In my previous post, I mentioned a debate between Daniel Gross, a German based colleague and myself. (You can hear it here – beginning on the 38th minute). Well, in saying that, I was as guilty as the BBC anchor of silencing a fourth voice on that program. That of Kate Bopp, an Irish activist, independent parliamentary candidate, mother of five, blogger and, generally, the type of person whose voice deserves a mass audience.
The first injustice was perpetrated during the program (as you can hear) by virtue of the way in which the three male economists (myself included) oligopolised the proceedings, with Kate getting no more than a few seconds to contribute. I was, personally, fully responsible for the second injustice, courtesy of neglecting to mention Kate’s participation in my last post.
To make partial amends, I copy and paste below Kate’s recent thoughtful views on the Greek crisis. (You can read them straight out of her blog by pressing here.) Kate Bopp, apologies. Boys will be boys. The only saving grace is that some of us can feel guilty afterwards.
by Kate Bopp, 19th June 2011
Neither Greek nor Irish debt crises will be resolved by tossing funds into a bottomless well, a practice which ensures that the long term effect will be more drastic and devastating. Until better governance mechanisms are put in place regarding struggling economies, there will be no way for us to claw our way out of a pit created by decades of fiscal mismanagement. Economic folly combined with fast and loose credit conditions have rendered us prostrate with the only apparent option an even more menacing cure – a bailout, the repayment terms of which ensure complete evisceration of our economies. The events that follow are difficult to contemplate. Difficult but not impossible, and only difficult because they present a sinister picture of our immediate future and continuing on to taint that of our children. Chancellor Angela Merkel said that Germany’s ability to bounce back from recession was largely dependent on what events were unfolding in the remainder of the eurozone. The future of all states must be factored into any plans and not just a tendency to react to emergency situations. However, it is debatable what that future represents to some. Perhaps the future is a vista portraying a couple of powerful, healthy economies who have dominance over the other states, and in particular countries such as Greece and Ireland, positioned on the geographic periphery of the eurozone. While very real economic interdependencies exist, financial burdens need to be spread. It is inequitable to socialise investment losses and at the same time keep profits private. Taxpayers should never be penalized. There has to be political awareness and acceptance for the various rescue measures being proposed. Merkel and Sarkozy have discussed a debt rollover modeled on the “Vienna Initiative” of 2009 which would boost credit for central European economies in exchange for agreement to roll over existing debt holdings as they mature. This proposal is championed by the ECB, France and Germany (of course) who all claim that it will go a long way towards resolving issues of debt deficit funding, thus minimising risk of investor boycott. Standards & Poors say that “Greek debt will trigger rating cuts into default territory” subsequently causing problems for banks holding Greek debt who are no longer capable of using bonds as collateral to obtain fixed rate funding from the ECB and in particular domestic banks with no other cash source. Greece, however cannot force those who do not want to exchange their bonds to accept new terms and the majority of Greek debt is governed by domestic law which means it is therefore not subject to the “collective action clause” needed for a set majority of bondholders to impose changes on the minority. While Ireland’s elected representatives continue to contradict each other regarding the most effective direction to take to resolve our financial woes, the citizens (at least those who are not apathy laden) are not so much demonstrating, but more so slightly raising voices angrily, with regard to the bailout terms that have been imposed on us. European Council President Von Rompoy called for governments blocking Ireland’s attempt to achieve interest rate reduction from the 5.8%, to “reach a deal”. France is holding us over a barrel regarding our corporate tax rate of 12.5%, demanding that we raise it to a figure that harmonises with that of other member states. Our finance minister Michael Noonan says that we will hold fast on our *golden egg* corporate tax rate (as it may be the only egg left in our basket). Noonan also recently alluded to the possibility of unsecured bondholders possibly having to take on some of the burden. Many Irish citizens wonder why the suggestion that bondholders shoulder that responsibility (which is a predictable and possible consequence of risk) is one that ignites so many fires of indignance. Economists in some quarters together with some debt market analysists see this as one of the ways in which countries like Greece and Ireland could actually relieve debt levels. Bondholders should accept a reduction in the face value of their holdings and perhaps extend the period of return on investment. Combine this with a reduced interest rate and we may be on to something. The practice of extending more credit to an economy already drowning in debt accompanied by unsustainable interest rates is akin to taking all the means of recovery from a struggling business and then coming back to the company to invite the employees to sell their organs to generate revenue.