Bienvenue, Christine: Congratulations and sympathies regarding a new job
Do you think somewhere in the mind of Christine Lagarde, the newly appointed head of the International Monetary Fund, there is a voice that recognizes the truth? Lagarde is, as noted here before, a good if not optimal choice for the job, and it is certainly about time that a woman held the post. She ...
Do you think somewhere in the mind of Christine Lagarde, the newly appointed head of the International Monetary Fund, there is a voice that recognizes the truth?
Lagarde is, as noted here before, a good if not optimal choice for the job, and it is certainly about time that a woman held the post. She also understands the players and the stakes and will no doubt work tirelessly to avoid the potential new global financial crisis that is the first item of business awaiting her at her new desk. Indeed, she has already started to do so.
But do you think that, despite a career that has seen her excel in the centers of orthodoxy and the established financial system, she is aware that there are other legitimate options besides those currently being proffered to Athens? Other ways to go that deviate from the conventional wisdom about what the system will and will not tolerate?
Do you think she recognizes that there are some perfectly credible reasons that Greece should consider defaulting and taking its chances as the first state to vote itself off the euro-island?
The pressure on the Greek leadership is enormous. From the other leaders within the eurozone and from the financial community, the relentless refrain is to tighten the national belt, to take the pain, to accept 40 lashes for their profligacy. From the people of Greece, the pressure is to protect their lifestyles, the services they count on, their jobs, their futures.
The formula being offered by the rest of the eurozone is to restructure, forcing Greece to borrow more to meet obligations and then using the new funds to pay lenders. There will no doubt be some restructuring and postponing of some debt. But the real question is this: Should the borrowers be the only ones on the hook here? Should the lenders bear any responsibility for the situation? Should they also accept a burden of pain?
And that then leads to another question: What is the best path for the people of Greece? Do what the lenders want, and the result will be years of recession and deprivation. Is that the only possibility? Can Greece dare default and not pay the debt and break away from the eurozone and not feel as much pain? Can they do it and recover faster?
The conventional "wisdom" is no. Default is too costly. But very often in the past, the warnings about default have proved to be much like the warnings of parents who threaten their children by counting to three. The approach is effective. The threat of what might come after three is too great to contemplate. The children usually give in before discovering that the vast majority of parents have little plan for what happens after three and would never do anything too grievous to their children under any circumstances.
Ask the people of Argentina. They ignored warnings and told the financial community to stuff it when they were too deeply underwater to breathe anymore. The warnings were dire. And the country faced tough times … before recovering far more rapidly than was considered possible.
So long as the lenders do not agree to take a haircut, there are very good reasons that many among the Greeks will argue that they should do nothing. Borrowers bear liability in lending. That is, of course, standard. But they do not bear exclusive liability, especially in cases where lending to those borrowers is clearly and obviously excessive and the lenders should know better. That is the case not only with Greece but with many other nations right now. The borrowers counted on the "nations do not go bankrupt" principle to pile on. And the eurozone financial gurus watched as excess put the entire euro experiment at risk, often in violation of underlying terms of the European agreements — and they did nothing. Greece bears huge responsibility for its waste and excess. But so too do its enablers, whether from the financial community or the policy community.
Greece could default and might possibly be able to eke out a recovery somewhat more rapidly and without the domestic political costs were it to do so. And because it is a real possibility (unlike the insanity of America not lifting its debt ceiling), the new IMF chief needs to consider the forces that might bring it to pass carefully: to think beyond the numbers to the politics and the human costs and the reasons that perhaps a growing number in Greece will feel abused by the system.
Not because that’s the right way to go for anyone. But because it is a set of concerns she is likely to face again and again in her new post as she seeks to help stabilize an international system in which the very system that produced her is far more responsible for the excesses and abuses that are currently troubling it than most among its leaders are willing to acknowledge.
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