Sunday, February 22, 2015

In Which I Mix Some Metaphors and Use Some Cliches, but Who Cares

Remember my promise to drop Greece, ancient or modern, for the time being?  Well, I lied.  Or rather, made a foolish promise.  I will drop ancient Greece until I have done some more research. How often I post on modern Greece will depend on what the news cycle provides.  Right now, it is providing ample post material.

On Thursday, Greece requested a six-month extension of its loans to think things over.  Germany refused, saying that no extension would be given unless Greece agreed in advance that the terms would remain unchanged.  This amounts to a refusal to negotiate until the other side has surrendered. On Friday, the parties reached a deal to extend Greece's loans for four months -- conditioned on Greece submitting a list of reforms by Monday that would be accepted by the IMF, European Central Bank (ECB) an European Commission (EC), the three institutions known as the troika. What this means, in simple English, is that we get to breath again until Monday, at which point the troika may reject the Greek proposal and start the crisis all over again.  After that, all bets are again off.

The agreement was made acceptable to both sides by the use of weasel words that will allow both sides to spin it as a victory, and to parse the agreement to mean what they want.  The Greeks can argue that the new agreement gives them more autonomy in running their own government and limits austerity by what they can afford.  The Germans can argue that old targets remain unchanged.  So sure, weasel words can be useful in persuading rival sides to sign a scrap of paper.  But they do no good whatever when it comes to implementation.  If the sides can't reach an agreement papering it over lasts exactly until words on paper translate into facts on the ground, at which point the agreement falls apart.  This might make sense if the delay were a reasonable length of time.  How much time?  That depends on the circumstances.  I wholeheartedly agree with Paul Krugman that a government that has been in power less than a month cannot reasonably be expected to have a plan in place.  So a delay of four to six months, or even two or three, would give Syriza time to offer a plan for modified terms, if accepted, and to be ready for the Grexit if not.  But a delay of two days is worthless.

So speaking as a strict amateur, this would be my advice to the Greek government.  Get an extension. If that means continuing the status quo for a few more months, so be it.  Explain it as a truce to prepare for the oncoming confrontation, which it is.  Then get together the best team of international experts you can find and start making plans.  Make this a two-track plan.  Openly plan a modification of terms for the benefit of the domestic populace.  Be public about it, and be prepared to drive a hard bargain.  But, as discretely as possible, plan for the worst -- leaving the euro.  Gather together the best experts you can find who managed a successful default-and-devaluation in Russia, Argentina, Iceland, etc.  Figure out a way to physically re-introduce that drachma as quickly as possible.  Have a plan in place for appropriate capital controls.  Know just how far you can go *financing operations by printing money and be prepared to go hitherto but no further.  And conduct the negotiations publicly enough and in such a manner that if they fail, but public will be mad as hell at the EU/troika/Germans or someone.  Mad enough to be willing to accept sacrifices.  Mad enough to do whatever will be helpful in case of a catastrophic devaluation.  Mad enough to buy Grexit bonds as a patriotic act.

And if talks on Monday fail?  Well, then we are back where we started from, but with only a week left to avert disaster.

*In a country operating as far below capacity as Greece is today, the answer has to be some.  But not as far as Syriza would undoubtedly wish.

No comments:

Post a Comment