The ladies are in charge

Harvard professor Carmen Reinhart has just been appointed as the new Chief Economist at the World Bank. The Chief Economist at the IMF, Gita Gopinath, has also come from Harvard University. Both ladies have collaborated with Professor Ken Rogoff, from the same university. They might all think alike which is not the best approach in times of crisis. Diversity and contradictory opinions are much more creative, at a time when we have to imagine a new economic order. But they are all for debt forgiveness when the challenge is too big to be managed, which is not a bad approach. And they have studied financial crashes and deep national crisis extensively.

People say that when two economists discuss there are at least three divergent opinions. In this case, let us see if both ladies can bring fresh ideas to their institutions. The IMF and the WB will be very much in demand in many countries in the post-Covid situation. They must propose an approach that goes beyond austerity and keeps investments flowing across the globe, particularly in the direction of poorer countries.

One very last chance?

Greece was told tonight three things: one, they have to come up with a detailed and implementable financial reform programme; two, the European Commission has already prepared a contingency plan in case Greece leaves the euro zone; and third, their new policy reform proposal has to be ready for a careful analysis by the Euro group by Thursday, in view of the EU extraordinary summit called for Sunday, 12 July.

All in all, this sounds like the final leg of a very confusing process. A deadline.

The major risk, besides the one related to missing the deadline, is related to a possible split within the EU. Some countries might go one way and others adopt a different direction. That has to be avoided at any cost.

As we have to prevent any decision that takes flexibility beyond the reasonable enactment of the rules. The rules are essential for the survival of the union.

Clarifying the relationship with Greece´s political establishment

Political uncertainty is not a good option. The role of leadership is to make it as short as possible. Leaders clarify and define the rules. We expect them to sort things out without too much delay. We also expect them to be able to properly and openly communicate about their decisions.

That´s what is happening in the case of Greece, I want to believe.

We are now in the process of clarifying the relationship with the Greek government. We should also be able to clear up the rapport with the rest of the country´s political class. The connection with them has been too ambiguous. They have to tell us how far they are prepared to go. We should then state if we can go along or not. They have the right to decide about their own future. And we have the same right to choose if we are part of that journey or not.

Both sides have to be wise, in addition to being clear. But above all, both sides have to be sincere and be perceived as such. 

Greece´s anxiety

The Greek general elections will be held in a week. But the matter seems to have disappeared from the European news. Or, it will be an important event. The outcome of the elections might have a serious impact on the European agenda and be at the centre of the policy dialogue for a few months.

Syriza, the left wing party that is against the current austerity programme, is very much ahead in the most recent polls. It might not have enough votes to put together a government after the elections. But it will come out of the elections with a much stronger voice.

All this will lead at least to political instability in Greece. The country needs just the opposite: stability, to be able to attract new loans and new investments. And also to stop the ongoing social mistrust and fear. Because of the reigning atmosphere, many Greeks are taking their money out of the banks and keeping it under the mattress. The banking system is under serious stress as a result. And we can expect more anxiety as days go on. 

Europe is heading towards nasty social confrontations

Europe´s cost of living is too high. In addition, the tax systems are too heavy. For many families the money is not just enough. And that explains, in many ways, why we have more and more nasty general strikes and street protests in countries that have been traditionally quiet. When the income is short, compared to the costs of living a basic life, any cut on salaries, pensions, subsidies or allocations makes a big difference. The problem is that we should expect more income reductions and therefore additional social conflicts. 

Italy´s promising presidency of the EU

The Italian presidency, this semester, of the EU might bring in a new debate about economic growth, fiscal responsibility and the role of national governments vis-a-vis the Brussels institutions.

Prime Minister Matteo Renzi is a young politician. He brings a bit of courage and fresh air to EU politics. We might disagree with some of his positions but we should recognise that his interventions are forcing the German politicians and other leaders from the North to engage in a dialogue that had been missing for a long while.

EU has a lot to gain from a proper exchange of contradictory but well formulated views. Political diversity is good for Europe. 

Austria's general elections

Austria went to the polls this weekend for general elections. Outside the country not a lot of people have paid attention to the event. Therefore, they failed to notice a very serious increase in the popular support for the right-wing populists and the Euro-sceptics. Together they collected more than 30% of the votes.

This is bad news for those who would like to push for more European integration. However, the governing grand coalition of Social Democrats (SPÖ) and conservative People's Party (ÖVP) is expected to continue in power. They got 50.9% of the vote. This is small and one would not be surprised if some of their new policies are no more than an adaptation of what the Right-wingers and the Euro-sceptics have advocated during their electoral campaigns. One of those policy lines has to do with a tougher stance when it comes to bailing out other EU member states. 

Portugal's Finance Minister has resigned

The Portuguese Finance Minister, Vítor Gaspar, resigned this afternoon. He had lost the public opinion battle long ago, as he was seen by the voters as the engine of the austerity programme Portugal has been implementing for two years. His name was, in the people’s minds, linked to taxes and economic recession. This was, of course, an unfair connection, as the economic situation of the country is much more complex than just the austerity measures he had to adopt. But politics are like that: you cannot find yourself without a popular power base.

For a long period, his power came from the confidence the Prime Minister had on his abilities to master the intricacies of the financial adjustment programme in addition to fact that Gaspar had a lot of support in Brussels, Berlin, Frankfurt and other EU capitals. But this was a time-bound power base, condemned to die. As the Prime Minister felt more and more isolated, including within his own party, his support to the man everyone identifies with the austerity could only come to an end. It has now happened. And Gaspar, who is an outsider in terms of the national politics, could read the writing on the wall. 

Riding on the Italian elections

Some opinion makers here in Brussels and in some other European capitals are taking advantage of the Italian election results to openly express their dislike for the German political elite. It is amazing to see important people coming out of hiding and placing the blame on the Germans for the anti-EU feelings some voters are expressing left and right. 

Today I got a mail from the Executive Director of a leading Think Tank that keeps its doors open because of generous funding received from the European Commission. The man was calling my attention to an interview that a French TV had broadcast early in the morning. In his opinion, the interviewee – a prominent Parisian  economist – had been able to explain that all this popular opposition to the EU had gained strength because the German government had imposed austerity all over the place in Europe.

I watched the interview and was not convinced. Then I read a few media pieces here and there attacking austerity. It is now very fashionable as a theme. I looked for alternative suggestions but found no credible answer to the question. The only avenue that made some sense was about a different policy approach to public financing by the European Central Bank (ECB). The Bank should be more forthcoming with resources. But then one key question remained unanswered: how to get the necessary consensus among the member states about the ECB change of policy?