“The time has come for Athens to declare in favour of IMF’s position: OSI now + an investment stimulus via EIB. Or no deal. If not now, when?”
Readers of this blog will know that I have stated from the start that Greece should have gone directly to IMF and that I consider it as Mr. Papandreou’s (who allegedly wanted to do that early on) greatest fault that he caved in to EU-authorities. It’s a bit different today because IMF/EU are allegedly not seeing eye-to-eye at present. While it would be fair for Greece to “declare in favor of”, to alienate the EU could be chancy because it could be perceived as attempting to divide and conquer. So that strategy is more a matter of the right form than of the correct substance.
“If not now, when?” – I have also argued all along that the relationship between Greece and its creditors must be on eye level. So far, Greece has, to a large extent, acted like an order taker. Thus, to give eye-level-conduct a shot would appear sensible at this time.
I take exception to the either/or nature of Prof. Varoufakis’ proposal (‘either this, or no deal’). It all depends what Prof. Varoufakis means by OSI. If he means a haircut on official debt, then Greece would probably go into history as the first debtor country which has put an ultimatum to foreign creditors to take a loss or else go fly a kite. If Prof. Varoufakis believes that Greece has, in the last 3 years, already destroyed its reputation beyond repair anyway, then one more blow to it won’t make much of a difference.
In principle, nothing is ever beyond repair and with specific regard to Greece: if Greece were to indeed make it from what is today perceived as a ‘failed state’ to a modern and well-functioning economy, then it will probably get a place in the hall of fame because I doubt that there is another country in the First World that has ever had to make such an extreme turn-around. That hope, however small the probability of its coming true is, should definitely not be jeopardized.
At this point, the OSI should be a mixture of the following: staying maturities of official debt for 10 years; reducing the interest rate on official debt to close to zero for 10 years; and having the ECB pay out to Greece the (immoral) profits it has made on trading Greek bonds so far. If that combination is put together cleverly, the resulting debt relief would probably be substantially higher than any haircut which could today be explained to the electorates of the paying countries.
To be sure: any comprehensive solution which is agreed upon must also be ‘public-relations-friendly’ to the electorates of the paying countries!
As regards the proposed investment stimulus via the EIB, any investment stimulus is urgent. Clearly, the EIB is the best suited official institution to drive such an investment stimulus but I do point out that the EIB generally only does large (mostly infrastructure-related) projects. What Greece needs just as badly as new large projects are a multitude of middle-market investments by the private sector. Ways and means have to be found how private investors can be incentivated to invest in Greece.
Final comment: the ultimate proof of success is when private investment capital flows voluntarily. I have written before about the Cosco-investment. More of late, Unilever has taken a major investment initiative in favor of Greece and this machine-translated article describes what HP is planning for Greece.
So here you have 3 major investment decisions in favor of Greece of late. Can you imagine the positive momentum which would develop for the whole country if such news came in the order of once-a-week?