PAPANDREOU: GREECE TO STAY IN EUROZONE
Some good insights and thoughts here on Europe from former Greek Prime Minister George Papandreou. He spoke with Bloomberg TV’s Sara Eisen and said that Greece has “a few weeks” before its government runs out of money and that this is a “make or break” period. Via Bloomberg TV:
Papandreou on whether Greece will leave the euro:
“Despite the fact that many economist say if you leave the euro, you will be more competitive, you can devalue, a Greek exit would not only be bad for Greece, you’d have hyper inflation, 20 percent lowering of the GDP. Greece has become the precedent, a test case.”
On whether Greece is better off in the euro:
“Absolutely. Leaving the euro, despite many economists saying you’ll be more competitive and be devalued. I think now is the point where we have to look at ourselves in the mirror and look at reality and say this is the point where we have to make this decision, if we don’t, I believe we will have a small window of time over the next few months, maybe if we have that and even that…before we see a splintering of the euro. This is a make or break period.”
On austerity measures:
“We can have some modifications to the program. I would say yes to fiscal responsibility, which would also include a growth strategy not only for Greece, but for Europe because Europe is in a wider recession, many parts of Europe are in a wider recession, but also types of structural changes we need to become competitive. Now whether we can stretch out the fiscal adjustment for another year or so will take a little bit of pain out.”
On what will happen to Europe if Spain falls:
“We have reached the limit of patching things up. We have to make major decisions to create confidence in the market. Will we as politicians make decisions in time to calm the markets before they go haywire and create problems for Spain or any other part of Europe, that is the challenge and we have been behind the curve most of the last two years. I hope we have come to the realization that we can’t be behind the curve this time.”
On how long the Greek government has before it runs out of money:
“I think we have a few weeks and that’s why it would be imperative that we first of all have a government and second we take necessary measures and show we are credible, we have signed up to this agreement, we may want some modifications, but we want to show we are credible when we sign as a government as Greeks with our partners. This is a make-or-break period.”
On Europe’s crisis:
“In Europe we let things linger…we have to move in to for example a banking union, with a common insurance for a credit, a fund for recap of banks and restructuring banks, we have to move into fiscal union for monitoring fiscal responsibility of each country, we have to move into economic union for more tax harmonization, a social union where we should have a common policy on employment as far as benefits are concerned. For example, I’ve been an advocate of European voucher where a young unemployed person can take it from Greece and go to Germany somewhere else to any school or training center and to eventually employment. We need a more democratic Europe, too. This has to be a citizens project not just a project of economic or political elite.”
On how severe capital flight is from Greek banks:
“That’s been one of the problems, that combined with the banking system not only in Greece but in Europe has been somewhat worried over the last three four years to lend out – worried about their accounts to hold on to what they have has not been conducive to growth. It’s getting worse.”
On whether Germany is standing in the way:
“I wouldn’t say Germany is standing in the way. I think Germany is right now at a point where it is doing well, feeling quite confident, its economy is booming, it went through ten years of change.”
On whether Alexis Tsipras is dangerous:
“I would take his words with a grain of salt and would say that what he would do if he’s part of a coalition or even if he is number one party, we would have to see once he is in government. My hope would be that whoever is in government acts responsibly, honors a very difficult negotiation we had over last two years where we came out with the biggest bailout program in history, the biggest hair cut also in mankind’s history with a tough program of adjustment.”
On whether the personal costs were worth it to serve Greece:
“I think it’s worth it. I believe in politics we are not permanent fixtures in power, either we serve countries in best of ways and that could be a personal cost or I would not want to be in politics, I’d be on a Greek island enjoying myself. I felt this is what I had to do for my country.”
On whether he’s transferring his own money out of Greek banks:
“No I’m not. I’m voting for Greece, not that I have a lot of money, anyway.”
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
Follow Me:
12 Comments
My deceased papou’s & yaya’s, hard working immigrants, would roll in their graves if they could hear Papandreou & these useless excuses from all like minded sophisticates.
Greece must exit, take it as Zeus would, and reconstitute – in several years, Greece’s precedent will pay off, nicely. A little/lot of pain in the world of EuroAsianAmerican economics will do the world well, in time – it’s better medicine than a World War, or eventual collapse.
Tune in next week to bloomberg next week in part 2 of our 10 part programming.
We will be have Wessley Snipes on set discussing how You should pay your taxes.
And the following week we will have the Hait Govt discuss public policy and infrastructure fundding success stories.(a key for any govt. official)
Next will be a special interview with the QB of the 1976 Tampa Bay Buccaners team that went (0-14) on how to win a playoff game. This should be as insigtful as asking the former leader of Greece what he thinks Greece should do now.
BTW- did the former PM just say…more of the same is the key to success?
Great interview Bloomberg….no large sodas were served at this event. Everyone just drank bath salts.
…Great comment, VII, love it!
Staying in the Eurozone means that Greece has to accept the consequences as well. Like structural reforms of the economy and labour markets. Otherwise it’s better to leave the Eurozone now.
Imagine this scenario; Greece leaves the Euro but does nothing about its Euro denominated debts. Later, Greece is on the debt hook, and has to trade their new Drachma currency for Euro’s.
This is the same situation that Weimar Germany had, when they traded their Marks for “hard money” e.g dollars, pounds and francs. The triangual flow of inter ally debts caused an externality to Germany’s economy. Germany had to pay Britain/France, who then had to pay inter ally debts to Washington. Ultimately, this caused downward pressure on the Mark. Bear raiders sensed the weakness, borrowed more Marks (private banks), putting futher downard pressure in a speculative frenzy.
Greece can leave the Euro, which would be a good thing. Soveregn Greeks do not want to go to Germany for training. They have already voted with their feet by staying, even in bad economic conditions. Having your own sovereign currency is fast feedback and allows capitalism to price goods and services. The Euro straightjacket does not allow proper pricing and information inherent in money.
However, if Greece does not deal with the external debts, then they might as well as stay in the Euro. Papandreou is right, it can lead to hyperinflation.
Usually the creditor is over the debtor. But, the debtor also has power. Greece could exercise their debtor power by doing a grand bargain for their external debt. They could force the hands of the bondholders by telling them we will only pay you x amount. Or, they could force the external debts to be denominated in Drachma’s and avoid the hyperinflation scenario.
My take is that Papandreo lacks imagination and understanding of money. In the modern world, with computers and good law, it would be fairly easy to build sovereign monetary systems (unique currencies) that all the European countries could trade each other with.
Greek law says sovereign debt will be paid in the money the state wants. They can effectively redenominate all euro debt to new drachmas and paid that debt in drachmas. I don’t think Greece would suffer a worse inflation than Iceland as bad as their economy structurally.
Doom sayers are not interested in fixing stuff because they are creditors.
The problem with Weimar is the Germans lost a war and had no choice but to maintain payments to the victorious powers. Greece would not have to maintain Euro payments unless it was literally put under the gun by the Germans or the French.
It would have to pay Euros or Dollars for oil and gas, though.
Consider this also: If Greece used their debtor power and forced the bond holders, and other Greek Debt holders to convert the debt units to Drachmas (or Greece’s new currency type), then that would cause a boom in demand for Greece’s economy. Why? The debt holders would now have drachmas instead of Euro’s, and where is the only place Drachmas are redeemed? Also, any debt payments cycling out of Greece to pay drachma debts, are denominated in drachmas too, so eventually the “external debt” must come home.
Britain didn’t understand debtor power after WW2. The sterling zone (Africa, South America, Egypt, etc) held lots of British pound sterling debt. They were ready to buy stuff with it; for example, washing machines and other consumer goods. But, Britain went along with the American led “Bretton Woods” Gold standard and lost their debtor power. Then Britain compunded the error and built bombers and other things their trading partners didn’t want. Britain turned into an almost third world country. Instead Britain could have used their debtor power to force their creditors to buy British “stuff.”
The Gold standard, allowed Sterling to be convertable. Thus sterling debts became demand for mostly American goods.
““No I’m not. I’m voting for Greece, not that I have a lot of money, anyway.””
Think we can safely ignore anything else he has to say …
Good insights and thoughts?
What I see is pure fear-mongering on a possible Greek exit, a blind faith in austerity and the ricardian equivalence and a failure to realize that he led millions of people to poverty or immigration (not to mention the surge in the suicide rate).
I see a bearish Euro divergence. The Euro seems to be weakening against a number of currencies. Not only against the USD but – unlike in the 2nd half of 2008 – against the CAD, AUD, NZD, GBP as well. Only the BRL got hit more in the last weeks. This could be the first sign of a full fledged Euro crisis.
Papandreou is a member of the political elite that concocted this bloody mess back in the 90s. Of course, he will now defend the Euro and Greece staying in the Eurozone at all costs. He did not offer a single reasonable idea in this interview; just platitudes that you come to expect from a career politician.