History repeats itself, first as tragedy, second as farce6 June, 2013 at 18:51 | Posted in Economics, Politics & Society | 4 Comments
These are the days: I stopped reading ‘The economic consequences of the peace’ to read the IMF report on Greece. Did anything change (emphasis added)?
The IMF on Greece, 2013:
One way to make the debt outlook more sustainable would have been to attempt to restructure the debt from the beginning. However, PSI was not part of the original program. This was in contrast with the Fund program in Uruguay in 2002 and Jamaica in 2011 where PSI was announced upfront … Yet in Greece, on the eve of the program, the authorities dismissed debt restructuring as a “red herring” that was off the table for the Greek government and had not been proposed by the Fund … In fact, debt restructuring had been considered by the parties to the negotiations but had been ruled out by the euro area … Some Eurozone partners emphasized moral hazard arguments against restructuring. A rescue package for Greece that incorporated debt restructuring would likely have difficulty being approved, as would be necessary, by all the euro area parliaments … Nonetheless, many commentators considered debt restructuring to be inevitable. With debt restructuring off the table, Greece faced two alternatives: default immediately, or move ahead as if debt restructuring could be avoided. The latter strategy was adopted, but in the event, this only served to delay debt restructuring and allowed many private creditors to escape.
Keynes, ‘The economic consequences of the peace’, about the negotiations in 1919:
As soon as it was admitted that it was in fact impossible to make Germany pay the expenses of both sides, and that the unloading of their liabilities upon the enemy was not practicable, the position of the Ministers of Finance of France and Italy became untenable. Thus a scientific consideration of Germany’s capacity to pay was from the outset out of court. The expectations which the exigencies of politics had made it necessary to raise were so very remote from the truth that a slight distortion of figures was no use, and it was necessary to ignore the facts entirely. The resulting unveracity was fundamental. On a basis of so much falsehood it became impossible to erect any constructive financial policy which was workable. For this reason amongst others, a magnanimous financial policy was essential.