Thursday, June 16, 2011

Greece and EU: Glasnost and viable policy decisions

Time for coherent policy in Greece based on three propositions: 1.) urgent need to restructure national debt to avoid disorderly default 2.) need to reduce public expense and restructure the public sector for a developmental model based on direct private investment and 3.) new EU/ EZ/ ECB monetary policy that addresses the EU Periphery rebalancing needs or a departure of the EZ periphery to flexible exchange rates with the Eurozone restricted to Core members, so their straight jacket is removed.

ECB monetary policy undermines EZ
Periphery country economies
The EU/ Eurozone elite in the core countries seem to be adopting the Mr. Micawber principle towards its Periphery members, stubbornly adamant to any debt restructuring and insisting on wage and price deflation to recover mountains of bad sovereign debt compounded by Ponzi bailouts - policies that reduce their capacity to carry this rising debt stock and condemn them to Debtors Prison.

The recent Mario Draghi statement supporting the position of ECB Chief Trichet in his bitter M.A.D fight with Wolfgang Schaeuble is a shocking demonstration of the EU system. Draghi, destined to succeed Jean-Claude Trichet, assumes the Trichet position locking him into his predecessor's policies before even assuming his new role! Is this healthy? Why should not Draghi be permitted to review past ECB policies and make new ones as he sees fit? Why should policy debates in the EU be forbidden and EU economic orthodoxy be an iron rule for which any opposition results in ostracism or nuclear war?

Skyrocketing unemployment in
deepening recession erodes
tax revenue
 The choice of Vangelis Venizelos as new economics minister to replace failing economics minister Papaconstantinou in this largely cosmetic Greek government reshuffling shows that George Papandreou seems to be doubling up on Micawberish EU orthodoxy with their "go along to get along" Soviet-style leadership style.

The only serious policy debates are currently on the RGE Monitor where Nouriel Roubini and colleagues like Michael Pettis and Ed Hugh are making a mockery of the EU elite and the ECB. Yet EU Periphery political leadership remains immobile and passive. I have sent proposals to my party and encouraged them to hire competent economists to assist them but I do not see any results.

The Greek government could easily adopt the first two propositions in their negotiations with the EU. On debt restructuring, they could leverage their position working closely with Mr. Schaeuble. Adopting a market friendly developmental policy based on FDI would help reestablish their credibility in the EU, provided serious demonstration of commitment in follow through, cleaning up the public sector.

The broader policy debate on new Eurozone policies to meet EU periphery rebalancing needs (otherwise leaving the EZ straight jacket) will take time. It requires close cooperation with other Periphery countries in tough negotiations with EZ Core members, who will not easily relinquish their privileged position.

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