By Charles Dallara
I am not a Greek citizen and do not have a right to vote in Sunday’s referendum. I am, however, a concerned global citizen who has spent many hours in an effort to help the Greek economy get back on its feet while protecting the integrity of the Euro. Unfortunately, both are at serious risk today.
Contrary to popular opinion, and despite widespread failure to meet certain tax obligations, Greece has made a remarkable adjustment in its fiscal balances. Rarely, if ever, has a country enmeshed in a sovereign debt crisis strengthened its fiscal position so much from a deficit of 15.2 percent in 2009 to 2.7 last year.
But this massive adjustment has not led to renewed growth, rather to a full-blown economic and political crisis. But, today’s highly combustible situation is not just about the future of Greece – it is about the future of Europe. As Chancellor Merkel stated on Monday, “If the Euro fails, Europe fails.”
Irrespective of Sunday’s vote, it is imperative that the leaders of the Eurozone, Greece and the IMF get back to the negotiating table where they belong. Political maneuvering at this crucial time – from whatever source -would be an insult to the citizens of Greece and the rest of Europe . Too many lives – and potentially the future shape and role of Europe on the global stage – are at stake.
Today’s challenges are eerily similar that those prevailed in 2011 and 2012. I served as Co- Chair with Jean Lemierre of the Committee representing Greece’s private creditors .Then, as now, global markets were in edge; there was constant speculation about Greek exit from the Eurozone; and in late 2011 a referendum was announced for the Greek people.
The private creditors had to face three tough realities: first, lending by banks during the period 2001 (Greece’s entry into the Euro) to the end of 2009 facilitated Greece’s wasteful spending habits; second, that Greece could not repay its debts on schedule and we would have to agree to a major debt write-off if the Greek economy was ever to recover; and, third that the future of the Euro – and perhaps the Eurozone – was at stake and that there were therefore larger issues involved than just protecting balance sheets.
We wiped out over 100 billion Euro of private sector claims on Greece, and restructured in highly concessional terms another approximately 70 billion Euros. As a result, Greece and its official creditors obtained a significant breathing space to re-start growth.
The opportunity was not well used by the Greeks or their official creditors. Over one million jobs have been destroyed by the endless recession; average disposable income for a middle class family has fallen by one third to 7.6 thousand Euros; and the Greek economy has shrunk by 25 percent since 2009. The resistance to another round of “austerity” must be seen in this light.
The people of Europe have extended extraordinary financial assistance to Greece – approximately Euro 200 billion. This has been done, however, in the context of a flawed economic adjustment programme. Major fiscal adjustment was needed up front to bring the fiscal position toward balance, but as structural reforms lagged in 2010 and 2011 the Troika put even greater emphasis on tax increases, draining an already weak economy of domestic demand.
Today’s crisis does not have to be a choice of Scylla or Charybdis for Greece or Europe. Nor does it have to be simply a question of “following” or “breaking the rules” – – after all, Germany itself violated the Growth and Stability rules only a decade ago.
There were times in intense negotiations both in late 2011 and again in 2012 when negotiations broke down and I sensed an acute risk of a Greek default and a potential exit. But calm and composed thinking on both sides, infused with a sense of the historical commitment to a united Europe – which is at stake now – led us to bridge the gap and find a solution. This needs to happen once again.
The official creditors must accept debt relief, while Greece must embrace fundamental reforms that can unleash the country’s economic potential. I believe this offers the best path for the renewal of growth, which is so desperately needed for the Greek people, and provides a fresh way forward for European unity.
