The CPB is an independent body (albeit within a Government ministry) and its work is highly respected in the Netherlands. Can other Eurozone members find or found equivalents?
It strikes me that the justification being used to continue the "tradition" of the IMF head being European - the problems in the eurozone - is actually a very good argument against a European candidate.
A meritorious candidate who can sell the need the change within the affected countries of the EU and then sell the reality of those reforms to the rest of the world is what is needed. I see no good reason why this needs to be a European: there could even be a benefit in it being not being a European in that any suspicions of a "put up" job would be substantially mollified.
European countries represent a substantial minority amongst the shareholders of the IMF - no more, no less. Europe and the USA will sooner or later need to adjust to not having a lock on the top jobs at the IMF and World Bank (respectively). Indeed, the first of the two to accept that might even reap a small dividend from it.
[This is from “The Complete Poems of Sappho”: translated by Willis Barnstone (and the reproduced translation is his copyright), published by Shambhala Publications, Inc.]
In Time of Storm
I have noted previously that the commitments made by successive Greek governments to the Greek people are fundamentally out of kilter with the current growth potential of their economy. Even a substantial haircut now would not change this: a further, future default would still be likely without substantial reform in Greece. The cost of financing Greek sovereign debt will remain high until there’s evidence of such major reform actually achieving results.
The market has little interest in funding these commitments even on a short-term basis — and this interest will disappear completely in the event of default.
And Greece is not about to grow its way out of trouble (the positive Q1 2011 GDP performance needs to be seen in the context of past shrinkage). Indeed, the most recent Global Competitiveness Report published by the World Economic Forum ranks Greece last within the EU27 and 83rd globally (in fact, 139 countries are ranked). By way of contrast, Sweden and Germany are ranked 2nd and 5th globally. There’s nothing inherent about EU membership that prohibits competiveness.
The country is ranked in 125th place globally in terms of labour market efficiency. Respondents to the WEF’s survey ranked such labour market rigidities as the third most problematic factors to doing business. Inefficient government bureaucracy and corruption were one and two on the list.
Greece’s economy is neither innovative nor is it low cost (even within the EU). So there is a lot required from Greece in terms of change.
My belief is that there is increasing frustration elsewhere in the Eurozone at the progress to date, after a briefly promising start. So looking back to the poem from Sappho at the beginning of this article I now explain my belief as to its relevance: Greece’s crew have shown a lack of will to date and they will continue to be buffeted by the storm until adequate recognition is given to the effort necessary to escape it.
It has been apparent for some time that Greece’s finances are a complete horror show (and not in the cool, Clockwork Orange sense). It’s equally obvious that Greece will not be able to tap the market for funding (at least not at the level it needs) either in the short-term or the medium-term.
Given that the immediate problems are sufficiently pressing, the long-term sustainability of Greek finances is simply not part of the current debate. This is a perfectly rational approach for bond traders. If your investment horizon is measured in weeks then the latter simply does not matter — your concern would be a change in the way your peers in the market perceived this.
However the size of the long-term fiscal gap and the scale of the intergenerational flows implied by the commitments made by successive Greek governments are of interest, I think, in terms of the structural reforms necessary in Greece and the nature of any re-negotiation in its outstanding obligations. They are also indicative of how far ahead Greece’s political promises to itself have overreached of its economic capacity.
The following chart highlights the long-term problem. (This chart is drawn from the “Sustainability Report 2009”, published by DG ECOFIN, which assessed the fiscal sustainability of EU Member States out to 2060). The closer a country is to the top right-hand corner, the greater the adjustment required. The long-term projections make (necessarily heroic) assumptions about demographic change and the impact of ageing populations. Over-generous and underfunded pension promises put Greece (“EL” in the chart) high up the vertical axis. Our current fiscal predicament pushes the UK out to the right.
© DG ECOFIN
Whilst the Greek government has made some progress on unmaking past political promises the starting fiscal position is (much) unhealthier than that presented in the chart.
In short, Greece’s fiscal position is no more sustainable long-term than it appears today (and possibly less so). And remember that this is a structural problem: simply re-scheduling Greece’s debts or even a write-off of part of them would not alter Greece’s position on the above chart. Further action to both promote economic growth and to undo past political pension promises are essential components in any rescue plan that is to be successful.