence of the rise of the global ruling class. The leadership of a small upper-middle-income country is willing to do something unpopular and likely contrary to the interests of its population for the sake of the greater good. Still, as a structural matter I think it’s a fairly disturbing trend.
It’s definitely possible for national leaders to act in the best interests of Davos, rather than in the best interests of their own country. Or, rather, to kid themselves that what’s in the best interests of Davos is in the best interests of their own country. Exhibit A is probably the 2008 decision by Irish finance minister Brian Lenihan to guarantee all the debts of Ireland’s banks — although ultimately that decision hurt the entire Eurozone much more than it helped a relative handful of Irish bank creditors.
As for the decision by Greece’s leaders to close ranks and refuse to allow the Greek populace to throw a spanner in the works of a bailout, it’s certainly possible to see this — as Yglesias does — as a capitulation to Germany and the international community. On the other hand, it’s easier to see it as a way of cutting off some very nasty tail risk. Even if Yglesias is right and the Germans would ultimately have paid up, there’s a significant non-zero possibility that they wouldn’t have done, and the whole situation would have ended up collapsing, with Greece getting nothing. And that would have been disastrous, not only for the eurozone but especially for Greece.
More generally, it’s really hard for a country to play chicken with its lenders when it’s running a massive primary deficit. In fact, I can’t think of a single case where that ever happened. Greece needs Germany more than Germany needs Greece, both of them know it, and Germany is looking increasingly willing to cut Greece off if it refuses to cooperate.
The only way for Greece to get real negotiating leverage over Germany would be to start running a primary surplus, thereby giving itself a credible threat in terms of simply repudiating its sovereign debt. But of course running a primary surplus would require significantly more austerity than even the riot-inducing policies currently in place. For the time being, Greece finds itself in the same position as most distressed debtors — ceding control and authority to its creditors. That might not sit well with Greece’s proud citizens. But it’s a natural consequence of borrowing so much money from other European countries and international banks.
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The best interests of Davos are actually decided in direct democratic fashion… http://www.gemeinde-davos.ch/006dav_0200 00_de.htm
Interesting analysis, but it presupposes that Papandreou’s referendum gambit was a negotiation ploy with the EU. A close look at Greek domestic politics, suggest otherwise. The referendum call was proposed by Papandreou because he felt that he did not have the mandate to pass the latest bailout deal. In particular, the provisions calling for increased supervision by the Troika were viewed as particularly poisonous, and Papandreou believed that the only way forward was to seek out a broad consensus. Although the referendum was called off, Papandreou got his broad consensus in the coalition government that is now forming.
It’s accurate to argue that Papandreou is sacrificing his country’s wellbeing for Europe’s greater good, but it is misleading to suggest that the referendum was a tactic to somehow sweeten the deal for Greece.
Analogy to bankruptcy law assumes the creditors of Greece are secured, as opposed to unsecured. Here, it seems they are unsecured (no mortgages, lien rights, rights to take over ports, etc.). The idea that Greece needs its existing creditors more than vice-versa comes from where? If Greece went “BK” and then got credit as needed from replacement lenders (China? shadow bankers?) it could recover, it seems. FS needs to engage with the other folks talking about Greece being in the driver’s seat (Atrios), and discuss how Argentina and Iceland are (or are not) good precedent for a “bankruptcy” by Greece, wiping out Greece’s existing unsecured creditors.
“has davos man sold out Greece?”
A 50% haircut on debt with new debt supported by the EU seems like pretty generous terms to this non-Davos-man!
I’m not familiar with Davos. As you can tell, I don’t know much about economics.
However, I do know that just as it was a surprise to the rest of the world that Greece had such a large deficit, so it was a surprise to the citizens of Greece. They are expected to pay for this debt, told by the very politicians who created the debt that even though these austerity measures were ruining the economy, it would only be temporary, as would be the partial ceding of sovereignty.
What country would accept all this based on faith? There must be an examination of the debt by an independent commission of citizens. There is reason to suspect that the very same people who concealed the deficit and debt may not have spent all the money they received as they should have. There could be a case for repudiation of odious debt.
That is why Greece needs a new government, an innocent government that won’t be afraid to point fingers at people who committed fraud and worse. That is likely also why the EU is terribly frightened of elections and prefers the guys they know, supervised by someone from the IMF or ECB.
I apologize my long comment above was not on point.
I understand better the Davos argument now and I believe it is correct. I do believe Mr. Papandreou was looking out for the global good, and this was his fault in my opinion. I see the proper role of the leader of a country to be an advocate. Would any client want his lawyer looking out for the good of all parties concerned rather than the client’s own good?
Mr. Papandreou’s looking out for the global good led people in Greece to suspect many things about him, such as that he was a trojan horse sent by another country (such as the US). But I think this is the truth– that he is Davos man, and that his countrymen are the governing elite.
@Kosta0101
I agree with your first point (Papandreou wanted a broader based mandate so as to combat the rioting) but not with your second (that he worked against Greek interests). If anyone is working against the Greek interest it is the leader of the New Democratic Party who refuses to form a coalition with Papandreaou as PM and presumably wants to protect the tax dodgers and fraudsters who got Greece into this mess in the first place.
@MariaKS
Looking out for both parties is exactly what a Notarised lawyer in France and Switzerland would indeed do, so why not in Greece? Papandreou took the best deal he could get from the EU, but he realised his people (and perhaps even some of his government) were in denial about the situation and he was trying to have people look at the real options, not just ignore reality and demand what they had before when what they had before was based on thin air and conjuring tricks.
In today’s FT, Misha Glenny writes about “The real Greek tragedy – its rapacious oligarchs”, http://www.ft.com/cms/s/0/618e57d6-0937- 11e1-a20c-00144feabdc0.html#ixzz1d6QY0EE p .
He concludes:
“For Greece, the big question is whether after Mr Papandreou, the country possesses the requisite political talent and vision both to introduce root-and-branch reforms in order to revive the cankerous institutions of state, and to halt the pillaging of the Greek economy by its wealthiest and most powerful citizens. This is something that the country’s international creditors might wish to ponder, too.
My guess is probably not and that Mr Papandreou’s efforts will come to be regarded as the last real attempt to save the country.”
Odd to suggest that Greece needs Germany more than Germany needs Greece.
If Greece does pretty much anything with its debt, that will make German banks insolvent, and force Germany to look at its financial system; by contrast in the worst case without German intervention, Greece has to undergo painful austerity (like under the “deal”), but also gets to have its own currency, and attendant interest rate (unlike now).
So, how does Greece need Germany, exactly?
“The leadership of a small upper-middle-income country is willing to do something unpopular and likely contrary to the interests of its population for the sake of the greater good”
There’s your problem right there – Yglesias suggests that this action is for “the greater good.” And O please “benign consequence of the rise of the global ruling class.”
Yglesias, a man who thinks very highly of himself with no good evidence, can’t literally add 2 + 2 ….30 years of Davos and declining living standards for the average wage earner in the US. But he must stay in the graces of the people who invite him to Davos.
“The only way for Greece to get real negotiating leverage over Germany would be to start running a primary surplus,”
Supposedly starts happening in a few month’s time.
Yes, all democratic decisions include tail risks. And investors don’t like that. If they got to choose we’ll all be run by dictators. Just ask Larry Fink…
So to hell with Greek people, my financial analyst recommends cutting the elderly population by 50%. He guaranties balanced budgets and 0% default risk. New government says they have the votes to pass it. Problem solved. Problem solved!
Financial oppression coming in a town near you, brought to you by the directors of IMF, Fed and TBTF banks.
Both Iglesias and salmon don’t know or understand what ticks Greece and its traditional political Oligarchy, in particular, the father of out-going Papandreou.
No one milked the EU cow, as his father, with the EIB funded Structural Funds – after joining EEC. He used the funds to build PASOK – not the crumbling state economy and its administration.
Davos Man is nothing other than a son of Minnesota who can’t be defended for his audacity to call for a EU bailout Referendum: beggers can’t be choosers!
Bottom line, either get out of EZ or clean up the structure of its national political Oligarchy – once and for all times!
Corruption at state level is not only an ethical sin but catastrophic arrogance of the Davos Man and his cohorts.
Actually, what Sarkozy and Merkel have realized is the old line about the bank owning you if you owe it a million, and you owning the bank if you owe it 100 million. Greece, Italy, Spain and the rest of them have the ability to crater it all. A Greek default with an Italian liquidity crisis = terra incognita, and it is pretense to propose otherwise. Davos man had better have marketable skills, like carpentry, perhaps inn keeping, not much demand for bankers (or financial reporters) in a global economic meltdown.
“Cerebretonic Cato may
Extol the Ancient Disciplines,
But the muscle-bound Marines
Mutiny for food and pay. ”
The Fall of Rome – W.H. Auden
Hmmm
The notion that any country needs private banks more than the private banks needs them is not just stupid, it is down right dangerous. If your assertion were correct; how is it that the ONLY country in the world to tell the bankers to stuff it ICELAND is doing so much better than any of the countries that gave in to the private bank black mailing? The people as a whole of a an entire country OWE NOTHING to any private bank anywhere in the world. Banks loan money at interest. They receive interest payments for the simple reason that every loan has inheirent risk associated with it. Have any of these private banks ever, ever paid out dividends to the citizens of entire countries from which they are now demanding payment? No of course private banks have never, ever shared private profits with the public. As such the public has NO LEGAL, MORAL OR ETHICAL responsiblity to repay loans gone bad.
The current world wide private banking fraud and blackmail scheme is simply a gobal criminal conspiracy. A small group of powerful international banks got together and are trying to rip of the world at large. So far with the media in their pockets they are succeeding.
All the people of the world have to say is no thanks. Take you private profits and private debts and have a nice day. It really is that simple. Iceland proved it is possible to stand up to the crooked banks and the crooked politicians they own by just saying NO!!!!!
Hmmm
The notion that any country needs private banks more than the private banks needs them is not just stupid, it is down right dangerous. If your assertion were correct; how is it that the ONLY country in the world to tell the bankers to stuff it ICELAND is doing so much better than any of the countries that gave in to the private bank black mailing? The people as a whole of a an entire country OWE NOTHING to any private bank anywhere in the world. Banks loan money at interest. They receive interest payments for the simple reason that every loan has inheirent risk associated with it. Have any of these private banks ever, ever paid out dividends to the citizens of entire countries from which they are now demanding payment? No of course private banks have never, ever shared private profits with the public. As such the public has NO LEGAL, MORAL OR ETHICAL responsiblity to repay loans gone bad.
The current world wide private banking fraud and blackmail scheme is simply a gobal criminal conspiracy. A small group of powerful international banks got together and are trying to rip of the world at large. So far with the media in their pockets they are succeeding.
All the people of the world have to say is no thanks. Take you private profits and private debts and have a nice day. It really is that simple. Iceland proved it is possible to stand up to the crooked banks and the crooked politicians they own by just saying NO!!!!!