On the eve of Greece agreeing its first EU-IMF bailout in May 2010, the CEO of investment firm PIMCO, Mohamed El-Erian, expressed doubts about the package, what it demanded of Greece and whether the Europeans would be able to manage the process. “This is a daunting challenge,” he wrote in the Financial
Times. “The numbers involved are large and getting larger; the sociopolitical stakes are high and getting higher; and the official sector has yet to prove itself effective at crisis management.”
El-Erian raised the issue of private sector involvement, or PSI, almost two years before it happened and warned the eurozone that it was walking into a potential disaster. “What started out as a public finance issue is quickly turning into a banking problem too; and, what started out as a Greek issue has become a full-blown crisis for Europe,” he wrote.
This week, Bloomberg revealed that PIMCO has been selling the Dutch bonds it was holding. Until now a financial, AAA-rated safe-haven in the eurozone crisis, the Netherlands’ bond yields are edging upward, its coalition is under pressure and “austerity fatigue” is apparently setting in. El-Erian’s warning in May 2010 that the Greek debt crisis would “morph into something much broader” has been proved correct.
El-Erian is one of several voices whose wise words were not heeded at the onset of this crisis. The eurozone’s initial thought block is not that surprising given that the nascent eurozone entered a new and unprecedented phase of its development when Greece went off the rails. The inability of core and periphery along with sovereigns and banks to match up their interests was perhaps predictable in the absence of the necessary institutional architecture, which is still being furiously put together. What is far more alarming than the eurozone’s naivety is that in 2013 skepticism, cautiousness and dissent are either ignored or flattened by the crisis juggernaut, driven at varying times by the European Commission, European Central Bank or national politicians in certain core member states.
Despite the plethora of evidence that the crisis has been dangerously mishandled, the eurozone maintains an almost childlike inability to take in criticism or turn it to good use. When the IMF held its hands up over the last few months to admit failings over assessing the economic impact of austerity via the fiscal multiplier and then to admit that the Greek bailout had been wrongly constructed, the Commission’s response was to turn on the IMF rather than to look at itself. Yet, when EU Justice Commissioner Viviane Reding suggested that the troika had run its course, as she did in an interview with Kathimerini, this idea was also batted away.
As with any relationship, though, the only thing worse than being repeatedly rejected is being persistently ignored. The eurozone’s insistence on turning a deaf ear to measured criticism is counterproductive. Its inability to foment a progressive debate denotes a worrying immaturity.
It was instructive to follow the reaction to recent high-profile challenges to how the Greek bailout and the crisis overall have been handled. When Italian Prime Minister Enrico Letta visited Athens last month, he was unusually outspoken in his criticism of the European response to the crisis. “There is no doubt that serious mistakes were made about Greece by Europe in the past few years,” he said.
“The timing was wrong. The instruments were wrong. The interventions were not made in the right way and at the right time, and this worsened the crisis,” Letta added. “The crisis would have been different. It would have created less of a financial disaster, it would have led to fewer job losses across Europe if Europe’s attitude to Greece had been different at the beginning.”
There cannot have been many clearer or more biting assessments of the last three years from a eurozone leader but Letta’s comments passed largely without comment. It is an odd state of affairs when the prime minister of the eurozone’s third-largest economy is so critical of the bloc’s central policy but his words hardly register.
Letta’s skepticism was overshadowed a few days later when Brazil’s IMF representative, Paulo Nogueira Batista, did not support the release of a new loan to Greece. Batista said the Fund’s debt outlook for Greece “seems all but a delusion” and that the adjustment program was in danger of veering off track. “Implementation has been unsatisfactory in almost all areas; growth and debt sustainability assumptions continue to be overoptimistic,” he said.
Batista also raised concerns about the political and social impact of the program; subjects that the eurozone has rarely countenanced. “Never-ending economic depression and severe unemployment levels have led to political discord,” said the Brazilian. “The widespread perception that the hardship brought on by draconian adjustment policies is not paying off in any way has further undermined public support for the adjustment and reform program,” he added.
After making the comments, Batista was recalled to his country. Brazil said he had not been authorized to abstain from the IMF vote. This despite the fact that he had failed to support previous releases of bailout funding without being challenged by his government, which has been repeatedly critical of the IMF recently. Although not exclusively of the eurozone’s making this time, the opportunity for a more diverse debate was stymied again.
All this is not to say that bailout skeptics have a monopoly on the truth. They can be just as devoted to their ideological foibles and economic orthodoxies as those who insist that the eurozone is following the right path. What must be of concern, though, is that the critics’ voices are not being heard because there is a concerted attempt for the eurozone to sing from the same hymn sheet. Any chance for a progressive discussion is being stomped on from a great height. Trying to mold this uniformity of opinion means we are not learning from our history, even if it’s as recent as three years ago.