Grexit: It’s a question of how, not if, Greece will leave the euro

Over at Foreign Exchange, I’ve got a post up on the euro. Short version: all signs now point to a Greek exit, and Christine Lagarde has given a statement indicated there is no turning back.

It sounds as if she’s essentially saying to the Greeks and others in Europe, you’ve had a nice time and now it’s payback time.

“That’s right.” She nods calmly. “Yeah.”

And what about their children, who can’t conceivably be held responsible? “Well, hey, parents are responsible, right? So parents have to pay their tax.”

That fits entirely with the strict language she used when I interviewed her in August:

She knows this is a tough sell. “You first have a period [after making cuts] where growth takes a hit and goes negative”—and with that come unavoidable human costs in lost jobs and social services. Political feuding over controversial cuts will only make the pain worse. How should ordinary people cope? She pauses. “It takes courage.”

What are the implications of this tough stance:

Hypothetically, should Germany refuse to loosen the terms of its loans to Greece, the IMF could offer a bit of rope on its loans to Greece that would allow a left-wing Greek government to save face without upsetting the eurocart. But. as those of us who have followed her closely expected, Lagarde has unequivocally squashed that possibility in her remarks tonight.

Read the whole post here.

Europe’s constitutional literalism

Some frustrated words about the state of European political economy:

What we have, in other words, is a meta-debate about whether policy options are permissible, instead of a debate about whether they are sound. A debate in which what is permissible is defined narrowly, as whatever is specifically ‘foreseen’ in documents written years ago, instead of broadly, as whatever those documents do not explicitly forbid. And a debate in which it is hard to avoid the conclusion that policy options are being construed as impossible because they are politically unpalatable to the people who would have to carry them out.

More here.

First Thoughts on the Eurozone Summit

Burning a bit of midnight oil – a post up at Foreign Exchange on the eurozone summit and its results. Really short version: ‘It is hard not to see a game of hot potato at play here which eventually has to come back to the ECB.’

Read the whole post here.

More on Ireland

Another quickie Ireland at Foreign Exchange today, this time looking at the politics of the deal with an Irish TD:

Going into the conversation, I was under the impression that Ireland might hope to renegotiate at a lower interest rate after the crisis has stabilized somewhat. Deputy Fleming was determined to disabuse me of this assumption.

Over time, he says, “people will begin to see that the interest rate is not so bad. If the financial situation stabilizes, by year 3 [of the loan period], it may be possible to be raising funds in the bond markets again at a rate that is lower than the rate on offer [in the EU settlement], and we may not have to draw it all down at that rate.” In other words, there’s no plan to renegotiate a better deal in Brussels, but there is a plan to aggressively hack at the deficit domestically, and then leverage the Brussels offer to renegotiate with the bond markets.

For more such optimistic predictions, read the whole thing.

Germany’s Ireland Calculus

Short post over at Foreign Exchange on Germany and the Irish bailout:

…the Ireland debacle is just the latest episode in an ongoing conversation about Germany’s place within the eurozone, about the German public’s frustration with cleaning up after its weaker neighbors and about the frustration of other major EU players with German intransigence.

Here’s the question: is this particular incident (the threat to gauge the bond markets to appease to German public followed by a five year compromise that spares the bondholders with promises of stricter rules in the future), a victory over the Germans, or a victory for them? was Angela Merkel made to compromise, or was she bluffing all along? I’m guessing it’s the latter…

Go read the rest.

Turkey, Between Rocks and Hard Places

Latest post at Foreign Exchange is up, basically looking at a note I wrote a year ago about Turkey and unpacking why it’s still relevant. I wrote the note after President Obama announced his decision to move the NATO missile defense shield to Turkish shores, shortly before I packed off for South Asia. Here’s what I thought then:

Turkey has historically seen itself, and been resented by its former colonies, as a European power. After trying repeatedly to join the European Union, and failing, Turkey has spent the last few years in a painful process of reinvention, electing a conservative Islamist government and making overtures to its eastward neighbors. This theocratic turn is hardly in the interest of Turkey’s NATO allies. Luckily, it has had only limited success.

Now, one NATO ally asks Turkey to grant access to its shores to deploy missile systems against a Middle Eastern neighbor, and thereby to trade in any hard-earned goodwill in the region and risk its own security. Given its history, Turkey seems ill-suited to the region’s club of theocracies; but it is unfair to ask it to trade it this tenuous sense of belonging after summarily denying its more natural place in Europe. Moreover, as a NATO ally, Turkey has treaty rights to better protection than to be asked to play a dangerous and antagonistic role towards its own neighbors on behalf of a community to which it has only partial access.

For an updated version that takes into account some more recent headlines and current developments, go here.

Europe and the Summit

On Foreign Exchange yesterday, I posted a recap of some of my impressions of the summit, as well as from the mass of literature I took away with me. Towards the end of the post, I made the following point:

Chat with Andris Piebalgs

My post at Foreign Exchange today is an interview with Andris Piebalgs, the European Commissioner for Development. An excerpt:

“Some of your member states have expressed support for a financial transactions tax as a source of funding. What is the Commission’s view of that?

It’s very clear that official aid will need money beyond .7, and then on top of that aid we will need to raise funds for a climate change pledge. We need to start thinking as though at the end of the day somebody will count the money and if you haven’t delivered, you will be responsible for the misery in the world.

Yes, the tax is logical. Why? We tax everything else. All activities are suffering from taxation. Technically, though, it should be difficult to administer. It needs global governance, and in that, it is a test case for the G20. If they can’t do this, it is on them to propose an alternative. We could tax air tickets, say. Much simpler, but much less popular.”

I really enjoyed the whole chat, and encourage you to go read it.

In Defense of Anglophilia

Regular readers of this blog, as well as followers of my Twitter and Reader feeds, will know that for many months, I have been obsessed by the British general election. Earlier this week, my friend and True/Slant blogger Ethan Epstein chastised American journalists for over-hyping this story at the expense of more significant elections, like the August ouster of the Liberal Democrats in Japan.

The Future of Europe

As some readers of this blog may know, I have a large soft spot for the Watery Isle. I have visited friends and family there roughly once a year for as long as I can remember, and I lived there as a student, twice, in 2003 and 2006-7. So when I comment on events there, I do so with something more than an outsider’s concern. But today, I comment as an American.

Let me explain. Despite all the hoopla about ‘David Cameron the conservative reformer.’ his policies are identical to the Thatcherite Tories of three decades ago. That is, shrinking the size of government through upper-income tax cuts and slashing spending, and focusing what’s left of government on supporting ‘traditional values.’ [Especially egregious is his subtly concealed scheme to cut welfare payments to poor single moms–a group that correlates with immigrants– while increasing the tax breaks to married couples, essentially paying middle-class white women to stay home and have babies. ‘Lie back and think of England,’ much?]

Together, as one journalist has already noted, these add up to a government that helps southern England at the expense of the North: the South is London financiers, Oxbridge academics, doctrinaire Anglicans and well-kept lawns. The North used to be factories, mines, sheep farms, and Protestant dissent, but Thatcherite labor reforms took the Northern economy and culture apart (as globalization necessitated, I admit). The result is that Britain is overly reliant on its financial sector and took a harder hit than most developed nations when the finance world collapsed last year. Granted, New Labour has done a whole lotta nothing to give the de-industrialized North something else to live on, but given that the North remains Labour’s consituency, the chances of Britain’s lack of economic diversity being addressed are much higher with Labour than with the Tories. Especially now that the financial crisis has made it possible for Labour to make a market-based argument for why Britain needs to start doing something besides banking again instead of the old socialist arguments that they rightly left behind 10 years ago.

All of this matters when it comes to understanding the two parties’ attitudes to foreign policy. Read the rest of this entry »