In response to an FT article by Martin Wolf on 7th June 2016, entitled ‘Painful choices still hang over Greece’.
"Is there a path towards making Greece a successful self-financing economy within the eurozone? What would be required to put it on that path? These are the big questions about the economic plight of Greece and its ghastly relations with its partners. Neither has much to do with what is going on, which is “extend and pretend”: the eurozone pretends Greece is not in default; Greece pretends it will reform; and both play for time. What would an honest reckoning look like?"
Bravo Mr. Wolf - well said.
How does the old saw go?...the truth will set you free. Not quite yet in the case of Greece, but this is a start.
It seems that policy makers, whilst they may be very bright individually, behave like a bunch of duffers when you put a group of them together, especially if there's a hidden agenda or any personal ambition in the room, which of course there always is...
So a bit more truth telling is required here unless we want to go round the whole circus ring again next year:
1. The IMF knew that the deal was 'bull' in 2010. They were told so by many commentators, who were ignored and/or fobbed off with spurious nonsense, but they knew. They were guilty of dishonesty not stupidity
2. Any plan with the word 'wait' in it, is more of the same political nonsense, whether it's from a German lawyer or a French lawyer (amazing how many 'lawyers' there are in 'economics' these days). 'Wait' is more of the 'extend and pretend' you have rightly identified
3. The 'mindset' that produces this 'extend and pretend' nonsense is predicated on a belief that the future vibrancy of an economy can be predicted with a spreadsheet and a set of assumptions - it cannot. Vibrancy happens when there is a motivational and structural environment that supports innovation and effort - the creeping death of 'extend and pretend' kills the creative spirit dead in the water. Every time.
In short - there is a rot festering in capitalism Mr. Wolf. For the past two decades policy makers have tried to banish consequences:
a) No-one can go bust - nothing can go down
b) The rules have been changed from 'mark to market' to 'mark to fantasy' - insolvency has been given a pretty dress and renamed 'illiquidity'
c) Economic statistics have been tortured into submission until we've arrived at the situation E.G. where the US has unemployment of 4.7%, when the 'truth' is way north of 10% when you include discouraged workers and the people who've given up entirely
Capitalism works on feedback. Politicians don't. They avoid it like the plague. The solution for Greece and the solution for capitalism are to get back to consequences. Otherwise we'll get the situation you described so perfectly above:
"...the Greek government will go on complaining, like a permanent adolescent, over the stinginess of those acting as its guardians"
Adolescents complain because they haven't learned consequences yet (apart from all the hormones and stuff). A good 'guardian' knows when to stop acting like God and let them find out. The IMF is not God, neither is Germany, neither are any of the meddling bureaucrats, statist politicians and Neo-Keynesian economists who think they can come up with a spreadsheet to solve anything.
Greece needs to sort this out and Greece is bust. The best thing they can do, in my view, is to cut the crap and start from there. Which probably means leaving the EZ, devaluing their currency, taking the pain, and getting on with it. The 'adult' approach is to negotiate partial forgiveness and conversion to Drachma. Both sides have to be prepared to walk away from the table, and take the consequences if they do - i.e. if they don't get a deal they can live with...much like 'the real world'
To do that, they will have to overcome the protestations and spurious rationale of all the politicians and economists who are still committed to extend and pretend because they are scared of the consequences…to themselves…that's most of them.
Good article Mr. Wolf - thank you.