Both Project Syndicate and Le Figaro declined to publish the following proposal. Given the type of analysis that they use to publish I take that rejection as a compliment.
In “A plan of hope for Greece” I argue that the
main cause of the present and dramatic difficulties of the Greek economy is the
grossly mispriced exchange rate implicitly embedded in the euro and that, as a
consequence, the return of the Greek economy to growth requires above all a
return to monetary independence and a substantial devaluation of a new Drachma
vis-à-vis the euro. Instead of waging a “war of secession” against Greece and
try to impose further austerity to a deflationary economy, the other EU and
Eurozone nations should recognize that a major debt relief is unavoidable and should
be accompanied by a generous “new Marshall Plan” that would guarantee a
continuing access of the Greek government to international financing during a
transitional, post-Grexit, period. It must be understood as the price to pay in
order to avoid a much more costlier permanent “transfer economy” from the North
to the South of the EU, and the condition for a stabilization of Europe’s
interests in the Balkans and the Middle East powderkeg.
A Plan of Hope for Greece
Jean-Jacques Rosa
June 27, 2015
No solution to the Greek problem is possible as
long as the question is framed into a restrictive confrontation between the
creditors’ injunction “commit to reform (i.e. spending cuts and tax increases)
to get liquidity” and the Greek government’s rebuttal “debt relief first” and
“we chose our own cuts and taxes”.
It should be recognized that a Greek recovery is
possible but requires, as a sine qua non
condition, an exit from the euro, and this in turn can only succeed if
conceived in a spirit of European solidarity. It is imperative both to restore
hope to the Greek society and to reassure other members of the EU that do not
wish to shoulder the burden of a permanent transfer society, but want to
preserve the political union of the continent. European leaders should offer
Greece a modern Marshall Plan, which ought to be an essential element in a
strategy of controlled exit of Greece from the eurozone.
Despite the previous 2012 partial defaults on
external debts, the Greek economy is still mired in hopeless depression and
continued deflation. While the current debt burden of about 180% of GDP, and
growing, is simply not sustainable, additional spending cuts required by the
creditors’ cartel will aggravate depression, and additional liquidity, if
supplied, will further deteriorate the debt/income ratio, thus intensifying the
debt-deflation vicious circle.
The fundamental cause of the problem is that a
small, and by necessity very open, economy is easily sunk by an inadequate,
mispriced, exchange rate. Since the entry in the Eurozone in 2001, the massive
divergence of costs between Greece and its main partners, which are all members
of the zone, has resulted in the equivalent of a massive exchange rate
revaluation. Greek products (including tourism and shipping) are now priced out
of foreign markets while Greek imports became relatively cheaper than local
products, depressing local activity. This accumulated chasm should take several
more years of deflation, depression, and misery to be breached. This is
politically and humanely impossible.
The obvious and quick solution then is to
devalue a new Greek currency vis-à-vis its Eurozone partners and complement that
by a major debt relief. This is a classical, well known, mainstream economic
solution to this type of problem. But that strategy is ruled out by the cartel
of creditors and the authorities of “institutional Europe” for fear of the
contagion effect that a Grexit would produce on other struggling southern
economies, and of a subsequent unraveling of the euro. The Greek government, on
the other hand, fears to renege on its electoral promise to stay in the euro,
and also to lose access to international financing coming currently mostly from
other European governments, so that an exit would mean, in the short run, an
aggravated economic slump and more bankruptcies before the economy can benefit
from a return to growth.
Moreover a confrontational exit, a “war of
secession”, would weaken the EU itself at a time of major political and
strategic uncertainties in the Middle East and Central Europe.
A positive aspect of the problem, however, is
that its magnitude is small. Greece’s GDP amounts to only about 2% of EU’s GDP,
and thus its overall debt can represent no more that 4% of overall EU’s GDP.
Thus, helping the Greek economy to return to growth and hope is a relatively
minor task compared, for instance, to what was the European problem at hand in
1945. Currency reform and the Marshall plan aid helped devastated Germany to
reconstruct its economy and return to brilliant growth, a policy that Mr. Schäuble
and Ms. Merkel should remember and ponder. The reason and generosity that
prevailed then should also prevail today.
Accordingly, all parties would benefit from the
following strategy: complement a Grexit – a return to the Drachma with a
radically lowered parity to the euro -- with a major debt relief (50% or more)
and a guarantee by the creditors governments – and the so-called Eurogroup --
of a continued access by Athens to ECB’s very low interest rates borrowing
during a transition period, let’s say of five years. It would be during that
period that a reform and budget consolidation could take place in step with the
return to positive growth rates, and not before.
The European northern creditors would thus trade
the necessity of continued transfers to an ailing Greek economy for an
indefinite future for a one shot temporary aid that would really restore its
capacity to grow, as it clearly existed before the fateful entry into the
Eurozone.
Such a strategy would rather strengthen the euro
than weaken it, vindicating the commitment of the current member States that
prefer a strong currency to a weaker one. It would also create a precedent for
a much needed orderly, constitutional, euro exit procedure that could be
elaborated for the benefit of countries that prosper more under a relatively
weak currency, and would supply an alternative to the unrealistic and
preposterous claim of “irreversibility” that is at the root of the present war
of secession.
And if some other country then wanted to exit
from the Eurozone, it would be for good, fundamental, economic reasons and
without creating a political and financial crisis that would jeopardize the
rest of the EU. The survival of a euro
and the return of Greece to hope, ending the rampant civil war in the EU,
depend on European leaders’ generosity and breadth of vision. The opportunity is for them to chose.
