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|Greek Negotiators Should Learn a Little from Britain|
FT - February 9,2015
The proposal for “debt-swapping” floated by Greece’s new finance minister, Yanis Varoufakis, is both ingenious and constructive. But whatever its merits – and as always in financial transactions, the devil will be in the details – by putting it forward in this way Greece is making what can be termed The British Mistake. Just as for Britain’s prime minister, David Cameron, there is still time for Greece’s triumphant new leader Alexis Tsipras to remedy this error.
The error arises from the natural instincts of national politics. These incline both Mr Tsipras and Mr Cameron to fight alone as proud and plucky countries, battling in Greece’s case for a better deal from the European Union as special victims of German "subjection" or in Britain’s of the throttling red tape of Brussels busybodies, or somesuch grievance. Trouble is, isolation and victimhood may sound noble, but such nobility is for losers.
To stand as little Greece against the other 18 eurozone members, or as little Britain against 27, is a potentially fatal mistake. Neither is in a strong enough position to bully or blackmail the others. And such unilateral brinkmanship is likely to make it harder for Germany and others to make the deals that Greece and Britain need.
Clearly, given the promises he made during Greece’s election campaign about debt relief, Mr Tsipras needs to achieve results, which is the same feeling Mr Cameron has had on the topic of EU immigration, given that the hounds of UKIP and the Eurosceptic rats in his own Conservative Party are all thirsty for his blood. But for both men, and their countries, placing a single large bet on a bilateral negotiation would be tantamount to planning for defeat and life outside the EU.
In order actually to achieve their goals, Mr Tsipras and Mr Cameron need to take a smarter approach. That means framing their demands so that reforms stand to benefit more countries than just Greece and Britain – ideally, even Germany itself. And framing them in a way that fits German policy-making principles: as new rules that can persist and help Europe prosper.
In Greece’s immediate case, that means making its debt-swapping proposal applicable more widely than just to itself. Neither Germany, Finland nor the Netherlands will be able to accept a debt-relief policy simply based on the notion that Greeks are mad as hell and can’t take it any more. Mr Tsipras’s friends in Spain’s left-wing insurgent party, Podemos, might like such a stance, but the current Spanish government too is likely to reject it.
This won’t be easy, but Mr Varoufakis sounds quite an ingenious economist. He could even find an ally in devising such a plan in Germany’s finance minister, Wolfgang Schauble, if he can convincingly draft a principle under which sovereign debt above some high percentage of GDP could be swapped into bonds tied to nominal economic growth, only on condition of making an agreed programme of radical liberalising reforms.
Would that be saleable? Neither Ireland nor Spain, which have already made such reforms, would want to take part. But Italy and Portugal might, and such a principle could provide the eurozone with a strong tool to ensure future crises are dealt with in the right way. And in Greece itself? Well, liberalising reforms are a tough sell there, but if Mr Tsipras means what he says about tackling Greece’s “oligarchs”, the rich quasi-monopolists who dominate the Greek economy while avoiding paying their taxes, this would be the best way to do it.
It would be best, both politically and for the future health of Europe, if this were made part of a wider package, one that boosts economic growth and creates jobs while binding the EU closer together. In addition to the debt swap, that could involve a beefed up programme of publicly financed investment, across the whole EU, made possible by altering the fiscal pact to separate capital investment from current spending; and a new single-market drive, deepening market integration for goods and extending it to services and the digital economy.
Funnily enough, much of this ought also to appeal to Mr Cameron. What he needs if he is to be able as prime minister to recommend a “yes” vote in an EU referendum in 2017 is three things: to show that the EU can solve problems and revive its economy; to show that a single market in services is at last being created; and to show that countries that choose to stay out of the euro cannot be discriminated against. This package could give him two of those three.
So here’s an idea: given that Mr Varoufakis flattered Britain by floating his debt-swap idea on a visit to London, why doesn’t Mr Cameron now propose this wider package, both for his own good and to show that he can, after all, be a constructive European?