We hear in the news today that Eurozone talks concerning the future of Greece have ended their first day of talks fruitlessly. When the unstoppable force meets the immovable object what else should one expect.
The talks were presumably Angela Markel's attention to concrete economic structural and financial reforms to be proposed by the new Greek government. Mrs Merkel displayed open-mindedness in not dismissing Greece's ditching of bailout/austerity until the new government presented their strategy in concrete. Head of the Eurogroup Eurozone finance ministers, Jeroen Dijsselbloem, after the meeting said that no discussion of detailed proposals had taken place, "We simply tried to work next steps over the next couple days. We were unable to do that."
If that was the case what do IMF chief Christine Lagarde and Greek Finance minister Yanis Varoufakis, photographed just after the talks, have in common? They both see the necessity to boost failing economies in times of depression. The ECB under Mario Draghi also view things similarly, hence their recent announcement of Quantitative Easing which will inject roughly One Trillion Euros into the Eurozone Economy over the next 18 months in an effort to counter deflation. These are Keynesian ideas which are opposed to the more Friedman monetary policies employed by Mrs Merkel Germany. Not surprisingly the ECB and Mrs Merkel have disagreed on the need to implement QE.
What seems to have gone wrong in these talks was that both sides are speaking different languages. Mrs Markel's scientific mind, a PhD in physical chemistry holder, leads her to suspend judgement until examining all the evidence; but considering their fundamental differences on policy Mr Varoufakis would have to present a neatly worked out mathematical formula where every contingency had been allowed for which shows an incontrovertible position outcome in order for her to overturn her current value system. Not surprisingly this did not happen.
As far we know what was on the table was a request for a bridging loan, 3 to 6 months, while the larger debt over 4 years was renegotiated, and retention of 70% of the structural reforms imposed, while implementing a 10 point economic boosting plan in place of the rest. The likelihood of a bridging loan was always extremely low as so far the European Financiers have never instigated such bridging loans and that would be new territory for them, and this would constitute a short term uncertainty based on a further long term uncertainty - this is not Banking language. The 10 point plan would have to be so tightly formulated, with every i and t, as to be self-evident and contradict current German monetarist language.
The problem is that Keynesianism can only work when a government has monetary and fiscal control, and for Greece, monetary control resides in Brussels. I found an old economics text book of mine from 1980, Nevin pp 495, commenting at the time on the EEC single currency proposals, "member states retain some degree of freedom in their power to alter the exchange rate if and when thier domestic price levels get out of line. The power of each country to infate or deflate independently is lost."
Put simply the European heads of state cannot inform their tax payers that yet more of their money will be loaned to Greece with little hope of it being returned. It would be naive of the Greek government not to appreciate this position, despite their own electoral mandate. Returning to the sick relative with an addition problem, you only support them as long as they are on a rehabilitation program otherwise it will be a never ending drain on resources. If they fail in the rehab, then at some point you have to let them go, and since 2012 that is what the European states have been preparing for - making contingency plans for Greece exiting the Euro, so that this will not be so damaging as was once feared.
This is a new Greek government who distance themselves from previous ones follies, but still is expected to comply with its predecessors commitments. If there is there a path out of the recession for Greece its not going to be an easy one. In the mean time it is average Greek in the Street who is suffering though no fault of their own.
Suggested Reading
contrast neo-Keynesianism with monetarism.
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