An orderly and well designed Grexit may be beneficial

Comments on Barry Eichengreen "Path to Grexit tragedy paved by political incompetence", 29/06/2015

I agree with the author on the point that the current mess reflects the lack of leadership in all the major parties involved, though for quite different reasons. To me, the lack of political leadership lies in the lack of creative thinking in coming to a well considered and coordinated strategy for the Grexit, as opposed to the author's view that a Grexit will be disastrous. An orderly and well designed Grexit is likely to be beneficial to all major parties, because it can have all the advantages of within the euro zone, but have extra advantages of of more flexibility for Greece.

Both Greece and its creditors have had enough of the painful experiences and there should be a quick but orderly end to those pains.

There can be winners in the Grexit game

Comments on Antonio Muscatelli "Greece: why there can be no winners in the Grexit game", 21/06/2015

Some people simply assume that Greece has not prepared for default and it's consequences., including the author of this article. That is only an assumption. That assumption may or may not be true.

It is possible that the Greece government may have carefully analysed and considered the default option and prepared for it already, but does not want to say it so as to force a better outcome than default out of negotiations. Of course, I am speculating too and don't have any better information than the author had. So don't hold me for my speculation as a certainty.

I think in the long term, it seems that an orderly Greece exit from the euro zone may prove to be better for both itself and the rest of the euro zone as a whole. A Grexit would allow it the freedom to have its own currency and to devalue as a way to adjust to increase its international competitiveness, as opposed to the simple austerity adjustments it has had so far.

The stubbornness of many participants not to actively and positively to consider Grexit may prove to be a serious mistake that carries huge costs for both Greece and the others involved. It is regrettable and it can only be avoided after a real Grexit.

Solutions to Euro zone woes

Comments on Bronwen Maddox “Rich states hit the bailout barrier”, 19/10/2010, http://www.theaustralian.com.au/news/opinion/rich-states-hit-the-bailout-barrier/story-e6frg6zo-1225940378228
There are two options for the Euro zone to resolve its current woes:

1. to kick some members out of the zone

2. to allow an effective internal tariff between some troubled members and the others to lower the costs for the former and raise their competitiveness within the zone.

The Greek tragedy?

Comments on Andrew Sheng “The Greek tragedy: Global debt crisis and balance sheets”, http://www.eastasiaforum.org/2010/05/31/the-greek-tragedy-global-debt-crisis-and-balance-sheets/

Sheng's following description at the start is interesting and sensational: "If a pack of wolves stalk a herd of buffalo, the herd can guard the weaker buffaloes. But if the wolves stampede the herd, they are able to take down the weakest buffaloes."

He tries to state the negative side of the financial markets, but it may have a side and negative effect on markets in general.

The first question is: what are normal participants and what are market wolves, and who can define and identify them and do something positive about it? That can be very difficult indeed.

It is like nature and food chain. “We, human beings”, need to determine which ones along the chain are good and which ones are bad, of course according to our standard and values. But we, though highly intelligent, can often be wrong in our interventions on nature.

So much digression and let me get back to the topic here. If the market participants do not act or react to news and information and take actions to maximise their interests, what do we expect them to do? Should they reward Greek equally as they do to Germany?

So I seem to have lost in this line of thinking and am disoriented as to what are the norms and principles regarding to market participants.

Let’s also move to a private company. If it is bankrupt, what should or do we “human beings” need to do? To let it fail because it is failed or act as “red cross” to rescue it?

Again, Sheng’s remarks have caused me great uncertainty.

It is complex economics and normality/morality, isn’t it?

Learn, learn and learn, life-long learning work in modern and knowledge society with its changing and uncertain morality.

Are reforms needed?

Have the reforms and changes in China over the past 30 years moving to market economy good or bad according to some morality?

I am wondering and wondering.

The unfortunate Greek tragedy!

IMF has no innovative solution to Greek problems

Comments on John Irish of Reuters “Doubts over Greek aid package remain: IMF”, 25/05/2010, http://www.businessspectator.com.au/bs.nsf/Article/IMF-chief-economist-doubts-over-Greek-aid-package--5RP3D?OpenDocument&src=hp5

It appears that few top economists or government officials have come up with a credible and innovative solution to the problems of some euro members are having.

That is unfortunately a pity.

To me, there is an alternative to the conventional austere approach to Greek and Spain.

That alternative is to allow temporary intra-euro trade measures to be introduced to increase the relative competiveness of those weak euro economies against those strong ones, within the framework of monetary union and independent fiscal sovereignty.

Greek and Spain should be allowed temporarily to impose a tariff on imports from strong euro members and use the revenue to subsidise their exports to those strong economies. Their competiveness is improved and other members will enjoy lower prices of imports from Greek and Spain.

The temporary trade measures should be scheduled to be removed, either gradually over a number of years or at once at some time in the future.

That is no different from currency devaluation when a country has its own currency.

As long as it is restricted within the eurozone, it will be an “internal” issue and should not cause any issue with WTO rules.

A cure to modern Greek tragedy

Comments on Jamus Lim “The Modern Greek Tragedy Follows a Classical Script”, 20/05/2010, http://blogs.worldbank.org/prospects/the-modern-greek-tragedy-follows-a-classical-script
There is a likely nice policy response to the current Greek woes.

It requires a temporary trade measure to change the relative prices between Greek and other euro member countries, similar to an effective devaluation of a country's currency.

It is an innovative thinking, targeting a real world problem. Much better than Paul Krugman's conventional but empty argument.

International financial and economic agencies need to be innovative too. Otherwise, they will be helplessly reactive and ineffective in their policy responses and recommendations.

When a new issue arises, one needs to study its characteristics and find a solution. If the existing theories and policy tools can't address the issue, then one needs to go one step further and create a new theory and policy tools to do it. It is not good enough to just to say that existing theories and policy tools don't work and therefore it is an unsolvable problem.

See a couple of blog articles for this and hope they are helpful to World Bank and IMF staff and researchers

http://mrlincolns.blogspot.com/2010/05/policy-response-to-greek-dilemma.html
http://mrlincolns.blogspot.com/2010/05/paul-krugman-on-euro-union-is-wrong.html

A policy response to the Greek dilemma

In addition to my earlier comments (see here), I have developed another idea - a policy response if you like, related to the Greek dilemma. I include it below. Though it is a bit long, but the easiest way is through a temporary emergency regime of tariff and export subsidies within the eurozone only, contained in the bracket. See the following:

The current Greek economic problems associated with its fiscal deficits and sovereign debts raise an important question: how can it get out of the economic problem without own currency but a member of euro zone?

A normal economy has its own currency and can devalue its currency to export its way out of domestic troubles assuming external world is healthy enough to absorb that, but Greek does not have that luxury.

What a devaluation of own currency does is to lower the price of its products relative to that of other countries’, so they are cheaper internationally and demand for them increases and its demand for products overseas falls. This adjustment to currency and the chain reactions ensuing increase domestic employment and GDP in own currency and the economy is boosted, without domestic deflation, wage cuts and etc.

Theoretically, the same effects can be achieved through wage cuts and price falls of domestic products. But wages cuts are much more painful and politically difficult to do. Employees don’t like them.

There is very little difference between own currency devaluation and uniform wage cuts including a fall in interest rates and company profits. The main difference lies in the perception.

Practically, uniform reduction in wages, interests and wages are not easy to realise, because company profits may not fall or fall less than wage cuts. Also assets prices are another difficult issue. So there are more redistribution issues when “deflation” is concerned.

So what is the best strategy for Greek, if it continues to remain in euro?

Maybe one way is to apply a special tax on everything with the aim to have a uniform deflation without the need to cut wages and etc. The tax revenue can be used to provide subsidies to exports to lower prices.

(Maybe the best way is to tax imports and subsidise exports to change the relative prices. In the current Greek case, those trade duties should only apply to its trade with euro members only. That is not generally in accordance with WTO rules probably, but that could be a way reflecting the unavoidable costs of a monetary union with independent fiscal responsibilities like the euro zone without incurring violation of WTO rules with other non-euro countries.)

However, whether the Greek public will accept it or not depends largely on government communication of the issues involved and its rationale.

A question is: how to treat assets? Maybe, a way is to just tax transactions/sales of assets, in the same way as taxing wages, interests and profits.

Learn historic lessons correctly

Comments on peter Drysdale “How should Asia read the Greek tragedy? – Weekly editorial”, 17/05/2010, http://www.eastasiaforum.org/2010/05/17/how-should-asia-read-the-greek-tragedy-weekly-editorial/

Global institutions may or may not be helpful when the need arises in a country or a group of countries.

While David Vines argued strongly the outcomes of those Asian countries in coming out of the Asian financial crisis in the 1990s, many may not necessarily share his reasoning to attribute those countries' success later on to the success of IMF measures and its conduct during that painful process.

World institutions theoretically should have greater capacities than regional institutions in terms of dealing with any financial crises.

That, however, should be balanced by the dilution of accountability or interests, the further away an institution is from a country or a region, the less its interests are aligned with the latter's, due to obvious and various political and practical reasons.

At a time of revisiting the role of IMF in the Asian financial crises in the 1990s, one should be objective and not be distorting the fact from what actually occurred.

Only when approaching history correctly will we be able to learn from it and develop correct strategies for the future.

Otherwise, one may be very disappointed from incorrect foundation on which a theory is to be built.

Euro’s Greece rupture - what role has labour played?

Comments on David Vines “Greece and the vulnerability of the European Monetary Union”, 16/05/2010, http://www.eastasiaforum.org/2010/05/16/greece-and-the-vulnerability-of-the-european-monetary-union/

The above analysis has obviously some truth. However, it, as with many commentators and economists, relies on rigid of internal members, especially labour rigidity between member countries.

Leaving the conflict between monetary union and fiscal independence of Euro countries aside for the moment, why hasn't labour moved from other members to Germany in response to its higher wages, say flowing from its good fiscal and economic management?

If labour moves in response to higher wage opportunities, the market would have been able to gradually restore relative competitiveness between Euro member countries, at least in the longer run.

Why didn't that work? Because of cultural, language, or whatever reasons?

Understanding these factors may be helpful to the future and to future policy development for Euro.

Perhaps I should add that by labour move between countries I meant to include first of all the unemployed in the slower growing members.


Even by the employed labour, it should create more opportunities for the incumbent local unemployed ones to find jobs, at least easier.

EU's real dilema with the Greece crisis

Comments on Robert Gottliebsen “Europe at a crossroads”, 4/02/2010, http://www.businessspectator.com.au/bs.nsf/Article/Europe-at-a-cross-roads-pd20100204-2BU5S?OpenDocument&src=sph

Robert, after reading you say the following:
"If Europe is not prepared to save its weak states then the future of the euro and the European Union is grim, because the problem states may be cast off. This is a defining moment for Europe."

I would have thought it is not a question of if, rather, it is a question of impossibility.

The main reason for this is that now most major EU countries if not every one of them are not in a position to help others given the consequence or in the wake of the GFC.

In principle some may want to, but in reality none is able to, especially politically considering any the potential economic consequence of any rescue for any countries which would have to contribute.

That is the dilemma they are having now.

So it is not high principle, high moral grounds, it is practicality and circumstances.

What conclusion would you draw had you been a politician in a major EU country?

Greek crisis and EU - creative thinking needed urgently

Comments on Karen Maley “Greece's crisis is contagious”, 4/02/2010, http://www.businessspectator.com.au/bs.nsf/Article/Closing-act-in-Greek-tragedy-pd20100204-2BRRZ?OpenDocument&src=sph

Why can't the EU issue EU bonds and lending that to its countries members on agreed, objectively set and discreet basis?

In that way, the EU can be seen as a whole to withstand a crisis in a member country and can also influence member countries to be responsible in its fiscal policies.

I was wondering why people don’t come up with innovative ways and better solutions to problems. What are the EU, including member countries, bureaucrats has been doing?

Everyone needs to be creative!