LOS LIDERES EN SUS ALTOS CABALLOS
El contenido de la entrevista de Viv Davies a Willem Buiter es otra prueba reciente de la divergencia entre el curso de los "líderes" y el de la realidad europea (no solo sobre Grecia).
Viv: So, what do you think needs to happen, then, in order to make it possible for Greece to stay within the Eurozone and to grow and prosper?
Willem: Well, we have to write off the debt, effectively. Probably the IMF will get paid, because they always do. That's the advantage of the so called “third creditor” status. But all other creditors, be they private or official, including the ECB, the bilateral Euro Area creditor governments, and anybody else that may in the future be contributing to Greece, better recognize that Greece is not capable of servicing the debts. Just write it off. That still leaves a funding gap for the Greek sovereign, depending on your estimate, there still is a primary deficit, a non interest deficit for the general government of between two and four percent at least. So that still would have to be funded. They have to continue funding that, but no more.
And then, really, leave it up to the Greeks to reform themselves. There's no way that we're going to be able to turn Greece into a colony of Brussels, Frankfurt, and Washington, and run it as a vassal kingdom for the next eight years.
Viv: Yes. You mentioned the banking sector then. The ECB recently introduced its long term refinancing operation process, which many commentators have welcomed, especially in terms of the signal it gives to markets. However, some economists, like Charles Wyplosz, for example, are of the opinion that the LTROs have made things significantly more dangerous in that a potential wave of sovereign defaults could turn those bonds into toxic assets. It's what he refers to as the “trillion euro bet”. What are your thoughts on that?
Willem: I don't understand Charles' argument. But I think that the LTROs were a necessary part of the solution but by no means sufficient. They are a part of a mechanism for keeping the banks funded. We, of course, have to make sure that the banks become solvent again as well, which will require and inevitably mean that many of the continental European banks will end up in state ownership, those that aren't already. And even if there are no deep pocketed sovereigns to recapitalize the systemically important banks, then the money may have to be got from the unsecured creditors to the banks, from the bondholders, etc. So we're going to have to have major bank restructuring as well as provide the liquidity, but unless we provide the liquidity, we would never be able to get to the point that the structural reforms, the recapitalization, take place.
What I am worried about in terms of the LTROs has been that it has been accompanied by what I call some Balkanization of monetary policymaking in the Euro Area so that we are approaching a world in which there are two different risks.
Either because national central banks now have considerably more discretion over what's acceptable as collateral for national central bank credit, there is a risk of loss of control over the aggregate size of the balance sheets that you may call the "Ruble Zone Problem," that you get 17 different national centers of issuance, effectively.
The other problem is that since in order to minimize the first problem, the loss of control problem, the ECB has departed from the principle that losses of national central banks are pooled and shared - that's no longer the case. They're going to have 17 national central banks in the Eurozone with very different credit risks attached to them, so individual national central banks could go bust.
This is something that I think wouldn't be good for our collective health. We better think and think actively of ways of minimizing both the loss of control problem and the central bank insolvency problem. We have to go back to having a single European monetary and collateral policy. Of course, the application of the single set of rules will still be dependent on local circumstances. That is perfectly consistent with the common policy.
But we can't have national central banks, once again, the way they were before 2007, determining to a significant extent what kind of collateral they are going to accept. There has to be central control of this.
Viv: Finally Willem, returning to the central question of Greece, what would be your immediate advice for the European leaders and policy makers who are currently in two minds about what to do about Greece?
Willem: Write off the public debt, recapitalize their banks, using European resources, obviously, because there aren't any Greek resources. Keep them in the Eurozone, very definitely. It's both in the Greek interest and in our interest. Then provide further minimal financial support. Don't build up another debt burden, but sufficient to run steadily diminishing non interest deficit for the general government and ultimately have that peter out and turn the country into a country with a sizable primary surplus, but not from a position where they spend six or seven percent of GDP on interest. So write off the debt, restructure the banks and then make conditional funding, of the kind that is now available, forthcoming.
But don't get on the self righteous high horses that are ridden by so many European politicians, especially from Germany and my own home country, the Netherlands. It is, I think, offensive. It forgets that there cannot be a reckless debtor without that reckless debtor being accommodated by a reckless creditor.
The Dutch and the Germans savers and greedy investors are as culpable of the financial mess that we've created in Europe as the debtor countries. It takes two to tango here. When you don't know what to do, shut up. I think that would be the best advice I can give to our politicians.