The difficult choices facing the Greeks

How would I vote in the referendum on the eurozone’s economic programme if I were Greek? The answer, alas, is that I am unsure. If I believed Greece could make a success of going it alone, I would surely vote against the programme. But I could not be certain: if Greece could use monetary sovereignty wisely, it would not be in its current state. If I voted in favour of the programme, I would not know whether it was still on offer: the eurozone says it is not, but it might be bluffing. What I would know is that, if Greece voted Yes, it might face years of retrenchment and depression. But that might still be better than post-exit chaos.

I would also surely wonder whether there might be middle ground. Thus some argue that it would be possible to stay inside the eurozone even if the government were in default. This might also justify a No vote.

In making my decision, I would bemoan both the idiotic leftism of my own government and the self-righteousness of the rest of the eurozone. Nobody comes out of this saga with credit.

The Syriza government has failed to put forward a credible programme of reform that might solve the multiple problems of the Greek economy and polity. It has instead made populist gestures. It is, in brief, a dreadful government produced by desperate times.

Yet the eurozone, too, deserves substantial blame for the outcome. One would never guess from its rhetoric that Germany was a serial defaulter in the 20th century. Moreover, there is no democracy, including the UK, whose politics would survive such a huge depression unscathed. Remember, when Germany last suffered a depression of this magnitude, Hitler came to power. Yes, Syriza is the outcome of infantile and irresponsible Greek politics. But it is also the result of blunders committed by the creditors since 2010 and, above all, insistence on bailing out Greece’s foolish private creditors at the expense of the Greek people.

Yet all these mistakes are now sunk costs. Greeks must look to the future.

Even this perspective does not help as much as one would like. The bailout extension did not offer a plausible exit into recovery: it left too big a debt overhang and, more important, demanded too much short-term austerity. Given the recent backsliding, it seems to demand a move from a primary fiscal balance (before interest) of close to zero this year to a surplus of 3.5 per cent of gross domestic product by 2018. Achieving this outcome might demand fiscal measures that would raise the equivalent of 7 per cent of GDP and shrink the economy by 10 per cent.

One does not put an overweight patient on a starvation diet just after a heart attack. Greece needs growth. Indeed, the economic collapse explains why its public debt has exploded relative to GDP. The programme should have eliminated further austerity until growth was established, focused on growth-promoting reforms, and promised debt relief on completion. If the programme on offer was so bad, should I risk voting No? In deciding that I would need to think through what would happen. The short-term position would be clear. The European Central Bank has curtailed emergency support for the Greek banks, forcing tight limits on withdrawals. Some argue this is a huge error. Others believe it is an incentive for voters to vote Yes.

If the Greeks voted Yes, the curtailing of ECB support might be reversed. But it is hard to imagine a successful revival of the eurozone’s programme if the present government were still in charge. After campaigning for a No, the latter would surely have lost all the confidence of the creditors. So a new government would have to emerge. It would then also have to sign on the dotted line.


A Yes vote then would offer an unpleasant and uncertain, but at least imaginable future. Now imagine a No vote. There would then be two conceivable outcomes. One would be a true exit. The Greek government would introduce a new currency and convert all contracts under Greek law into it. The new currency would surely then collapse in value relative to the euro. How much it would fall would depend on the policies and institutions (particularly the governance of the central bank) established by the government.

One might reasonably fear the worst. Some even argue that Greece would remain “euroised”. If so, the collapse in the external value of the new currency might offer little gain in competitiveness. Personally, I would be more optimistic: the improvements in competitiveness might well be large.

The second outcome would be to stay in the eurozone, despite an insolvent government. This is logically possible. The banking system could be recapitalised by converting uninsured bank liabilities into equity. This looks technically feasible. But it would impose a large negative shock on private wealth.

Whether the ECB would then restart emergency lending and on what scale would become the big questions. This looks an unattractive option to me: it would present all the problems of being part of a currency union, with the additional disadvantages of a comprehensive government default. Better than that surely would be to vote Yes.

So I, as a Greek voter, face a choice between the devil and the deep blue sea. The devil is familiar: the never-ending demands of the eurozone for further austerity against which my people voted in the last general election. The deep blue sea is sovereign default and monetary sovereignty. If I am Prime Minister Alexis Tsipras, I think there is a third way — endless bailouts and few conditions. But I am sure he is deluded. So which would I choose? Being cautious I would be tempted to stick with the devil I know. but I might well do better to risk the sea.




Martin Wolf




Fonte: FT

A failed euro would define Angela Merkel’s legacy

Analise interessante, mas discordo da avaliação em relação a saida do Reino Unido(UK). Seria uma perda, mas como UK nunca demonstrou grande compromisso com o projeto da UE, o simbolismo seria muito menor que o da saida da Grecia. A perda seria maior para os britanicos do que para os parceiros da UE.



The breakdown of negotiations on Greece has come as a shock. Berlin and other European capitals look in disbelief at the Greek government’s resolve to inflict huge economic and financial damage on its own country and its citizens.

But Greece will not be the only loser. The stakes for the German government are high, both domestically and internationally. Yet Berlin has a rare window to use the present Greek tragedy to push for the implementation of urgently needed reforms, thereby making the euro sustainable and giving European integration again a stronger legitimacy.

Across Europe financial market risks are likely to be tremendous in the coming days and weeks. The most immediate challenge for eurozone governments is damage control. The risks from contagion have repeatedly been downplayed. But no one can reasonably predict whether and how the crisis will spill over from Greece.

Many eurozone economies are still vulnerable. Italy’s economy has shrunk 10 per cent since 2008, while sovereign debt has increased to about 135 per cent of gross domestic product.

The European Central Bank had to intervene in July 2012 to promise to do “whatever it takes” in order to protect the integrity of the eurozone and prevent a sovereign default of Italy and others. The most likely scenario for the immediate future is that Europe’s politicians will again hide behind the ECB, hoping that it will do the heavy lifting to prevent market turmoil and stabilise the eurozone economy.

But what is at stake is not only economic and financial stability. The long-term political damage could be devastating, in particular for the German government. The blame game is heating up about not only who is responsible for the Greek tragedy but why the eurozone failed to get its act together over the past five years and end the crisis. This is a game Berlin and Angela Merkel, Germany’s chancellor, can hardly win. As the strongest economic and political member of the eurozone, Europe and the world have been looking to Berlin to solve the crisis and to reform Europe.

Sure, Ms Merkel may have done the right thing in the negotiations trying hard to broker a deal and making significant concessions to the Greek government. Short of capitulating, she had no chance of succeeding with this Greek government. But this will be no more than a footnote in history.

What is at stake for the German government is no less than its credibility, both at home and internationally. It promised its citizens a more stable Europe in exchange for financial help. It promised them to not accept any haircut on its loans, a promise it now has to renege on. Ms Merkel’s declaration that “Europe fails, if the euro fails” is correct, but it might come to haunt her and shape her legacy as chancellor. Germany’s many critics now feel vindicated. This feeling would be even stronger if Greece left the euro and returned to its national currency.

Still Berlin has a chance to turn the tables and transform the Greek disaster into an instrument to push for much needed reforms of Europe, and hence a stronger eurozone. The most important policy decisions over the past decade were taken under duress and in times of crisis. Governments and central banks stabilised global markets through their joint declaration at the G20 meeting in New York in 2008. The decision to pursue the European banking union was made at the height of the European crisis in June 2012.

The so-called five presidents’ report from the heads of the main European institutions, released last week, contains many of these elements. This includes a fiscal union, with credible and binding rules, and insolvency mechanism for states and a joint fiscal capacity. This would not only provide protection for individual countries, but also smooth economic fluctuations and allow countries to reap the full benefits of the common currency for euro area members and of the single market for all EU countries. Such reforms will require changes to the EU treaties. This would allow Germany to also look beyond the eurozone to the concerns of the UK, which are widely shared in Berlin.

Berlin should think beyond short-term damage control and push its European partners to commit jointly to much-needed reforms of EU institutional architecture. This should include a stronger fiscal union, capital market union and treaty change also to avoid a British departure from the EU, the so-called Brexit, which would be an even greater tragedy for Europe than the Greek crisis.

This may be the only chance for the German government to protect both its credibility and legacy in Europe.



Marcel Fratzscher is president of DIW Berlin, a think-tank


Fonte: FT

Lunch with the FT: Thomas Piketty

A

picnic in the sun on the lawn of the Paris School of Economics would have been better, but it’s too late. We are at Les Jardins de Paul Ha, a bakery turned deli in the 14th arrondissement, and Thomas Piketty is already biting into a hard-boiled egg.

It’s a five-minute walk from the office of the man the media refer to as a “rock-star economist” but it’s hard to find much glamour here or in his life these days. The success of Piketty’s bookCapital in the Twenty-First Century(2013), a surprise 700-page bestseller, threw him into a year-long media whirlwind. But now its author longs for normality. And so here we are in a deserted backroom eating our meal from plastic containers on dark-blue trays, a faded, peeling poster of a beach in the Seychelles on the wall beside us.

“I have had phases of promotion and conferences, which I enjoy very much, but I need to get back to normal life,” Piketty explains, crossing his legs and leaning on the empty chair next to him. “Normal life is sitting at my desk from 9am to 7pm, with no one bothering me. People don’t realise that research requires time and quiet. So a two-hour break for lunch . . . ” he sighs, rolling his eyes.

I had caught a glimpse of Piketty’s natural habitat when I picked the 44-year-old scholar up from his 12 sq m office, a stuffy room located in a grey postwar building that is home to the research institution he helped set up in 2006.

With its claim that capitalism, by its nature, worsens inequality, Capital in the Twenty-First Century (first published in French in 2013 and then in English eight months later) caused a transatlantic furore, pitting proponents of state intervention against believers in the free market. While the book’s extensive compilation of data on income and wealth distribution has been widely praised, Piketty’s theories and conclusions — that the proportion of income and wealth going to the richest 1 per cent has reached a historic high; that return on capital usually exceeds economic growth, resulting in an automatic increase in inequality — have also been attacked. With his calls for higher taxes and more regulation, he has become the darling of the left and the enemy of the right.

While I wait for my microwaved pasta bolognese to cool down, I ask him how it feels to be a celebrity. Piketty, wearing a close-fitting light-blue shirt with the top two buttons undone, says he welcomes it as long as it translates into selling more books. Two million copies have been bought so far, he says with pleasure.

Do you really need to pay someone 100 or 200 times the average worker’s salary to get their arses in gear?

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“The success of my book shows there are a lot of people who are not economists but are tired of being told that those questions are too complicated for them,” he says, picking at a mayonnaise-soaked slice of cucumber. He speaks fast and with plenty of hand gestures. He is curious about my age — “Oh, you’re younger than my sister” — and inquires about my career. He exudes self-confidence.

“Too often, economists build very complex mathematical models to look scientific and impress people. I have nothing against mathematics — I initially trained as a mathematician — but it’s usually to hide a lack of ideas. What pleases me is that this book reaches ‘normal’ people, a rather wide public. My mother is one example,” he says, adding that she rarely reads big academic books yet understood everything in his.

. . .

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LUNCH WITH THE FT

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When I ask if Piketty’s left-leaning family background has anything to do with his initial interest in inequality, he dismisses the link. Politics were not discussed at home, he says. In their youth his parents were Trotskyist militants with the Lutte Ouvrière but they quit the far-left party before he was born. Like many young radicals living in post-May 1968 France, they were lured by life in the countryside and moved out of the capital in the mid-1970s. For three years, they raised goats and sold cheese on markets in Castelnau-d’Aude, a village near Narbonne in southern France. Though neither parent has the baccalaureate, the national high school degree, Piketty’s mother later took night classes to train as a primary school teacher, and his father became a research technician at Institut National de la Recherche Agronomique.

Both cheered when Socialist leader François Mitterrand was elected president in 1981. “They had long been waiting for the left to come to power,” says Piketty. But his grandfather on his father’s side, “from a bourgeois background,” voted for the centre-right candidate Valéry Giscard d’Estaing, he says. “Like in any other family, some vote for the left, some vote for the right. I love them all!”

His parents were the opposite of pushy, he says. They had little to do with his getting into the École Normale Supérieure, one of France’s most competitive “grandes écoles”, when he was 18, or his teaching at the Massachusetts Institute of Technology after earning a PhD at just 22. But they taught him “autonomy, to trust myself” — an approach he says that he replicates with his three daughters, Juliette, 18, Deborah, 15, and Hélène, 12.

I am determined to give the bolognese a chance but the floppy, overcooked fusilli brings back bad memories of my school canteen. Given the history of controversy between the French scholar and the Financial Times, I wonder if our lunch destination may be retaliation. After all, Piketty referred to the contentious article that highlighted discrepancies in his research as soon as we stepped in to the deli, joking that he didn’t want to cost the FT too much money given all the “free publicity” it has granted him.

The FT analysis notably questioned Piketty’s conclusion that wealth inequality had widened in the UK. He responded to the allegations in detail and defended his methodology, arguing that, even if the criticisms were real, the inconsistencies would not change his findings.

“The FT? I never really read it. Sorry I shouldn’t have said that!” he says mischievously. “I find it a bit predictable. You know, when I read the first two sentences, I feel I know the rest of the story. OK, not always. And then there was the prize. It all looked a bit confused,” he says, referring to the fact that Capital in the Twenty-First Century won the FT & McKinsey Business Book of the Year 2014.

It would be a mistake, he continues, clearly warming to his theme, for the FT to deny the widening of inequalities in the UK “to defend the interest of your readers”. As I object, it dawns on me that Piketty thinks I am here simply to represent the interests of the top 1 per cent. When we agreed to meet, he said we would walk “to a simple salad and sandwich bar,” emphasising how much “the bill will interest the FT readers.”

Les Jardins de Paul Ha

57 Rue du Pere Corentin

Egg and tuna salad

Half pineapple

Diet Coke €7.20

Pasta bolognese

Half pineapple

Strawberry juice €7.50

Crepe x 2 €1.80

Espresso x 2 €3.00

Total €19.50

Piketty says his interest in inequality crystallised after the collapse of the Berlin Wall and the first Gulf war. He recalls visiting Moscow in 1991 and being struck by “the lines in front of shops”. He came back vaccinated against communism — “I believe in capitalism, private property, the market” — but also with a question central to his work: “How come those people had been so afraid of inequality and capitalism in the 19th and 20th century that they created such a monstrosity? How can we tackle inequality without repeating
this disaster?”

The first Gulf war, he believed, demonstrated the cynicism of the west: “We are told constantly that states can’t do anything, that it’s impossible to regulate the Cayman Islands and the other tax havens because they are too powerful, and all of a sudden we send a million soldiers 10,000km from home to allow the emir of Kuwait to keep his oil.”

I am halfway through the now tepid bolognese when I ask him why his work had such an impact in the US without causing anything like such a stir in France at the time of its original publication. Piketty says he caught American attention in 2003 when, together with Emmanuel Saez, a fellow French economist who teaches at the University of California, he first compiled historical data on the US’s wealthiest people. In 2009, newly elected President Obama used the French economists’ graph that showed inequality was back to its 1929 peak. “We became the target of Republican think-tanks,” he recalls. The French version of the book acted as a teaser to those critics, he believes, helping propel it to the top of Amazon’s bestseller list for three weeks when it was released in English.

“The rise of the top 1 per cent is an American thing. It’s not by chance that Occupy Wall Street happened in Wall Street, and not in Brussels, Paris or Tokyo,” he says. “It’s different in Europe. Here, inequality takes the form of unemployment and public debt.”

Though Piketty concedes that the global wealth tax he recommends is a “utopian” dream, he also says a confiscatory tax rate of more than 80 per cent on earnings exceeding $1m would work. In fact, he continues, such a rate was in place for five decades before the presidency of Ronald Reagan, and would curb exuberant executive pay without hurting productivity. “It did not kill US capitalism then — productivity grew the fastest during that time,” he notes. “This idea, according to which no one will accept to work hard for less than $10m per year . . .  It’s OK to pay someone 10, 20 times the average worker’s salary but do you really need to pay them 100 or 200 times to get their arses in gear?”

So did he applaud François Hollande when the Socialist president introduced a 75 per cent levy on earnings exceeding €1m? “He was just showing off,” Piketty says, nibbling baguette crumbs. “First, because there aren’t that many people making that amount of money in France. And because, as I am sure you will have noticed, France is a smaller country than the US. Headquarters can easily move to Amsterdam. You’ve got to be careful.”

. . .

Aware that the topic of personal wealth is tricky territory, I nonetheless decide to test Piketty’s newly acquired status as a millionaire. He must have been subjected to the 75 per cent rate then? To my surprise, he gladly answers with detail: the state will levy between 60 and 70 per cent of his earnings this year. “A 90 per cent tax rate would not bother me,” he says. “There would still be a lot left, since we’re talking about several millions. I benefited from an education system, public infrastructure. I got lucky, too . . . This idea that Bill Gates invented the computer alone, it’s a joke. Without computer sciences researchers who did not patent their work, who would have invented it?”

A 90 per cent tax rate would not bother me

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Piketty, who separated from the mother of his daughters some years ago and recently married Julia Cagé, a 31-year-old French economist whom he met at the Paris School of Economics, is not in thrall to money. “I am lucky to have a fabulous job, live in the world’s most beautiful city, have three wonderful daughters, a wonderful wife,” he says.

We stick plastic forks into our pineapples, already cut in small squares, and they turn out to be the culinary apex of this lunch, ripe and soothing. Hollande is “hopeless,” says Piketty, who in January rejected the Légion d’Honneur award because, he said then, the state had “no right to decide who is honourable”. The French president has failed on his campaign promise to change the austerity stance prevailing in Europe, he continues. This makes him as responsible as German chancellor Angela Merkel for the eurozone’s woes.

“We replaced Merkozy with Merkollande,” he sneers. “Europe is choosing the wrong path, the path of eternal penitence . . .  It would be a catastrophe to force Greece out of the eurozone.”

It is ironic, he says, that austerity is imposed on debt-laden Greece by two countries, Germany and France, that benefited from debt cancellations after the second world war: a move that allowed 30 years of growth on the continent. “There’s some sort of collective amnesia,” he says, getting more animated. “It is this cancellation that allowed them to invest in education, innovation and public infrastructure. And now, those same countries tell Greece that it will have to pay 4 per cent of its GDP for 30 years. Who can believe this?” The role of the International Monetary Fund in the Greek talks is a “catastrophe,” he sighs.

The eurozone crisis, according to Piketty, reflects a deeply flawed governance, where only two leaders decide who calls for “a democratic overhaul of European institutions . . .  It’s purely because we are unable to organise ourselves politically that we’re in deep shit,” he says. “From a macroeconomic point of view, Greece is insignificant.”

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The eurozone is following the example of the UK, he says, which spent the 19th century paying down its huge debt pile inherited from the Napoleonic wars with budget surpluses. It worked — but, he continues, it took 100 years, during which the UK neglected its education system.

He says that he hopes the UK will stay within the EU, and not choose to “become just a tax haven with a big financial centre”. He warns, however, that London needs to realise that Europe is “not about profiting from the free circulation of goods of your neighbours while siphoning off their fiscal base”.

“I would have preferred Tony Blair join the eurozone rather than send troops to Iraq but I can understand why the eurozone is not attractive these days,” says Piketty. “Maybe in 2040, who knows?”

We are told that coffee and crêpes are on their way but Piketty is anxious to return to his office. As I nibble a rubbery crêpe au sucre with my fingers in the absence of cutlery, I negotiate a few more minutes to talk about Piketty’s plans. “Research continues,” he says. He is working to extend his wealth database to Latin America and Africa. He has also agreed to teach four days a year at the London School of Economics — he can hop on a Eurostar easily as he lives near Gare du Nord, an up-and-coming, ethnically diverse neighbourhood in northern Paris. But first he is taking “the girls” on a trip to Morocco in August.

Before we leave, I ask Piketty if he will sign his autograph on the bill. He is a rock star, of course, and he accepts happily. “I am very young,” he says, as we step into the sunshine. “I have got more books to write.”

Anne-Sylvaine Chassany is the FT’s Paris bureau chief

Illustration by James Ferguson

Britain would not survive a vote for Brexit

Promising a referendum on Britain’s place in Europe was always a rash gamble — a tactical swerve blind to the strategic consequences. The stakes have risen. The rest of Europe does not want to see the Brits depart, but the EU would muddle on. For the UK, the choice has become existential. If Britain leaves Europe, Scotland will leave Britain. The union of the United Kingdom would not long survive Brexit.

The referendum was offered to appease troublesome eurosceptics in David Cameron’s Conservative party. Some hope. There are signs the prime minister has begun to appreciate what is at stake. Never mind talk that he may be remembered as the leader who split his own party, or as the architect of Britain’s retreat from its own continent. History will be even less kind if it records that a device to quell a Tory rebellion about Europe led to the unravelling of England’s union with Scotland.


Mr Cameron’s government has lowered its sights accordingly. When Philip Hammond toured European capitals before the May election 25 of his 27 counterparts told the British foreign secretary that they would not rewrite the basic texts of the EU to accommodate British exceptionalism.

Angela Merkel, the German chancellor, is particularly insistent that the Union’s organising “acquis” is sacrosanct. So the prime minister’s pre-election promise of “full-on treaty change” has made way for a more modest set of demands.

Mr Cameron has struck an emollient pose in his own post-election journey around EU chancelleries. What has emerged is a careful choreography for the negotiating process. As he explained it to Ms Merkel, the plan is to avoid undue acrimony and, for the most part, to keep the nitty gritty of negotiations low key and under wraps.



The prime minister will stick to generalities at this week’s Brussels summit. His favourite refrain speaks of a “reformed Europe”, whatever that means. He wants an opt-out from the (never defined) treaty aspiration of ever closer union of the peoples of Europe, safeguards for the City of London against eurozone caucusing, and a motherhood-and-apple-pie declaration that Europe is about competition rather than regulation. Finally, he is asking for leeway to restrict in-work benefits paid to workers from the rest of the EU.

This last demand has become totemic — much as market access for New Zealand’s butter defined the then Labour government’s renegotiation in 1975. Now as then, the real significance of the issue is in inverse proportion to the heat generated. Ask officials precisely how many hard-working Polish plumbers or Portuguese nurses receive such benefits and you get an embarrassed silence.

At some stage there has to be a public fight, particularly with the French. But if all goes to plan — and, like all plans, this one could go wrong — the name-calling can be deferred until the December EU summit. Mr Cameron would then emerge triumphant in the early hours of the morning clutching a list of concessions “won” from Britain’s EU partners. Game, set and match, the then prime minister John Major declared after he secured an opt-out from the Maastricht treaty in 1991. Perhaps Mr Cameron will claim reform in our time?

Nothing on the table, of course, amounts to a fundamental shift in the nature of Britain’s relationship with the EU, a point already being made by hardline eurosceptics on the Tory backbenches.

For the moment, though, the government and the sceptics both find the pretence convenient. Mr Cameron can promise change and the out camp can feign loyalty while setting up a series of impossible hurdles. When the sceptics demand a British veto over all EU legislation it is fairly plain they are willing the prime minister to stumble.


The fundamental asymmetry in the negotiations presents a problem. Much as his partners want to keep Britain in, they also know he has more to lose from failure. It is well understood in Berlin that Mr Cameron cannot return from negotiations admitting defeat. When last did a government call a referendum and then ask the people to vote No?

Scotland further amplifies the weakness of the British bargaining position. By winning 56 of Scotland’s 59 seats at Westminster — the Conservatives, Labour and the Liberal Democrats have one each — the Scottish National party has shrugged off its defeat in last year’s independence referendum. The nationalists look set also to hold on to power in next year’s elections for the Scottish parliament. Who said referendums settle things?

True, Nicola Sturgeon, the SNP leader and Scotland’s first minister, has been cautious about seeking an early re-run of the independence vote: there are still a fair number of Scots happy to vote SNP for Holyrood or Westminister who balk at the idea of independence.

Everything, though, would change if Britain decided to leave Europe — the more so if, as seems quite likely, the overall No vote combined English rejection with a Scottish preference to stay in the EU. Even Scotland’s staunchest unionists admit that their cause would be lost in such circumstances.

So there you have it. A renegotiation that promises to change nothing very much at all in Britain’s relationship with the EU followed by a referendum that, were it to go wrong, would see the UK break itself into pieces even as it detached itself from its own continent. Still, Little Englanders and Scottish separatists would have something to cheer.




Philip Stephens


Fonte: FT

A last chance for Alexis Tsipras to choose country over party

So Alexis Tsipras has failed. A weak hand was weakened as Greece became more isolated than ever before, and the pan-European anti-austerity front that he promised in the last election failed to materialise. Five months of negotiations have yielded nothing to match the radical rhetoric that swept him and his party to power.

But the failure is not the Greek prime minister’s alone. His predecessors failed as well, omitting at each stage to tell their voters the true story when they were in opposition and suffering the consequences once in power.


Compare the depression in Greece with the fortunes of Ireland, Portugal and Spain since the crisis erupted five years ago, and what stands out is the consistent preference of Greece’s political class for placing short-term party gain over the national interest. But as details emerge of the proposed new agreement, it is clear that the failure goes wider still and is not confined to Greece. The policy of austerity that has been forced on the country by its creditors, as Olivier Blanchard, the International Monetary Fund chief economist, acknowledged in 2013, made Greece’s recession longer and deeper than it need have been.

Now it is to be intensified. For all the reported differences between the IMF and the European Commission, it is clear that the tactics of Mr Tsipras have united his interlocutors, and united them specifically in their resolution to push Greece further down the same disastrous road as before.

Their insistence on ignoring the country’s sky-high unemployment rates reflects the almost complete collapse in trust engendered by the Syriza government’s manner of dealing with them over the past five months. But it also reflects their deeper underlying impatience, and that of their electorates, with the seemingly endless saga of the Greek crisis and their understandable doubt whether any agreement once signed will ever be seriously implemented.

With Greek banks on life support, events are moving to a resolution and not in the way that the Greek side can have hoped. Mr Tsipras still claims to be optimistic, but his hold over the party is not very strong: within Syriza, details of the creditors’ package were greeted with dismay — and not only by the party’s radicals. Beyond it, there is deep and justified concern at the limited scope in the latest Greek plan for anything resembling the kind of structural reforms the economy really needs.

Time may once have been on Athens’ side. But, having wasted that commodity over many weeks, the Greek government now confronts an urgent situation. Mr Tsipras’s last hope has lain in geopolitics — exploiting western fears of pushing Greece into the orbit of Vladimir Putin and taking much of the Balkans with it. But these fears have their limits too: they will not do much to sway electors in Germany and elsewhere, however much they keep Angela Merkel, the German chancellor, and Barack Obama, the US president, awake at night. And they will not sway the IMF either.

The probabilities must now therefore still unfortunately be on the side of a Greek exit. This will be catastrophic for Greece and costly for the rest of Europe. There is an alternative but it rests on the unlikely possibility that the Greek prime minister will opt in the coming days for country over party, for an unfamiliar future over a familiar past. Can Mr Tsipras make the shift in role from student radical to national statesman?

The omens are poor — and the paltry real returns from his negotiating strategy so far make the task harder — but the thing is not impossible. Syriza and the Greek party system are both in flux. Syriza’s internal opposition to the new package is real but the electoral centre ground in the country at large remains — for now — staunchly in favour of remaining in the euro. Pasok, the party which dominated the left since the end of the junta, is dwindling into insignificance, leaving the way open for Mr Tsipras domestically.

Despite everything, he remains popular within the country. If he can claim victory in defeat, present an agreement with the creditors as his, and hold new elections on a centre-left platform some time in the autumn with the real prospect of significant debt relief, he may yet pull it off. Those in his party who hope to build socialism through a return to the drachma will be sidelined, and Greece may be able to remain within the eurozone as the polls suggest a majority still want. That would allow the Greek people a badly needed respite from the psychological turmoil of endless crisis and give time to stabilise and reinforce the country’s battered political institutions.

On such slim eventualities does Greece’s future and perhaps that of the euro itself, now hang.


Mark Mazower is Ira D Wallach Professor of History at Columbia University

Fonte: FT

A moonshot to save a warming planet

Every silver lining has a cloud. The technologies that offer human beings comforts and opportunities that would have been unimaginable two centuries ago ultimately depend on an abundance of energy. Fire is the source of that energy. But the burning of fossil fuels, from which we gain so much, also releases the carbon dioxide that threatens to destabilise the climate.

For some, the answer to this challenge is to embrace poverty. But humanity will not — and should not be expected to — give up the prosperity that some already enjoy and others greatly desire. The answer lies instead in breaking the links between prosperity and fossil fuels, fossil fuels and emissions, and emissions and the climate. We must not reject technology, but transform it.

This is not yet happening. BP’s latest Statistical Review of World Energy shows that global demand for commercial energy continues to grow, largely driven by growth of emerging countries, despite improvements in energy efficiency. Moreover, fossil fuels meet the bulk of that demand. In 2014, renewables contributed just over 2 per cent of global primary energy consumption. Together, nuclear power, hydroelectricity and renewables contributed merely 14 per cent.

A report entitled “A Global Apollo Programme to Combat Climate Change”, written by a number of high-profile British scientists and economists, offers a bold answer. It argues that carbon-free energy has to become competitive with fossil fuels. “Once this happened, the coal, gas and oil would simply stay in the ground.”

The need, then, is to generate a technological revolution. The paper (named after the successful mission to the moon of the 1960s) argues that this will require rapid technological advances. Progress is happening, notably the collapse in the price of photovoltaic panels. But this is not enough. The sun provides 5,000 times more energy than humans demand from industrial sources. But we do not know how to exploit enough of it.

Despite the evident need, publicly-funded research and development on renewable energy is under 2 per cent of all publicly-funded R&D. At just $6bn a year, worldwide, it is dwarfed by the $101bn spent on subsidies for renewable production and the amazing total of $550bn spent on subsidising fossil fuel production and consumption.

This is a grotesque picture. Far more money needs to go to publicly funded research. The public sector has long played a vital role in funding scientific and technological breakthroughs. In this case, that role is particularly important, given the agreed goal of reducing emissions and the fact that the energy sector spends relatively little on R&D.

The envisaged programme would have a single purpose: “To develop renewable energy supplies that are cheaper than those from fossil fuels.” The authors suggest that to do this, research should focus on electricity generation, storage and smart grids. The suggested programme would amount to $15bn a year, still a mere 0.02 per cent of world output. That is indeed a minimal amount, given the goal’s importance.

Any country that decided to join would commit to spending this proportion of its national income. While the money would be spent at each country’s discretion, the programme would generate an annually updated road-map of the breakthroughs needed to maintain the pace of cost reduction. The suggestion is that heads of government agree such a programme of accelerated and targeted research by the time of the Paris climate conference later this year.

Improved technology might end our dependence on the burning of fossil fuels. It might also reduce the emissions of carbon dioxide that accompany that burning. But Climate Shock by Gernot Wagner and Martin Weitzman, notes that new technology might also break the final link — that between emissions and climate. This then raises the seductive, but dangerous, possibility of geo-engineering — seductive because it may seem cheap, and dangerous because its results are so uncertain.

Some ideas for geo-engineering are close to carbon capture and storage, which is aimed at eliminating emissions from specific facilities. Carbon-dioxide removal might be applied to the atmosphere: this is what plants do. Another idea is “ocean fertilisation”, to accelerate natural absorption of carbon dioxide.

Replication of the atmospheric impact of a volcanic eruption would directly offset the impact of greenhouse gases. The matter emitted by the eruption at Mount Pinatubo in the Philippines in 1991 lowered global temperatures by 0.5C. The 20m tonnes of sulphur dioxide emitted dimmed the amount of radiation from the sun by 2 to 3 per cent in the following year. If we continue on our present path, that is the sort of measure people might well try to replicate.

It is not hard to envisage the dangers of such an intervention. It could not be a one-off, since particles put into the atmosphere would quickly fall out of it again. So the actions would have to be repeated on an ever-larger scale, as concentrations of greenhouse gases in the atmosphere increased.

Such a programme of deliberate pollution of the global atmosphere might well be viewed as an act of war. The consequences of repeated large-scale planetary engineering of this kind would also be highly unpredictable. This must be a very last resort.

The best way of responding to the challenge of climate change is through changed incentives and accelerated innovation aimed at making carbon-free technologies competitive with fossil fuels. Both demand more active public policies. The proposed Apollo programme would be an essential element. Its proposed costs are modest; its potential upsides are enormous. Success would be transformative. It would be far better to try and fail than not to try at all.

Martin Wolf

Fonte: FT

The three perilous options for Greece facing Europe

As EU leaders head into this week’s emergency talks , they face a choice of three hazardous routes out of the Greek crisis. Route one involves making concessions to Greece. Route two involves standing firm and allowing Greece to leave the euro. Route three involves Athens largely accepting the demands of its creditors.

The choice seems stark. But the truth is that all three routes may ultimately lead to the same destination: the destruction of the European single currency. The lengths of the journeys would vary, the scenery along the way would look different but the end point could still be the same.


Route one: Greece wins. The Syriza government has been operating on the assumption that its European partners will ultimately make big concessions rather than risk a country leave the euro. Those concessions would involve writing off some of Greece’s debts and allowing the country to abandon some reforms, such as further cuts in pensions and higher taxes.

But leaders fear that, if they make concessions such as these, they could end up destroying the eurozone in order to save it. The governments of countries such as Ireland, Portugal, Spain and Latvia — which have stuck with their austerity programmes — would be instantly undermined. Radical left parties similar to Syriza, such as Podemos in Spain, would gain ground. Meanwhile, voters in Germany, Finland, France and the Netherlands — countries that have already lent billions to Greece — would have to be told that those loans might never be repaid.

In response, anti-EU parties such as the Alternative for Germany and the True Finns would probably gain support. The presence of nationalist and far-left parties at future EU summits would make it truly impossible to reach decisions. At that point, the survival of the EU itself — not just the euro — would come into question.

Route two: Grexit. Rather than head down the dangerous-looking route one, EU leaders have been prepared to contemplate a second route, where Greece defaults on its debts and then probably leaves the euro. European officials have generally sounded confident that Grexit need not cause contagion, whereby financial markets immediately begin speculating on the break-up of the eurozone, forcing up interest rates and potentially provoking new debt crises in countries such as Italy or Spain.

In the short term, the eurozone might be able to avoid contagion since the European Central Bank has programmes in place that allow it to buy unlimited quantities of eurozone countries’ bonds, forcing interest rates back down again. In the long run, however, that is unlikely to be a guarantee against debt crises. The ECB’s powers are meant to be temporary — but the precedent that a country can leave the European single currency would be permanent.


In the search for a more permanent fix, after a Grexit, EU policy makers would push for deeper integration to make the currency union more robust — in particular, through a genuine banking union. But northern European voters will have just seen their money disappear in a Greek default; they are highly unlikely to agree to underwrite the banks of southern Europe.

The political effects of Grexit could also be disastrous for the EU. An embittered and destabilised Greece would be out of the single currency but still inside the EU — at least, for a while. From that position it could block and disrupt EU policy on a range of issues, from sanctions on Russia to illegal immigration. (Greece is one of the main entry points for illegal migrants from Europe.)

Above all, Grexit would raise questions about the future of the whole European project. For decades, the steady expansion of the EU has been associated with the spread of peace and prosperity. The chaotic ejection of a country from the euro, amid poverty and civil strife, would throw that process into reverse.


Route three: Greece folds. Given the dangers of the first two routes, the EU has continued to insist Athens should stick with the programme — paying back its debts and making fundamental reforms that place its economy on a more sustainable footing. Unfortunately, there are no guarantees that even this route would lead the EU to a safe destination.

There are several problems. Greece’s debts look close to unpayable, so there are likely to be further debt crises in years to come. It is also far from clear that the state can be rapidly reformed in ways that will make it function better. The problems of clientelism and lack of competitiveness run too deep.

Most important of all, the Greek crisis has exposed the fact that the euro is a fundamentally flawed project. Historically, currencies that are not ultimately backed by a nation state have collapsed. The EU, nevertheless, thought it had created structures that could make the euro work. This has been shown to be untrue. In response, some European leaders will argue that the eurozone must now create more state-like structures, such as a banking union or a larger federal budget. But the past five years have demonstrated that this is likely to prove politically impossible.

The bitter truth is that when Europe’s leaders set up the European single currency they set off into unmapped and dangerous territory. There are no safe routes back.


Gideon Rachman


Fonte: FT