The Greek crisis is getting worse day by day. The popular protest is increasingly strong in the squares of Athens, the Papandreou government seems to fall apart and with the mounting political uncertainty the nervousness on the markets continues to grow. Europe takes time. It is now evident that the Community institutions are crossed by strong political and economic contradictions which delay a resolution of the emergency. Professor Marcello De Cecco, economist and professor of monetary and financial history at the Scuola Normale Superiore in Pisa helps us to shed light on these contrasts.
Professor, back in 1993 you launched a proposal for the partial consolidation of the Italian public debt together with Bruno Visentini and Vincenzo Visco (who later changed his mind). Would you propose the same for Greek debt? Can today's Greece be compared with Italy in 1992?
Unfortunately, that solution is absolutely not suitable for Greece, because a large part of the Greek public debt is in the hands of foreigners and it would not even be suitable for today's Italy, for the same reason. Opportunities must be seized when they present themselves, as was the case then for Italy. But another objection, valid also for 1993, was that these decisions are taken by a government that knows it has no need of the markets from the moment of the restructuring. A government, that is, that really wants to put its accounts in order.
In the event of debt restructuring, do you think it is right to involve private creditors as Germany would like?
In Germany, the majority of citizens want to involve the creditor banks to punish them for their pre-crisis behavior towards risky investments. Whoever made a mistake pays. Easy to say, less easy to implement, when one considers that the majority of German banks should then be bailed out by their government, i.e. by the citizens, because they are undercapitalized compared to their loans. The worse off banks, then, are those in public ownership, such as the now famous Landesbanken. So something is being asked that does not stand up from a macroeconomic point of view. Not to mention the contagion. It would be enough to punish the bankers, to begin with, by sacking and prosecuting those who led to the disaster. But the Landesbanken are part of the entire German political system, not of this or that party, and it is difficult to imagine that the bankers would get themselves kicked out or even put in the criminal pillory without blabbing about the relationship between public banks and politicians of all parties.
What should European governments do to halt the crisis?
They should first meet only when they have already agreed on a solution. To do what they did last Tuesday (with the meeting of finance ministers of the euro area, Ed), get together and go out saying that there is no agreement, is simply inconceivable in this era of speculative markets ready for anything. In essence, they should restore capital controls in Greece and automatically launder any money that flees Greece back to the banks it came from. Before the last few days, it was also possible to rescheduling with lower rates and longer maturities, but today, with skyrocketing rates for the Greek debt, everything becomes more difficult.
So far the ECB has promised to maintain a strict line on prices. But don't you think that a little inflation in Germany would be beneficial to reduce the imbalances between the members of the euro?
So far, the German recovery has been driven solely by exports, as evidenced by an article by Deutsche Bank. The Germanic desire is that the baton should now pass not to consumption but to investment. Therefore, 'more of the same', of the famous model with which the Germans have worked since the post-war period. The Bundesbank prevents upward pressures on wages and prices with a rise in interest rates and thus shows the way for the other components, trade unions and employers.
This is the model that the British, for example, refused to follow, with the famous saying of Thatcher's adviser, Sir Alan Walters, "one size cannot fit all", referring to a single monetary policy for all EMU countries.
I highly doubt that the inflationary push in Germany leads to higher prices than in other EMU countries, thus favoring the PIGS. Unfortunately, the Germans have imposed their model on the whole Eurozone, which does not work the same way.
To relaunch Europe, the euro needs to move around an exchange rate of 1 – 1,20 with the dollar, and that some agreement of the Paris Club or Vienna Initiative type is reached on the Greek debt. But as Montale said, it is late, always later, and great speculation presses unchallenged and even aided by declarations such as the German one on Thursday, namely to postpone any decision on Greece to September.
We are not all Germans: but then how do we get out of the current asymmetries of the monetary union? For example, if the ECB chooses to raise rates, it will be pain for high-debt countries like Italy.
As long as the euro remains strong against the dollar zone, which also includes Asia, there are pains for Italian exports. It should be noted that the euro is little affected by the Greek debt crisis. On the other hand, rates on products such as peripheral debt and CDS (credit default swaps, policies on the default risk of a public or bank bond, Ed.) are affected. It must however be understood that without an exclusion of the rating companies from the role that we do not know why they exercise, and which is written in the various Basel agreements, we will not begin to control anything. The same is true of the CDS market and the other derivatives markets, which are made by a very small number of banks. What kind of markets are they, if the prices are set by four big players? Countries like France have begun to ask themselves these questions, but they don't seem to be getting as much support as they should from other countries.
We also need to make Germany understand that, if the peripheral countries had been able to predict its behavior starting from 2008, they certainly would not have allowed the regionalization of intra-European foreign trade. This has occurred since the introduction of the single currency and has seen Germany become the sole creditor country of all the others, including France and Italy. On the German side, one cannot have a full cake and eat too much. If we want to free the markets for goods, as has happened, we must also finance without a word the resulting trade surpluses, as happens between regions of the same country.
