quarta-feira, 25 de março de 2015
Missteps and miscalculations that could cost Greece the euro
Despite having lots of the economic logic on their side, the newly-elected Greek government is slipping further behind in its goal of restoring economic dynamism, jobs and financial viability. As a result, both Greece and its European partners risk losing control of the one thing they seem to unanimously agree on — namely, maintaining the country within the eurozone. Understanding the five main reasons why this is happening also sheds light on what needs to be done.
The new government led by the leftwing Syriza party was elected with a manifesto that contains three policy changes that many economists agree on: reducing excessive austerity, revamping structural reforms to unleash broader economic dynamism, and removing crippling debt overhangs that undermine existing productive activities and discourage the stimulus that comes with new investments.
But in translating intentions into actions, Greek officials with little or no governing experience have mishandled five issues that now risk eroding their credibility. First, they opted to negotiate with their European partners, and Germany in particular, in an overly public and confrontational manner.
Second, angered by European intransigence, they ended up politicising what should have been the technocratic work of specialist economic negotiators. Any chance of reaching an understanding was undermined by competing political narratives and noisy nationalistic accusations. In such an environment, good economics had no chance to prevail.
Third, Athens has few allies within the eurozone. Other peripheral debtor countries — such as Ireland, Portugal and Spain — have distanced themselves from their Greek counterparts. In part this reflects their hesitation to see hard-fought economic progress being leapfrogged by Greece if it secures more lenient terms from creditors. In part it reflects the threat that non-traditional parties, such as Podemos in Spain, pose to governments throughout Europe.
Fourth, Greece has no credible Plan B. It does not want to walk away from membership in the eurozone; it is unable to secure other sources of funding; and it cannot survive for much longer without exceptional external support.
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Fifth, rather than focus the negotiation on the one goal that all parties claim to share — keeping a rehabilitated and dynamic Greece inside the eurozone — Greek politicians have become stuck in the quicksand of some particularly controversial microeconomic measures. In addition to constantly generating uncomfortable headlines that fuel nationalism at home and abroad, this has prevented the negotiating parties from picking the low hanging fruit.
The longer all this prevails, the greater the risk that Greece and its eurozone partners will lose control of the country’s economic, financial and institutional destiny. Already, public disagreements recently have fuelled deposit withdrawals from Greek banks, sucking more oxygen out of a system that is already gasping for air; and increasing the country’s dependence on an increasingly hesitant European Central Bank.
It is time for the Greek government to rethink less the substance and more the process of its negotiation with its European partners. It must start by toning down its political rhetoric and re-establishing a technocratic negotiating foundation. It can then undertake confidence building steps — beginning with the implementation of structural reforms.
Such a course correction would reduce the probability that Syriza ends up presiding over the disorderly exit of Greece from the eurozone. But it is already too late to reduce this risk to zero. As such, the government’s immediate “to do” list also includes the highly-delicate formulation of a Plan B — for life outside the eurozone — that it would only deploy if the more orderly Plan A were to fail.
Mohamed El-Erian is chief economic adviser to Allianz