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RESTARTING GREECE AFRESH GREECE: DEALING WITH THE PAST, PRESENT, FUTURE Jacques DELPLA Milos, 13 July 2012 Conseil d’Analyse Economique, Paris
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RESTARTING GREECE AFRESH
GREECE: DEALING WITH THE PAST, PRESENT, FUTURE
Jacques DELPLA
Milos, 13 July 2012
Conseil d’Analyse Economique, Paris
TROÏKA PROGRAMS HAVE FAILED (FLOWS)
It is impossible for Greece, without inflation and devaluation, to absorb 100% of the shock:
In the US, in case of asymmetric shocks, Federal level absorbs 20% to 40% of the shock through automatic stabilizers.
Troïka programs suppose that Greece would bear 100% of the shock
impossible
We must find Mundellian Transfers in the Eurozone
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TROÏKA PROGRAMS HAVE FAILED (STOCKS)
Troïka programs have failed because they have not solved the massive private
debt overhang and public debt overhang (despite PSI+)
Greece needs a generalized Chapter 11
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DEALING WITH THE PAST: DEBT OVERHANG
A GENERALIZED CHAPTER 11 IN GREECE
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DEALING WITH EXPLICIT AND IMPLICIT DOMESTIC DEBTS
Proposed reform : Restructuring ALL debts Cut-off date : DD/MM/2012 (or 2013)
“ALL (economic and social) contracts signed AFTER cut-off date are SENIOR to contracts signed BEFORE the cut-off date”
Would apply to ALL contracts under Greek law
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WOULD END CREDIT CRUNCH AND RESTORE GROWTH
Would end credit crunch by securing fresh money and start new fresh loans to finance growth
Would entail general debt equity swaps for Banks (like in EC Barnier’s latest proposals). Corporates As their legacy debt would be juniorised or
swapped into equity
Burden would fall on legacy debt & equity holders
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WOULD JUNIORIZE ALL IMPLICIT DEBTS
Past implicit liabilities Pensions Implicit claims “avantages acquis”
Would be juniorized and restructured cleaning and clearing past arrangements
that have precipitated Greece into bankruptcy and economic chaos
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WOULD ALLOW “INTERNAL DEVALUATION”
As in ALL companies or public administration, New labor and wage contracts would be
senior. Existing employees would be proposed to
sign new labor contracts with, most likely, lower wages
If they refuse, face the possibility of being paid only after all new contracts have been paid.
decentralized and voluntary internal devaluation
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WHY WOULD GREEK GOVERNMENT AND GREEK PEOPLE ACCEPT THAT ?
Would clean past internal imbalancesWould start Greece afreshAvoid debt deflation Would allow growth to resume Make elderly pay; preserve the youth
Would be conditional on investors agreeing to restructure Greek sovereign debt
(which is now under UK law and with a very strong seniority)
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DEALING WITH THE PRESENT: MUNDELLIAN TRANSFERS
AN UNEMPLOYMENT INSURANCE IN THE EUROZONE
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NEED FOR MUNDELLIAN TRANSFERS
We call for “Mundellian Transfers” to save the €, analogous to US automatic Stabilizers
With strong & credible conditions: “no money without reforms, no adjustment without money”
Mechanism design for a EZ Full of eco & pol incentives:
‘opt-ins’, ‘opt-outs’, finite duration. Inter-Governmental scheme.
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A EURO-WIDE CONDITIONAL UNEMPLOYMENT INSURANCE
The FUND
1. Creation of a € unemployment insurance fund
2. 1% of each country’s GDP
3. + maybe € job training funds (0.5% of GDP)
4. Managed by European Labor Agency (EC)
5. But an Inter-Governmental Scheme
It is an opt-in program Each year, Each country can decide or not to participate
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THE EUROZONE LABOR CONTRACT
Definition of an EU wide Labor contract : Unique for the whole €-area Unique for all sectors Would be the (N+1) contract in each
country With full Flexisecurity Designed by former PM Rasmussen &
Persson,+ Blanchard Tirole 2003: bonus / malus + increasing rights in case of dismissal + higher u/e contributions for employers
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WORKERS’ OPTIONS When hired, each worker has the option Until last moment, to sign for : National contract + national insurance (status quo)
OR, sign for : Eurozone labor contract + (national + EZ) unemploym. insurance+ (national + EZ) job training
In any case, access to national insurance.
€ insurance optional, in exchange of flexibility 14
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PROPERTIES
decentralizes flexisecurity decision to the the individual.
By-passes political difficulties of reforming national labor laws.
Transfers money from booming countries to depressed areas, where it is most needed (u/e)
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DEALING WITH THE
FUTURE :
MAKING GREECE THE
FIRST COUNTRY TRULY
MEMBER OF THE EU
FEDERATION
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GREECE, THE FIRST COUNTRY TO JOIN THE EU FEDERATION, À LA JEAN MONNET
Greece accepts full shared sovereignty with EU
For important decisions: Two executives in Greece:
Greek government EU Commission
Two Parliaments: Greek Parliament EU Parliament
Each decision needs double YES 17
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IN EXCHANGE
Greece would benefit from : Permanent transfers (like in the US) EU Help for institutions reforms and build up
EU permanent Guarantees on Laws Property rights Civil rights (avoid Hungary now) and civil peace Defense and security … (see after)
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EXIT OPTION
We do not want anything like the US Civil War of 1860-65.
To force a country to stay in the Federation
Exit Option: Greece can withdraw from the EU Federation
And become a normal EZ country Would lose all the special benefits, especially
transfers
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THE EUROPEAN ARMY
Let us create a European Defense Community (like Jean MONNET’s idea in 1952)
With the merger of all/ some parts of national armies (including the UK & Poland)
Financed by 1% of GDP in each country
Ex: France defense now (2% of GDP) One part of the Army (1% of GDP) EU Army Another part (1% of GDP) remains French
(nukes) In the long run, all French Army would be
European
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GREECE IN THE EUROPEAN ARMY
Greece would merge ALL its Defense in a new European Defense and Military Union
No Greek Army as such anymore
Because of its history and geopolitical situation, in Greece would be stationed important components of the EU army (troops, navy…), with both Greek and EU soldiers / officers
Greece would specialize in Defense, like South Carolina in the US
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IMPACT FOR GREECE
A complete Security guarantee, stronger than NATO: attacking Greece, is like Pearl Harbour in the EU
Greece would spend less on its defense
Would receive massive transfers from this EU Defense Community
About 5% to 10% of Greek GDP each year (paid for mostly from Germany, Austria…)
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