A few things to bear in mind before commenting on Greece and the Eurozone

Screen Shot 2015-07-06 at 16.29.42Maybe it is not my place to say anything about Greece. I am not an economist, and I am not at the negotiating table. But I am tired of what I am reading – from politicians, journalists and others on blogs and Twitter – and hence I have drawn up a list of a few things to keep in mind before commenting on the Greece crisis after Sunday’s No vote in the referendum. I say all of these things from the perspective of keeping Greece in the Eurozone, and restructuring its debt in return for reforms, as the best outcome. Some of the points below could also be applicable even if that is not your aim.

  1. Whatever you say or write about the crisis, ask yourself this: how is what I am going to write or say going to contribute to solving the issues rather than exacerbating the problems? Accusing your counterparts of “terrorism” (Varoufakis) or the referendum result “regrettable” (Dijsselbloem) is not going to help. Take a deep breath and say something calmer instead.
  2. Solutions can only be found if there is trust on both sides – from the side of the Greek government, and also from the side of the EU institutions, the IMF, and the German, French and other governments. That Varoufakis has been replaced by Tsakalotos is a positive sign from the Greek side. Lambasting the Greeks as communists / untrustworthy / macho, or the EU side as oppressors / blackmailers / dictators is no good. If you cannot trust the person opposite you at the negotiation table, find someone to mediate instead – as nerves are so raw a lot more effort is going to be needed to find viable mediators, and swiftly. Someone like Pascal Lamy for example. And the mediator – by definition – has to be acceptable to both sides. Neither side has the monopoly on being right or being wrong.
  3. Be creative. Piketty has argued for a debt conference (interesting at least!) Currently the EU says it is waiting for a further Greek proposal – why are the EU institutions not working on their own possible deal as well? Just putting the ball in your opponent’s court is no way to build trust (see point 2). Plus there is not just one way to solve this crisis – there are many variations of a solution.
  4. Think forward, not back. This relates to point 1 above, and it is hard. Yes, it might have been wrong to let Greece into the Euro, and it might have faked its economic statistics to allow its entry. But lambasting Greece for that (or Germany et al for accepting it) now is no good for anyone. Work out where to move from where we are instead. The same applies to how to analyse the Greek governments since 2010 – they all made major errors, but Tsipras and SYRIZA cannot be held responsible for what happened before their watch, and blaming them for the past doesn’t help find a solution anyway (point 1).
  5. What are the downsides of what you are proposing? Forcing Greece out of the Euro (if it is even possible – see point 6 below) would mean Greece defaulting on its debts. Keeping Greece in the Euro is going to mean a hard and long process of political and governmental reform. On the EU side, forcing Greece out fundamentally changes how markets will view the reversability of the Eurozone, while keeping it in will require an enormous effort to convince sceptical electorates in the rest of the EU that is it the least worst option. There are no easy solutions here – be suspicious of anyone proposing anything sounding simple.
  6. Law still counts. There is no legal way to simply expel a country from the Eurozone (discussion with Ann Pettifor here). Greece would have to vote for its own exit, and would it really do so? Pose that question to anyone advocating “inevitable Grexit” or words to that effect.
  7. Be fair in explaining what has happened. Greek bailouts have not all gone to Greek people – most of the cash has ended up shoring up the balance sheets of French and German banks (good summary by Sony Kapoor here). By extension do not exaggerate the scale of the task ahead – it is considerable, sure. But the world prevented its banking sector collapsing in 2008 – sorting out a country that’s 3% of the EU’s economy should not be impossible.
  8. Don’t make facile comparisons between Greece and your own credit card or bank account. That’s mediamacro, and the parallel does not hold. How a country deals with bankruptcy is different from how an individual person deals with it.

So then, where’s that deal to be found?

(oh, and if you’re commenting – do try to respect the points above!)

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  1. Mary

    Thoughtful, reflective, mature – as ever. Thank you Jon.

  2. Paul

    What is your *solution* actually then?
    As you said there are no easy solutions. I think Greece is going to have to leave the Euro and we’ll all need to accept the new reality… namely if you are in the Euro you are tying your economy to Germany’s and (for better or worse) that means being tied to German’s economic cycle. Countries unable to cope with this will be heading for the exit.

    The alternatives are: –
    – Expecting Germany to pick up the tab for every failed economy (which simply isn’t politically feasible and long term would result in a German political backlash)
    – Allowing the EU/Eurozone to be derailed by every aggrieved party would long term be far more damaging to the European project and put it at grave risk from nationalists.

    As per Schultz comment, we will simply have to start planning for humanitarian aid for Greece so that when the inevitable default and GrExit happens (hopefully Eurozone only and not the EU), we can prevent the worst suffering.

  3. Jon

    @Tobias – I think you could equally frame the referendum as “do we want to keep shooting ourselves with more austerity, or not?” (whether either your interpretation of it or mine is right I don’t know – but comments from No voters said – rightly or wrongly – they were seeking to end painful austerity). And while I in part agree with your comment, you too fall into the trap of not offering solutions and you also fail to say the opposite – that Grexit and giving up trying are the only way. Is that actually what you want?

    @Paul – as I said in reply to @Just me above, it might indeed be game over. But to discuss whether it is game over was not the purpose of this post, more to try to find a way forward to make sure it is not game over. What is your *solution* actually then?

  4. Paul Blanchard

    Spot on, Jon.

  5. Paul

    Game over now…. The EU (like the UK and pretty much any other federation) can only work if there is some common agreement on how to conduct its business and a belief in working to a greater whole.

    Once one part of the EU starts to go down a nationalistic cul-de-sac then frankly its game over. Greece has elected a populist government who have successfully annoyed the creditor nations as well as other debtor government who have suffered from austerity. Essentially (as with all nationalist populists) they are going to be implacable… which sadly leaves few sensible options other than total capitulation to their demands.

    Its a very sad that it has come to this and regrettably the poor Greeks will suffer because the intransigence of their politicians. Hopefully however the leaders of other nationalistic and populists groups will however wake up to their stupidity. In the UK would be lovely to see the back of groups like UKIP, the SNP, even the Greens (when they are being luddite economic illiterates) and all the other reactionary groups with ill-thought through “anti-austerity” and “regional nationalism” agendas (and likewise in most other EU countries).

  6. Tobias Schwarz

    This is all good advice for couple’s therapy. The thing is, though, for couple’s therapy to succeed, both parties need to trust that the other has good faith, and – this is more relevant for Greece than Europe – is actually willing *and* able to deliver the promises made in couple’s therapy. Given that yesterday’s referendum was really a decision between “let’s keep trying to work this out” and “bring it on, we’re not afraid!”, I don’t really think the couple still believes they’re really made for each other. This is all very sad. Check out Claudis Seidl’s comment in the Frankfurter Allgemeine Sonntagszeitung about “Europe’s Greek fiction”.

  7. Jon

    @just me – you might be right that this is irretrievable. But *if* it is retrievable, these points might help find some way to retrieve things. Also see the Piketty link above for some counterfactuals on the historic points.

  8. just me

    There might be some macro points missing, imho history plays a significant part (see Germany …)., on both sides of the table.
    And a lot of history has been forgotten, see 1930s.

    For some reason, as of Monday 16:55 CEST I don’t think there will be a deal found. That ship has sailed. Hopfully I’m wrong.