Tag Archives: Christine Lagarde

Greece’s debt problem is eminently solvable. How about imminently?

The speed with which the eurozone’s key players reacted to Greece’s coalition government narrowly winning a vote on the latest austerity and reform package was impressive. If they could show the same haste and purpose in addressing the economic capitulation threatening to undermine Greek society and politics, we might be in for better days.

Even before 153 out of 300 Greek MPs had voted in favor of the legislation last Wednesday, which foresees more than 18 billion euros of cuts and tax hikes over the next four years, European Economic and Monetary Affairs Commissioner Olli Rehn admitted that Greek debt was not sustainable but that the most obvious method for tackling this problem, restructuring, was not an option.

A few hours after the vote, having seen the three-party coalition in Athens stagger over the finishing line, German Finance Minister Wolfgang Schaeuble said Greece would not immediately receive the 31.5-billion-euro loan tranche, which it had been expecting since the summer to recapitalize its wheezing banks and moisten the lips of its liquidity-parched market. The eurozone, it seems, has developed a dangerous penchant for self-harm.

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Mythmakers and problem solvers

Illustration by Manos Symeonakis for Cartoon Movement http://www.cartoonmovement.com/p/6035

A few years ago, Greece’s slogan for attracting tourists was “Live your myth in Greece.” The onset of the economic crisis seems to have given license to some people to make up their own myths about Greece. At regular intervals since 2009, they have ignored the complexities and various – domestic and international – causes of the Greek crisis to boil it down to a stodge of clichés, stereotypes, falsehoods and misinterpretations (accidental and deliberate).

It was alarming to hear an intelligent man like European Central Bank executive board member Joerg Asmussen apparently became the latest member of this burgeoning group of politicians, policy makers, journalists and experts engaging in mythmaking. “It is difficult to convince people in countries like Estonia and Slovakia, where the average wage is 1,000 euros to lend to a country where the average wage in the public sector is about 3,000 euros,” he is reported to have told an audience at the Economist conference in Athens earlier this week.

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For sweet dreams, evasion and avoidance

I wrote an article earlier this week criticizing Christine Lagarde’s comments about Greece. My main objections were that she helped perpetuate the stereotype of all Greeks evading taxes, overlooked the International Monetary Fund’s role in the buildup to the Greek crisis and the way it was handled since 2009, and her belittling of the difficulties that some Greeks are facing due to the deteriorating situation in their country.

I have received a number of interesting responses, the vast majority of which have focused on the issue of tax evasion. Even the most blinkered nationalist or dogmatic ideologue could not fail to see that tax evasion has played a part in the Greek crisis. It undermined public finances and fed the anomie that pervaded much of public life over the past few decades.

However, I have noticed that some people consistently reject all attempts to place tax evasion within any context. It is difficult for them to accept that there are other, perhaps more important, factors — such as an uncompetitive and unproductive economy, an inability to export, a reliance on imports, a flawed euro entry and the selfishness and incompetence of the country’s political class and many of its people — which have led to Greece’s downfall.

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The big payback

Christine Lagarde may not have wanted to imply that Greeks were suffering payback for years of living large and that the world should have more sympathy for people in Niger because they’re much worse off and at least they pay their taxes, but that’s certainly what the International Monetary Fund managing director appeared to suggest in her interview with The Guardian on Saturday.

A few hours later, and after she had been condemned by Greek leaders and thousands of people posting on her Facebook page, Lagarde clarified her comments: she was “very sympathetic to the Greek people and the challenges they are facing.” She added that a comment regarding widespread tax evasion in Greece was a reference mainly to “the most privileged.” By then, though, the damage had been done.

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Missing the trees for the forest

Illustration by Manos Symeonakis

In a country where residents wake up in the morning not knowing if an illegal strike will take place and deprive them of the capital’s metro system, and visitors show up at its most revered archaeological site only to be turned away by protesting employees, it hardly seems that the prime minister’s priority should be to attend an island gathering of big thinkers. Discussing theoretical permutations when there are practical problems to deal with somehow doesn’t appear very fitting.

Rather than tackle more mundane issues in Athens, Prime Minister George Papandreou chose this week to visit Poros for the Symi Symposium, a brainchild of his which sees some of the world’s top politicians, economists, academics and opinion leaders gather in Greece every year. Like cicadas striking up across Athens, you could hear the disapproving tut-tuts of his political opponents but especially his government colleagues. In Papandreou’s absence, his PASOK party embarked on a new bout of schizophrenic infighting.

In fact, the past few days have epitomized Papandreou’s premiership — like the schoolchild who wants to sketch freely but is constantly forced to paint by numbers like the rest of his classmates — the PASOK leader’s attempts to allow his grand visions to take flight are repeatedly grounded by the complications of the day-to-day running of the country.

Yet, it seems churlish to criticize a leader for wanting to inspire and be inspired by great ideas or for broadening his contacts and the country’s allies by meeting with foreign leaders and experts. After all, his predecessor was castigated for remaining rooted to the spot, like a homing pigeon that didn’t have a message worth delivering.

Free from the burdens of protesting Culture Ministry contract workers and striking air traffic controllers, Papandreou was able to tackle meaty subjects at a symposium whose title alone — “Fast Forward: Progressive Ideas for Greece, Europe and the World” — projected positiveness. One of his big ideas this week was to express support for a Tobin Tax, also known as a Robin Hood Tax.

The idea — to impose a tax of as little as 0.1 percent on financial trades — was first proposed by American economist James Tobin in the 1970s as a way of reducing the volatility of currency exchange rates and, more significantly for today’s leaders, to “promote autonomy of national macroeconomic and monetary policies,” in other words to deter speculators.

As you might expect from a Nobel Laureate, Tobin had the intelligence to understand that the timing of his proposal was unfortunate. The idea of taxing transactions at a time when neoliberal economic policies were taking root meant that his plea fell on deaf ears. “It did not make much of a ripple,” he acknowledged some years later. “In fact, one could say that it sunk like a rock.”

However, the crises that have shifted the world’s economic paradigms over the last couple of years mean the idea is being floated again, especially as it would allow governments to build up funds that could be used for a number of things, from bailing out banks to driving development. The Tobin Tax sounds like something from Lord of the Rings and for years it seemed a work of fiction but now there is growing momentum toward making it become a reality.

“The proposal for the imposition of a tax on financial transactions, a so-called ‘Tobin Tax,’ which will bring in funds that we can invest in our economies, is very significant and one which we will insist on because investment is vital if we want to exit the current crisis,” Papandreou told his audience on Poros.

This week, both the French and German finance ministers Christine Lagarde and Wolfgang Schauble declared their support for such a levy (also known as a financial transaction tax or FTT), ahead of an Ecofin meeting where they raised the issue with their European counterparts. In declaring his support for the levy in the same week, Papandreou appears to be aligning himself with Europe’s big players. Isn’t this just what we want from a Greek leader — for him to put the country at the forefront of developments and progressive thinking rather than bringing up the rear?

You would think so but Papandreou’s attempt to grab at these big ideas somehow leaves a nagging feeling that he is overreaching, perhaps unaware of the full implications of what he is promoting. For instance, there is a strong counter-argument to the Tobin Tax. Some financiers claim it goes against the principles of wealth creation and would simply drive business to other countries where the levy does not apply. Sweden, where Papandreou spent part of his youth, applied such a tax on trades of local stocks and derivatives in the 1980s but the scheme was abandoned in the 1990s because many investors simply traded from other countries and the revenue generated by the levy did not meet expectations.

By declaring his support for a Tobin Tax, Papandreou may be showing that he’s in step with other leading thinkers but at the same time he is opening himself up to another, even more damaging, accusation that is often leveled at him — that he has a knack of identifying good ideas but just not the ones that would help overcome the problems he has to solve.

Papandreou’s statement of support for the levy came on the same day that Greece announced it had managed to slash its budget deficit by 46 percent during the first six months of 2010 compared to last year, but that it had fallen well short of its target to increase revenues by 13.7 percent. While public spending cuts seem to have done the trick, the idea of raising taxes, VAT in particular, has not had the desired effect.

Papandreou’s government had to scramble to rescue public finances but in its rush to do so, little thought was paid to the fact that hiking taxes when people are pushed for money leads to them spending less and will ultimately prove counterproductive, as the government collects less revenue. PASOK has not been able to find a way to compensate for this. It makes Papandreou’s bid to chase the world’s rich when Greeks become increasingly poorer seem like irrelevant folly rather than visionary politics.

Herein lies one of Papandreou’s greatest challenges. As he leads his band of not-so-merry men into the battles ahead, the prime minister must find a way of balancing his love of the broad, theoretical political brushstrokes with the need for precise, effective interventions that will address the pressing problems Greece faces. Anything less, and he’s in for a rather lonely and painful ride through the glen.

This commentary was written by Nick Malkoutzis and was published in Athens Plus on July 16, 2010.