RESTARTING GREECE AFRESH

GREECE: DEALING WITH THE PAST, PRESENT, FUTURE

Jacques DELPLA Milos, 13 July 2012 Conseil d’Analyse Economique, Paris

TROÏKA PROGRAMS HAVE FAILED (FLOWS) It is impossible for Greece, without inflation

and devaluation, to absorb 100% of the shock: In the US, in case of asymmetric shocks,

Federal level absorbs 20% to 40% of the shock through automatic stabilizers.

Troïka programs suppose that Greece would bear 100% of the shock

impossible

We must find Mundellian Transfers in the Eurozone 2

13 July 2012. Milos

Jacques DELPLA

TROÏKA PROGRAMS HAVE FAILED (STOCKS) Troïka programs have failed because they have not solved the massive private

debt overhang and public debt overhang (despite PSI+)

Greece needs a generalized Chapter 11

3

13 July 2012. Milos

Jacques DELPLA

DEALING WITH THE PAST: DEBT OVERHANG

A GENERALIZED CHAPTER 11 IN GREECE

4

13 July 2012. Milos

Jacques DELPLA

DEALING WITH EXPLICIT AND IMPLICIT DOMESTIC DEBTS Proposed reform : Restructuring ALL debts Cut-off date : DD/MM/2012 (or 2013)

“ALL (economic and social) contracts signed AFTER cut-off date are SENIOR to contracts signed BEFORE the cut-off date”

Would apply to ALL contracts under Greek law

5

13 July 2012. Milos

Jacques DELPLA

WOULD END CREDIT CRUNCH AND RESTORE GROWTH Would end credit crunch by securing fresh

money and start new fresh loans to finance growth

Would entail general debt equity swaps for Banks (like in EC Barnier’s latest proposals). Corporates As their legacy debt would be juniorised or

swapped into equity

Burden would fall on legacy debt & equity holders

6

13 July 2012. Milos

Jacques DELPLA

WOULD JUNIORIZE ALL IMPLICIT DEBTS Past implicit liabilities

Pensions Implicit claims “avantages acquis”

Would be juniorized and restructured cleaning and clearing past arrangements

that have precipitated Greece into bankruptcy and economic chaos

7

13 July 2012. Milos

Jacques DELPLA

WOULD ALLOW “INTERNAL DEVALUATION” As in ALL companies or public administration, New labor and wage contracts would be

senior. Existing employees would be proposed to

sign new labor contracts with, most likely, lower wages

If they refuse, face the possibility of being paid only after all new contracts have been paid.

decentralized and voluntary internal devaluation

8

13 July 2012. Milos

Jacques DELPLA

WHY WOULD GREEK GOVERNMENT AND GREEK PEOPLE ACCEPT THAT ? Would clean past internal imbalances Would start Greece afresh Avoid debt deflation Would allow growth to resume Make elderly pay; preserve the youth

Would be conditional on investors agreeing to restructure Greek sovereign debt

(which is now under UK law and with a very strong seniority)

9

13 July 2012. Milos

Jacques DELPLA

DEALING WITH THE PRESENT: MUNDELLIAN TRANSFERS

AN UNEMPLOYMENT INSURANCE IN THE EUROZONE

10

13 July 2012. Milos

Jacques DELPLA

NEED FOR MUNDELLIAN TRANSFERS We call for “Mundellian Transfers” to save the

€, analogous to US automatic Stabilizers With strong & credible conditions: “no money

without reforms, no adjustment without money”

Mechanism design for a EZ Full of eco & pol incentives:

‘opt-ins’, ‘opt-outs’, finite duration. Inter-Governmental scheme. 11

13 July 2012. Milos

Jacques DELPLA

A EURO-WIDE CONDITIONAL UNEMPLOYMENT INSURANCE The FUND 1. Creation of a € unemployment insurance fund 2. 1% of each country’s GDP 3. + maybe € job training funds (0.5% of GDP)4. Managed by European Labor Agency (EC) 5. But an Inter-Governmental Scheme It is an opt-in program

Each year, Each country can decide or not to participate

12

13 July 2012. Milos

Jacques DELPLA

THE EUROZONE LABOR CONTRACT Definition of an EU wide Labor contract :

Unique for the whole €-area Unique for all sectors Would be the (N+1) contract in each

country With full Flexisecurity Designed by former PM Rasmussen &

Persson,+ Blanchard Tirole 2003: bonus / malus + increasing rights in case of dismissal + higher u/e contributions for employers

13

13 July 2012. Milos

Jacques DELPLA

WORKERS’ OPTIONS When hired, each worker has the option Until last moment, to sign for : National contract + national insurance (status quo)

OR, sign for : Eurozone labor contract + (national + EZ) unemploym. insurance+ (national + EZ) job training

In any case, access to national insurance.

€ insurance optional, in exchange of flexibility 14

13 July 2012. Milos

Jacques DELPLA

PROPERTIES decentralizes flexisecurity decision to the the

individual. By-passes political difficulties of reforming

national labor laws.

Transfers money from booming countries to depressed areas, where it is most needed (u/e)

15

13 July 2012. Milos

Jacques DELPLA

DEALING WITH THE FUTURE :

MAKING GREECE THE FIRST COUNTRY TRULY MEMBER OF THE EU FEDERATION

13 July 2012. Milos

Jacques DELPLA

16

GREECE, THE FIRST COUNTRY TO JOIN THE EU FEDERATION, À LA JEAN MONNET Greece accepts full shared sovereignty with

EU For important decisions: Two executives in Greece:

Greek government EU Commission

Two Parliaments: Greek Parliament EU Parliament

Each decision needs double YES 17

13 July 2012. Milos

Jacques DELPLA

IN EXCHANGE Greece would benefit from : Permanent transfers (like in the US) EU Help for institutions reforms and build up

EU permanent Guarantees on Laws Property rights Civil rights (avoid Hungary now) and civil peace Defense and security … (see after)

18

13 July 2012. Milos

Jacques DELPLA

EXIT OPTION We do not want anything like the US Civil War

of 1860-65. To force a country to stay in the Federation

Exit Option: Greece can withdraw from the EU Federation

And become a normal EZ country Would lose all the special benefits, especially

transfers

13 July 2012. Milos

19

Jacques DELPLA

THE EUROPEAN ARMY Let us create a European Defense

Community (like Jean MONNET’s idea in 1952)

With the merger of all/ some parts of national armies (including the UK & Poland)

Financed by 1% of GDP in each country

Ex: France defense now (2% of GDP) One part of the Army (1% of GDP) EU Army Another part (1% of GDP) remains French

(nukes) In the long run, all French Army would be

European 20

13 July 2012. Milos

Jacques DELPLA

GREECE IN THE EUROPEAN ARMY Greece would merge ALL its Defense in a

new European Defense and Military Union No Greek Army as such anymore

Because of its history and geopolitical situation, in Greece would be stationed important components of the EU army (troops, navy…), with both Greek and EU soldiers / officers

Greece would specialize in Defense, like South Carolina in the US

13 July 2012. Milos

21

Jacques DELPLA

IMPACT FOR GREECE A complete Security guarantee, stronger

than NATO: attacking Greece, is like Pearl Harbour in the EU

Greece would spend less on its defense

Would receive massive transfers from this EU Defense Community

About 5% to 10% of Greek GDP each year (paid for mostly from Germany, Austria…)

22

13 July 2012. Milos

Jacques DELPLA