Tuesday, July 7, 2015

Disappointment Thus Far

The other day I said it was time for Hollande to step up. Thus far he has not done so. No surprise there. Of course he is constrained by the proprieties of the "Franco-German couple." Public differences must be muted at all cost, lest there be "embarrassment." Of course there is a glimmer of difference: Sapin, Macron, and Valls have all repeatedly said that negotiations should be resumed immediately, but beyond that--nothing. Debt reduction is dangled implicitly, as before, but first there has to be agreement on continued austerity, or else the embarrassing thought of Grexit nastily intrudes upon the tranquil routine of yet another Eurozone summit.

To be sure, considerable embarrassment is evident among Euro-elites, but I have seen little discussion of what should embarrass them most, namely, the IMF's admission that its staff regards the debt as unsustainable. The report has been reinforced by DSK's suggestion that they frankly acknowledge this and by the leak of the NSA taps on Merkel and Schäuble, showing that they, too, knew that the debt was unsustainable and austerity could not yield the desired results as long as 4 years ago. Instead, they are embarrassed mainly by the imminence of what they have been saying until now was unthinkable and potentially catastrophic, namely, Grexit. They should be explaining why they cling to a fiction rather than trying to scramble back to reality. Instead, they're devoting their energies to blame-shifting, failing to recognize that they will all be blamed in the end if things go badly wrong, as they very well could if the ECB cuts off the Greek banks and the Grexit process becomes "disorderly." People who think Syriza has not managed things well thus far should not be relying on them to manage things going forward. "Humanitarian aid" offers are a poor substitute for authentic humanitarian feelings toward fellow Europeans.

And so we stumble on. Of course Greece did not help matters by showing up for today's Eurogroup meeting without a plan. Mañana there will be one, the say, reinforcing the stereotype of the lazy Mediterranean, although the true reason for their tardiness is undoubtedly not laziness but sheer lack of the staff necessary to pull together a proposal after the turbulent weekend and the sacking of former Fin Min Varoufakis (who in my view richly deserved to go: I am not a fan of negotiators who gratuitously insult their interlocutors by calling them "terrorists"). Still, on the substance, Varoufakis has always been correct: debt reduction is indispensable. If only Europe's leaders can come to that realization.